Last Thursday First Vice-Prime Minister and Minister of Finance Mykola Azarov announced that the so-called “High-Level Group” would hold a new round of talks on November 19 in Moscow (two days before the presidential runoff in Ukraine — Author). It should be recalled that this unit deals with drawing up documents to implement the agreement on the establishment of a single economic space (SES) between Ukraine, Russia, Belarus, and Kazakhstan. The work of drafting a package of top-priority SES documents will be finished by December 15, Mr. Azarov thinks.
Shortly before, an international workshop called “The Single Economic Space: Essence, Problems, and Mechanisms of Implementation” was held. It opened on Thursday and proceeded to panel discussions the next day at Kyiv’s resort suburb of Irpin (the seat of the National Academy of the State Tax Service). The chief guest was Mr. Azarov, although it was originally expected that Russia’s ambassador Viktor Chernomyrdin, a notorious aphorist and newsmaker, would be participating.
This time journalists drew a piece of curious, to say the least, information from a press release, which stated that the conference participants were going to discuss the main problems and prospects of the SES in the context of worldwide globalization processes, as well as the problems of economic cooperation as a way to strengthen Ukraine’s national security. Yet Mr. Azarov’s report was titled “The Single Economic Space: Prospects for a Currency Union,” which caused a hullabaloo.
It later became clear that it was a mistake on the part of the organizers (we can only guess the reason why). Addressing the workshop, Mr. Azarov spoke without notes and did not touch at all on the subject of a currency union. Moreover, his report was in fact titled somewhat differently, “The Single Economic Space: Prospects for Project Implementation.” In answer to a question put by The Day’s correspondent, the vice-premier wholeheartedly admitted that he had not read the report written for him and even if he had read it, he would have crossed out everything related to the currency union.
The question is whether this subject is “forbidden” to unauthorized persons, i.e., journalists, alone. Judging by the press release error (there is no smoke without fire), one should not rule out this possibility.
The vice-premier has in fact been persistently promoting the SES, orienting his speech not so much to the workshop participants, who were in the know, as to the journalists. This is why he chose an “informal” style to speak about the practical aspects of SES formation and functioning.
Azarov recalled the heated parliamentary debates on the SES and in fact returned to the polemics around this issue, citing the arguments of this project’s opponents and advocates. His main conclusion was that a completed analysis has shown quite clearly that the SES “is not putting off but bringing closer the prospects of Ukraine’s European integration thanks to access to markets and integration into a space that was once a united state.”
Almost the same thing was said about Ukraine’s WTO membership. Azarov put special emphasis on the customs union as part of the SES and noted that even now several customs unions form part of the WTO. Recently this organization “had to endure the emergence of an absolutely new customs union of twenty-five EU countries.” He also disclosed some SES plans toward this end: “We have agreed that each country will separately join the WTO and then we will form a common market within its framework and present ourselves as a single subject of the negotiating process.”
Ukraine’s main advocate of the SES also analyzed contradictions among the participants of this process and concluded that they are not at all insurmountable. In his words, “we and the Russians have held a long series of closed-door talks and decided just the other day that we have no serious differences.” Azarov disclosed that the parties had worked out a compensation formula that allows taking into account the difference in import duty rates. “We will easily find opportunities for compensation agreements within the framework of a common market,” Azarov said. Yet he failed later to give a concrete answer to the question about the categories of goods to which such measures could be applied. “The difference in our countries’ duty protection measures will be completely compensated for by way of expanding the market,” the vice-premier affirmed.
At the same time, Azarov maintained that today the Ukrainian economy is at a level that in fact does not allow for integrating into Europe. “Yes, we want to, yes, we are determined to do so, but we must first pass a certain stage in our development,” he said. The vice-premier claimed that the SES is, “above all, an economic project. No defense-related or even political matters were or are on the agenda of our talks.”
Offering “trump-card” examples of SES usefulness, Azarov cited, of course, the lifting of the export VAT on Russian oil and gas, the likely joint actions in producing modern aircraft, and the humanitarian aspect of relations with Russia, which recently prolonged the term of registration for visiting Ukrainian citizens.
Discussing the current approach that allows states to integrate into the alliance at different speeds and levels (the so-called Kyiv formula), Azarov noted that “some people see this formula as a way to deep-six the SES.” Azarov claims this formula allows each country to independently decide on the time and scale of joining certain integration agreements, but this “should not impede other SES states from fully satisfying their desire to integrate.” He stressed again that “Ukraine’s degree of preparedness (the lowest among the SES signatories) should not hinder us from defending our national interests and choosing the right time to join.”
What other impediments exist?
Should any new figures appear in Ukraine’s political elite, this will not make this country drop the idea of joining the SES, Azarov said. “Since this ideology primarily serves the economic interests of Ukraine, it therefore depends to a lesser degree on political realities and political personalities,” the vice-premier said, admitting, however, that “the process of building the SES may slow down at a certain stage, but in any case this project will be implemented.”
In all probability, Azarov has emerged not only as the real creator of the SES but also the creator of Ukraine’s economic growth. Optimistic about the current situation, he is sure that inflation will not exceed 9.5% by year’s end. He insists that the budget be adopted on time (on December 10-15 at best) and says that cabinet plans to modify the forecast of the main macroeconomic indicators for 2005. In particular, the vice-premier thinks that real GDP can grow by UAH 20 billion more than planned and reach UAH 400 billion. This will also increase the wages fund by at least UAH 10 billion. He is convinced that the Pension Fund will have to be state-subsidized in 2005 but will no longer need this in 2006. Azarov finally put the record straight about the hard currency cash crisis, saying that the government has learned a lesson from the current situation and is going to promote the development of the domestic market, especially with respect to such consumer goods as televisions, refrigerators, etc., and if this proves insufficient, it will liberalize the import of consumer goods into Ukraine.
The government can really afford to take these steps because Ukraine has a positive commodity trade balance-$3,150.5 million in January- September 2004, 8.6 times as much as last year during a comparable period. The SES is still in its infancy. Only time will tell if Ukraine finds new attractive markets there or merely continues to maintain its low competitiveness in the markets of Europe and America.
