"THE ACTION UKRAINE REPORT"
An International Newsletter
In-Depth Ukrainian News, Analysis, and Commentary
"The Art of Ukrainian History, Culture, Arts, Business, Religion,
Sports, Government, and Politics, in Ukraine and Around the World"
UKRAINE'S ECONOMIC AND BUSINESS CLIMATE "New Ukrainian authorities will improve Ukraine's business climate. Fair and transparent rules will increase foreign investments in Ukraine from its current level of $7.8 billion. Ukraine also defines a road map to bring Ukraine into the World Trade Organization this year and improve market access for Ukrainian products." [article one]
"THE ACTION UKRAINE REPORT" - Number 436 morganw@patriot.net, ArtUkraine.com@starpower.net Washington, D.C. and Kyiv, Ukraine, FRIDAY, February 25, 2005
-----INDEX OF ARTICLES-----
"Major International News Headlines and Articles"
1. UKRAINE: NEW OPPORTUNITIES OPENED
Ukraine continues to demonstrate impressive economic success Economic Report of the Government of Ukraine Kyiv, Ukraine, February 24, 2005
2. UKRAINE: MONTHLY ECONOMIC REPORT JANUARY 2005
Ukraine Macroeconomic Situation By Iryna Piontkivska and Edilberto L. Segura SigmaBleyzer Equity Banking Group, SigmaBleyzer Foundation Kyiv, Ukraine, Thursday, February 24, 2005
3. MOODY'S CHANGES OUTLOOKS ON UKRAINE'S B1 RATINGS
New Europe, Athens, Greece, Mon, February 21, 2005
4. WORLD BANK, JAPAN READY TO GIVE LOANS TO UKRAINE
Itar-Tass, Moscow, Russia, Friday, February 18, 2005
5. AVAL BANK LOOKING FOR LARGE INTERNATIONAL INVESTOR
One of the ten largest banks in Ukraine Ukrainian News Agency, Kyiv, Ukraine, Mon, February 21, 2005
6. IMF CONSIDERS IT NECESSARY TO REDUCE INFLATION RATE
AND NATIONAL BUDGET DEFICIT IN UKRAINE Ukrainian News Agency, Kyiv, Ukraine, Wed, February 23, 2005
7. CABINET INCREASES PROPORTIONING OF STATE ENTERPRISES'
PROFITS TO BE PAID INTO 2005 STATE BUDGET FROM 15% TO 50% Ukrainian News Agency, Kyiv, Ukraine, Wed, February 23, 2005
8. HOSTILE BUSINESS ENVIRONMENT EXPECTED TO CHANGE
By Petro Izhyk, The Day Weekly Digest in English #6 Kyiv, Ukraine, Tuesday, 22 February 2005
9. UKRAINE'S INFLATION MIGHT EXCEED 11% EOP IN 2004
Exchange rate should not be tied exclusively to the U.S. dollar ISI - Intellinews, Kyiv, Ukraine, Fri, February 25, 2005
10. TALKS HELD WITH GERMAN AMB TO UKRAINE REGARDING
INCREASED ECONOMIC AND INVESTMENT COOPERATION Ukrainian News Agency, Kyiv, Ukraine, Fri, February 25, 2005 ============================================================
1. UKRAINE: NEW OPPORTUNITIES OPENED
Ukraine continues to demonstrate impressive economic success
Economic Report of the Government of Ukraine Kyiv, Ukraine, February 24, 2005
Ukraine continues to demonstrate impressive economic success: its economy has grown by more than 12% in 2004. Since the year of 2000, average annual growth rate makes 8.4 %. Public debt to GDP ratio decreased from 48% in 2000 to 27% today, debt service as a share of exports is below 5% now.
Industrial growth for the same period is 12.5%. Positive balance of foreign trade in goods amounted to 3.2 bln. USD.
The new Government of Ukraine makes the great efforts to prevent overheating of its economy, strengthen its financial sector, further reform tax system, enforce anti-monopoly policies and improve pension system. Business climate has been improved and it is reflected in a significant increase in domestic investment and productivity. Current account has recently demonstrated healthy surpluses; our international reserves have also significantly increased from 7.5 bln. to about 9.5 billion USD during a year.
The Government together with private sector works on improving the transportation infrastructure and accelerates research and development activities in order to approach to an economic model based predominantly on knowledge and innovation. Introduction of a reasonable 13% flat income tax rate, simplified taxation of small businesses combined with pension reform and reduction of enterprise profit tax rate by 10%, accompanied by certain expansion of tax base and recent improvement in tax administration have helped to reduce the volume of unofficial economy.
Based on recent strong economic performance, the Government's activity which envisages substantial increase in real household incomes has strong social dimensions. Transition and economic growth should bring tangible results to ordinary people, and this is main political objective of Ukrainian Government. Main focus of the government's efforts is concentrated at addressing social dimensions of market reforms, fighting poverty and corruption, improving transparency and governance at all levels, reform and modernization of the municipal utilities sector.
