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Government program on economy development activation: one step to approve

Olga Marchuk
economic observer


At expanded meeting of the Cabinet of Ministers on February 27, 2013 the Government will introduce the President of Ukraine Viktor Yanukovych with the State program of the economy development activation. Prime Minister Mykola Azarov has announced about it during communication with users on Facebook.

News was immediately picked up with leading news agencies, marking that the day before, during meeting with business community, the prime minister promised to approve this program much earlier - in mid-February. Famous experts speculated that document was not prepared in detail till deadline, since there were more than enough suggestions and criticisms received after project announcement.

What is this new economic document, which imposes such high expectations in near future? Program for economic development activation in 2013-2014 identifies six priorities for the economic policy implementation. Among them are: improving economy’ competitiveness, improving business environment, support for domestic producers and implementation of import-substitution policy, development of industries that produce high-tech products, including rocket and space, aviation and shipbuilding, structural reforms in strategic sectors, including public sector of economy, infrastructure and communications, energy, housing and construction, development of export potential, including financial support to exporters and promotion of Ukrainian goods to foreign markets.

Igor Prasolov, Minister of Economic Development and Trade, repeatedly emphasized that program for economic development activation in 2013-2014 is a policy document with practical orientation. According to him, government has prepared a detailed plan to perform the program, which represents definite and clear understanding of who does what, during which period of time, who is responsible for what and which exact results economy and society is to obtain in general. Therefore, in the opinion of Igor Prasolov, identified measures will allow businesses upgrading production capacity and creating new businesses to produce high-quality and competitive products.

Officials argue that plans implementation in 2013-2014 will allow achieving several positive development indicators. This is, primarily, to ensure maintenance of optimal inflation within 5-6% this year and keeping budget deficit at 3.2% of GDP. Among particular positive aspects are: limiting the amount of debt at 30.6% of GDP, reducing number of permits for 87 units during year, growth in steel production by 4%, iron - by 3.5%, ferrous metals - by 2.7%, while reducing energy consumption in steel industry and manufacture of fabricated metal products by 3%.

Next year growth index of machinery products is expected by 9%, increase in production of national passenger cars to 121 thousand items, and exported products of agricultural machinery by 20%, increase in the domestic pharmaceutical products share in domestic market of Ukraine in medium term to 5-10%. Thus expansion of foreign trade with goods and services with the CIS countries is planned by 15%.

Also they expect providing revenues to state budget from privatization within almost 28 billion over next two years. It is planned renewing transport at this time, in particular, acquiring 12,800 cargo wagons in two years and 500 passenger wagons - in 2014, 7000 buses of medium, large and extra large passenger capacity during 2013-2014. Construction sector is to be developed through provision of state aid for construction and purchase of affordable housing for about 27.7 million people and providing over 2.5 thousand loans to young families and single young people for construction or purchase of housing already during this year.

State program of economic development activation in 2013-2014 did not get indifference from business community, scientific community that is actively developing theoretical foundation for program implementation. This was a major issue at the meeting of Economic Council of NGOs and associations of industrialists, entrepreneurs and employers at USEI, held on February 12, 2013 in Kiev. Speaking with representatives of the Economic Council with nearly 100 business associations and unions members, president of the Academy of Financial Management, member of the National Academy of Sciences of Ukraine, Doctor of Economics Tatiana Efimenko stressed that the State program of economic development activation is one of the key mechanisms for the national economy infrastructure development, improving business climate and investment environment.

She stressed that the program should, among other things, provide for development of public-private partnership (PPP). PPP mechanism got considerable popularity in many countries, where it became one of the main tools for current economic development. Public-private partnership enables the state and private sector obtaining mutual benefit through consolidation of financial, managerial and technological resources, combining solving important tasks for society of socio-economic development with fulfilling the business and community interests.

Among priority areas for the PPP development in Ukraine, Tatiana Efimenko marked production infrastructure and high-tech manufacturing (transport and infrastructure for transport, energy sector, engineering, communications), construction and utilities (affordable housing market development, technical re-equipment, increasing resource and energy utilities, waste handling, landscaping areas), social infrastructure and human development (health, education, culture and sports).

Speaking on improving tax legislation, including primary steps, she mentioned convergence for taxation rules of business profits with methodological accounting principles. Tatiana Efimenko reminded that the Ministry of Finance proposed a new version of third section of the Tax Code of Ukraine "Income tax", which aims to solve this problem, to simplify procedure for business in tax reporting and tax administration. She invited USEI members to participate actively in discussion of this legal regulation.

