by Myroslava Luzina

The democratic coalition agreement, signed by the Yulia Tymoshenko Bloc (BYUT) and the Our Ukraine bloc on November 28th, was devised as a blueprint for action of a newly-formed Orange government in Ukraine. The document addresses a variety of themes, and reflects a compromise between a liberal political force with strong free market ideas (Our Ukraine), and a more populist force emphasizing the role of the state in economic development, though conscious of the benefits of the free market (BYUT).

The document is primarily free-market oriented. Further privatization of state-owned enterprises remains on the agenda and the program also foresees a state-directed elaboration of development programs for Ukrainian industry, which demonstrates that the state will try to keep its hold on this sector of the economy. The effect of these efforts may to a degree be offset by the stated aim of combating corruption and streamlining the institutional framework within which the private sector functions. A large state role is envisioned around efforts to increase the competitiveness of the Ukrainian economy. Competitiveness is meant to be buttressed by increased investment activity and a focus on encouraging innovation, through support for science and a focus on developing human capital.

What may actually improve the competitive environment is the intention to start the process of legalizing shadow capital while at the same time introducing Western principles of corporate governance and transparency of ownership structures, which would make actual market configurations clearer and easier to navigate. Active monitoring that would ensure fair competition on the part of both Ukrainian and foreign companies is also envisioned.

The future government plans to provide state guarantees of inviolable property rights. Recognizing the importance of realizing Ukraine's economic potential, the program contains a number of steps aimed at creating a favorable investment climate and providing incentives to entrepreneurs. Addressing the long overdue need to modernize the Ukrainian taxation system, the program has as one of its goals to change tax policy from fiscally-oriented to market-stimulating. The tax system is to be brought into agreement with EU legislation and WTO norms, and codified. While the program declares the aim of creating a uniform legal environment for entrepreneurial activity, there is at the same time a proposition of streamlining the tax system so that protection of Ukrainian enterprises is ensured.

The agreement also includes plans for investment in key strategic industries to ensure competitiveness through innovation. The program foresees allocation of state resources to such "priority" spheres as infrastructure development, energy, and high-tech. Other positive investment-oriented measures include: ensuring reliable institutional protections for investors; ensuring a strong innovation component in investment flows, which may mean more favorable conditions for capital directed to innovation-intensive branches; creating an effective system of investment risk insurance; stimulating investment by establishing accelerated rates of amortization; removing restrictions on foreign capital inflows "while keeping in view national security considerations"; simplifying the regulatory framework for investment; and encouraging the creation of corporate and mutual investment funds.

Plans in the financial sphere include pursuing an anti-inflationary policy and keeping inflation at a stable and predictable level, which is meant to lead to a decrease in prime rates and more active investment. Monetary restrictions will give way to market-based methods of managing aggregate supply and demand and combating non-monetary inflation factors. Ukraine’s National (central) Bank will be charged with the task of limiting excessive liquidity by issuing more securities and government bonds with an attractive interest rate. The future government is also planning to reduce the proportion of available cash currency to the total money supply by encouraging bank transfers and card payments.

The document supports establishing international standards of securities registration. Developing the secondary market for securities and derivatives should invigorate the Ukrainian stock market, which the future coalition believes should become a stronger link in the country's financial sector and capital flows.

The urgent need to modernize Ukraine's infrastructure is reflected in the document: the strategic position of the coalition is that a greater proportion of the state budget should be directed into building and maintaining the communications, transport, and utilities infrastructure. The likely ruling coalition’s energy policy will aim to reduce dependence on a single energy supplier, diversifying both transit routes and sources of energy. Energy policy will be coordinated with the European Union; cooperation with Russia and Central Asian countries is to be "mutually profitable", ensuring energy supplies on the basis of long-term transparent agreements without shadow intermediaries. The government plans to reduce the energy intensity of Ukraine's GDP and to switch to an energy-efficient national economic model. Energy-saving projects will be financed from the state and local budgets; the government will try to commercialize energy-saving technologies and encourage production and use of alternative energy sources and biofuels. It is also envisioned that Ukraine will expand its own basis of raw (fuel) resources, intensifying oil and gas exploration and production, and creating elements of its own nuclear fuel production cycle.