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| >> Regional Overview >> Ukraine Overview | |||||||||||||||||||||
IntroductionUkraine's successful transition to a democratic society and market economy continues to be highly important to U.S. national interests. A strong, independent, prosperous, and democratic Ukraine could serve as an important strategic partner for the United States. Such a partnership would promote stability and security, expand commercial and economic relations, and address critical cross-border issues such as health and environment in the region. U.S. assistance seeks to enable Ukrainians to build an economically strong, independent, democratic country, and to support Ukrainian plans to associate closely with Europe and forge stronger ties with the West. Development ChallengeWith the re-election of President Kuchma to a second term, appointment of one of the most reform-minded leaders in Ukraine as Prime Minister, and some prospect for a constructive majority coalition in Parliament, Ukraine's reform program initially offered new signs of life after a two-year period of election-related deferral. Unfortunately, expectations have only been partially met, more in the economic rather than the political arenas. Economic performance in 2000 was encouraging and Ukraine showed positive real GDP growth (6 percent) for the first time since independence. The current account improved from 2.7 (1999) to 3.97 (January-September 2000) percent of GDP. Efforts by the Ministry of Finance (MOF) to formulate and execute a more realistic budget resulted in a budget surplus of about one-percent of GDP. The Government of Ukraine (GOU) also made important structural changes to the budget, including a decrease in non-cash operations and a sharp reduction of payments arrears on government wages and social benefits, and the virtual elimination of pension arrears. Moreover, the new Budget Code was passed in March and will significantly expand fiscal decentralization by outlining formula based transfers from the central to local governments, hence increasing budgetary transparency. Progress implementing macroeconomic policies and fiscal systems appropriate to a market economy accelerated somewhat in 2000 and the GOU met International Monetary Fund (IMF) fiscal targets. High level political scandals and the weakness of reform forces against entrenched monopolists have dealt heavy blows to the initial optimism of 2000. Instead of a new advance toward political and economic reforms under Prime Minister Yushchenko, vested interests have joined centralists to reassert executive prerogatives and stifle critics. The President continues to fight with the Parliament in pursuit of constitutional changes that would enlarge his powers even more, and he first fired, then arrested, a key Cabinet minister who reformed the energy and mining sector to improve payments. Inhibitions on free speech are headline themes, as the murder of journalist Georgy Gongadze has sparked a crisis that could bring down the Kuchma government. What seemed a reasonable hope that small steps could acquire momentum now seems much less reasonable, given the political crisis that has erupted following the release of secret tapes implicating the President. Deep divisions among members of Parliament and the distractions of the crisis stall decisive legislative actions. An opposition has been formed, but it is politically diverse, since both friends and opponents of reform are calling on Kuchma to leave office. Optimists see a chance that the growing numbers of demonstrators, and the breadth of the pro-reform and anti-presidential front, could mean an outcome that would be a victory for reform, or at least, for a wider and stronger pro-reform coalition. Despite the political crisis, considerable progress has been made this year in USAID's program and this fact, plus the possibility outlined above that the current crisis could, in fact, bolster pro-reform elements, makes USAID's continued assistance at current or even higher levels essential. Reforms in the agricultural sector were accelerated in 2000 and 2001 with two exceptions, namely (1) the imposition of marketing restrictions on wheat commodity export licensing through exchanges; and (2) the continued failure to abolish the 23% export tax on sunflower seeds. Successes include the abolition of collective farms, a quickened pace of rural land privatization, withdrawal of the GOU from supplying production inputs, government interference in agricultural credit, and government restructuring of agricultural tax debt. Policy reforms stimulated growth of private farm and plot holder agricultural production and the disappearance of barter as a payment mechanism. This led to the first gross agricultural production increase in ten years. The reforms also stimulated the private and public sectors to establish a mechanism to resolve farm debts accumulated in the mid-nineties. Improved agricultural economic performance should continue because growth of private sector production will continue to outpace the production decline on former collective farms. With USAID assistance, over 922 collective agricultural enterprises have been restructured into more than 18,000 small and large-scale private farms, and over 4,000 agro-industrial enterprises have been privatized. Partly due to USAID's assistance and