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. Last Updated: 07/27/2016

Ukraine Aims for Loan With New Budget Plan




As Kiev prepares to host the annual meeting of the European Bank of Reconstruction and Development, Ukrainian President Leonid Kuchma has promised to force through "unpopular'' budgetary decisions during next week's opening of parliament.


He also said his state-of-the-nation address would touch on the need to "radically change the tax system.''


Kuchma's government plans to submit a new budget at the May 12 opening of parliament with the aim of reducing the deficit and securing a crucial International Monetary Fund loan of about $2.5 billion.


Kuchma has pledged to reduce the deficit to 2.5 percent of gross domestic product from the 3.3 percent approved by the outgoing parliament, a key IMF condition.


He is expected to lower spending and raise income, the latter to be achieved through tax changes, removal of privileges and other measures which he called "unpopular,'' Interfax reported Tuesday.


Officials also have promised not to cut payments for social programs and to tackle the backlog in wage and pension payments -- an effort to appease communists who have one-quarter of the seats in parliament.


Conflicts between Kuchma and parliament, and sluggishness in the executive branch, have blocked economic reform, growth and investment in Ukraine.


Kuchma also promised changes in the government and said 90 percent of regional administration leaders would be dismissed.


A senior official said Tuesday that Ukraine's inflation rate jumped to 1.3 percent in April, compared to 0.2 percent a month in February and March.


Inflation for the first four months of 1998 was 3 percent, presidential aide Valery Litvitsky said, according to the Interfax news agency. Litvitsky based his data on the State Statistics Committee's figures.


Inflation in the country has declined steadily since reaching more than 10,000 percent in 1993, and the annual rate dropped to a post-Soviet low of 10.1 percent.


But despite lower inflation and a relatively stable hryvna currency introduced in 1996, Ukraine has been slow to implement the structural reforms needed to attract investment and spark economic growth.


The country's leaders are looking for help in the form of credit agreements expected to be signed during the EBRD's eighth annual meeting, which starts this weekend.


In particular, the two sides are discussing an 80 million ecu ($88.6 million) loan to support small and medium-sized businesses, said Roman Shpek, director of the National Agency for Development and European Integration.


Another agreement to establish an energy-saving company called UkrESKO is being drafted, and EBRD funds may be used to build an oil terminal at the Yuzhny port in the Odessa region.


Other loans could target the wine-making industry in Crimea and southern Ukraine, Shpek said, adding that a total of 26 projects with the EBRD's participation are under way or being planned.


Ukraine became the second largest EBRD borrower in 1997 with a total of $670 million worth of credits, Shpek said.


As for borrowing on foreign capital markets, Ukraine's Finance Minister Ihor Mityukov said the former Soviet republic will decide only after talking to investors during the EBRD meeting.


Ukraine soon will issue another Eurobond -- its third this year, he said.