| Programmatic Adjustment Loan Project "These reforms are an irreversible process…" Creating the basis for economic growth and reducing poverty  No economy should economize on its own development. This is the main requirement of market capitalism—toward which Ukraine is moving as it tries to boost economic growth and eliminate pervasive poverty.
The key to improving people’s lives is to create a favorable business environment by reforming the country's legal and regulatory system and ensuring economic stability. To that end, the World Bank is supporting reforms in Ukraine. The country received its first large loan (US$ 250 million ) under the Bank's Programmatic Adjustment Loans (PAL) program in 2001. An equal amount was approved at the end of 2003. Introducing financial discipline and paying wages and pensions  The Ukrainian government received these funds to finance its budget programs only after it had met a number of agreed indicators—having managed, in particular, to clear arrears on wages, pensions, and other social benefits; to balance budget revenues and expenditures; and to reduce tax arrears.
"The greatest success is financial discipline," says Mark Davis, a senior economist at the World Bank. There were large debts for gas and electricity service. After the program was put in place, cash payments in this sector went up from only 8 percent to nearly 90 percent. Davis hopes to raise this figure to 100 percent. The program has also enabled the clearance of arrears in the payment of pensions, increasing the pensions' real value. Providing assistance to those who need it most, and abolishing privileges  With World Bank assistance, Ukraine has adopted laws to bolster the pension system, including the creation of non-state pension funds. It has also initiated a mortgage loan mechanism and set up a regulatory body to supervise non-banking financial institutions.
A number of measures to stabilize the financial sector have also been implemented. Partly as a result of reforms, during 2003 alone bank deposits increased by 67 percent and bank credits by 61 percent. The World Bank often urges the government to make unpopular but necessary decisions, such as the abolition of privileges. Corruption and lack of transparency take their toll on the most vulnerable segments of the population. Thus, while supporting the abolition of many privileges, the World Bank supports the initiation of targeted financial assistance only to those who need it. Alleviating rural poverty by developing agriculture and supporting land reform
Poverty is the most acute social problem in the country and remains at alarmingly high levels. Even though the number of citizens below the poverty line decreased from over 29 percent in 1999 to less then 25 in 2002, this drop is not all that remarkable when one takes into account the high rate of economic growth in the country during the same period.
Poverty remains the highest among rural citizens and the development of the agricultural sector and the World Bank–supported reform of the land-titling system should bring some relief . Reducing poverty by improving the business environment According to Oleg Kikavsky, the head of an private company, poverty in Ukraine can only be eliminated by facilitating macroeconomic growth, which can only happen in a competitive, transparent environment. He credits PAL with creating the basis for a market economy: "It will allow entrepreneurs to compete honestly." Oleg also points out that alleviating the tax burden and removing the pressures and obstacles facing entrepreneurs are important achievements of the cooperation between the Government of Ukraine and the World Bank. To give a few examples of the impact of the reforms: the period of time required for registering new enterprises was reduced from 38 to 5 days; the number of government inspections decreased by almost by half; and entrepreneurs’ regulatory expenditures went down by almost one-third. Reforms are now an irreversible process "We seek to create a basis for economic growth and to avoid a financial crisis," explains the Bank's Mark Davis. "These reforms are an irreversible process; no one can come in and undo what Ukraine has been able to do with the aid of the World Bank." Currently the government is considering reducing certain taxes to enable more investment capital to emerge and to help increase the budget revenues. The growth of Ukraine's economy by 33 percent over the past four years was made possible by the revival of old enterprises and the rapid development of new markets. However, the country now faces a new task: strengthening the positive trends in the economy and taking decisive steps to reform the regulatory system. Improving the business environment this way is crucial in order to achieve further growth. It would be the least desirable path at this point to return to strict regulations and increased governmental pressure. The choice is between stopping the process of economic modernization and persistently following the course of reforms to eliminate poverty and attain financial success. |
RSS