Maybe May
A Month of Questions and Questionables
The Kyiv Post has been holding on to the Zvarych affair terrier-style.
They just won't let the issue drop and more power to them. Their new
opinion column is called: An Utter Disgrace, and pretty much says the same thing I did Monday.
They've beaten me to the punch on economic news, though. I was going to
start talking about worrying about YuGov anti-market practices and they
went and talked about it in another opinion column today. Zerkalo Nedeli also discussed many of the same issues in their report on Yushchenko's first hundred days, which was translated into English yesterday.
Some tasty tidbits from the ZN article:
"Yulia Tymoshenko’s appointment to the post of Prime Minister was a serious and considered step for Yushchenko. Petro Poroshenko’s appointment to the post of National Security and Defense Council Secretary was a mistake. Obviously, Yushchenko did not find the proper place for Poroshenko’s huge potential and ambition in the new ladder of power."
"Now Yushchenko spends a lot more time at work than he did when he was the Prime Minister. He seldom communicates with ministers in person, and sees the Prime Minister once a week. He gets reports on the economic situation from Petro Poroshenko and on the political situation from [Presidential Secretariat Chief] Alexander Zinchenko, thus seeing the country through their eyes... But do [his staffpeople] ensure his work is efficient? The answer is no.The State Secretariats office is piled up with documents needing to be urgently signed by the President. The analytical and regional services work very poorly. For four years, Yushchenko was an opposition leader and said so many words that words mean little now. What he needs is action and initiative. Instead of patching holes and putting out fires, the government should concentrate on the country’s strategic development. But where are the materials for presidential initiatives?"
"...His request to journalists to “leave Zvarych alone” was a slap in his own face and an insult to those who believed that a minister could be sacked for telling lies [Justice Minister Roman Zvarych had said he was a Professor in his CV, concealing the fact that he had a only a bachelor’s degree from a US college]. Such a practice may well turn many away from the President."
"Tymoshenko does not mean to stand by, having achieved unprecedented progress in terms of popularity. For the five years until she became Prime Minister all statistical surveys had showed a stable 50 percent of the population expressing distrust in her. Only Kuchma had more negative ratings. Now, 55 percent support and generally approve of her activity. Task number one for her today is to keep this level of voters’ trust. She needs it to carry out her ambitious plans in the future. She understands that the only way to keep her high popularity rating is to work tangibly for the people. So working for the people, she works for herself.
Tymoshenko works hard. At least she is productive. Her approaches and methods may not seem right, but at least she is doing something. Regrettably, the President is not. And those top officials who are supposed to pave the way for his initiatives only fan his jealousy of the popular prime minister."
"...the 100 days of peacetime have demonstrated that Tymoshenko’s and Yushchenko’s views differ. Yushchenko is a proponent of the free market. Tymoshenko is in favour of the government’s dominating role in the country’s economy. She has an evidently strong bent for manual control. She explained that “manual control is necessary at the stage when we are turning chaos into a system”, but too many observers have the impression that there is too much manual control. She wraps her hard-line policy in amicable manners and explains her unpopular decisions with a smile. Very few are clever enough to see through the wrapping. All the rest swallow them, even if there is nothing inside."
"Yuriy Lutsenko is the public’s favourite. No other Minister of the Interior has ever been so popular. Society pins great hopes onto Yuriy Lutsenko. People believe he is capable of changing the situation for the better, and praise his activities. He has the second-best rating after Anatoliy Kinakh. People appreciate his wits, energy, decisiveness, daring disposition and his manner of speaking plain Ukrainian. People also approve of his actions, namely of his calling to account former officials that abused their power. Lutsenko’s popularity reflects the public’s expectations that the mighty of the world who scorned the law will pay for it. It is amazing, though, that the people in the street do not seem to support his ministry’s specific initiatives."
Looks like I'm going to have to start moving a little faster, or just wind up redirecting y'all to other news.
Anti-Market Moves
For reference, the anti-market moves we've all be worrying about are:
- Tymoshenko-sponsored price controls on gasoline. The
government has dictated to oil companies the price they can charge.
(In response to the crisis and lines at fuel pumps that have arisen,
the government has eliminated import duties on gasoline, which
reduces oil prices for citizens in a much more free-market way. Don't
give them too much credit for this, though, because they needed to take
the step because they found themselves (unsuprisingly) unable to force
Russian companies to sell them cheap gasoline.)
MosNews has quoted Yushchenko as criticizing his Cabinet in this matter, a thing he is usually loathe to do. It would be nice if he just organized to have the controls scrapped. Higher prices beat lines at the pump.
- Tymoshenko's other price control initiative on meat. Beef and pork sellers are being given caps on the amount they can charge.
- The Kyiv Post also lamented the imposition of controls on the amount of money Ukrainians can take out of the country.
- And just about everything that comes out of the mouth of the Socialist Valentyna Semenyuk, whom Yushchenko put in charge of the State Property Fund, of all things. Surprise, surprise, she thinks there's been more than enough privatization, as she said here (via AUR):
ICTV television, Kiev, in Ukrainian 1500 gmt 15 May 05It may be fair to take Semenyuk's comments with some salt, though. Here's a recent privatization that seems to run directly in the face of her statement: (via the Ukraine Daily Report)
BBC Monitoring Service, UK, in English, Sunday, May 15, 2005
... [Semenyuk] I would like to say that the red line of economic security has been reached. The state retains only 22 per cent of production companies. Compared with the former Soviet countries, we have the highest level of capitalization. So, there is nothing left to sell, as it were.
