Transcript What is the International Centre for Policy Studies?

Reform of the economic
policy making:
the key to Ukraine’s economic
development
US–Ukraine PDP Economics and Business Task Force
International Centre for Policy Studies
Kyiv, 14 November 2005
Presentation plan
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June recommendations: evaluation, current status
Ukraine’s economic and political developments
Tips for the Task Force
Міжнародний центр перспективних досліджень
International Centre for Policy Studies
Tel. (380-44) 484-4400
Web: www.icps.kiev.ua
What is the International Centre
for Policy Studies?
• ICPS is an independent research organization,
founded by the Soros-funded Open Society Institute
in 1994
• Our goal is to promote public policy concepts and
procedures in Ukraine
• ICPS works with different interest groups —
government, business, NGOs, mass media
• The ICPS web-site can be found at
www.icps.kiev.ua/eng
Міжнародний центр перспективних досліджень
International Centre for Policy Studies
Tel. (380-44) 484-4400
Web: www.icps.kiev.ua
June recommendations:
evaluation, current status
Four key recommendations still
relevant
1. Create a uniform public vision of economic reforms
for the President and the Government of Ukraine
2. Build institutional capacity of Ukrainian Government
for the implementation of radical, systematic and
sustainable market economic reforms
3. Enhance property rights protection, strengthen the
rule of law and reduce the tax burden
4. Increase integration into global economy
Міжнародний центр перспективних досліджень
International Centre for Policy Studies
Tel. (380-44) 484-4400
Web: www.icps.kiev.ua
1. Uniform public vision
of economic reforms is absent
• New Government’s announced priorities fully comply
with those announced by President
• Most of them are short-term priorities
• The Government doesn’t envisage complicated yet
vital major economic reforms
• The Government hasn’t produced any written policy
document laying out strategic economic priorities
• Politicians’ statements and actions very inconsistent
Міжнародний центр перспективних досліджень
International Centre for Policy Studies
Tel. (380-44) 484-4400
Web: www.icps.kiev.ua
2. Reform of policy making
not recognized as urgent priority
• Neither the new Government nor the President think
about inadequacy of existing policy making machinery
• Unsystematic reform attempts have false focus
• Business community and civil society don’t recognize
this problem
• Foreign donors don’t have it on their agendas
• Institutional capacity for effective policy making is low,
any administrative restructuring makes no sense without
it
Міжнародний центр перспективних досліджень
International Centre for Policy Studies
Tel. (380-44) 484-4400
Web: www.icps.kiev.ua
3. No practical results of legal
reform intentions yet
• Re-privatization issue is not closed
• President’s Decree of 28 October 2005 commands the
Government to prepare new law on Joint Stock Companies,
and consider canceling the Commercial Code
• No strategy for legal or judicial reform for the Government or
the President
• Parliament rejects any tax changes in 2006 Budget
• Business-unfriendly tax administration procedures and
corruption are much more harmful than tax rates
Міжнародний центр перспективних досліджень
International Centre for Policy Studies
Tel. (380-44) 484-4400
Web: www.icps.kiev.ua
4. WTO accession stalls
• Government’s negotiation group reinforced
• Parliament’s support for 8 outstanding WTO accession laws
uncertain
• Strong opposition by leftists and agro lobby
• Government lacks meaningful public campaign to support
WTO accession
• Ukraine formally resolved most of US concerns except poultry
• No actions by US side in response: no progress on signing
WTO bilateral protocol or Jackson–Vanik Amendment
cancellation
Міжнародний центр перспективних досліджень
International Centre for Policy Studies
Tel. (380-44) 484-4400
Web: www.icps.kiev.ua
Ukraine’s economic
and political developments
Current picture
The “Orange Team” in power so far wasted favorable socioeconomic conditions and time for reforms. Implementation of
President’s election commitments is poor. As a result:
• The “Orange” coalition has split
• Growing disappointment in the President and the
Government
• The ratings of the “old” opposition are growing
• Public support for political leaders and their parties at 2006
Parliament elections fragmented
• Economic growth much slower than in 2004
Міжнародний центр перспективних досліджень
International Centre for Policy Studies
Tel. (380-44) 484-4400
Web: www.icps.kiev.ua
New environment
for the government
• Post-revolutionary freedom from fear of power, freedom of media,
freedom of political competition and political choice created new
unthinkable challenges for non-reformed government
• Vertical and command structure of the government machinery is
unable to work in a new competitive environment and deal with the
pressure of all legitimized interests
• Government needs new capacity and procedures to fill the gap
dividing it from active and impatient civil society:
- the analysis of policy decisions’ consequences
- the analysis of stakeholders’ reactions to decisions and actions
- effective organized policy consultations with stakeholders
- transparent and formalized lobbying through legislative process
Міжнародний центр перспективних досліджень
International Centre for Policy Studies
Tel. (380-44) 484-4400
Web: www.icps.kiev.ua
Economic indicators are showing
a downward trend
• Preliminary results for January–September 2005 show
that real GDP grew 2.8% compared to an average 8%
for this period in 2002–2004
• Rapid price growth due to rising personal incomes and
