Budget in the morning, reforms in the evening

In the midst of the uproar over the ratification of the “Kharkiv accords” regarding Russia’s Black Sea Fleet and the approach of the grandiose May holiday celebrations, another critical event—the adoption of the State Budget for 2010—passed largely unnoticed. Even less attention was paid to the State Program for Ukraine’s Socio-Economic Development for 2010, which passed first reading in the Verkhovna Rada. Yet this last document merits considerable attention, given that, according to Ukrainian law, it is supposed to determine the country’s development priorities for the upcoming year—and to be adopted by the Rada alongside the State Budget

Given the relatively painless way in which this year’s Budget was adopted, the likelihood is high that the Socio-Economic Development Program will be adopted with equal dispatch. Which means it is worth looking at what exactly the new Government intends to do with the country over the 7.5 months left until the end of this calendar year.

What immediately draws the attention is the grandiloquent subtitle of this document, “An anti-crisis program.” The question immediately arises as to the point of such a name: the country’s economy is already showing a clearly positive dynamic, while the Program itself anticipates several percentage points of growth in GDP with a matching improvement in related macroeconomic indicators.

To more accurately reflect its actual content, the Program should have been called “Innovative model without innovation.” Because all discussions about the innovation and investment model of development in this document have been diluted into absolutely standard provision.

Essentially, the 2010 State Program for the Socio-Economic Development of Ukraine is not really an instrument for planned development. It contains not what the Government plans to do and is capable of carrying out but only things that it might dream about—little more than a Dear Santa letter that goes on for 117 pages. At best, it outlines a desired state of affairs, such as: “Providing first jobs for young people who have completed their post-secondary education.” Or the commitment to develop a bill or other normative act that—it is not clearly stated just how—might ensure that this objective is attained.

The way that everybody breathed a sigh of relief after the adoption of the State Budget and seemingly forgot about the Socio-Economic Development Program is the best indication of the complete fiction of the link between these two key elements in the system of state planning. Indeed, the planning of Ukraine’s development is not only disconnected from the Budget process, but also separate from the planning of reforms. After all, it’s quite unclear why the program of reforms widely announced by the new Government yet unmaterialized would exist in complete isolation from the Socio-Economic Development Program, while the latter contains only the vaguest hint of any reforms.

Despite its impressive volume, Ukraine’s latest Socio-Economic Development Program contains very little of any substance. At least 90% of it is a collection of populist slogans without even any ideological basis. In fact, it is hard to understand how anyone could go about analyzing such provisions as “Improving the quality of medical services for the public,” which is baldly stated without any points of reference for its real-world undertaking. At the other extreme are confirmations along the lines of “The level of unemployment according to ILO methodology shall be reduced to 8.1%” not followed by any information about why 8.1% was chosen and not, say, 7.5%, or how either level might be achieved.

In terms of content analysis, only the introductory section of the State Socio-Economic Development, which contains the Cabinet of Ministers’ urgent anti-crisis measures. Specifically, this section mentions the intention “to reduce the list of State Targeted Programs that are funded by the State Budget, leaving only those aimed at resolving immediate problems in 2010.” This means that public funding will be significantly curtailed in most areas in order to direct that money to the Azarov Government’s priorities, such as preparing for the EURO-2012 Football Championships.

Now this is a step that is without any doubt necessary to consolidate available resources and undertake current commitments, but it should not be done at the expense of urgent state functions. Among others, the current State Budget stops funding the State Transplant Program, which clearly does not belong among the Government’s priorities, yet could cost the lives of thousands of Ukraine’s citizens.

One of the few intentions expressed by Party of the Regions whose usefulness is hard to underestimate is “deregulating commercial activity.” That this is viable can be seen by the fact that this particular slogan actually made it from Viktor Yanukovych’s campaign platform into the State Socio-Economic Program. What remains is the hope that it will be carried out sufficiently consistently to have a real impact and not following the path of least resistance—a principle that has buried more than one reformist initiative.

The Socio-Economic Development Program calls for “instituting a ‘special customs zone’ on Territories of Priority Development.” Despite the spotty reputation of such zones in Ukraine, this regional development instrument has proved effective in other places in the world and is widely used, especially to stimulate growth in depressed regions.

“Optimizing the fiscal burden on the real sector of the economy” means transferring the tax burden from big business to SMEs, private entrepreneurs and individuals. This seems to be the purpose of such moves to change to legislation as “increasing the efficiency of administrating personal taxes” and “improving the taxation system regarding self-employed individuals (SPDs or those involved in commercial activity).”

Depending on when it is likely to be approved, Ukraine’s latest Socio-Economic Development Program is likely to be intended, not for all of 2010, but for only the second half of the year. And this will make it twice as hard to actually carry out.

For additional information, contact Maxim Boroda, Head of Socio-Economic Program, ICPS by phone at (38044) 484-4400 or via e-mail at mboroda@icps.kiev.ua.