25 January 2007

(KIEV)-Ukraine’s economic reforms seem to be paying off, according to analysts, reflecting the benefits of a much more open fiscal approach. The country’s exports today constitute between 54 and 62% of the GNP, twice the average of most national economies. This margin exceeds its neighbors in the European Union, as well as Poland, a nearby country similar in scale and structure to Ukraine.

Still hobbled by the mistakes of two previous administrations, the “anti-crisis” coalition today led by President Victor Yanukovich seems determined to bring its large country into the World Trade Organization as a full member of the global market.

“Unfortunately, negative remnants of the pre-Yanukovich governments continue to discourage some foreign capital from investing in Ukraine’s economy,” says Alex Lurie, an expert at The International Institute for East-European and CIS Studies (Tel-Aviv). “These are the results of substantial errors committed by the two preceding governments that could neither preserve the economical stability of 2004 nor guarantee the state’s respect for property.” 

“Lack of consistency in customs-and-tariff policy, arbitrary manipulation of prices, as well as canceling most-favored status in special economic zones and priority development territories, caused serious concern in the international investment community,” Lurie continued, “Yet it was re-privatization, exacerbated by the State’s refusal to provide property owners with guarantees and the courts’ dependence on the state, that dealt the most serious blow to the country’s attractiveness to investors.”

Yanukovich’s anti-crisis coalition advent to power improved the situation, tackling the problem of resuscitating a favorable investment climate. Amongst steps taken: deregulation, activation of a free stock market, reinforcing the independence of courts, reviving free economic zones, technology parks and priority development areas. The government clarified The National Bank’s decision on regulating foreign investment and set clear rules regarding capitalization. According to Dr. Alex Yar, President of the U.S. Center for Independent Monitoring, these measures will “undoubtedly ease foreign investment in Ukraine.”

The financial sector soon expects to feel the impulse of new development, especially in non-banking financial institutions, the consumer sector, trade, real estate and tool manufacturing. The high growth of key banking indices that will be maintained in 2007 has already drawn attention of foreign investors to this sector.

Ukraine’s government has set itself focused objectives. According to the Institute of the Central-European Political Studies, Yanukovich intends to introduce special anti-corruption criteria throughout all levels of governmental decisions, from legislative drafts to distribution and control of social spending. Special attention will be paid to property rights, including intellectual property, and forming a proper body of law that would stimulate not only investments but also freeing up added domestic capital.

The experts agree that many of these initiatives are bold, yet express confidence that a government comprised of experienced technocrats is capable of ensuring accelerated economic growth of the kind demonstrated in 2003-2004 under Yanukovich’s first government.