The victory of Mr.Yuschenko in the presidential election encouraged investors and it resulted in rapid growth of Ukrainian bonds quotation.
Quotations of indicative Ukrainian bonds which expire in 2007, in the end of last year increased by 0,625 points up to 107,250 per cent of the face value with 7,397 annual per cent yield.
On January 5, 2005 the Ministry of Finance of Ukraine has placed bonds of internal governmental loan and attracted 543 million Ukrainian Hryvnas to the state budget. Non-residents have purchased a significant amount of the bonds. It displays foreign investors' trust in the obligations of the state as a result of macroeconomic stability and favorable mid-term prospects of GDP growth. Prominent banks expressed their willingness to be a lead-manager of Ukrainian external borrowing in 2005, including Citigroup, Deutsche Bank, JP Morgan, ABN AMRO Bank NV, Dresdner Kleinwort Wasserstein Bank, Nomura. Last annual rate on T-bonds (2004 with repayment in 2011) was only 6,875 %. Profitability was 10 - 11% in the year 2000.
The change of power in Ukraine is most likely to spur foreign capital investing in Ukraine's economy. Volumes of direct foreign capital investment will significantly rise. The European Union is interested in establishing closer relations with Ukraine because the President Viktor Yuschenko has a western mentality and will make efforts towards Ukraine's more active European and Euro-Atlantic integration.
A FEW POINTS OF VIKTOR YUSHCHENKO'S PROGRAM INCLUDE
:
(1) TO CREATE 5 MILLION NEW JOBS
+ Establish a system of government contracts and public works with the
purpose of creation of new jobs.
+ Destroy all barriers for those who want to start a private business
+ and
support their personal initiatives.
+ Decrease credit rates. To secure guaranteed access to credits for
+ small
and mdium businesses.
+ Promote development of advanced technologies in order to ensure
+ Ukraine's
presence on international labor markets.
+ Increase volume of foreign investment in Ukraine's economy ten times
+ as
much.
+ It will promote creation of new jobs and development of new technologies.
(2) TO INCREASE THE STATE BUDGET BY DECREASING TAXATION .
+ Decrease taxes. If taxes are fair, they will be paid by each citizen.
Share of shadow economy will decrease resulting in the rise of budget revenues.
+ Decrease taxation of the salary fund - in five years it will not
+ exceed
20%.
+ Simplify taxation procedures making them transparent.
o Separate business from government; protect entrepreneurs from extortion.
End the practice of using law-enforcement for exerting pressure on businesses.
+ Put an end to corruption in tax administration bodies; raise salaries
+ for
honest professionals. Disband State Tax Militia - there is no need for this repressive body.
New Ukrainian authorities will improve Ukraine's business climate. Fair and transparent rules will increase foreign investments in Ukraine from its current level of $7.8 billion. Ukraine also defines a road map to bring Ukraine into the World Trade Organization this year and improve market access for Ukrainian products.
UKRAINE'S ECONOMY IN 2004
(1) GDP -----
+ In 2004 real GDP increased by 12 % compared with by 9.6 % in 2003.
+ The most significant GDP rise was observed in agriculture and
forestry (by 19.5%); construction (by 18.4%), wholesale and retail (by 17.8%), processing industries (by 14.6%) and trade (by 10.5%).
(2) INDUSTRY -----
+ In 2004 industrial growth made up 12.5% (15.8% in 2003). Growth
+ of
processing industries made 14.6% (18.2% in 2003), mining industry - 4.1% (5.5%). Volume of works and services provided by enterprises supplying energy, natural gas and water decreased by 1.1% (in 2003 it increased by 4.7%).
+ In December 2004 total volume of industrial products decreased by
4.3% compared with November. It was caused by the slide in volume of goods produced by processing enterprises by 5.8%. At the same time volume of products of mining industries increased by 1%. As for processing industries, the most significant fall of production took place in food and agricultural processing industries (by16%) and manufacturing of non-metal mineral products (by 13.2%).
+ Machine-building. In 2004 industrial production increased by 28%
compared with 2003 (35.8% in 2003). This rise was caused by significant increase of production of automobile transports facilities (by 63.3%), electric machines and equipment (by 61.6%), office machines and computers (by 43%), machines for processing agricultural products (by 36.4%), mining and construction machines (by 23.8%), agricultural machines (by 23.6%), house appliances (by 21%), testing equipment (by 20.4%), radio, TV and communication equipment (by 9.8%). In January-November 2004, 59.3 per cent of industrial enterprises were profitable (52.0% in respective period of 2003).
+ Metallurgy and metal processing. In 2004 production increased by
+ 12%
compared with 2003 (in 2003 by 14.3%). Production of iron, steel and ferroalloys increased by 6.3%, pipes by 2.9%, other kinds of primary iron and steel processing merchandise by 16.5% compared with 2003. Metal processing increased by 31.1%. In January-November 2004, 64 per cent of metallurgical enterprises were profitable (56% in 2003).
