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How Will the President’s “Ministerial Surgery” Affect the Economic Situation?

13 September, 00:00

The series of scandals caused by the Prime Minister’s meddling in the market will either die down or flare up with renewed force. So far, no one can predict the behavior of an unbalanced currency market or the impact that the change of government will have on the already inattractive investment climate. Last Friday, the day after the cabinet dismissal was announced, the rate of the cash dollar in kyiv rose to UAH 5.02-5.25.

Yet, most business people approve the president’s decision.

Vasyl RADIONOV, general manager of PentoPak:

“Although it seems that in all probability our president was simply forced to take this step, his actions will undoubtedly have a positive effect on this country’s economic development. I don’t think it is terrible that both the government and the head of the National Security Council were dismissed. There’s no reason to panic. Other people, for whom we have been waiting a long time, will come, and serious analysts will replace populists, with their erratic crowd-pleasing rather than economic decisions. I would like to think that they will be our producers, true defenders of our economy and the jobs we’ve created. Instead of lobbying foreign-capital companies, they will stand up for the interests of our businesses, the backbone of the national economy.

“I hope that the new cabinet focuses attention on our industry and the enterprises that are really offering employment and furnishing added value, which in turn forms our budget.

“In my view, the governmental reshuffle will have a very salutary effect on the investment climate. There were some figures in the previous cabinet who physically repelled investors. Some of their statements left our partners scared witless, and they said they would wait until those ministers were gone. Last Thursday I visited an established foreign company: they were overjoyed at the president’s decision. They seemed to have reverted to the beginning of the year, when there was still hope for better times. I would very much like this hope to be realized at least this time.”

Viktor LYSYTSKY, ex-secretary in the Yushchenko cabinet:

“What is important here is the time factor, i.e., how fast all these changes are occurring, because any delay in the formation of a new cabinet will first of all once again show that the government is unable to get quickly restructured and reorganized, and, secondly, this will slow down and shelve a number of bills that should be passed as soon as possible. It is not clear what will happen to the budget or who will be responsible for the GDP this and next year, and, of course, all this will curb the growth rate. I am glad that Yuriy Yekhanurov was instructed to form the new cabinet: he is a modern-thinking person, he knows how the governmental machine works, he is very dynamic and, compared to many leaders, very sociable and not averse to discussions. I think he will form and set into motion a government with the same traditions that existed under Mr. Yushchenko’s prime ministership. I also hope he does not form the cabinet in keeping with the principle of who shouted the loudest on the Maidan but finds really good professionals. It is also very good, of course, that Rybachuk was appointed chief of the Presidential Staff. He is a very industrious, wise, and energetic person, who wields a great deal of clout with the president. I think he will work with him in the front office, while the back office will be given over to a highly skilled bureaucrat, who will exercise overall supervision of the staff. The Rybachuk- Yekhanurov connection is a very productive one, which makes me hope that all the differences in the top echelons will finally be laid to rest.

“I also hope that the new cabinet will work in a more transparent and decent way, and that transparency will be achieved not by reciprocal jibes circulated by the media but by introducing a system in which everybody will know the government’s plan of work for some time ahead. This may be the most radical change in public politics. Predictability and stability are very important for business. I think Mr. Yekhanurov’s tenure will improve the relationship between businessmen and politicians — this will be systematized work with large associations of employers. It is not clear, however, how the government is going to implement the 2005 budget, which already has a huge debt.”

Oleh POBEREZHNY, chief of the Board of Governors, Farmers’ Land Joint-Stock Bank:

“I am almost certain that the change of government will have a positive effect on this country’s economic situation. Ms. Tymoshenko’s cabinet pursued a totally wrong policy. Sometimes it caused so much harm to businessmen and entrepreneurs that I would call her actions anti-statist. I hope Mr. Yekhanurov will be able to form a fundamentally different cabinet, a more creative and flexible one oriented to working with ordinary people and addressing their real problems. We expect him to focus his attention on agriculture, which is now in dire straits. I think Yekhanurov knows how to inject money into this sector. By disconnecting from big industrial clans and freed of the obligation to serve the interests of a certain industrial or financial group, he will keep all industries under his scrutiny.

“Some policies of the former cabinet, which did immeasurable harm to business, must now be reversed. This means, first of all, payment of the VAT on fixed asset investments. If an investor who imports equipment not produced in this country has to pay 30% of its value long before it begins to yield a profit, he will think twice about bringing it here. The second issue is the abolition of free economic zones. Some of them were undoubtedly set up for machinations with various goods and money laundering, but there were others to which investors would come and invest their money. It was a mistake to destroy everything without looking into each concrete case. We hope the new cabinet pays attention to this and removes all the snags, so that the new budget is free of such things.”

Oleksiy PLOTNYKOV, Professor, Institute of Global Economics and International Relations, National Academy of Sciences of Ukraine:

“A well-known Ukrainian tradition will be set in motion: laying all the blame on the previous cabinet. All the problems that arose under President Yushchenko will be referred to the Tymoshenko government.

“There will be no major changes because the president was more responsible for this course than the cabinet. There may be variations to a lesser or larger extent in the social orientation of the budget because of the coming elections, as well as in foreign economic policy. For example, there will be no overt confrontation with the Russian Federation. Maybe the new government will at last stop re-dividing property. I hope this will not affect the currency market: there, the National Bank has to deal with the hryvnia. As for investment attractiveness, investors gave this country a wide berth back in the first quarter. Now they are going to be watching the new cabinet closely.”

Valeriy LYTVYTSKY, leader of a group of advisors to the governor of the National Bank of Ukraine:

“All kinds of changes — hurricanes, crop failures, terrorist acts, elections and reelections — have an effect on money and the currency market. Our central bank has never led a sterile existence. Some changes have occurred every year. We are used to a situation where somebody keeps trying to scare the markets. So this change of government is sure to leave some scars.

“However, Article 99 of the Constitution and Article 6 of the Law on the National Bank compel us to stand guard over the hryvnia and a stable banking system. In these conditions, we must respond to all political challenges. I hope we will cope with this situation. Of course, there may be some minor fluctuations. Much depends on the expectations of consumers and producers, which will undoubtedly be affected by political events.”

Andriy HUREVYCH, manager of the International Financial Corporation’s project “Development of Entrepreneurship in Ukraine:”

“We have great hopes that this country’s economic situation will improve. Forming the cabinet was entrusted to Yekhanurov, who is known for his longtime attempts to improve business. He once headed the parliamentary committee in charge of industrial policies and entrepreneurship. So we expect the new cabinet to be more sympathetic to entrepreneurs than the old one.

“As for foreign investments and investment attractiveness in general, I must say that the previous cabinet took a number of steps that did not improve our investment climate. Above all this applies to long-term contracts. I think that in the longer term, the new cabinet will be predictable and stable, which cannot but have a positive effect on this country’s economic attractiveness and will allow us to tap into the positive potential laid by the revolution. In my view, there are no preconditions for any crisis situations.”

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