Thursday, April 14, 2005

Some government action

I don’t know what to make of this but there have been some actions by the government that are not market oriented. Some of them are:

--The Rada approved the appointment of a socialist, Valentyna Semeniuk, as head of the state property fund. She does not have a history of being pro-market and pro-privatization. The state property fund is in charge of privatizing state businesses. One of the big businesses still set to be privatized is UkrTelecom, the Ukrainian telephone company. It was set to go last year but then it was to be this year. With this appointment, it might be much later or never. If this means that privatization will be slowed or stopped altogether, that could affect the budget. It also still leaves portions of the economy in state hands. That is good neither for the economy nor for the people in the long run.

--The government has halted the steep rise in gasoline prices by putting restrictions on the mark-ups of refineries and retail outlets. The limit is 15% over costs. This is price control pure and simple and, though I am not an economist, it will not benefit the economy in the long run.

The government also instituted a ban on the export of diesel fuel in an attempt to keep the prices down in the Ukraine. More state intervention.

--The state is set to make purchases of beef and pork in the amount of 500 million.
This meat will then be sold by the government through state enterprises at low prices. Meat prices have been going up quite steeply in the past few months. We have been hearing that the government was instituting policies that would bring the price down. But we had heard it would be through a decrease in import duties. That may still be what they are doing and this purchase might be a short-term way of getting the price down as we move into the Easter celebration. But it is obviously not a market method.

--The government is set to reduce the electricity tariff paid by agricultural producers by 20%. Energy is quite heavily subsidized by the government here and lowering the rate paid by these producers will mean the government will have to make up the shortfall. So it will just be subsidizing the energy costs even more. This is not something that will directly affect people like the cost of meat for Easter or the rise in gasoline prices. But it could be a bid to stop rising prices without injuring the agricultural sector by doing something like lowering tariffs. But again this is more government interference in the economy.

I don’t know why the government is doing all of this. It could affect the entry into the WTO and won’t look good for EU accession. Maybe though they are just trying to give the people some evidence that their lives have changed for the better, some kind of short-term strategy. But if it is more than this, it will only delay the reckoning. Eventually, state enterprises will have to be privatized, the prices of gasoline and meat will have to be left to the market and energy will need to be paid for by those who use it.

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Thanks for the update, though not of it is good news in terms of moving to free market. Is it protectionism with an eye not to lose the March 2006 elections? Or have the socialists run amock? - Moroz seems to be a powerful figure in the creation of this coalition gov't though his party following is small.

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