advocacy efforts, private enterprise development activities also performed well, with over 90% of all small enterprises in Ukraine now privately owned, providing employment to more than 660,000 people. In addition, more than 10,000 of the approximately 11,000 medium and large enterprises in the country have been privatized and USAID is now focusing on improving their corporate governance practices. USAID's small business initiative continues to progress as expected. The prospects for effective small and medium enterprise (SME) development in Ukraine remain favorable. Based on a Presidential mandate, the State Committee on Regulatory Policy and Entrepreneurship (SCRPE) has the authority to challenge all legislation and regulations unfavorable to business development. By the end of 2000, SCRPE had challenged approximately 136 regulations and laws deemed harmful to business development and had 95 of them overturned or modified, exceeding original expectations. The ability of SCRPE to have such persuasive authority is a significant step and should pave the way for the removal of many constraints to SME growth.. Moreover, the GOU passed a law requiring all private enterprises to adopt International Accounting Standards (IAS), which is a major breakthrough for USAID's program and it is expected that around 13,000 firms will convert in 2001. The Parliament has become a focus of attention as it reorganized itself in 2000 to support the new Yushchenko government's reform agenda. While the coalition of political parties and independent parliamentarians is still in its formative stages, this development is viewed as a positive step, based on the practices of parliamentary bodies in other countries. Already this group has passed several significant measures that were requested by the Council of Europe -- including abolition of the death penalty. A number of laws and regulations were passed which will have a significant impact on the reform process. As stated above, the critical new Budget Code was passed which will have far-reaching consequences on reform. In addition, the USAID-drafted Law on Banks was enacted, which will expand the authority of bank supervisors. The Law on Licensing, Decree on Regulatory Policy, the Law on Collective Investment Institutions and the Law on Non-state Pension Funds will all greatly strengthen the financial sector. The second reading of the Civil Code took place and a final reading is expected shortly; a Draft Land Code is being prepared for the second reading; and a Draft Tax Code and a Draft Criminal Code are being prepared for the third reading. Significant progress has been made in the development of a more effective, responsive and accountable local government. Results are exceeding expectations as targeted municipalities demonstrate improved management capacity; citizens work together to solve priority community problems and identify opportunities for future development. These efforts demonstrate tangible improvements in service delivery and infrastructure, as well as more transparent city budgets and accountable local governments. Pro-reform civil society organizations (CSOs) are more visible and effective, due partly to USAID's strategy, which promised greater support to CSOs. Several have forged links with the Prime Minister's office, helping him analyze policy documents. He held an unprecedented public hearing to review - and criticize - his first year in office. USAID-funded groups have trained locally elected young deputies, and supported their efforts to lobby the national Parliament for greater local budgetary autonomy. With support from USAID-funded political trainers, some parties on the right and center-left have agreed to compete in the next parliamentary elections together. The Third Sector is stronger and better at fund raising, and more focused and effective in lobbying efforts for legislation favorable to non-government organizations (NGOs), thanks to USAID support, training, and partnering. There have been significant successes with USAID assistance in the health sector this year. The Health Information Systems and Management Reform (HIS) Program is an effective management tool to monitor vaccine use and immunization data in children's vaccination campaigns. It is an unqualified success with a nation-wide rollout completed. The Inter-Ministerial Commission on Climate Change (IMCC) was re-established in 2000 and elevated in status under the chairmanship of a Vice Prime Minister. With USAID assistance, the IMCC convened twice, reviewed and analyzed policy positions, and sent Ukraine's largest, most diverse delegation ever to the UN Framework Convention on Climate Change. The National Commission on Sustainable Development (NCSD) was also re-established and has received USAID assistance to analyze key policy positions and develop Ukraine's National Concept on Sustainable Development that will form the basis for a national strategy. USAID funds are supporting seven women's crisis centers (compared with three in 1999). The centers provide job skills training programs, legal consulting services and a public education campaign, as well as crisis prevention programs. These activities directly address the two key factors that have greatly increased women's susceptibility to trafficking: restricted economic opportunities, and violence against women. The Anti-Trafficking