THE UKRAINIAN WEEKLY SUNDAY, JANUARY 7, 20017No. 1
2000: THE YEAR IN REVIEW
cent of farmers leased land, according to the study, whileanother 51 percent were planning to do so.The survey produced by the IFC came at the conclu-sion of a $40 million, five-year agricultural and landreform project.
Trouble in the energy sector
Reform of Ukraine’s most troubled economic sector,fuel and energy, proceeded much more turbulently andclaimed at least two victims. Ms. Tymoshenko, the con-troversial energy vice prime minister, was not, however,among them, although rumors of her impending politicaldemise floated through the corridors of governmentthroughout the year.Ms. Tymoshenko’s extensive energy sector reformsincluded decrees that made fuel and energy operationsmore transparent and banned barter operations in favor of a cash-only transaction policy. She also called for govern-ment regulations and oversight of the commodity market.One of the first issues that confronted Ms. Tymoshenkowas the large debt owed to Russia by Ukraine’s quasi-pri-vate holding company Naftohaz Ukrainy. Ms.Tymoshenko, after meeting with the chairman of Russia’snatural gas monopoly, Gazprom, in January returned toUkraine with the shocking news that not only did theUkrainian natural gas distributor owe Russia some $1 bil-lion but that the company was stealing Russian gas fromthe Ukrainian pipeline that takes it to Western Europe.At first Naftohaz Ukrainy denied the charges, butwithin days its president, Ihor Bakai, became the firstcasualty of the energy sector power struggle. Soon afterhis resignation the company began negotiations withGazprom on debt repayment. At the time, Mr. Bakai saidhe was forced to resign under government pressureinduced by Ms. Tymoshenko, who he said was looking torestructure the sector in her favor and to remove politicaland business competitors.Ms. Tymoshenko was increasingly criticized byPresident Kuchma also, as the year went on, especially inmid-summer after she returned from Ashgabat,Turkmenistan, on July 27 and said that she had signed adeal for Turkmen natural gas at $42 per thousand cubicmeters. The president said the vice prime minister did nothave authority to conclude such a deal and that the agree-ment would be far too expensive after transportationcosts were factored in, which would drive the price up to$90 per thousand cubic meters.In the fall, the president signed a slightly more benefi-cial deal, which gave Ukraine 30 billion cubic meters of Turkmen natural gas at a price of $37 per thousand cubicmeters, while receiving guarantees from Russia that theenergy source would be transported through the countryto Ukraine at minimal cost.Asecond casualty of the energy war was Minister of Fuel and Energy Tulub, one of Ms. Tymoshenko’s subordi-nates, who resigned on June 15 over the reforms his bosswas implementing. Mr. Tulub blamed Ms. Tymoshenko forbeing long on rhetoric and short on action.“More than once we discussed the biggest problems of the energy sector, but our proposals were either ignoredfor months, and if accepted only too late,” said Mr. Tulub,according to Interfax-Ukraine. Mr. Tulub also said he
Ukraine’s domestic affairs:the good, the bad, the ugly
n the domestic front in 2000 it was a roller coast-er ride for Ukraine, the economy being one of thefew surprisingly steady elements in an otherwiseunstable year.The new millennium began at a high point for Ukraine.At the end of 1999 the nation had re-elected a presidentwho, in turn, had appointed the first truly reform-mindedprime minister in the country’s short history.Then the Constitutional Court of Ukraine gave Ukrainea further push toward Europe when it ruled on the next tolast day of the year that capital punishment is not in linewith the country’s fundamental law and ordered it strickenfrom the Criminal Code of Ukraine. The Verkhovna Radamade the required legislative changes on February 22when it voted to abolish the death penalty. The decisionfulfilled a pledge made to the Council of Europe in 1995,based upon which Ukraine gained admission to theEuropean human rights parliament.The Verkhovna Rada also ratified Protocol No. 6 to theEuropean Convention for the Protection of Human Rightsand Fundamental Freedoms (the European Convention),which provides for the abolition of the death penaltyexcept during war or the imminent threat of war.But it was the appointment of Prime Minister ViktorYuschenko by President Leonid Kuchma, which manypolitical experts speculated was a result of pressure fromthe West, that gave reason for well-founded optimism asthe country entered the new year. The Ukrainian presi-dent gave Mr. Yuschenko a free hand in appointing hisCabinet of Ministers and overall responsibility for theeconomic reform process. The prime minister, in turn,appointed a Cabinet composed of an eclectic mix of vet-eran bureaucrats, dedicated reformers and unexpectednewcomers, which surprised experts.President Kuchma confirmed all of the appointments,which included Yurii Yekhanurov as first vice prime min-ister; Yulia Tymoshenko as vice prime minister of energyaffairs; Mykola Zhulynskyi as vice prime minister of humanitarian affairs; Serhii Tyhypko as minister of theeconomy; Serhii Tulub as minister of fuel and energy;and Bohdan Stupka as minister of culture.While Mr. Stupka’s appointment was consideredunusual because until that moment he had been merely anactor of some note with absolutely no government oradministrative