Statement by Godfrey Gaoseb at the meeting of May 20, 1999

International Bank for Reconstruction und Development International Development Association 87388 International Finmce Corporation l\1ultilateral Investment Guarantee Agency FOR OFFICIAL l;SE O!'."LY CONFIDENTLAL EDS99-154 May 19, 1999 Statement by Godfrey Gaoseb Date ofMeeting: May 20, 1999 Ukraine: Country Assistance Strategy Progress Report We appreciate the work of the Bank staff in preparing this second Country Assistance Strategy Progress Report for Ukraine. We are also grateful to the OED for its Country Assistance Review for Ukraine, which was discussed at the meeting of the CODE last week. These two documents present a comprehensive summary of the economic, social, and political developments in Ukraine in recent years, as well as the challenges facing Ukraine as the country pursues its reform agenda. As a result of the unfavorable economic situation and the prevailing political environment in the country, we are being presented with a second progress report instead of a full CAS. We support this approach, as we believe that it is imperative for the Bank to deepen its dialogue with the Ukrainian authorities in order to address both the immediate and longer-term economic challenges. There has been considerable success in trade liberalization, privatization, and financial sector restructuring. We, however, note with concern, the continued decline in the overall economic activity since independence, with a fall in GDP estimated at 60 percent between 1991 and 1998 and poverty increasing at an alarming rate. Accelerating the implementation of the structural reform programs is a clear imperative if this situation is to be reversed. Drastic measures should be buttressed with international support, including access to the international capital markets and foreign direct investment. We welcome the success in the implementation of Ukraine's privatization program in Ukraine and note that a large number of small, medium and large enterprises have already been privatized. Remarkable success has also been achieved in the financial sector, evidenced by the establishment of the Central Bank and the introduction of a national currency. It is noteworthy that efforts are being made to improve bank supervision and to enable the sector to respond effectively to emerging problems. 1Ths document has a restricted distribution and P.lJ.Y be used by recipients only in the p~rformJ.r.ce of their officiJ.l duties. Its contc::nts m.:y n~Jt othenvise be disclosed without _:~:' rld Bank ::tu tho ri. z :1 r: ,:; r. _:_ ________________________________ ____________.  Despite the difficult overall environment, we note that about 13 out of the total portfolio of 16 projects are rated satisfactory. However, we are concerned about the slow pace of reform in agriculture, a sector with tremendous income and export generating potential. We urge the Bank to deepen its dialogue with the authorities to reform this sector. We support the lending scenarios and triggers. We would, however, caution the Bank to exercise flexibility in applying these triggers. We endorse the focus on non-lending services, particularly in the area of public education and the outreach programs targeted to government officials and parliamentarians. In this connection, we would like to know more about the role the World Bank Institute is playing. We believe that the Institute can play a role in broadening the understanding of policy issues as well as in canvassing consensus for the reforms. The importance of country ownership of the economic reform process cannot be over emphasized, as structural reforms are more likely to be successful with the country "pulling" rather than the Bank "pushing". Although this is a progress report, we would be interested in hearing more on donor coordination, as this is one of the issues highlighted in the CAR. What actions are being taken to address the overlap and duplication in the activities of donors in Ukraine? We expect that the Bank, together with the other donors, will focus on a public enlightenment program, and collaborate in helping Ukraine put its economy back on track. We are also pleased to note that the Bank has developed a pilot program aimed at building integrity at the municipal level through strengthening the voice of citizens' groups in demanding better governance and services. We hope that the Bank will closely coordinate with the other relevant bodies in this regard. The risks enumerated in the document are serious and require special attention by the Bank. With respect to the operations, in particular, we believe that the Bank and the Ukrainian authorities could work out satisfactory arrangements to step-up the project approval and effectiveness processes. This would enable the country to obtain the necessary assistance in a timely manner. Finally, we wish the Ukrainian authorities success in their efforts to address the daunting challenges of reform.