EU strategy for Kiev hinges on reforms

Date: 04/06/1998

By Mark Turner

UKRAINE'S Prime Minister Valery Pustovoitenko will call on the EU to devise a 'new comprehensive' integration strategy at his country's inaugural cooperation council in Brussels next week.

Kiev argues that enlargement to central Europe, the arrival of the single currency and internal reform are dangerously distracting the Union from crucial developments on its far eastern fringes.

"The EU is too engaged with those countries that have already applied," says Ukraine's EU ambassador Boris Hudyma. "We feel that there should be a long-term strategy towards the Ukraine, to show us where we are heading. We want to be within the EU's sphere of interest."

Hudyma was speaking only a day after Russia's economic crisis erupted last week, a crisis which, he says, demonstrated just how shaky the more eastern transition economies still are.

Ukraine itself had to jack up interest rates to more than 50% and is struggling to contend with collapsing infrastructure, huge debt and flagging political support for reform.

Once the bread basket of the Soviet Union, Ukraine's harvests have halved over the past decade and its infrastructure is creaking. EU experts describe it as a notoriously difficult place to do business, with local administrators often deliberately uncooperative or corrupt.

In one famous example, the country managed to benefit from two aid programmes from the World Bank and Tacis simultaneously, nominally using one to break down a public institution and the other to strengthen it.

This large country of more than 50 million people is dominated by regional power brokers who strongly resist reform, and its executive is severely constrained by a powerful Communist party which represents 15 million pensioners harking back to the old days.

And unlike Russia, Ukraine's President Leonid Kuchma does not have the power to overrule decisions in parliament, forcing him to bow to the populist agenda.

Nonetheless, EU officials acknowledge the positive rhetoric coming from Ukraine's diplomats and are keen to underline their support for their tentative reforms. They say they may even give Ukraine new macro-financial aid if Kiev agrees terms with the International Monetary Fund.

"We do already have a strategy for Ukraine," insisted a spokesman for Foreign Affairs Commissioner Hans van den Broek, in response to Kiev's accusations. "We hope to use this cooperation council to explain the extreme importance that the EU attaches to its independence and prosperity."

Officials say the country's priority now should be to implement its new EU Partnership and Cooperation Agreement, which came into force earlier this year.

According to the Commission, Ukraine needs to engage in wholesale structural reform of its energy sector (which spawned the 1986 Chernobyl disaster and could yet produce another), public administration, banks, large companies and agriculture. It also needs to amend laws on foreign investment, which currently discriminate in favour of local operators, and reduce import tariffs and restrictions.

Unless Ukraine takes immediate steps, warns the Commission, it faces financial collapse. New instability could destroy the limited but growing confidence that Ukraine's relatively stable currency and low inflation of 10% have engendered over the past year.

Next week's meeting is likely to be a slightly strained event as a result, with the EU trying to balance messages of support with warnings of harsh realities.

Ukraine is likely to complain bitterly about new visa restrictions imposed by Poland as it prepares for EU membership, and protest against its exclusion from the European Conference in March.

"I am afraid that enlargement will create new dividing lines in Europe," says Hudyma. "We understand that we are far away from our goal of full membership, but if you look at our economic development and stability, there is not such a big gap between us and our neighbours."

Ukraine will also ask to be taken off the Union's list of non-market economies alongside Russia, claiming that it is suffering badly due to anti-dumping duties.

But EU officials say there is little they can do until Kiev undertakes real and lasting market reforms. "Ukraine is in many ways seriously behind Russia," said one.