Statement by Ivan Rivera at the meeting of May 20, 1999

Int~mJtional B;:mk fur Re-construction and Development Int::rnational Development Association 87391 Int\?mational Finance Corporation \1ultilatc-ral Investment Guarantee Agency FOR OFFICIAL t'SE O~LY CONFIDENTIAL EDS99-156 May 19, 1999 Statement by Ivan Rivera Date of Meeting: May 20, 1999 Ukraine: Country Assistance Strategy Progress Report We welcome this CAS Progress Report. Ukraine is at the crossroads. In the coming years the country needs to take bold measures to reverse its downward economic and social spiral. The current strains in Ukraine call for a dramatic change in policy. We think that parallel to the adoption of sound macroeconomic policies, comprehensive reforms must be launched in key areas. In our view, there are four prerequisites necessary to revive sustained growth in Ukraine: ,. '. i. To enact and enforce a legal framework to observe contracts becomes the starting point for any market economy. This, together with "lighter" regulations and tax frameworks, is required to incorporate the unofficial economy representing today a 46% share of the total, by far I . the highest figure in FSU and Eastern Europe. ii. Privatization: The CAS Progress Report does not offer a clear and focused strategy in this regard. So far there has been no legislative confirmation of a line-up of enterprises for privatization. To launch a new privatization scheme will signal the government's decision to accelerate reforms. Sector Work on privatization methods and experie-nces in LAC and CIS and the necessary regulatory framework are required. iii. Prudential rules for the Banking Sector to halt the emergence of delinquency loans. ~er measures to correct and strengthen financial systems should be incorporated in the CAS With a sense of urgency. iv. . Inflation, a tax on the poor, should be controlled. There is no possibility to preserve a Cle<hble strategy or any hard-won gains if inflation is not abridged. Although the number of satisfactory projects is 13 (81%), implementation has .. ·s c\ :urr,ent has a r:.:stri-::tcd distril:;ution md may be used by recipients only in thel :\V 1 .. -.J)erfom - .. _,.of·h ·-·-~- -l.~lr ot:t.:u, .Jut::::s. I[s ,~Jntents mJ·; not oc :::r.'.lSc "·: 1 · ~- · 1 · · h 'h out I · t d'rsc l ose d wtt 4- or,d B 1:-1:·. J.lJth.>rizJ~i -_·: · I -?:· - ----------- - - - - - - - - - · - - - - - · - - - - - - __rl · deteriorated: for the ongoing 12 projects at the end of 1998, only 4 were considered non-risk, with a disbursement ratio significantly lower than the ECA region average In sum, the lack of necessary consensus for crucial structural reforms (like in the energy sector, coal industry), the limited support to the expansion of private sector initiatives and the absence of commitment from the public sector (executive and legislative branches, among other actors in the economy), to deepen structural reforms augur a sombre future for sustained economic and social progress in Ukraine.