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What lies behind pre-election promises?

Analysts say some economic ideas are harmful
21 March, 00:00

We are living in a time when intentions can be discussed without any restrictions. The only question is to what extent they are realizable. The Ukrainian Society of Financial Analysts has examined the economic clauses of Ukrainian parties’ (blocs’) election programs and analyzed the likely financial and economic consequences of their implementation.

These programs comprise “material that truly reflects the corridor in which our economy resides,” says Oleh Yaremenko, professor at Kharkiv’s Karazin National University. Most interesting are the programs that reflect a certain hands-on experience in public administration. Experts say this applies to Our Ukraine, BYuT, and the Party of Regions, all of whose programs are comprehensive and detailed, with promises based on certain mechanisms.

The Our Ukraine bloc says that promoting small and medium business is the basic instrument for achieving political goals (the intention is to increase the share of goods manufactured by this sector to 40 percent of the GDP). The program calls for a 2.5-fold rise in average wages in two years and a similar rise of labor productivity in five years.

Experts warn, however, that an accelerated rise in wages may result in high inflation. The bloc suggests a tax reform that will make the taxation system transparent, unambiguously clear, and stable. At the same time, experts note that there have been no essential changes in the field of taxation since the bloc has been in power.

The economic development strategy of the Party of Regions is a program of actions aimed at developing Ukrainian industry. One of its main and well-argued principles is “the necessity of advanced institutional guarantees for the economy and society,” which means laying the required groundwork before making any initiatives.

Its taxation policy calls for tax cuts and a minimum two-year moratorium on changes to the tax legislation. The budget policy is aimed at boosting the role of the regions and adopting a “bottom-to-top” pattern of state budget formation, with at least 60 percent of funds remaining at the disposal of local authorities. At the same time, the program tries to take on too much and has too many “top priorities” in different fields, which calls the implementation into question.

In keeping with its ideology, the Socialist Party is promoting the state’s considerable role in running the economy, particularly by increasing the share of state property and using it actively in pursuing governmental policies. Tellingly, the instruments and mechanisms that the socialists offer do not run counter to the laws of a market economy.

Experience shows, say experts, that any official initiatives will be effective if they are accompanied by anti-corruption measures. The program does not focus on such measures. What is supposed to encourage the populace to work hard is the line that “the state should finance jobs, not unemployment relief.”

The agrarian sector has been proclaimed the foundation of the national economic renaissance. Its development will rely on considerable state support consisting of a combination of market and non-market mechanisms. However, experts say that it is not clear how the party is going “to meet the needs of individuals in land plots for organizing private farms” when the state’s land resources are limited, and the purchase and sale of land is banned. Financial analysts think that pinning all hopes on the agrarian sector as an instrument of “economic renaissance” is a questionable idea because worldwide experience shows that only high-tech sectors can ensure the competitiveness of a national economy.

The authors of the Communist Party’s program see Ukraine’s further development through strong friendly relations with the Russian Federation, the Republic of Belarus, and other CIS countries, as well as implementation of the agreement on a single economic space. The document offers radical methods for attaining these goals: nationalizing strategically important industries and businesses, reverting budget-filling industries (primarily the manufacture of alcohol and tobacco products) to state ownership, establishing a state monopoly on foreign trade, and enhancing the role of workforce units and trade unions in the distribution of profits.

In the social sphere, the program promises to double the real incomes of employed citizens by 2010, institute a minimal pension at 70 percent of the average wage, return lost bank savings within five years, increase the funding of the public health system, etc.

Will the economy be able to withstand this additional budgetary burden? This question is one indication why experts consider most of these proposals unrealistic.

The goal of the Ne Tak! opposition bloc is to build a strong and viable Ukraine that will cooperate with both West and East and be part of the SES. Ukraine would join the group of industrially developed countries by 2015.

“You can see that this is the work of people who own enterprises or have worked in government bodies: they are very aware of economic problems,” says Andriy Radchuk, an expert with the Ukrainian Trade and Financial Association. “This is one of the few programs to adopt an integrated approach to the solution of economic issues.”

The program’s key idea calls for dialogue and cooperation between the government and business. There are plans to create an “industrial fist” of leading businesses and by making use of intellectual, material, and other resources, to enter and capture foreign markets. What financial analysts disagree with is the provision that Ukraine and Russia should coordinate their actions when joining the WTO: in their opinion, this requires a firm stand on Ukraine’s part. Since the Yulia Tymoshenko Bloc’s program has a clear social orientation, as it caters to the broadest strata of the population. The question is whether Ukraine will have enough inner resources to raise living standards and simultaneously restore the industrial, scientific, and technological potential. Experts believe this is impossible.

In Yaremenko’s view, the main attraction of the program is the model of an expensive workforce, which offers a chance to abolish the current ineffective system of remuneration. The program proposes to cancel the VAT without upsetting the budgetary balance.

But experts warn that this may give the budget a severe shock. Also of interest is a wide range of measures to boost the role of the state in keeping market mechanisms working. Yaremenko notes, however, that the program is not strategic: it can be said to be oriented to the present day, while “the idea that people can obtain all necessary things today is simply demoralizing.”

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