(Continued from the previous issue)
The president of Ukraine has said that public utility rates will not be raised in 2013. How can we in this case expect the IMF to continue funding, for these rates are one of the key issues?
“The main point is not to obtain money but to receive assurances of access to IMF credit resources. Why is this important? Because, against the backdrop of an unfavorable foreign economic situation, Ukraine should have this credit reserve in store. It will depend on the situation whether or not to make use of it.
“As for the public utility rates, this matter requires a systemic approach. You cannot double the rates just in one fell swoop, for this will cause a crisis of non-payments instead rather than promote reforms in the public utility sector.
“The government should first do the ‘homework’: reduce losses during transportation of energy resources, apply energy-saving technologies, and work out a system of target-oriented social security. Only then can we take up the rate increase issue. It is too early now.
“At the same time, the government is working to bring the rates into line with the prime cost so that consumers do not have to shoulder the burden of higher prices.”
THE AGREEMENT ON FREE TRANSIT OF ENERGY RESOURCES ACROSS THE CIS TERRITORY WILL NOT BE SIGNED BEFORE MARCH 2013
The CIS free trade area will begin functioning on September 23, 2012. And when do you think the supplementary agreement on free transit of energy resources across the CIS territory will be signed?
“Signing this agreement is one of the government’s key goals because we will thus be able to get access to Central Asian gas which will compete with that of Russia. It may take six months to conduct the negotiations. So the supplementary agreement on free transit of energy resources across the CIS territory cannot be signed before March 2013.”
Have you made a deal with Turkish companies on their participation in Ukrainian energy projects, such as the LNG terminal?
“We and Turkey are now developing four joint projects in the energy sector. The first and foremost one is partnership in the construction of an LNG terminal on Ukraine’s Black Sea coast. We also expect Turkish companies to take part in the investment competition to be held in the next two months.
“Besides, Ukraine also actively cooperates with Turkey in studying the possibility of transporting gas from Turkey to Ukraine and the participation of Ukraine in the long-term Azeri-Turkish project TANAR which is similar to the well-known Nabucco and is now at the stage of signing contracts on the establishment of a consortium.
“We are also open to joint energy projects on the territory of Ukraine, which will involve the use of Ukraine’s gas transportation system on both the domestic and the foreign markets.”
When the previous IMF mission visited Ukraine, its head Chris Jarvis urged the government to drop the practice of giving privileges to some economic sectors. Is the country prepared for a step like this? If so, when will it take it?
“It is a right signal that budgetary privileges for some sectors should be cut down. Only in this way is it possible to form prices directly, not by means of transfer, and find out which sector is competitive and which one is not. But when the government pursues a policy of subsidizing, it may sometimes attach importance to other, non-economic, factors, such as, for example, employment status of the populace. Besides, not so many sectors are being subsidized. Therefore, this practice should be phased out gradually.”
And what sectors should have their budgetary subsidies reduced?
“The main recipients of budgetary funds are, for example, coal mines and agro-industrial facilities. But analysis shows that subsidies for the agrarian sector are small in comparison with other countries. As for the coalmining industry, the government has drawn up and is implementing a program of transferring loss-making mines into concessionary ownership. These actions are supposed to ease the pressure on the budget. But development is only possible if you not only cut expenditures, but also boost the economic potential.”
“IF ANY OTHER POLITICAL FORCE WERE IN POWER NOW, IT WOULD BE DOING THE SAME AS THE CURRENT GOVERNMENT IS”
And how remote is this prospect?
“Ukraine permanently lives in a situation of political uncertainty, which holds back a fast transition to a postindustrial economy. Add to this an unfavorable foreign economic situation and the European crisis – so all this does not allow us to carry out economic reforms at a fast pace. Any reformative action provokes criticism from political opponents. But if any other political force were in power, it would be doing the same as the current government is because delaying reforms may cost the economy much more.”
Speaking of reforms, which of them do you think are being carried out most effectively?
“Firstly, it is the reform of criminal justice. I know that people have not yet felt any changes, but the adoption of a new Criminal Procedure Code, which will come into force in November 2012, is, without an exaggeration, a revolutionary event – especially if this reform is to be reflected in the updated laws ‘On the Prosecution’ and ‘On the Legal Defense.’
“The customs reform is also doing well, largely thanks to the adoption of a new Customs Code. Of course, very much is still to be done, for example, to establish an electronic customs service. But the delay in its introduction was caused not so much by customs people as by inadequate budgetary funding and the refusal of a number of state bodies to introduce electronic circulation of documents. They are not exactly rushing to switch to electronic management.
“I can see that businesspeople have tempered their criticism of the customs service, but, unfortunately, we have so far failed to fully eradicate corruption on the border.”
“CORRUPTION DISAPPEARS WHEN THERE IS NOTHING TO BRIBE FOR… AND IT IS A TASK, FIRSTLY, FOR THE GOVERNMENT AND PARLIAMENT AND, ONLY SECONDLY, FOR LAW ENFORCERS”
Why do you think it is so difficult to combat corruption in Ukraine in spite of a new anticorruption law? For example, Georgia has solved this problem. Should we perhaps borrow that country’s experience?
“When asked about how to eliminate corruption, I can give just one answer: corruption disappears when there is nothing to bribe for. In other words, we should minimize the human factor whenever we address problems that are important for individuals and business. It is a task, firstly, for the government and parliament and, only secondly, for law enforcers. Look at how many corruption and bribery cases have been opened in the past few years. Although the accused are top officials and they were given harsh sentences, the overall level of corruption is still the same. So this is not enough. The point is not only in changing the law – the principle of the unavoidability of punishment should also be adhered to.