+ Chemical and petrochemical Industries. In 2004 chemical and
petrochemical production increased by 14.4% compared with 2003 (16.8% in 2003). Chemical production increased by 11%. Production of basic chemical products increased by 10%, varnishes and paints by 10.7%, pharmaceutical products by 13.7%, soap, perfume products, cleaning and furbishing substances by 25.8%, synthetic fibers by 19%, gum products by 22.5% and plastics by 32.2%. In January-November 2004, 61.4 per cent of chemical enterprises were profitable (59% in 2003).
+ Food industry. In 2004 food production and agricultural
+ processing
increased by 12.4% compared with 2003 (by 20% in 2003). Production of dairy products increased by 20.7%, vegetables and fruits by 20.3%, cereals and flours by 15.9%, beverages by 15.7%, meat products by 15.3%, tobacco by 15% and confection by 12.5%. At the same time production of ethyl alcohol, macaronis and sugar decreased compared with the previous year. In January-November 2004, 61 per cent of food enterprises were profitable (53% in 2003).
+ Textile Industry. In 2004 textile production increased by 13.6%
compared with 2003 (by 4% in 2003). Production of fabrics increased by 40.8%, outer knitted garments by 36.6%, knitted underwear by 21.9%, women's suits by 21.7% and men's suits by 13.2%. In January-November 2004, 64.7 per cent of textile enterprises were profitable (57% in 2003).
(3) WHOLESALE AND RETAIL -----
+ Wholesale turnover increased by 17.5 % compared with 2003 (in
+ 2003
by 13.1 per cent compared with 2002).
+ Retail turnover increased by 18.9 % compared with 2003 (in 2003
+ by
20.6 per cent compared with 2002).
(4) CONSUMERS MARKET PRICES -----
+ In December 2004 index of consumer prices made up 102.4%. In 2004
it equaled 112.3%, in 2003 - 108.2%.
+ In December 2004 prices for foods increased by 3.3%, vegetables
15.6%, eggs by 14.8%, milk and dairy products, potatoes, fish, sea products, canned fish, animal fats, butter, meat, poultry, cheese and fruits by 7.3%.
Prices for bread and bakery products remained the same.
+ In December 2004 prices for nonfoods increased by 0.8%. Prices
+ for
electrical appliances, TV and radio equipment, furniture, jewelry, computers, automobiles and automotive merchandise and construction materials increased most of all - by 3.6. At the same time lubricants became cheaper by 0.5%.
+ In December 2004 prices for services increased by 0.8%. Prices
+ for
tourism services, air carrying, urban and automobile transportation and individual services increased most of all - by 2.1 - 2.8%.
+ In December 2004 prices for foods increased by 15.3% (by 10.9% in
2003). Prices for nonfoods increased by 5.4% and services by 7.9% (in
2003 pik - by 1.5% ta 5.4% respectively).
(5) PRICES FOR INDUSTRIAL MERCHANDISE -----
+ In December 2004 index of industrial manufacturers made up 101%.
In 2004 it equaled 124.1% (in 2003 - 111.1%).
+ In December 2004 prices for products of mining industries
+ increased
most of all - by 4%. Prices for energy materials increased by 6.8% and non-energy materials - by 2.5%. Increase of prices for products of mining industries made up 0.7%. Prices for timber products increased by 3%, transport equipment by 2.4%, electric and electronic equipment by 2.3%, foods and agricultural processed products by 1.6%, textile products by 1.3%, metallurgical merchandise by 1.2% and chemical products by 0.6%. At the same time prices for coke and oil products decreased by 1.9%. Prices for generation and distribution of electric power, extraction and distribution of natural gas and water increased by 0.4%.
(6) FISCAL SECTOR---(Data provided by the State Treasury of Ukraine)
+ In 2004 real profits of the Unified Budget increased by 10.4%
+ against
2003 and State Budget - by 17.1%.
+ Deficit of the Unified Budget made up 11792 m UAH (in 2003- 506.7
+ m
UAH), deficit of the State Budget - 10169.6 m UAH (in 2003 - 1043.1 m UAH).
+ In 2004 profits of the Unified Budget made up 90592.9 m UAH. (in
+ 2003
p. - 75285.8 m UAH) with the level of its implementation equaling 99.3% of the plan for 2004 adjusted by amendments confirmed by the Verkhovna Rada of Ukraine and local authorities, and the State Budget - 70274.4 m UAH (in
2003 - 55076.9 m UAH) with the level of implementation equaling 107.8% of the annual plan confirmed by the Verkhovna Rada.