Initiative brought together the government and third sector through Trafficking Prevention Coordination meetings. As a result, the GOU formed a Trafficking Coordination Council within the Ombudswoman's Office. Other DonorsThe United States is one of the largest bilateral donors to Ukraine. Other donors include the World Bank, the European Union, the United Kingdom, Germany, Canada and the European Bank for Reconstruction and Development. USAID works closely with these donors to ensure that U.S. assistance programs are complementary and mutually reinforcing. Donors meet regularly to exchange views and information on joint activities and key developments. Ukraine's performance under an IMF Extended Fund Facility undergoes regular review to gauge progress on a range of macroeconomic and structural reform conditions, with implications for the full range of donor programs. FY 2002 ProgramThe U.S. assistance program will continue to promote economic growth, strengthen democratic institutions, and address critical social issues. USAID programs will foster a strong civil society, and private enterprise-led opportunities for employment and economic growth. Activities to strengthen the economy will support the continued improvement of fiscal management and the investment environment, adoption of IAS, the creation of a sound financial system, improved corporate governance, and the facilitation of small and medium business development. USAID will continue to facilitate the privatization of the electricity distribution companies, a major step toward the restructuring of the energy sector. USAID's assistance in agriculture will focus on land titling, the establishment of efficient agricultural markets, and working with small farmers in selected regions. Assistance with democratic institutions include the development of civil society, rule of law, anti-corruption, and effective local government. A CSO development program will be initiated as well, with support for citizen groups, think tanks, and other NGOs. Support to the development of an independent media will remain a priority, as will continued efforts to assure that elections are free and fair and increasing the capacity of local government to implement reforms and promote economic growth. Support for anti-corruption measures will play a more prominent role in U.S. assistance programs by encouraging transparent measures, reducing regulation, and promoting anti-corruption incentives. Social issues addressed through USAID assistance will include reform of the pension system, improvement in health care delivery, prevention and treatment of infectious diseases, addressing women's reproductive health needs, and strengthening the abilities of non-governmental organizations to fill gaps in the social safety net and to advocate for improved conditions. Improved health care service delivery is an important special initiative, emphasizing infectious diseases such as Tuberculosis and HIV/AIDS, women's and children's health, and medical partnerships between U.S. and Ukrainian institutions. The goal is to reverse the decline in the health status of Ukrainian citizens through prevention and improved, cost-effective health care. USAID will continue its support for the development of a more cost-effective national pension system and its humanitarian assistance programs, which cushion the impact of transition on vulnerable groups such as the elderly, the unemployed, the disabled, and institutionalized children. All of these USAID's objectives are inter-related. Absent the rule of law, economic growth is unlikely to occur even if other aspects of the investment environment improve. Likewise, without attention to the collapsed social infrastructure that has left many Ukrainians without services and resources, popular support for economic reform will be limited. Greater reliance on partnerships with U.S. organizations will help leverage additional U.S. assistance dollars and promote strong ties between groups in the United States and Ukraine. USAID also emphasizes the sharing and the application of lessons learned by other former Eastern Bloc countries further along in their transition, such as Poland. In addition to the objectives above, several special initiatives are also included in the FY 2002 assistance program for Ukraine. The Poland-America-Ukraine Cooperation Initiative (PAUCI) helps Ukraine benefit from Poland's transition successes. The Global Climate Change Initiative will assist Ukraine to develop the human, institutional and technological capacity to reduce greenhouse gas emissions. The Kharkiv Partnership Program will assist the district in accelerating regional economic growth by improving the investment environment, increasing private investment, and developing trade links with the U.S. private sector. The Anti-Trafficking Initiative is a multi-pronged program to stem the sexual trafficking of women, assist the victims, and prosecute those responsible for this crime. This request includes programs implemented by other U.S. Government agencies participating in technical cooperation programs with Ukraine through inter-agency transfers from USAID. They include the Environmental Protection Agency, Nuclear Regulatory Commission, and U.S. Departments of Energy, State, Justice, Commerce and Treasury. Activity Data Sheets
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