“In Georgia, corruption used to be as high as in Ukraine. But they eradicated it rather fast. How exactly? As I said, by a concerted effort of all the branches of power and strict responsibility for unlawful actions.”
In what fields do you see a successful reform?
“An administrative reform has begun, which is a step in the right direction. But, so far, we have only restructured and reduced the number of governmental institutions. We should immediately revise their functions and relieve them of the powers they are not supposed to wield. Besides, I think the number of bureaucrats should be drastically cut down.
“We have also derived a lot of benefit from the deregulatory reform, but business conditions should be simplified further on. The Cabinet approved at its latest meeting a draft law on further reduction of the number of mandatory licenses and certificates for entrepreneurs. Now parliament is to vote it into law. But the most acute problem in the relationship between business and the authorities is an unpredictable number of inspections and inspecting bodies as well as a weak judicial system.”
But what hinders you from reducing the number of these inspectors if everybody is aware of this problem?
“Reducing the number of inspectors is a question of political will and a joint effort of all the law-enforcement bodies. A step was taken in this direction: the new Criminal Procedure Code of Ukraine sets out that all economic crimes will from now on be dealt with by one body – the Ministry of the Interior. It is now up to the minister to see to it that no new corruption systems come up inside the ministry.”
Without what reforms is further development of the economy and the country as a whole altogether impossible?
“Without deregulation, improvement of the investment climate, and social reforms, especially the ones about pensions and medical insurance. It is these reforms that will allow laying the groundwork for a deficit-free budget.”
“THERE WILL BE NO THREATS TO THE HRYVNIA UNTIL THE YEAR’S END”
There is so much talk now that the unstable hryvnia will considerably devalue after the elections and Ukraine’s financial system will end up in a crisis. Will you comment?
“Indeed, sociological surveys show that the Ukrainians do not much trust the hryvnia. They think so on the basis of their previous experience. I can assure you that there will be no threats to the hryvnia until the year’s end. Later, everything will largely depend on the foreign market situation. To minimize the external factor, the government is preparing a number of measures to support the domestic market, such as infrastructural projects and a wide-scale modernization of the public utilities sector. These measures will have a very positive and stimulating effect on the economy and a very insignificant impact on inflation.”
Are you planning to change the exporter encouragement system?
“Yes. The government has already drawn up and is going to submit to parliament a law on the establishment of the Export Support Agency. I hope it will be passed before the end of this parliamentary session. The aim of the agency is to offer state guarantee to exporters so they can receive investments and promote their products abroad.”
You have vast economic experience. How do you think Ukraine can solve the problem of transfer pricing?
“The State Tax Administration of Ukraine can see clearly, on the basis of analytical research, the sources of all transfer prices and schemes. To eliminate them, we should introduce such a notion as ‘conventional price,’ legally identify the offshore countries where these funds go to, and levy taxes on the transactions with these countries.”
If taxmen know about all these schemes, it is logical to presume that they are not making a proper effort.
“No. By your logic, the Tax Administration should still more strangle business. But it is not a simple question. Businesspeople make use of these schemes just to be able to exist in the current dire economic straits. So, in my view, to solve this problem, we should simplify the taxation system as much as possible and develop the tax payment culture. Otherwise, as a result, business activity will touch the rock bottom in the future.”
If you were a freshman businessman, would you risk launching your business today? If so, in what field?
“I would risk always because there is no such thing as favorable or unfavorable time for launching a business. When I started in the 1990s, there was no tax or customs system. There was a ‘wild’ market and a very high probability that one could instantly earn or lose something. If one is a true businessman, it does not matter for him when to launch his business. I don’t know what business I would be doing. All I know is that I would not be taking the risks that existed in the 1990s – perhaps due to my age.”
“IF RUSSIAN BUSINESSMEN ARE PREPARED TO INVEST IN THE DEVELOPMENT OF UKRAINE, IT IS GOOD”
Do you share the views of the experts who warn that Russian capital is now on the rise in Ukraine? Particularly, they say that the Russian politician and businessman Mikhail Prokhorov is going to invest a major share of his capitals. Do you think that the expansion of Russian capital in the near future poses a threat?
“Investments can never be unnecessary. If Russian businessmen are prepared to invest in the development of Ukraine, it is good. As for Prokhorov, he also deals with high technologies. And if he invests in Ukraine’s high-tech sectors, we will only welcome such an initiative.”
But, as the experience of other countries shows, Russian capital has also political, not only economic, goals.
“There is a fierce rivalry for investments today. They will remain behind in the country – you can’t possibly take factories away. If it is about building new facilities and developing new high-tech sectors, it is good. By all accounts, everything can be privatized, but the state should not lose its controlling function. The state must set and control the rules of the game. And if all the state-invested entities work professionally and patriotically, risks can be avoided.”
Mr. Khoroshkovsky, why do you refuse to join any political party? What causes you to be apolitical?
“It is my decision to work in the executive branch. I think it is interesting and dynamic work.”
And have you ever thought of establishing a political force of your own?
“Not at this point. This requires a lot of time, reflection, and willingness.”
“THE BIGGEST MINUS IS THAT WE HAVE FAILED TO LEAP INTO A DEVELOPED ECONOMIC FUTURE IN THE PAST 21 YEARS”
Ukraine has just celebrated the 21st anniversary of independence. What are out greatest achievements and what remains the biggest minus?
“It is undoubtedly positive that we have established ourselves as a country without any bloodshed. And the biggest minus is that we have failed to leap into a developed economic future which would promote the integrity of our state and make the Ukrainians proud of themselves. But I think we are bound to achieve this in good time.”
Interviewed by Natalia BILOUSOVA, THE DAY