+ Taxes making the biggest share in the Unified Budget. In 2004
+ they
made up 69.7% of total profits (in 2003 - 72.2%). VAT share in profits amounts to 18.5% (in 2003 - 16.7%), enterprises profit taxes - 17.8% (in
2003 - 17.6%), physical persons profit taxes - 14.6% (in 2003 - 18.0%) and taxes for foreign trade and operations - 5.6% (in - 5.0%).
+ Total expenses of the Unified Budget made up 101282.6 m UAH, of
+ the
State Budget - 79381.3 m UAH. Level of implementation of the Unified Budget expenses made up 95.5% of the plan for 2004 adjusted by amendments confirmed by the Verkhovna Rada of Ukraine and local authorities, and of the State Budget - 109.9%.
+ In 2004 the Unified Budget was credited by domestic crediting
+ means
only (1102.3 m UAH). Credits allowed made up 2008.9 m UAH, credits returned - 906.6 m UAH. The State Budget was credited for 1062.6 m UAH.
Credits allowed made up 1900.6 m UAH, credits returned - 838 m UAH.
(7) MONETARY AND CREDIT MARKET -----
+ In late 2004 official exchange rate made up 5.3054 UAH/USD.
+ In 2004 UAH strengthened by 48.39 kopeks (7.2%) against USD.
Exchange rate made up 7.2175 UAH/Euro in the end of the year.
+ In 2004 money supply increased by 32.4% (in 2003 by 46.5%), cash
by 27.9% (in 2003 by 25.3%).
+ In late December 2004 share of cash in money flows made up 33.7%
against 34.8% in the end of 2003. As for January 1, 2005, level of monetization of the national economy made up 33.19%.
+ In late 2004 outstanding debts of commercial banks to economy of
Ukraine made up 88.6 bn UAH. Over the year they increased by 30.6%, in the national currency by 29.4% and in foreign currency by 32.2%.
+ In 2004 obligations of banks to business entities and physical
persons increased by 34.6% and made up 83 bn UAH. Banks' obligations to physical persons increased by 28.4%.
(8) AGRICULTURE -----
+ In 2004 agricultural production increased by 19.1% (in 2003 -
decreased by 11%). Production at farms of all property forms increased by 39.2%, at households - by 8.7%. Volume of agricultural production evaluated in actual prices made up 83.5 bln UAH.
+ Production of meat decreased by 9.2% compared with 2003. At the
+ same
time production of milk and eggs increased by 0.6% and 4.1% respectively.
+ Total volume of agricultural products sales increased by 19.4%
+ and
plant products by 34% compared with 2003.At the same time sales of animal produce decreased by 5%.
+ Agricultural products average prices increased by 7% compared
+ with
2003. It was caused by increase of prices for animal produce by 34%. Prices for plant products decreased by 6%.
(9) PRIVATIZATION -----
+ According to data provided by the State Property Fund of Ukraine,
5968 entities were privatized in 2004 (6396- in 2003). Former state entities made up 20.7% (in 2003 - 24.5%) and municipal entities made up 79.3% (in
2003 - 75.5%) of enterprises privatized.
+ According to data provided by the State Treasury of Ukraine, in
+ 2004
the State Budget earned 9501.5 m UAH from privatization.
(10) INVESTMENTS IN FIXED CAPITAL -----
+ Over 9 months of 2004 entities of all property forms used 48792.9
+ m
UAH of capital investments.
+ Share of capital investments in fixed capital made up 86.3%. Over
+ 9
months of 2004 investments in fixed capital amounted to 42116 m UAH. They increased by 34.5% compared with the respective period of previous year (investments in fixed capital increased over 9 months of 2003 by 32.5% compared with the respective period of 2002). They increased in all Ukraine'
s regions except Zakarpattya, Kyiv, Sumy Regions and Sevastopol City. The highest rate of growth of investments is observed in Cherkasy (2.6 times as
much) and Kirovohrad (2.2 times) Regions.
+ The biggest share of all investments in fixed capital was
+ destined
for the development of industrial enterprises (40%). Processing enterprises used 56.2% of total investments. Food and enterprises processing agricultural products used 33.6% of total investments in processing industries, metallurgical and metal processing - 21.3%, machine works - 13%.
+ Investments used for purchasing machines and equipment for
newly-constructed objects and reconstruction of enterprises made 48.3% of total investments (over 9 months of 2003 - 52%).
(11) FOREIGN ECONOMIC ACTIVITIES -----
+ Ukraine traded with 198 countries of the world.
+ Over 11 months of 2004 exports of goods increased by 42.7%
+ compared
with the respective period of previous year and imports by 28.2%. Positive balance of trade in goods made up 3412.4 m USD (over 11 months of 2003 -
324.3 m USD).
+ Imports/exports coverage ratio made up 1.13 (in January -
+ November
2003- 1.02).
+ The biggest importers of Ukrainian goods were the Russian
+ Federation
(18% of total imports), Germany (6.1%) Turkey (5.7%), USA (4.9%), Italy (4.9%), Poland (3%), China (2.7%) and Hungary (2.5%).
