YUSHCHENKO LIKELY TO PUSH REFORMS IF ELECTED

Ukraine Opposition Leader Expected to Buoy Economy

EUROPEAN BUSINESS NEWS
By Poul Funder Larsen, Dow Jones Newswires
The Wall Street Journal, NY, NY, Tue, December 21, 2004

KIEV, Ukraine -- Dressed in a dark business suit, Petro Poroshenko hardly looks the part of a revolutionary just back from the barricades. Only a bright orange shirt betrays that this Ukrainian entrepreneur and parliamentary deputy is a fervent supporter of the country's opposition leader, Viktor Yushchenko.

Mr. Poroshenko is quick to project an image of stability and continuity in the sphere of macroeconomics, if Mr. Yushchenko takes power, as widely expected, after Sunday's polls. "The financial system is already stabilizing, and we will manage to stop the drift toward a banking crisis," he says.

As head of the budgetary committee of Verkhovna Rade, Ukraine 's parliament, Mr. Poroshenko is a key economic-policy maker for the opposition, and a likely candidate for one of the main economic portfolios in a new cabinet, if Mr. Yushchenko becomes president.

For his part, Mr. Yushchenko, who advocates closer ties between Ukraine and the European Union, has vowed fiscal prudence, if he is voted president. So far, the candidate and his entourage have been fairly tight-lipped, when it comes to broader economic policy statements, but analysts say Mr. Yushchenko's track record as Ukrainian prime minister in 2000-2001 bodes well for rapid economic reform in the country. A major challenge faced by a new administration will be to decide on whether to reverse a number of dubious privatization deals struck under departing President Leonid Kuchma, observers say.

Mr. Poroshenko is adamant that a new Yushchenko government won't resort to fiscal populism by printing money, or running large budget deficits, to maintain the loyalty of voters. A Yushchenko administration is committed to striving toward a balanced budget, Mr. Poroshenko insists. "I think we ought to be able to adopt a budget with no deficit, or a deficit that is no higher than 0.5%" of gross domestic product, he says.

Fortunately, the economic backdrop to the current political turbulence is relatively benign, analysts say. The Ukrainian economy is headed for 12% annual growth this year, but increased social payouts in the run-up to the elections means price inflation is expected to clock in at more than 11%, up from 8% last year. As a result, the overall economic record of current Prime Minister Viktor Yanukovych's government, however, doesn't draw rave reviews from analysts.

"The Yanukovych government has been a very lucky government, benefiting from a favorable pricing situation for exports such as steel and chemicals," says Vladimir Dinul, analyst with Foyil Securities New Europe, a Kiev investment bank.

On Dec. 26, Mr. Yushchenko will again face Mr. Yanukovych, who has been backed by Mr. Kuchma and most of Ukraine 's powerful financial-industrial groups. Latest opinion polls show Mr. Yushchenko in a comfortable lead, but the spectre of vote rigging continues to haunt the electoral process.

While observers expect Mr. Yushchenko to pursue reform of the Ukrainian economy, considerable uncertainty remains as to how Yushchenkonomics will look in practice. The economic campaign message of Mr. Yushchenko has focused on slogans about tax reform and cuts in government bureaucracy, but also on a vague promise to create five million jobs over the next five-year period. "I haven't seen anything that you could describe as a clear program on economic policy," Mr. Dinul says. "At this point we have to judge by what Yushchenko did as a prime minister."

Mr. Yushchenko's term as prime minister was characterized by overhauls of the country's inefficient energy sector and the introduction of open privatization tenders. That record inspires confidence in his continued commitment to liberalization, observers say. "The market pins its hopes on a Yushchenko victory, expecting faster progress with structural reforms, more radical steps to improve corporate transparency and more efficient protection of minority shareholders' rights," Kiev stockbrokers Dragon Capital said in a recent report.

Among the likely priorities for a Yushchenko administration is legal reform, a campaign to combat bureaucracy and corruption in the state apparatus, and a program to improve the situation for Ukraine 's small and midsize enterprises, notably in the sphere of taxation, Mr. Dinul says. Overhauling the tax system is key in both stimulating entrepreneurship and plugging holes in the budget. "We need to broaden the tax base," Mr. Poroshenko says. According to figures from the Yushchenko camp the black economy amounts to 55% of Ukrainian GDP.

Much, however, will depend on the precise realignment of political forces after the Dec. 26 vote. Mr. Yushchenko's candidacy is backed by a loose political coalition consisting of three main components: The candidate's own center-right movement Our Ukraine ; Timoshenko's Bloc, a group of center-right deputies led by Yulia Timoshenko, a former deputy prime minister; and the Socialist Party, a social democratic grouping. If Mr. Yushchenko appoints socialist leader Alexander Moroz as his prime minister, a move seen as likely by some Ukrainian analysts, reforms are likely to be gradual and cautious, while a cabinet led by Mr. Timoshenko, the firebrand of Ukrainian politics, would be expected to move much faster on liberal
reform.

Issues of property redistribution and future privatization could well prove the most controversial aspects of Mr. Yushchenko's economic policies, analysts say. During Mr. Kuchma's years in power a number of financial-industrial groups have gobbled up many prime assets.