Balance Sheet of Economic Reforms in Cooperation Partner Countries
Agriculture Ukraine Social Instability and Regional Policy Currency Reform Privatisation Comparison to Other Transition Economies
The debate expanded on some of the presentations, but it also brought up some new ideas and fields of discussion not mentioned by the experts. Difficult as it is to discuss such a vast and complex question in hardly one hour, many points remained unanswered. Still, the participants laid the ground for further detailed discussion of more specific problems during the following four panels.
Concerning the role of the European Union (EU) and the negative impacts of EU restrictions on agricultural imports on the performance in Central and Eastern Europe (CEE), a member of the panel pointed out that there is considerable pressure from inside the EU to abolish these restrictions. Especially the tax payer, faced with ever-rising costs for subsidised and protected goods, would oppose limitations on agricultural imports from CEE. On the other hand, production and export expansion would only in the short term appear to be appropriate solutions. In the long term, bearing in mind the situation on the current food market, the economic crisis will not be solved through increasing output, but through strategic decisions, which have to be taken, either by the government or by the market.
The difficulties are increased by Ukraine's enormous energy production costs, which are twice those of Russia. Despite abolishment of all export limitations this factor would hinder Ukraine's products from being competitive in terms of price and quality on the world market. The participant added that unless the International Finance Institutions (IFIs), the EU, as well as bilateral agreements provide Ukraine with substantial help, they will not succeed in balancing their trade balance and might, as a consequence, be forced to accept further economic integration into the CIS. In this view 1995 will be the decisive year for Ukraine's reform process.
Differentiation was made between rural and urban populations. On the one hand, the situation in heavily populated city areas is often worse than in less populated, resources-rich regions, assuming a higher potential for social upheaval. On the other hand, education is much better in city areas than in the country side, explaining why most democratic driving forces can be found in urban areas, whereas communism is still quite popular in rural areas.
It was also argued that, contrary to what was said in the presentation, factor endowment will play a decisive role for regions in their relations to the central government. As they do not have direct access to Central Bank money and capital markets, this is the only way to the important valuta. Limited means of power also lie in the possibility to refuse payment of taxes.
Currency ReformThe discussion further focused on a declaration by Ukraine's President Kuchma, that the upcoming currency reform would not have confiscatory character. It was argued that this question has not yet been solved and that the situation is expected to be extremely difficult this autumn. The low income group (monthly income of $30-40) would even support confiscatory reform, as they do not have any important deposits. Economists would still be in favour of a simple denomination of the currency as confiscation would not affect those it is attended to.
Stabilisation of the new currency would require funding of approximately $1.5 billion. Agreements on this sum have been reached with IFIs, which also agree on the most urgent tasks of containing and neutralising inflation, which is likely to rise in the summer due to seasonal factors, as well as diminishing the budget deficit.
The lack of a competent and capable banking system acting as intermediary between investors, companies and governments was also mentioned.