+ Over 11 months of 2004 exports to the Russian Federation increased
+ by
37.5% compared with the respective period of previous year and imports by 38.3%. Trade balance with the Russian Federation remains negative (-5415.4 m USD).
+ The biggest exporters of goods to Ukraine were the Russian
+ Federation
(41.2% of total exports), Germany (9.3%), Turkmenistan (6.9%), Poland (3.3%), Italy (2.8%), USA (2.7%), UK and China (2.5% each).
(12) DIRECT FOREIGN INVESTMENTS -----
+ Over 9 months of 2004 Ukraine's economy obtained foreign
+ investments
for 1321 m USD. 277,6 m USD were withdrawn from the country by non-residents.
+ As for October 10, 2004, total volume of FDI in Ukraine made up
7761.5 m USD. It makes 163 USD per capita.
+ Over 9 months of 2004 FDI increased by 14.9%. Net increase of
+ foreign
capital throughout this period of time amounted to 1004.6 m USD.
+ Ukraine obtained FDI from 117 countries. The biggest investments
+ came
from Cyprus - 1092.9 m USD (14.1% of total volume), USA - 1054.6 m USD (13.6%), UK - 809 m USD (10.4%), Germany - 551.3 m USD(7.1%), the Netherlands - 530.9 m USD (6.8%), British Virgin Islands - 475 m USD (6.1%), the Russian Federation - 427.9 m USD (5.5%), Switzerland - 377.3 m USD
(4.9%) and Austria - 308.5 m USD (4%). These countries provided for 72.5% of total investments.
Industrial enterprises obtained 47.6% of foreign investments. Wholesale and trade mediation attracted businesses 16% of total investments, food industry and agricultural products processing 14.6%, machine-building 8.4%, transportation and communication 7.3%, metallurgy and metal processing 6.5%, chemical and petrochemical industries 4.5%, financial institutions 8.4%, entities dealing with operations with real estate, rent and services. -30-
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Data from State Statistics Committee of Ukraine; State Treasury of Ukraine, Ministry of Economy and Ministry of Finance. Edits by The Action Ukraine Report Monitoring Service.
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NOTE: The Action Ukraine Report expresses its appreciation to Volodimyr Samofalov, First Secretary, Cultural, Information and Press Office, Embassy of Ukraine in Washington, D.C. for providing us with this important and timely economic and business information. Morgan Williams, Editor.
==========================================================
2. UKRAINE: MONTHLY ECONOMIC REPORT JANUARY 2005
Ukraine Macroeconomic Situation
By Iryna Piontkivska and Edilberto L. Segura SigmaBleyzer Equity Banking Group, SigmaBleyzer Foundation Kyiv, Ukraine, Thursday, February 24, 2005
HIGHLIGHTS
(1) Sharp acceleration in industry, agriculture and trade supported robust gross domestic product (GDP) growth in 2004, which increased 12% year-over-year (yoy).
(2) Concerns over the substantial fiscal loosening during the pre-election period in the last quarter of 2004, which resulted in a fiscal deficit of 3.3% of GDP compared to the planned 1.7% deficit.
(3) Fiscal outlook for 2005 uncertain because of the resources required to finance the commitments made by the previous government on social security payments
(4) End-of-period (eop) inflation reached about 12.3%, exceeding the official target rate of 8.5%.
NOTE: To read the entire economic report click on the following link:
http://SigmaBleyzer.com/files/Ukraine_Ec_Situation_02_05.pdf
Contact: Iryna Piontkivska: ipiontkivska@SigmaBleyzer.com.ua
SIGMABLEYZER MONTHLY MACROECONOMIC REPORTS
Ukraine, Bulgaria and Romania
http://www.SigmaBleyzer.com/index.php?pid=532
==========================================================
3. MOODY'S CHANGES OUTLOOKS ON UKRAINE'S B1 RATINGS
New Europe, Athens, Greece, Mon, February 21, 2005
Moody's Investors Service last week confirmed Ukraine's foreign-currency bank deposit ceiling at B2 with a stable outlook and changed its outlook to stable from developing for other key ratings to reflect the relative political stability that has been achieved in recent weeks, Interfax reported.
The agency said in a statement that the ratings that now carry a stable rating outlook include the country's B1 foreign-currency ceiling, the B1 foreign-currency government bonds, and the B1 local-currency government bonds (B1). The foreign-currency bank deposit ceiling had been under review for downgrade since December 1, while the other ratings mentioned carried the developing outlook since that date. Ukraine's local currency guideline remains at A3.
The rating agency said its actions follow several months of quasi-revolutionary events that have seen a new president and governing coalition come to power. Ukraine's macroeconomic indicators, which had reflected an exceptionally strong performance prior to the period surrounding the controversial 2004 presidential election, will weaken comparatively in 2005, as it will take some time to counter the fiscal and monetary consequences of pre-electoral commitments, said Moody's.