An important part of reforms aimed to modernize national economy, according to the president of the Academy of Financial Management, is introduction of International Financial Reporting Standards (IFRS), which are implemented by the Ministry of Finance of Ukraine and other national regulators in accordance with Art. 12 of the Law "On Accounting and Financial Reporting in Ukraine". IFRS are introduced in legal framework of the state. However, given the risks of ambiguous understanding and interpretation of similar terms translation in IFRS and national legislation, firms’ financial director and chief accountant are offered to be more familiarized with the IFRS introduction experience and organizing issues discussion that arise when performing accounting under IFRS in tax reporting preparation, resolving commercial disputes in courts etc.

Ukrainian Society of Industrialists and Entrepreneurs, which contributed actively with document provisions development, also sent recommends to the Cabinet of Ministers of Ukraine about the state program, formed as a result of business experts and reflect the real economy needs. President of USEI, MP of Ukraine Anatoly Kinah offers to focus on intensification of competitive domestic production. "This can be achieved by implementing strong import-substitution programs and production localizing under targeted programs testing, including through implementation of the State program of domestic production development, approved by the government in September 2011", - said Anatoly Kinah.

Second priority area of ​​concern is restoring the real economy crediting by reducing the borrowed funds cost, including through commercial banks refinancing. Document should clearly identify incentives for small business in form of subsidies on costs for exhibition activities, the VAT payment postponing mechanism on equipment imported into the territory of Ukraine, lower interest rates and more.

Program should also describe measures to enhance export potential of Ukraine. In difficult times of crisis domestic producers should feel state’s help, as they emphasize in USEI. Efficient export infrastructure should be created with advanced system of risk insurance guarantees which are crucial for the Ukrainian companies’ participation in tenders for exports supply. Equally important areas for government to pay attention are corporate business security, protection of owner, the investor. This actually are the issues that affect investment climate in Ukraine, says the leader of industrial and business community.

However, part of businesses representatives and leading experts rather critically expressed themselves about proposed project. Deputy Director of the National Institute for Strategic Studies Jaroslav Zhalilo on the First Business Channel said that the State program to activate the economy is overloaded with partial small benchmarks on how much of which products should be manufactured in Ukraine in 2013-2014. "I think that in the case of reformatting the program, the fact of successive steps aimed at economic growth activation, shall contribute restoring economic growth and reaching good performance dynamics in 2014. This should take place simultaneously with restoration of the global economy activity with which we are significantly dependent" - Jaroslav Zhalilo said, noting that the state program should clearly focus on the domestic consumption and investment development.

Recognized economist Victor Lissitzky in comments to UNIAN said that content of the program to activate economy will not ensure economic development in near future. In his opinion, authors’ mistake is that the draft document has no evaluative comparisons with indicators of nearest neighbors such as Poland and Turkey, with which Ukraine has relatively similar economic conditions and where reforms started a little earlier.

The Federation of Employers experts have joined the document discussion, they participated actively in interagency conciliation meetings to review document. Deputy Chairman of the FEU Council, head of the Supervisory Board of JSC "Vetropack Gostomelsky Glass factory" Dmitry Oleynik, in online Federation release have commented his opinion that the program project is not a systemic document: "Rather, it is a set of measures which in one form or another were previously offered by the government, business and the public. It almost has no breakthrough ideas and measures that would indicate a qualitative difference for this document and the others, which have already been addressed and taken previously, for example, the current State program of domestic production development. Moreover, proposed measures of state support for business in many areas do not match with the current economic and financial government policies".

Minister of Economic Development and Trade Igor Prasolov in TV interview said that the Cabinet intends to allocate around 30 billion USD for the State program to activate economy implementation. According to him, it goes only about state support without private investment.

It was also known that there are intentions to create a state development bank dealing with commercial banks financing under priority for the Ukrainian economy projects in order to fully implement the program this year. "It will involve private capital and, of course, commercial banks. There is a special program developed jointly by the National Bank and the Ministry of Finance, which will also be included in this program. It covers banking lending for main areas, where we can make great improvement, which subsequently leads to increased economic growth" - concluded the Minister.

The government meanwhile is preparing for the document implementation. Mykola Azarov has repeatedly emphasized that the state program will be Ukraine’s answer on issues hat exist in the world economy. We have to wait for its admission and implementation.

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