Agreement on budget

Prime Minister Viktor Yanukovych announced that President Viktor Yushchenko has signed the 2007 state budget into law. This means that the two branches of power have at last met each other halfway. They have clearly made peace, but this raises a ticklish question: are they wiser now?

The prime minister, the cabinet, and the parliamentary coalition accepted the president's demand to increase pension allocations in the state budget. The president does not mind that the government will not do this immediately but only when it reviews the budget after the first quarter of next year. "The budget will be revised right after the first quarter, and pensions will be increased if and when possible," Yanukovych explained last Friday.

Just a few days ago the two branches of power had radically different positions, and it looked more like a confrontation than cooperation. Still, Prime Minister Yanukovych and First Vice-Premier and Minister of Finance Mykola Azarov said more than once that the president would finally sign the budget. According to a source close to the government, the cabinet estimated the likelihood of the budget being signed at 90 percent and the resistance of presidential staff hawks at only 10 percent.

The coalition team demonstrated quite a high level of organization and speed. Once the "gentleman's budgetary agreement" between the prime minister and the president became known, the Verkhovna Rada resolved that the cabinet should submit a bill on revising the subsistence level and minimum wages. Out of 429 MPs present, 376 voted in favor, including 185 from the Party of Regions, 81 from the BYuT, 58 from Our Ukraine, 28 from the Socialist Party, 20 from the Communist Party, and 4 independents.

It should be recalled that the BYuT and OU factions comprise 129 and 80 parliamentarians, respectively. Naturally, the "no" voters were unable to change things, but their position should still be taken into account. For example, BYuT faction member Oleksandr Turchynov said from the podium that "the president exchanged the budget for Drizhchany" (that same day parliament approved the president's decision to fire the head of the Security Service) and noted that this was a "non-equivalent" exchange. Turchynov thene He He HrTurchynov called upon parliament to pass a law, not a resolution, and emphasized that otherwise "this will just be a Mickey Mouse contract intended to cover up the deal struck on Bankova Street."

The resolution states that after estimating the GDP for 2007, the cabinet must submit a bill to parliament on amendments to the state budget in order to raise the subsistence level for disabled persons to 397 hryvnias by April 1 and 406 hryvnias by Oct. 1.

The government was also instructed to draw up a bill - after summing up state budget revenues for the first quarter of 2007 - to raise the minimum wage to 420 hryvnias on May 1, 430 hryvnias on Aug. 1, and 460 hryvnias on Dec. 1.

Banks fear restrictions on hard currency loans

Ukrainian banking industry opposes the central bank's plans to impose restrictions on foreign-currency loans.

In a statement after an Association of Ukrainian Banks meeting, the AUB said: "Bankers stressed that the measures stipulated in the draft [document] are too radical and strict... Bankers are convinced that any measures introduced to reduce the volume of foreign-currency loans should take the real state of the national economy into account."

The participants in the meeting agreed to continue consultations with the central bank to ensure adoption an "optimum decision" on restrictions on hard currency loans.

The central bank has repeatedly stated plans to impose restrictions on foreign-currency loans, which account for 64% of the total volume of private loans and 34% of corporate loans.

VAT poses a security threat

The situation with VAT compensation threatens Ukraine's national security, said President Viktor Yushchenko at a meeting of the National Security and Defense Council of Ukraine.

The president reminded that today VAT has not been compensated to enterprises in the amount of UAH 7.2 bn, which by 1.7 times exceeds these figures at the beginning of the year. Yushchenko noted that 42% of this amount was not compensated in September-October. He added that the issue of VAT compensation and passing down a court decision on this issue is being ignored. "There is tremendous subjectivism and impunity," noted Yushchenko, adding that it seems as though those running the country's main tax body consider themselves to be gods and that they can do whatever they want.

The president stressed that this is an issue of national security because such a situation with VAT directly influences the country's economy. He said that "it is a direct lever for cooling down Ukraine's economy" and if this continues in this way the planned growth rates will be cut in half. After all, no other European democratic country faces a similar problem as the tax system there works electronically. In Ukraine there is over centralization and the practice of so-called "telephone law" seems to on the comeback.

Ukrainian-Russian relations: road map for a minefield

Ukraine and Russia seem to be taking an increasingly constructive approach to tackling thorny problems. Both Kyiv and Moscow are showing interest in cooperation. This particularly concerns the joint efforts of Russia and Ukraine to provide energy security in Europe.

This spirit of constructiveness was palpable during last Friday's meeting in Kyiv of the Yushchenko- Putin Commission set up almost two years ago. The two sides signed five cooperation agreements and seemed to take certain steps or at least announced an intention to address other, more acute, problems. Following his talks with Russian President Vladimir Putin, President Viktor Yushchenko of Ukraine said he is convinced that with goodwill both sides can find mutually-acceptable solutions to all outstanding problems.

Some signs of headway were the presidents' discussions of such acute subjects as border settlement. According to the Ukrainian president, this should be one of the key issues of cooperation in 2007. Yushchenko announced that within two or three weeks the two countries will work out an action plan for 2007-08 and draw "a road map of basic measures to resolve complicated problems," such as border delimitation and demarcation, and the Strait of Kerch.

Yushchenko also named another set of problems, namely, the stationing of the Russian Black Sea Fleet in Ukraine. This mostly concerns such topics as land, real estate, radio frequencies, and navigation. The presidents of Ukraine and Russia suggested that economic cooperation be viewed as a separate set of problems. In Yushchenko's view, this entails cooperation in aviation, the fuel and energy complex, the humanitarian sphere, international cooperation, etc. The Ukrainian president favors drawing up a clear-cut plan of action, a "road map" of sorts, for 2007-2008, which will clearly define specific issues of cooperation.

On his part, President Putin called for more active cooperation between Russia and Ukraine's regions. During the meeting Putin said that regional and cross-border ties have received an impetus in the last while. The point is to fully implement the programs of interregional and cross-border cooperation until 2010, he noted. Russia and Ukraine are pursuing the same goal - building a single Europe without dividing lines. Putin also noted that this requires both countries' more active collaboration in international institutions and on a bilateral basis.

As for the Black Sea Fleet problem, the Russian president pointed out that Russia has not changed its attitude in the last ten years or so. "We want the fleet to be able to function adequately as a factor of greater security in the region and a more profound Russian-Ukrainian partnership," Putin said. The whole set of Black Sea Fleet problems can be solved if both sides take reasonable account of each other's interests, the Russian leader added.

Putin also noted the importance of humanitarian cooperation. He said that Russia and Ukraine intend to explore the possibility of celebrating the 300 th anniversary of the Battle of Poltava in 2009 and the 200th birth anniversary of Nikolai Gogol. However, this raises the question of how many Ukrainians will react to the 300 th anniversary celebrations of this battle, which is a thorny and controversial question in Ukraine's history.