experience, it was the addition of Ms.Tymoshenko to the prime minister’s team that caused themost resonance. Ms. Tymoshenko is the controversialpresident of United Energy Systems, an oil and gas trad-ing company with a checkered past and close ties to for-mer Prime Minister Pavlo Lazarenko, who has beencharged with illegal money laundering in several coun-tries. Many, including eventually the president, expressedconcern that the appointment of Ms. Tymoshenko wouldproduce a dangerous conflict of interest.Nonetheless, more good news appeared in early Marchwhen Mr. Yuschenko announced the first gains inUkraine’s economy in nearly nine years of independence.He told journalists on March 7 that the country’s grossdomestic product (GDP) had risen by 3.5 percent inJanuary and that industrial output had risen by nearly 5percent over the same period of the previous year, with aJanuary to February increase of 10 percent.The healthy economic indicators, which some econo-mists and many politicians initially downplayed as aber-rations caused by a currency devaluation that occurred atthe end of 1999, remained upbeat for the entire year. InDecember the government announced that the GDPwould finish at 5.6 percent for the year and industrial out-put at better than 11 percent. The only indicators thatremained flat or deteriorated were unemployment, whichcontinued to stagnate at unofficial levels of between 30 to40 percent, and inflation, which came in at 25 percent forthe year. Government experts said they were not too con-cerned about the inflation rate because the cumulativefigure was a result of increases in gas, water and electrici-ty rates in the spring that the economy had alreadyabsorbed. They predicted that in 2001 the rate of inflationwould be just over 13 percent.In the first concrete step towards initiating the compre-hensive reforms that President Kuchma and his new gov-ernment had pledged, the Cabinet of Ministersannounced a reform program on March 3, called“Reforms for Prosperity.” The 105-page, five-part plan,which was developed from the state of the nation addresspresented by President Kuchma to the Verkhovna Radaon February 22, aimed to “increase the economic inde-pendence of the citizenry and to promote entrepreneurialactivity,” said Minister of the Economy Tyhypko.Mr. Tyhypko, who left the government a few weekslater over disagreements with Ms. Tymoshenko and waselected to a vacant Parliament seat in June, indicated thatthe program would assure deficit-free budgets, and evenbudget surpluses for Ukraine, which could lead to repay-ment of wage and debt arrears, a radical reduction in thecountry’s debt load and a stable currency. Astated longer-term goal was the privatization of land and resurgence of the agricultural sector.The government set as a goal an annual GDPincreaseof 6 to 7 percent within five years, with an initial rise inGDPin 2000 of 1 percent (a goal easily surpassed), fol-lowed by 6.5 percent in 2001. The plan envisaged a 1.3 to1.4 percent increase in real incomes for Ukrainians at itscompletion.Amore immediate target set by Prime MinisterYuschenko was to restructure Ukraine’s $2.6 billion for-eign commercial debt, much of which was to come dueby April 15. He and Finance Minister Mitiukov under-took a tour of Europe’s financial capitals at the end of March to convince holders of Ukrainian Eurobonds totrade them for better yielding, long-term Ukrainian-helddebt paper. By the deadline date some 98 percent of thecreditors, among them many private individuals, hadagreed to the debt swap.The Verkhovna Rada gave the Cabinet even moregood news on April 6 when it approved the “Reforms forProsperity” economic program. During floor debate onthe draft bill, Mr. Yuschenko called the economic revivalplan his government developed “unique.”“This is not the first reform program,” explained theprime minister, “but it is the first program that has a real-istic chance of being given more than just formal politicalsupport.”In the first months of the new year, economic reformbegan to take hold in the agricultural sector as well – theresult of a presidential decree from December 1999 thatdisbanded collective farms. On March 28 Vice Ministerof Agriculture Roman Schmidt announced that, “theSoviet-era system of collective farms has ceased to existin Ukraine.” He said 10,551 collective farms had beenreshaped into 11,100 new agricultural enterprises, mostly joint stock companies and cooperatives.However, he added that some time would be needed toreshape the Soviet-era mentality of many farmers. “I amnot sure if this Soviet collective farm system has ceasedto exist in the minds [of agricultural workers],” explainedMr. Schmidt.Asurvey released by the International FinanceCorporation in mid-August on the changes in the agricul-tural sector since the reorganization showed that nearlyhalf of farmers in Ukraine who took up free enterprise ontheir own were already making money.In 1999, 47 percent of those who took the plunge intoprivate farming prior to the presidential edict showed aprofit, with an average level of 16 percent. The averagearea owned by a family farm enterprise was 4.4 hectares(10.8 acres). Those farmers who also leased neighbor’slands held between 16.5 and 20.9 hectares. About 13 per-
At a meeting in February, President Leonid Kuchma (right) speaks with the newly elected chairman of theVerkhovna Rada, Ivan Pliusch, who is flanked by his two deputies, ViktorMedvedchuk (left) and Stepan Havrysh.