The new government will likely concentrate on improving the business environment by speeding deregulation, improving transparency, promoting a more independent judiciary, undertaking civil service reform, privatising many state-owned enterprises, encouraging greater economic competition, and developing domestic capital markets, the rating agency said. Moody's noted that the new government is unproven, while the highly fractious Ukrainian parliament provides a challenge for coalition building and legislative activism.
The political-business elite in the eastern and southern regions of the country that recently suffered electoral defeat will have to be integrated into the new government's perspectives and programmes if these initiatives are to succeed in stimulating Ukraine's economy and constructing institutions and mechanisms conducive to improving the country's political-juridical foundations. -30- [Ukraine Report Monitoring] ==========================================================
4. WORLD BANK, JAPAN READY TO GIVE LOANS TO UKRAINE
Itar-Tass, Moscow, Russia, Friday, February 18, 2005
KIEV, February 18 (Itar-Tass) -- The World Bank is ready to assign
$175 million in the second tranche of the second stand-by loan and $500 million in the third stand-by loan to Ukraine before July, Economics Minister Sergei Terekhin said after a Friday meeting with World Bank Director for Ukraine, Belarus and Moldova Paul Bermingham.
He said the World Bank might transfer the second tranche to Ukraine within the next few weeks.
The World Bank Board of Directors endorsed the assignment of $250 million in the second stand-by loan to Ukraine in December 2003. The Bank said that the loan would be transferred in two tranches, including the first one of $75 million in late 2003, and the second one of $175 million in 2004. The World Bank assigned $250 million first stand-up loan to Ukraine in September 2001.
The World Bank will review the assistance strategy for Ukraine for the period till 2007 with due account of the new government's priorities.
It may give Ukraine up to $3 billion in loans in 2005-07.
Terekhin said with the reference to the Japanese ambassador to Ukraine that Tokyo might give Ukraine $350 million in loans for investment projects. He said the loans might be given for the period of 30 years with a ten-year grace period and 1.5% annual interest. He did not say when the loans might be given.
Last year Japan considered a loan to Ukraine for the reconstruction of the Borispol International Airport near Kiev and the construction of a bridge across the Bug River in Nikolayev. In June 2004 Japan offered Ukraine a $200 million loan with 1.5% annual interest for the development of industrial enterprises. -30- [Action Ukraine Monitoring] ==========================================================
5. AVAL BANK LOOKING FOR LARGE INTERNATIONAL INVESTOR
One of the ten largest banks in Ukraine
Ukrainian News Agency, Kyiv, Ukriane, Mon, February 21, 2005
KYIV - Aval bank, one of the ten largest banks in Ukraine, is going to include a large foreign investor in the list of its shareholders. Bank board chairman Oleksandr Derkach made the statement. "We will work with a large-scale world bank, instead of portfolio investors," he said.
According to Derkach, this decision was made in connection with the present political situation in the country. According to him, the war on corruption announced by the top officials of the state, de-shadowing of the economy and drawing closer to the European Union will fully change game rules on the country's financial market. To keep the bank's development dynamics in new conditions it is necessary to draw an investor, Derkach said.
Aval owns the largest network of regional departments and such resource will be quite attractive for the potential investor. As was reported earlier, the Aval bank intends to open up to 150 self-service departments in 2005. The bank's structural network presently has over 1,400 units throughout Ukraine.
Aval Bank plans to step up its efforts to attract small and medium enterprises (SMEs) as its clients in 2005. The bank ended 2004 with net profit of UAH 18.248 million. The net assets of the Aval bank were valued at UAH 12,405.8 million as of October 1, 2004, when its loan portfolio amounted to UAH 9,013.5 million and its capital amounted to UAH 1,203.5 million. The Aval bank's shares are held by 120,000 individuals and a group of companies.
The bank's management holds the controlling stake in the bank. The bank was founded in 1992. -30- [The Action Ukraine Report Monitoring Service] ==========================================================
6. IMF CONSIDERS IT NECESSARY TO REDUCE INFLATION RATE
AND NATIONAL BUDGET DEFICIT IN UKRAINE
Ukrainian News Agency, Kyiv, Ukraine, Wed, February 23, 2005
KYIV - The International Monetary Fund is concerned about the forecasted high level of the national budget deficit and the current inflation rate in Ukraine, and says it is necessary to take measures to lower them. The Director of the IMF's European Department, Michael Dippler, made the statement at a news conference.
In his words, if the existing situation remains unchanged, the level of the budget deficit might comprise 6% this year.
The IMF recommends the Ukrainian government to take steps for lowering the budget deficit to 2-3% of GDP, it is stated in the report of its mission.
The IMF assumes that the increment of pension payments from the budget that were raised in the course of the 2004 election campaign may be one of the main causes for the high budget deficit.
