Ukrainian leaders promised on Dec. 28 that they would agree on a state budget before the new year, but the distance between their positions gave reason to doubt them.
In a morning broadcast of the STB television channel's Vikna news program, Prime Minister Valery Pustovoitenko said he expected parliament to come around to supporting a budget close to the Cabinet's proposals.
But in the same program, the parliament's Budget Committee chairwoman, Yulia Tymoshenko of the opposition Hromada party, promised to push her radically different version of the budget through by New Year's Day.
On Dec. 25, a Communist-led majority in parliament rejected the government's latest draft budget in the second reading, sending it back to the Cabinet for reworking. The budget must pass three readings to be approved.
Deputies complained that the government had essentially ignored the budget they approved in the first reading on Dec. 10, which would fund greatly increased social spending by heavily taxing the oil and gas business.
In the draft debated on Dec. 25, the Cabinet raised its spending target slightly to Hr 24.6 billion ($7.18 billion), but that was still far below the Hr 33.4 billion ($9.75 billion) approved by parliament. There were no figures available by press time on Dec. 28 for the reworked Cabinet budget, but Pustovoitenko suggested they had changed little.
It was questionable whether either version would satisfy the International Monetary Fund, which has said it won't unfreeze its low-interest credit line to Ukraine unless parliament adopts a 'realistic' 1999 budget.
In the three-year loan program that the IMF and government agreed to in September, the government pledged to keep its 1999 budget deficit to 2 percent while clearing all of its wage, pension and social benefits arrears by the end of the year.
The Cabinet draft budget debated on Dec. 25 set the deficit at 1 percent, but that figure doesn't include the clearing of arrears, which have grown since September rather than shrink as they were supposed to under the IMF agreement.
One of the IMF's key goals is getting the Ukrainian government to actually follow its budget. The government always has less money than its budget expects, and it gives favored state institutions most or all of their budgeted funds while unfavored ones get much less.
The government raised only 63 percent of planned annual revenues in the first 11 months of 1998, while its debt in unpaid wages and pensions grew to more than Hr 3 billion ($875 million), according to official statistics.
On Dec. 23, Pustovoitenko told a meeting of the Ukrainian Union of Industrialists and Entrepreneurs that the government wants to begin clearing arrears by printing Hr 1.7 billion ($500 million) of cash.
That was up Hr 700 million ($200 million) from the amount Pustovoitenko said should be printed to pay arrears in comments carried by the Interfax news agency the previous day.
It was unclear if the Cabinet took plans for such a cash emission into account in its draft budget, which estimated annual inflation in 1999 at 19 percent and assumed an average exchange rate of Hr 4 to the dollar.
National Bank Governor Viktor Yushchenko has warned that printing money will spur inflation and devalue the hryvna, but told parliament in November he will make an emission if deputies vote for it.
The IMF agreement rules out cash emissions, and an IMF delegation that visited Kyiv in November reiterated that condition.
However, Pustovoitenko seemed to believe the IMF would bend. In the same Wednesday speech in which he called for a Hr 1.7 billion emission, he said the government needs to work with the IMF 'like never before.'
'If we have a joint program with the IMF, the World Bank … the European Bank [for Reconstruction and Development], investors will work with us. If there is no program, nobody will work with us,' Reuters quoted the prime minister as saying.
'We are not able to work today without external loans from private investors and banks as well as without loans on government projects,' he added.
Pustovoitenko made a similar argument during the Dec. 28 Vikna broadcast.
Ukraine has so far received only two monthly tranches, worth a total of $335 million, of the $2.2 billion, three-year IMF loan.
The IMF told the government in December to focus not only on producing a realistic budget but also on restructuring its finance and economy ministries and on reforms in the agricultural, energy, health and education sectors – projects the government could make progress on without new legislation.
Unless the IMF unfreezes the credit line, the government is likely to default on some of its hard-currency debts that come due in 1999.
News reports have estimated those debts variously at $1.5 billion to $2 billion. Yushchenko said on Dec. 25 that Ukraine's foreign-currency reserves stood at 'about' $1.05 billion, but the most recent official statistics put them at $833 million.
Communists and other leftists in parliament are nonetheless opposed to accepting the IMF money, arguing that the conditions the organization attaches to its loans violate Ukrainian sovereignty.
Opposition deputies also clearly see the budget process as an opportunity to score political points against President Leonid Kuchma, who has said he will run in the presidential election that is expected to be held in October 1999.
The parliament budget, drafted by Tymoshenko's staff, would extract a whopping $3.3 billion in additional revenue from oil and gas traders. Tymoshenko accused the government of overlooking potential revenues from the oil and gas business so that oil and gas traders can better finance Kuchma's re-election campaign.
Tymoshenko ought to know. She used to run the company United Energy Systems, which made massive profits on gas trading when her ally Pavlo Lazarenko was prime minister. Lazarenko and Tymoshenko became opposition leaders after Kuchma sacked Lazarenko in June 1997.
In 1996-97, a political battle between leftists and Lazarenko's government stalled the adoption of a 1997 budget until after Lazarenko was fired.
Vikna, however, predicted parliament would adopt a 1999 budget before the new year in a late 'budget night' similar to the long 'constitutional night' in which the Ukrainian Constitution was adopted in 1996.
