Alina Zimenko
The Ukrainian Cabinet reported on
its results over the past year and agreed on the draft budget for 2016, as well
as the principles of tax reform; the State Statistics Service said the
inflation has returned; U.S. Vice President Joe Biden visited Kyiv, announcing
allocation of $190 million for Ukraine and giving the Ukrainian authorities
some good advice.
Prime Minister Arseniy Yatsenyuk and other
Cabinet members dedicated the past week to reporting on the results of their
management of the economy and social sphere over the past year. The ministers
drew attention to their modest successes and pointed at the first shoots of
economic recovery. Meanwhile, their numerous opponents and, above all, partners
in the ruling coalition, drew attention to the Cabinet’s failures and
shortcomings.
The outcome of the annual examination was rather
contradictory. The government’s opponents, taking advantage of the completion
of a year-long immunity of Yatsenyuk’s Cabinet, began collecting signatures
among the MPs for the dismissal of the government, while Kyiv was flooded with
billboards with an unambiguous warning: "Run, Rabbit, Run!" [hinting
at PM Yatsenyuk, as “Rabbit,” or “Krolik,” is one of the official’s derogatory
nicknames].
Yatsenyuk did not fulfill this request, and
delivered his Friday’s address to the parliament in an offensive manner,
telling the MPs and the public of the government’s achievements and plans of
the central executive body for 2016. However, his speech ended in an ugly show
by a deputy from a pro-presidential faction. The following brawl between
lawmakers from the ruling coalition, on the one hand, showed the importance of
a stable government in an unstable political environment, and on the other hand
showed precariousness of the country’s current executive and legislative branches.
Friday's address by the prime minister to the
MPs has once again drawn attention to the main problem of Ukrainian politics:
the inability to unite for the purpose of building an economically powerful
country with high living standards for the free citizens. The politicians
always find some excuses for their fights and bickering, while failing most of
the times to find any arguments for personal responsibility and uniting into
one team. They only manage to do it in exceptional cases, as if before the
execution.
The words of the leader of the presidential
faction, Yuriy Lutsenko, have confirmed this paradox. He said that "the
parliamentary arithmetic" allows dismissing Yatsenyuk, though not allowing
to appoint a replacement.
"Therefore, such actions (voting for the
dismissal of the government) would have been irresponsible. Because the
government without a head, the parliament without a coalition, the country
without a budget would mean an automatic halt to cooperation with the IMF,
while the country would slide into hyperinflation and anarchy within a
month without a nearly $5 billion tranche. This is an unacceptable
scenario," Lutsenko has told the reporters.
Thus, the situation with the failed dismissal of
the government is developing by a scenario traditional for Ukraine: plenty of
screaming and hysterics, with a complete lack of results. Rather, there is one
result: strengthening the voters' desire to see some new, sensible and
competent people in power, capable of teamwork. Besides, there is a
well-grounded disappointment of foreign investors who are frightened by
Ukrainian politicians demonstrating chronic inability to see the priorities and
focus on work, and not squabbles.
This stormy Friday wrapped up with yet another
outstanding event. Infrastructure Minister Andriy Pyvovarskiy and two of his
deputies, Volodymyr Shulmeyster and Volodymyr Omelian, resigned.
The Cabinet on Thursday finally approved the
long-awaited blueprint of tax reform and draft budget for 2016. This event was
preceded by several months of confrontation between the Finance Ministry and
Parliamentary Committee on tax policy, both of which, creatively developing
national political traditions, worked on two alternative drafts of the Tax
Code.
Initially, government project stipulated a
single 20% rate on key taxes -- VAT, the personal income tax, corporate income
tax, and the single social security tax. In this case, the budget deficit was
estimated under $60 billion.
In turn, the "liberal" project of the
MPs involves a sharp decline in interest rates and abolition of some taxes.
Some experts and businesses believe that such changes are indeed progressive.
However, some analysts pointed out a major risk: the adoption of the deputies'
proposals could form a $200 billion state treasury deficit.
The compromise (as the Finance Ministry assures)
version of the draft Tax Code was first presented Tuesday at a meeting of the
National Reform Council. This version has been approved by the government. It
sets the rate of an income tax and an individual income tax at 18% in 2016
while in 2017 it will be 17%, the single social security tax rate is proposed
to be reduced to 20% from 40%.
However, the MPs, authors of an alternative
draft, refused to call this version a "compromise."
"We officially declare that there were no
negotiations between our group of authors and the team from the Finance
Ministry. Thus, the statements of officials of the Ministry of Finance on
reaching a compromise on tax reform are a deliberate misrepresentation aimed at
the Ukrainian citizens and our international partners," said the deputies.