The IMF believes that the government and the National Bank of Ukraine must focus on curbing the inflation rate to 10%. "The government and the NBU must make lowering of inflation a high priority in their policies," the statement reads. The IMF also believes that the monetary exchange policy of the NBU should be more flexible.
The Ukrainian authorities and the IMF will talk over concrete steps with regards to further cooperation following the passage of amendments to the
2005 budget in the Verkhovna Rada. As Ukrainian News earlier reported, the government hopes to work out and table in the Verkhovna Rada its proposals on amending the 2005 state budget by mid-March, which would allow it to resolve the problem of high budget deficit.
In December 2004, Rada passed the second reading the Cabinet-authored state budget for 2005 with revenues of UAH 86.517 billion, expenditures of UAH
95.503 billion and a limit deficit of UAH 8.57 billion. -30- ==========================================================
7. CABINET INCREASES PROPORTIONG OF STATE ENTERPRISES'
PROFITS TO BE PAID INTO 2005 STATE BUDGET FROM 15% TO 50%
Ukrainian News Agency, Kyiv, Ukraine, Wed, February 23, 2005
KYIV - The Cabinet of Ministers has increased from 15% to 50% the proportion of their 2004 net profits and their 2005 quarterly operating profits that state enterprises are required to transfer into the state budget in 2005.
Prime Minister Yulia Tymoshenko announced this at a press conference while comment on the decisions made at a Cabinet of Ministers meeting on Wednesday. According to Tymoshenko, the Cabinet of Ministers adopted the relevant resolution.
"The resolution stats that 50% of net profits will be transferred into the state budget on the basis of the approved financial plan [of an enterprise]," Tymoshenko said. Moreover, the resolution stats that state enterprises are to submit financial plans stating their expected net profits. The financial plans will make no provisions for distribution of enterprises' profits.
Part of state enterprises' profits will be used to pay the wages of their managers, who will be hired on a competitive basis. Tymoshenko did not specify the proportion of profits that will be used to pay the wages of enterprise managers. "They will have a sufficient share of the profit as material reward [for their management of the enterprises]," Tymoshenko said.
Tymoshenko earlier told journalists that the terms of payment of the wages of enterprise managers would be part of the proposals that would be made by people competing for the right to manage state enterprises. Tymoshenko also said that part of enterprises' profits would be used to make additional payments to hired workers.
According to her, a serious debate was held on the resolution and that the issue of investing part an enterprise's profits in its development was raised during the debate. At the end of the debate, the Cabinet of Ministers concluded that it is appropriate to obtain long-term bank loans for financing investment projects at enterprises, with party of the interest on the loans paid from the state budget.
According to Tymoshenko, the commercial banks providing such loans will determine how effective the enterprises' development projects are.
Tymoshenko stressed that the adoption of this resolution was a significant step in the fight against the shadow economy.
As Ukrainian News earlier reported, the Cabinet of Ministers adopted a resolution on January 15 stipulating that state enterprises were to pay 15% of their 2004 net profits (revenues) and 2005 quarterly operating profits into the state budget in 2005. In 2003, the Cabinet of Ministers also required state enterprises to transfer 15% of their profits into the state budget.
The Ukrainian Union of Industrialists and Entrepreneurs, which is headed by First Deputy Prime Minister Anatolii Kinakh, recently called for abolition of the rule that required state enterprises to transfer 15% their profits into the state budget, saying that this amounted to additional taxation, that it siphoned money away from production processes, and that it hindered the development of enterprises. -30- [Action Ukraine Report Monitoring] ==========================================================
8. HOSTILE BUSINESS ENVIRONMENT EXPECTED TO CHANGE
By Petro Izhyk, The Day Weekly Digest in English #6 Kyiv, Ukraine, Tuesday, 22 February 2005
Most small and medium businesses (57.4%) expect conditions for doing business in Ukraine to improve in the near future. According to 45.7% of managers, current conditions are unfavorable, and only 22.0% are satisfied with the business environment. Rating the most corrupt government agencies, business people named the tax inspection and tax police (72.0%), the fire safety inspection (51.4%), and the sanitation and epidemiology service (38.4%). A majority (56.7%) of businesses believe that local authorities have a neutral attitude toward small and medium businesses, i.e., they neither help nor hinder, while only 27.7% of those polled give a positive rating to local authorities.
These are some of the results of the nationwide survey, "Small and Medium Businesses in Ukraine: Operational Indicators and Development Strategies,"
conducted by the BIZPRO Project jointly with the American Chamber of Commerce in Ukraine in September-October 2004. The survey included a representative sample of 2,500 small (fewer than 50 employees) and medium
(51 to 250 employees) businesses in all of Ukraine's oblasts, Kyiv, Sevastopol, and the Crimea. "We wanted to find out whether businesses are ready to benefit from an improved business environment," says BIZPRO Project manager Hanna Melnyk.
