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Ukraine Economy Seen Heading in Right Direction


Since the December 2004 triumph of Ukraine's peaceful revolution and the election of Viktor Yushchenko as president, the new administration in Kiev has been vocal about the need to end corruption and curtail the effect of the country's oligarchs on the government.

Ukraine's economy has been doing relatively well for several years. Economic growth reached an impressive 12 percent in 2004 but is expected to slow to seven percent this year.

Structurally Ukraine's resource rich economy is much like Russia's. As in Russia, economic power is concentrated in the hands of just few big businessmen-oligarchs-who obtained their wealth by questionable means. Anders Aslund of Washington's Carnegie Endowment is a long time observer of Ukraine's economy. Speaking from Sweden, Mr. Aslund says it would be a mistake for Ukraine to redo its flawed privatization.

"I think it would be much better to try to get the oligarchs to pay up," he said. "To have a once only tax for what they've already got. Otherwise you get into an east German situation of loss of property rights being uncertain for a long time and nobody wants to invest under such circumstances."

Viktor Yushchenko addresses joint session of US Congress as Vice President Dick Cheney looks on
Mr. Aslund, who advised previous Ukrainian governments, says the new administration should be very careful in renationalizing privatized enterprises.

President Yushchenko, currently in Washington, has made the fight against corruption a centerpiece of policy. His economic priority is steering Ukraine towards membership in the World Trade Organization and the European Union. As a first step he is asking the United States and the EU to designate Ukraine as a fully functioning market economy.

"The non-recognition of the market based economy status for Ukraine is an anachronism," he said before a joint meeting of the U.S. Congress. "Ukrainian producers are deprived of the rights enjoyed by their competitors. The time has come to restore fairness."

Mr. Aslund says it is too early to pass judgment on this government's economic performance. But he applauds Mr. Yushchenko's campaign against corruption and his determination to achieve administrative reform.

"I think the prime issue really is reform of the state," he said. "And if that is the prime issue you don't expect the state to be very effective as a reforming machine in the meantime."

The big west European banks are very optimistic about Ukraine. They are anticipating a surge of foreign investment and continuing strong economic growth. They say the most immediate economic threat is rising inflation.