The tax committee of the Verkhovna Rada
emphasized that they insist on the immediate submission to the vote and
endorsement of their version of the Code. They also insist on adopting a state
budget for 2016 based on their version of the Tax Code.
Realizing that the New Year holiday season is
coming, the government decided this week to involve "heavy artillery"
to the tax issue. Prime Minister Arseniy Yatsenyuk said that the final draft
will be submitted to Ukrainian President Petro Poroshenko, and then the Head of
State will forward a draft Code to the Parliament. The pro-president faction
has declared, even before the meeting of the National Reform Council that it
would support a draft Tax Code by the Finance Ministry only if it provided for
a phased tax reduction, which later actually appeared in a text of the
"compromise" version.
An important detail is that the government’s
project is coordinated and supported by Ukraine’s key creditor, the
International Monetary Fund, so experts believe that the Cabinet and the
President used this leverage to influence the MPs.
God Bless
America
Earlier this week, Ukraine welcomed a
high-profile guest from the U.S. Vice-president of Ukraine’s strategic partner,
Joseph Biden has met with the President, the Prime Minister and the MPs. He did
not come empty-handed. At the meetings, Biden said that the U.S. Government has
allocated $190 million for projects in the field of Ukraine’s internal
security, including the National Police; and is ready to allocate another $300
million on defense.
During a historic address to the deputies in the
Verkhovna Rada, Biden stressed that a strong economy would help protect
Ukraine’s European choice and not allow other countries to undermine its
stability. He said that the U.S. was ready to assist the country on its path of
building this strong economy, a major obstacle to which is corruption, still
thriving in Ukraine.
"Corruption siphons off resources… You know
this,” said Biden, adding that these elements of corruption are being used to
undermine Ukraine.
Many analysts have noticed that, while voicing
the word "corruption," Biden gazed at the government box in the Rada.
America sees the need for Ukraine to continue
launched reforms, according to the U.S. top official and is doing its best to
support the government, which is now in a precarious position. The logic is clear
- the United States sees that the Cabinet fails to implement reforms perfectly,
but, at least, this government remains loyal. And while as long as it does, the
U.S. will support Ukraine.
The U.S. is ready to increase financial aid to
Ukraine if it implements successfully the program of cooperation with the IMF.
One of the structural lighthouse marks of the program is tax reform and the
adoption of the budget on its basis, with a minimum deficit. Biden advised the
government not to get involved in squabbles and get to work. This means
agreeing with the IMF the draft tax reform and the draft budget. Obviously, the
U.S. Vice President managed, to some extent and for a short period of time, to
channel in the right direction the energy of the President and the Cabinet.
The return
of inflation
The last week’s news on the return of the
inflation was a fly in the ointment. November’s consumer prices increased by 2%
compared to October (when Ukraine even enjoyed a 1.3% price decline). In the
previous months the dynamics of consumer prices varied: they increased in
September by 2.3%, falling by 0.8% in August and by 1% in July.
Inflation accelerated 46.6% from 46.4%
year-over-year (Nov 2015 to Nov 2014).
The National Bank of Ukraine blamed vegetables
and heating tariffs for the resumed inflation. The growth of consumer prices in
November was due to a seasonal rise in a price of a "Borshch set” of
vegetables by 20.5% and a 19.7% increase of heating tariffs compared to
October.
However, the Ministry of Economic Development
and Trade forecast in October the expected annual inflation rate at 43%. But it
is already clear that this will not happen.
Electricity to Crimea, coal to Ukraine
It has been three weeks since the activists blew up
the pylons at the power transmission lines in Kherson region, cutting power
supply to the Russian-occupied Crimea which resulted in a so-called “Crimea
Blackout.” However, on December 8, state-owned Ukrenergo repaired the
Kakhovska-Tytan power line, which started providing half of the previous volume
of electricity supplied to the annexed Crimea.
The aggressor state’s response was immediate.
Russian President Vladimir Putin has given the “go-ahead" to his puppets,
the leaders of Donbas gangs, to resume unhindered supplies of coal from the
occupied territories of eastern Ukraine to the Ukrainian thermal power plants.
Meanwhile, another ship loaded with South African anthracite coal arrived in
Ukraine.
Earlier, while announcing diversification of
supplies, Ukraine’s Energy Minister Volodymyr Demchyshyn said that coal from
South Africa will add another 1.25 million tonnes to the existing stocks of
"black gold." The minister said that this amount should be enough for
the stable operation of Ukraine’s power grid at the beginning of winter,
provided the weather would be relatively warm. And the forecast is really
promising at the moment.
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