Despite the overall hostile business environment, entrepreneurs are quite optimistic about their growth prospects. This confidence obviously stems from the fact that a little over half of all businesses (52.2%) have increased their labor efficiency, and many still have untapped reserves. To illustrate, only one- third of small and medium businesses (29.3%) have a production program in the form of a business plan.
While 73.3% of businesses raise wages as a form of incentive to employees, 20.1% of managers claim that they are not doing anything to strengthen employee motivation. At the time of the survey, the financial status of small and medium businesses in Ukraine was as follows: 36.4% were operating at a profit, 43.7% were operating without losses, and 19.9% were losing money.
Most small and medium businesses (62.7%) operate within the oblast where they are based. Their unwillingness to expand beyond their home territory is primarily due to low capacities and output. Most (58.7%) businesses have managed to maintain their market positions largely because their prices are lower than those of their competitors. In the domestic market, businesses mostly compete with their Ukrainian counterparts (77.7%), while a mere 5.7% of those polled face competition from foreign firms. Market analysts view this as evidence of the relative autonomy of the Ukrainian economy.
Trade businesses (43.1%) and industrial enterprises (42.6%) are particularly vulnerable to competition from companies that work under the table or enjoy subsidies or support from the government, while agricultural businesses
(33.7%) are the least vulnerable to such competition. Small and medium businesses have an insignificant presence in foreign markets, with 6.4% of those polled involved in exports, and 8.1% in imports. Notably, there are
3.4 times more companies engaged in importing than exporting among trade businesses.
Small and medium businesses do not attract much domestic or foreign
investment: 90.5% of those polled are making do without any investments at all. One of the reasons behind this is difficulties finding investors. This situation should change now that a new government is in place. According to American Chamber of Commerce president Jorge Zukoski, "It will be interesting to see the results of a similar survey one year from now: how the new government and new governors will combat corruption, and how
they will manage to improve the business environment." -30-
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LINK: http://www.day.kiev.ua/132818
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9. UKRAINE'S INFLATION MIGHT EXCEED 11% EOP IN 2004
Exchange rate should not be tied exclusively to the U.S. dollar
ISI - Intellinews, Kyiv, Ukraine, Fri, February 25, 2005
KYIV - Economic Minister Sergei Terekhin forecasts the inflation rate can be more than 11% in 2005. He noted that if there are no changes in exchange rate formation in the nearest time, inflation might make up 11.2-11.4% eop.
He also mentioned that now Economic Ministry negotiates with the National Bank of Ukraine (NBU) on the policy of exchange rate formation. Terekhin underlined that tying the exchange rate to the weakest currency in the world USD leads to monetary inflation.
According to the EconMin, Ukraine should cancel 100% correlation to the USD. Terekhin says the national exchange rate should respond today's CA, but not be a way of latent subsidising of exporters. Worth noting, inflation made up 12.3% eop last year. -30- [Ukraine Report Monitoring Service] ==========================================================
10. TALKS HELD WITH GERMAN AMB TO UKRAINE REGARDING
INCREASED ECONOMIC AND INVESTMENT COOPERATION
Ukrainian News Agency, Kyiv, Ukraine, Fri, February 25, 2005
KYIV - First Deputy Prime Minister Anatolii Kinakh and Germany's Ambassador to Ukraine Dietmar Stuedemann have discussed the need to increase the volumes of bilateral trade and economic cooperation between Ukraine and Germany, step up the investment cooperation between the two countries, and simplify visa the procedures between them. Kinakh's press service announced this.
Kinakh assured the German ambassador that the Ukrainian government would exert maximum efforts to create effective mechanisms for protecting the rights of investors and owners, improve the Ukrainian investment legislation, and strengthen trust between the two countries' business communities. "I am confident that acceleration of Ukrainian-German relations will become one of the mechanisms for promoting Ukrainian manufacturers on the markets of Europe and Germany," Kinakh said.
Kinakh and Stuedemann discussed preparation for the Ukrainian-German business forums that are expected to be held during President Viktor Yuschenko's planned visit to Germany as well as during the holding of high-level Ukrainian-German intergovernmental consultations. The press service said that a delegation of representatives of major German businesses - the financial and banking sector, the oil and gas industry, and the commercial sector - plans to visit Ukraine in early March.
As Ukrainian News earlier reported, Yuschenko and Germany's Chancellor Gerhard Schroeder discussed cooperation between the two countries in Davos
(Switzerland) in January. Yuschenko and Schroeder agreed on creation of a Ukrainian-German working group to analyze the problematic issues on Ukraine's route to membership of the World Trade Organization as well as issues concerning the granting of the market economy status to Ukraine.
Yuschenko and Schroeder also agreed that German Foreign Minister Joschka Fischer would visit Ukraine in the near future. Schroeder invited Yuschenko to visit Germany in March. -30- [Action Ukraine Report Monitoring Service] ==========================================================
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