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. Last Updated: 07/27/2016

Ukraine Election Lifts Economic Hopes

ReutersA Ukrainian woman reading campaign posters covering a billboard in central Kiev ahead of the parliamentary election Sunday.
KIEV -- Ukraine's economy, finally on the road to recovery after a decade of recession, is likely to get a strong boost when voters elect what could be the country's first "bourgeois" parliament on Sunday.

Economists and analysts say Ukraine, independent since 1991, has its first real chance to form a centrist working majority in parliament as leftists lose their elderly power base and the country sheds its communist past.

They believe the new chamber will become an engine for the economic stability that has so far evaded the country of 49 million people.

It should inject some energy into what has been a half-hearted reform program, analysts say.

"This parliamentary election will differ from all previous polls. I think it will be the first parliament that could be called bourgeois," said Oleksander Suhonyako, head of the Ukrainian Banking Association.

"It means parliamentary deputies will create favorable conditions for business activity. That's why we can expect that the general economic situation in the country will improve," he said.

On the surface, Ukraine's economy is doing well.

Gross domestic product grew a record 9.1 percent last year helped by stronger exports, growing domestic consumption and a good grain harvest. In 2000, GDP rose by 5.8 percent.

Inflation is low and the hryvnia currency seems stable.

But people remain desperately poor, with salaries averaging $40 a month. Unemployment is high, the shadow economy is flourishing and corruption is widespread.

The unofficial economy is estimated to be about the size of its official counterpart, and Ukraine is rated one of the world's 10 most corrupt nations by Transparency International, a Berlin-based anti-graft watchdog.

Most major industries are obsolete and companies lack funds for modernization and restructuring.

Budget revenues constantly fell below targets and the International Monetary Fund has suspended its $2.6 billion three-year loan program. It is unclear when talks with the IMF will resume.

Many blame the outgoing parliament for the snail's pace of reform as the fragmented chamber was more focused on a battle of wills with President Leonid Kuchma than on passing key laws.

But analysts hope for a fresh start, saying the new parliament will be less leftist than its Communist-dominated predecessor.

"We are rather optimistic and hope for a better situation after the election," said Andriy Dmitrenko, an analyst at the Dragon Capital brokerage in Kiev.

"The Communists will be weaker, and they will not able to influence economic policies in any serious way," he said.

Analysts said reforms kicked off by Viktor Yushchenko, who headed the government from December 1999 to April 2001, were behind the current impressive growth. But, they warned, the positive impact was vanishing and the first signs of slowdown were becoming obvious.

"The government headed by [Prime Minister Anatoly] Kinakh has not made any serious strategic steps in reforming the economy. It has been rolling down a road paved by Yushchenko," Dmitrenko said.

Official figures showed that the rate of industrial output growth slowed to 3.5 percent in the first two months of 2002. In the same period a year ago, the rate was 16.7 percent.

Economists said nonpayments and obscure barter schemes had returned to the economy, raising doubts over recovery prospects.

Few believe that Kinakh will manage to stay in his post after the election. His removal could pave the way for the new parliament and president to agree on the appointment of a more reformist and decisive government.

Analysts said the government needs to develop a strong domestic market and cut its dependence on exports. Exporters currently account for about 60 percent of GDP and are a major source for hard currency revenues.

But they have been hit by lower world prices for steel and chemicals -- Ukraine's major exports -- and U.S. trade sanctions on metals and footwear imposed after a dispute over CD piracy.

An important role for the new parliament would be to make progress in key areas like tax, pension and land reform. Parliament passed a law last year allowing Ukrainians to buy land from 2005. But the sale of land would be legal only once deputies approve a set of laws to regulate the property market.

Parliamentarians have started considering new legislation on tax and pension reform but have made no decisions.

Privatization is another priority for the country, which faces a peak in foreign debt payments this year and next.

The government plans to sell its crown jewels this year -- 12 power utilities and the national telecoms monopoly, Ukrtelekom. But to ensure the tenders' success, Ukraine needs to set transparent rules and stop talk about resales, analysts said.

But they believe steps will be made in the right direction.

"Many businessmen are running for parliament this time. There will be some lobbying and talks about state protectionism but they care about their businesses and see a need for reforms and the entire country will benefit," a Western banker said.