consumption, and inflationary expectations: 10M’05
inflation was 8.1%, 12-month moving in October’05 was
12.4%
• Foreign and domestic investment is shrinking since late
2004. In H1’05, gross fixed investment (GFI) slipped
1.6%
• Imports grow much faster than exports
• After spring revaluation, hryvnia remains stable
Міжнародний центр перспективних досліджень
International Centre for Policy Studies
Tel. (380-44) 484-4400
Web: www.icps.kiev.ua
Factors behind the economic
slowdown
• Global prices for metals have stopped growing
• Business environment has not been improved
• Elimination of numerous tax breaks has had a
negative impact (at least in the short-term) on some
sectors
• Combined with ongoing re-privatization talks, it
deteriorates business confidence
Міжнародний центр перспективних досліджень
International Centre for Policy Studies
Tel. (380-44) 484-4400
Web: www.icps.kiev.ua
US–Ukraine: economic trends
• The US is a major trading partner: In 2004,
it accounted for 4.6% of Ukrainian
merchandise exports
• US–Ukraine merchandise trade turnover
amounted to USD 1.25bn in 2004
• In H1’05, Ukrainian exports to the US grew
45%, imports grew 69%
Міжнародний центр перспективних досліджень
International Centre for Policy Studies
Tel. (380-44) 484-4400
Web: www.icps.kiev.ua
Ukraine’s economy’s
weaknesses persist
• The domestic market remains underdeveloped due to the
openness of the economy: The ratio of exports to GDP is
above 60%
• The share of metals in overall exports is over 30%
• The development of business is hindered by poor
government–business relations, unfair competition,
corruption and high political risk
• Expectations of FDI growth don’t prove
• The role of SMEs is too small—only 10% of GDP
• Sources of financing for businesses and individuals are
scarce, the range of financial services is inadequate
• Material and institutional infrastructure is underdeveloped
Міжнародний центр перспективних досліджень
International Centre for Policy Studies
Tel. (380-44) 484-4400
Web: www.icps.kiev.ua
Tips for the Economics
and Business Task Force
Worsening economic trends should
encourage transformations
• We don’t expect significant improvement of external
situation for Ukraine’s economy
• Therefore, increasing economic growth is impossible
without major reforms
• The Government and the President need to
demonstrate effectiveness and actual achievements
• Upcoming Constitutional reform and Parliament
elections are two major challenges for the system of
governance
Міжнародний центр перспективних досліджень
International Centre for Policy Studies
Tel. (380-44) 484-4400
Web: www.icps.kiev.ua
Risks for the economic situation
and reforms
• Russia’s and Turkmenistan’s intention to sharply
increase natural gas prices threaten Ukraine’s
competitiveness
• President’s and Government’s concentration on
securing unconditional support for President’s party
will lead to increasing political instability before and
after the Parliament elections
• In such conditions the issue of Government’s capacity
for economic reforms will be further avoided
Міжнародний центр перспективних досліджень
International Centre for Policy Studies
Tel. (380-44) 484-4400
Web: www.icps.kiev.ua
ICPS’ view for economic reform
priorities
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Government and President should concentrate on preparing high-quality
President’s Appeal to the Parliament that clearly specifies President’s vision
for strategic reforms
Budget for 2006 and budget resolution for 2007 should be improved to
secure macrofinancial stability
Commercial Code should be cancelled and Joint Stock Company law enacted
Government should present a specific list of companies, privatization of which
is going to be reviewed, and guarantee that the ownership of any other
assets would be protected
Government should officially start preparation and public campaign for
negotiations with EU on Free Trade Area
President should prepare and publicly present clear position and principles for
forming majority coalition in new Parliament
Government should improve customs procedures to encourage investments
of major high-tech manufacturers
President Yuschenko should take charge of reaching natural gas deal with
Russia and Turkmenistan
Міжнародний центр перспективних досліджень
International Centre for Policy Studies
Tel. (380-44) 484-4400
Web: www.icps.kiev.ua
ICPS’ role in economic reform
priorities
• ICPS has a capacity for policy analysis and public policy
campaigns that is unique in Ukraine
• ICPS’ independent policy analysis and forecast disseminated
through regular publications: Quarterly Predictions, Political
Commentary, Consumer Confidence, Economic Statistics, and
ICPS Newsletter
• ICPS constantly provides technical assistance to the
government on implementing public policy procedures, as well
as analytical support
• ICPS is doing feasibility study on EU–Ukraine free trade area
agreement
• ICPS has done a research and runs public campaign on policy
to encourage investments in high-tech manufacturing
Міжнародний центр перспективних досліджень
International Centre for Policy Studies
Tel. (380-44) 484-4400
Web: www.icps.kiev.ua
Conclusions for the November
session of the Project
• Economics and Business Task Force should
examine more closely the current status and
Government’s economic priorities in meetings
with Ukrainian officials
• Recommendations should include precise shortterm measures
• Vision for the Project participants’ activities needs
to be elaborated
Міжнародний центр перспективних досліджень
International Centre for Policy Studies
Tel. (380-44) 484-4400
Web: www.icps.kiev.ua
Thank you for your attention!
The International Centre for Policy Studies