Ukraine is in an economic recession again and borrowing on international and domestic markets to make ends meet. But the government still plans to dole out cash to the nation’s richest people.
Under the guise of a state program for boosting the economy for 2013-2014, the government plans to spend Hr 460 billion (more than $55 billion). It’s clear that a big chunk of it will feed the businesses of the nation’s oligarchs.
The Cabinet of Ministers released the 300-page program on March 25. It aims to bolster some sectors of the economy that would make Ukraine less dependent on external shocks. The government expects that the spending will help push gross domestic product up by 3.4 percent in 2013, and up to 4 percent in 2014, prevent capital flight and reduce the shadow economy.
But others are less optimistic. Ildar Gazizullin, an independent economist, predicts a different effect: “The money will be stolen, and (government officials) will run into international sanctions.”
The program, to be partially financed from the state budget, also appears to be at odds with austerity requirements of the International Monetary Fund, whose new mission started work in Kyiv this week. Ukraine is hoping to get a new $15 billion program from the IMF, but Kyiv’s reluctance to make progress on reducing its budget deficit and poor planning, among others, have held the deal hostage.
Some critics say the new government program is nothing but self-promotion in preparation for the 2015 presidential election, and that public declarations contradict what its authors say away from the public eye.
“Unfortunately, there is a huge gap between their program and real actions,” says Pavlo Rozenko, a member of parliament from the Ukrainian Democratic Alliance for Reforms minority opposition faction and deputy head of the parliament’s committee on social policy.
Rozenko also says the program sets plans for finance projects from the state budget, but fails to set up a level playing field for all. “Access to credit resources is only given to a very limited number of people who represent big business,” he says.
Ihor Prasolov, economic development and trade minister, however, says it’s not people but projects that were hand-picked for this program, and they all fit the government criteria set out by the program, one of which is financial viability.
“(The projects) have to either expand the production of commodities that are in demand; or modernize production; or implement projects in those sectors that are not very interesting for the government but are important for the economy – firstly infrastructure, and secondly the housing sector,” Prasolov told Kyiv Post.
He said projects were included into the government list on a first-come, first-served basis. “But the list of projects in the program is not closed,” he says. “If new projects are filed that meet the tasks set by the program, they will be considered on the same basis as the ones already listed in the program.”
The government plans to finance the new program from a number of different sources, including bank loans and government bonds. Much of the debt will be state-guaranteed. That’s risky for taxpayers because, if private businesses fail to pay, they will have to foot the bill.
Weekly business magazine Expert predicted companies that receive state guarantees will most likely go bankrupt. “There have been precedents,” the magazine writes. “In 1992-94, the government doled mass state guarantees to state factories which received bank loans, after which the enterprises turned out to be insolvent, and their directors – very rich.”
The program also makes it quite clear that state enterprises are in focus because the state sector “accounts for a significant share of the national economy (37 percent of GDP).”
Paradoxically, the government admits in the same paragraph that 60 percent of state property is managed inefficiently, quoting the ministry of economic development estimates, but says these ineffective enterprises will receive money nevertheless.
This program sets out a lot of money for infrastructural projects like road building (Hr 30 billion) and purchase of new carriages for railways (Hr 19 billion).
Noble as the aim sounds, it’s easy to predict whose businesses will get a boost from such plans. For example, the government plans to spend Hr 8.7 billion to buy passenger railcars. Ukraine has a monopoly producer of railcars, Kryukiv Rail Car plant, co-owned by Russian businessman Stanislav Gamzalov.
Plenty of Ukrainians will benefit from this plan also. Most of them feature high on Forbes’ richest list, including Rinat Akhmetov (number 1), Viktor Pinchuk ( number 2), Vadim Novinskiy (number 6), and Dmytro Firtash (number 16). They own businesses whose projects are listed as government priorities.
Among private companies, the biggest lump of money – Hr 9 billion ($1.1 billion) – is set to go to Donetsksteel, owned by Russian-Ukrainian businessman Viktor Nusenkis, who ranks 37th on Forbes’ Russia list with a fortune of over $2.4 billion. He is Ukraine’s 7th richest, according to Korrespondent magazine.
But Minister Prasolov insists that there is nothing wrong with helping a business with a famous owner, as long as it benefits the community. He said that Donetsksteel is currently closing down obsolete blast furnaces that “make it difficult to breathe in Donetsk, especially at night.”
The company has a project, which it partially finances by itself, to find new employment for 1,400 people who work at these blast furnaces at the moment. It also plans to open production of high-value rolled metal, which will create up to 1,500 more jobs, Prasolov said.
“I have a question: why shouldn’t we support this project? Because there is a (private) owner there?” Prasolov said, adding that the project’s viability will have to be checked by the bank that will eventually issue a loan under a government guarantee.
Kyiv Post staff writer Kateryna Kapliuk can be reached at [email protected] and editor Katya Gorchinskaya can be reached at [email protected].
