With Western-style hoopla and hype, Ukraine's government unveiled on March 3 a program designed to give Ukraine Europe's fastest-growing economy.
'This isn't like one of the programs of Ukraine's previous government, but rather like a European program,' declared Economy Minister Serhy Tyhypko.
Well, maybe Minister Tyhypko meant Germany right after WWII.
The 55-page policy paper, called 'Reforms for Prosperity,' maps out a development strategy aimed at creating nothing less than an economic miracle. By the end of 2004, the 'Reforms for Prosperity' program proposes, Ukrainians will see a real wage increase of at least 30 percent. Pensions will go up. Agricultural production will increase by 1.6 percent this year, and by 2004 will be growing 4 percent annually.
But the plan's true flights of confidence are GDP-related. Ukraine's year 2000 Gross Domestic Product will rise (for the first time in 10 years) by 1 or 2 percent, the program mandates. Next year Ukraine's economy will grow by 4.5 percent – faster than the booming United States.
From 2002 through 2004 Ukraine, frequently called Europe's worst-performing large economy, will rocket along at 6 or 7 percent annually, the plan says.
Experts said that those kind of numbers are possible, but…
'Theoretically, it is realistic, however, the plan is contingent on many different factors, and, first of all, on how strong is the government's commitment to carry out economic reform in the country,' said Ivan Kompan, Wood & Company Kyiv director.
'Since 1991, the Ukrainian government has always been long on intentions and short on concrete actions.'
'I think that it's feasible, especially in the first year,' said Hlib Vyshlinsky, an economist at the International Center for Policy Studies. 'But there has to be political will for continued reform.'
Analysts expect Ukraine to manage to meet short-term growth targets – with some reason. Industrial output for the last two months has clocked in at a pro-rated 10 percent annual rate, the budget is in the black, and low hryvna prices are stimulating exports and domestic substitution for imported consumer goods.
Some specialists were outright optimistic – about the short-term.
'I think one percent [Ukrainian GDP growth] for this year is too pessimistic,' Vyshlinsky said. 'Ukrainian money is returning to the economy … it was overseas … but now it's coming back. Now we're seeing the first signs of this growth.'
But to keep growth on track, Ukraine will need something it presently lacks.
'Ukraine will need foreign investment to a achieve sustainable growth,' Vyshlinsky said. 'Here, reputation is the most important thing.'
And as other market professionals are ready and willing to point out, Ukraine's reputation isn't good.
'Ukraine has defaulted on its debt for the second time in less than two years and it's in the international spotlight over allegations of mismanaged International Monetary Fund loans,' Kompan said. 'Plus, its economy has not grown since independence. This isn't an encouraging environment for foreign investors.'
But as they used to say in Soviet days, no plan means no results. All analysts polled gave the Kuchma administration high marks for at least trying to deal with Ukraine's economic woes.
'It's very good, in that it's the first time a plan like this has been laid out,' Vyshlinsky said. 'Priorities … some measures are defined. Compared to previous government plans it's much better … The old plans had instructions, like: produce 1 million harvesters … but now we see a president and a prime minister working together to generate political will for reform.'
In last fall's election President Leonid Kuchma won a resounding victory against Communists wanting to turn the clock back to the Soviet Union, a victory seen by many as a mandate for Ukraine's first, concerted reform effort.
The new administration has made reducing Ukraine's teeming bureaucracies one of its first priorities. In part to balance the budget but also because corrupt bureaucrats can stifle any reform initiative, the Kuchma administration has already proudly announced it has cut top level government employees by a third.
But analysts are still worried about the petty officials at the bottom of the feeding chain.
'This is a major issue,' Vyshlinsky said. 'They [the government] can have as much political will as they want, but they need to change the whole political nature of this country.'
Besides taking on administrative reform, analysts interviewed identified privatization of big state-owned industries, also scheduled this year by the Kuchma administration, as bell weather issues indicating whether reform is in fact in progress and the Kuchma five-year plan is actually functioning.
'Out of a multitude of programs, platforms, and reform issues, which have been debated and proposed over the past decade, two merit attention – privatization and reform of the energy sector,' Kompan said. 'We consider them not only crucial to economic recovery but also necessary to win back foreign investors' confidence in Ukrainian assets. For these reasons, they will be telltale signs of the government's seriousness about reform.'
But Ukraine faces another, nearer hurdle before foreign investors will begin believing Kuchma's five-year plan is worth their pocket books, analyst agreed.
'What are foreign investors waiting for?' Vyshlinsky said. 'I think first the IMF [International Monetary Fund] and Financial Times. What they need is the IMF and the results of the [ongoing international] audit [of Ukraine's use of past IMF loans] … That's the first positive economic indicator the foreign money will be looking for.'
