Privatization Gathering Steam in Ukraine

Momentum is building in Ukraine to radically re-launch privatization after President Leonid Kuchma succeeded last week in winning parliament's approval for his economic reform program and the IMF agreed Wednesday to lend the struggling nation $371 million.


The communist-dominated parliament, however, has been reluctant to give the final go-ahead for a Russian-style sell-off.


"The situation at the moment is that we could either push forward with privatization at a very fast rate, or we could slip backward and the process would be frozen entirely," Yevgeny Grigorenko, who heads the Ukrainian government's committee on privatization, said in a telephone interview from Kiev.


Grigorenko said that the government is close to completing a plan under which privatization would be as rapid as it has been in Russia, with all of the country's 70,000 to 90,000 small enterprises sold off by the end of 1995. Privatization of an estimated 10,000 medium and large enterprises would be completed within three years.


The plan would mean a major turnaround for Ukrainian privatization, which has been in the doldrums since parliament slapped a moratorium on sell-offs in July, seeking to put land and sectors like transport and energy out of bounds.


Although Ukraine's privatization program got under way as long ago as late 1992, less than 10 percent of enterprises, representing less than 5 percent of the work force, have been sold.


Grigorenko said that parliament's moratorium must be lifted before new legislation, which is nearly ready, can be introduced to push privatization forward. If the parliament stalls further, he said, Kuchma may be forced to rule by decree.


"The president has two options," Grigorenko said. "One is to try to convince parliament to allow changes to the law that would speed up privatization.


"The second is one of conflict with the legislature, where he would simply have to do what he thinks necessary."


Analysts say, however, that parliament is softening its opposition and that a showdown is increasingly unlikely. Olexander Moroz, the usually hostile speaker of the Ukrainian parliament, Wednesday expressed support for the president's program.


Another leading conservative, Prime Minister Vitaly Masol, last week signed a number of decrees aimed at achieving macroeconomic stabilization. These included unifying the country's exchange rate and liberalizing energy prices.


"There is no credible opposition to Kuchma's reform plan," said Simon Johnson, a professor at Duke University who works with the Ukrainian government in Kiev. "Kuchma has a huge amount of political support and he's in a honeymoon period where he can pretty much do whatever he wants."


"Parliament has responded very well on stability issues and we can expect similar on privatization," he added.


Melissa Meeker, an economics researcher with the council of advisers to the Ukrainian parliament, said that conservatives were now likely to acquiesce even to significant levels of foreign investment.


"Even the unreformed communists have conceded that their economy will not come out of this predicament without Western investment," she said.


While some jewels have already been snapped up, in particular the Black Sea Shipping Company, analysts say that the country boasts a wealth of investment opportunities that will attract outsiders.


Companies like AT&T are already active in the telecommunications industry in Ukraine, which analysts say is set to grow as rapidly as it has in Russia. Hi-tech military industries, transport, non-ferrous metals, chemicals, real estate and tourism in Crimea are also frequently cited as investment targets.


Ukraine, with a population of 52 million, is facing daunting economic problems. Production fell by 40 percent in the first quarter of this year compared with a year earlier, and the country's budget deficit is predicted to come in at 20 percent of GDP. The total value of the economy currently amounts to a mere $30-$35 billion.


Analysts, however, are optimistic about the potential for rapid change.


"The Moscow bureaucracy, with all its byzantine ways, was left in Moscow and that's a big advantage," said Johnson. "Things are a lot simpler and quicker to do here."


"Another advantage Ukraine has is that it's going second. The Ukrainians have the opportunity to avoid making some of the same mistakes Russia did."


So, while government officials say their new plan for Ukrainian privatization is modeled heavily on the Russian experience, there are significant differences.


According to Grigorenko, the U.S. government is printing sertifikaty, or paper certificates, that will replace the privatization accounts opened for each citizen when privatization began in late 1992. The inflation-indexed accounts are currently worth around 1 million karbovantsi ($13) each.


The certificates will be used, like the Russian voucher, to purchase shares in enterprises. They will differ from the Russian voucher, however, in that they will bear the owner's name and can be used only for buying shares in a company by the individual named on the document.


"They cannot be bought, sold and exchanged as they were in Russia," Grigorenko said. "In this way we will protect the interests of the poor and the ignorant."


Discussions continue, however, on the slice of shares that should be given to management and employees to ensure their support for privatization.


"What's probably going to happen is that the employees for political reasons are going to get the opportunity to take a 51-percent stake," said Robert Foresman of the International Finance Corporation, a branch of the World Bank that provides assistance to the privatization programs of Europe's former communist states. "The remainder will go to open voucher auctions for the general public, with a percentage going to strategic outside investors."