[Presenter] Well, there is Ukrtelecom [national telecom operator]. There is much to be done, as it were.
[Semenyuk] The Cabinet of Ministers has asked parliament to cancel the law on the privatization of Ukrtelecom, taking into account the situation on the world market connected with the privatization of similar companies. I think this decision was taken just in time. [Passage omitted: Semenyuk says the State Property Fund will make an inventory of state property.]
Big Privatization Resumes: Buyers are the SameAnother big privatization, and one going to an Akhmetov-chaired company. I'd call this a good thing, so long as the deal was transparent and fair.
On May 17, the State Property Fund sold a 39.91% stake in the Krasnodonvuhillya open joint-stock company for a nominal price of UAH 569.054mn, the SPF press service reported. The stake was sold through the Ukrainian Stock Exchange to Avdyeyevskiy Coke and Chemical Plant, which at the moment of concluding the deal already owned 60% stake in the coal mining giant. The plant bought the prior stake in Krasnodonvuhillya in November 2004 for UAH 770mn. Krasnodonvuhillya poses coal reserves of 379.9mn t. 57.1% shares in the Avdyeyevskiy plant are owned by System Capital management, chaired by the richest person in Ukraine, Rinat Akhmetov. [ Kyiv, May 17, Source: Ukrayinska Pravda ]
Hazy Days
The other problem is still the YuGov's lack of progress. I talked in a previous post about the damage they do to their own initiatives (even when good) by announcing nothing until the last minute, at which point they drastically change the policy without previous discussion.
In his television interview, he responded to a complainant by saying, more or less, "Hey, we're new, this has been just 100 days. Cut us some slack please, we'll get things done." I can appreciate that. I will try to remember it in future postings. It would probably be better to have the executive and legislative out of the Gongadze case, so I won't complain about that issue. But that still leaves a lot of haze that needs to be cleared up:
- Which exactly are the 30 businesses which will be reprivatized?
They've said there were thirty since February, which assumably would
have to mean they knew which ones those would be. But no, instead they
seem to have decided to determine which thirty after scaring the crap
out of every privatized business in the country for what may end up being a half-year
straight. (Update: it looks like the YuGov's plans are finally out. A few days ago they said the list was submitted.
Now Kommersant has just published what it calls a leak of the list of
companies to be privatized. I'll give you the list when I get it.)
- While we're at it, the ONE privatization deal that has been
specified, Krivoryzhstal, was clearly flawed and should clearly be
fixed. So why has nothing been said about it since February? When does
the case start? Who is in charge?
- What is going on with the Odesa-Brody oil pipeline? It has sat empty for years, I thought that was going to change.
- What happened to Yushchenko's free-marketism? The biggest moves the YuGov has made recently have been the anti-market ones above. Has Yu changed his mind or simply subtracted himself from discussion? This isn't a lack of policy, it's counterproductive policy, from an economic point of view. If the government can make large counterproductive economic decisions, it should be able to make large productive ones as well.
Dan McMinn
in 01) Economics and Finance, 03) Foreign Policy - Western Europe, 05) Foreign Policy - US, 10) The Cabinet
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Reader Comments (2)
Historically, price controls are a short term solution that causes long term problems. People become financially dependent upon the lower prices, but dwindling supply will force the price up eventually, or else drain the government's accounts as inflation forces the subsidy to increase. In the long run it isnt fair to customers, when the price rises suddenly and they cant afford it. Better a gradual increase over time that is at least predictable.
The government can control prices more effectively by increasing supply. Ideally, supply of a good or service should be produced locally. This might be practical for meat, maybe not for oil, unless the Ukraine can invest in alternative fuel sources or the production of hybrid cars. Otherwise, the government should be encouraging increased importation of oil from more sources. That would bring prices down, and make more energy available for further economic development.
Competition is just as important as supply in keeping prices down. You dont just want lots of oil or meat, you want lots of different suppliers of oil and meat. This keeps the businesses focused on attracting customers, which also maintains quality.
The problem with the government owning shares of a company is that the governement and the company become too dependent upon one another. The goverment's role is really to regulate whole industries in the public's interest, not supporting individual enterprises. Only in cases where competition is not economically vialble, or when equitable treatment is more important than economic development (a water utility in the first case, public health care in the second) should the government retain direct adminstrative control over a specific enterprise.
Finally, there is benefit to the public by keeping the system as decentralized as possible. When a government must control an enterprise, it should be broken down and given to local governments to control. When state industries must be privatized,it's better to break them up into many small companies rather than one large one (even if that means accepting a selling lower price). Decentralization is important because if you simply replace arbitrary control by distant government bureuacrats with arbitrary control by distant corporate bureaucrats you really havnt accomplished anything in terms of promoting populist democracy.
So- the question I have is, is this more or less what the "Yugov" is doing, or are they following a different policy?
He has made lots of promises to people, and that has been a burden on the economy which he will need to make up for somewhere else. Ok, I said that was fine, so long as the government could make up those shortfalls. Why is he saddling the government with totally unnecessary socialist policies, though?
My only guess is that he does not have enough control over Tymoshenko. She doesn't have the economic credentials and is, by nature, a populist. So she's spending like crazy and Yushchenko isn't stopping her.
Bad news for Ukraine.