Thursday, November 11, 2010

A letter to IMF from Ukrainian businessman

publicaffairs@imf.org
RR-UKR@imf.org

To Whom It May Concern

I am a private businessman engaged in publishing and online book trade in Ukraine.

As you are aware, this year Ukraine entered into a Stand-By Arrangement (SBA) with the International Monetary Fund. The mission of the IMF headed by Mr Thanos Arvanitis is currently here and is described as quite successful in its talks with the Ukrainian Government.

Understandingly, we are not informed by the Government of all the requirements imposed on Ukraine under the SBA. However, the government officials continuously report in the press that all the legislative novelties, in particular, the Tax Code under discussion in the Ukrainian Parliament, directly result from or imposed on by the IMF requirements.

I have to say that the draft Tax Code is generally regarded by the Ukrainian small-business community as draconian and aimed at eliminating the small business in the country. This very realization has already caused numerous protests all over the country. More protests are planned for November 16 when the Parliament is to approve the Code.

It is common knowledge that the small businesses make the backbone of any civilized economy. It generates self-employed people who do not depend on the state support and do not seek one.

Small businesses are still thin on the Ukrainian ground. Such a fragile community would require specific attitude in good times. At times of an economic crisis with its shrinking activities, lesser demand and higher prices, the need to help small businesses is crucial as it is small businesses that make countries all over the world successfully recover of the economic calamity. According to SME and Entrepreneurship Outlook, OECD, 2005, In OECD countries, SMEs represent 95% of all enterprises, accounting for two-thirds of employment and being the main source of new job creation. As such, SMEs in many countries around the world are the major source of economic recovery and assist the return to sustainable growth.

It is then surprising the the IMF seems (or is so reported) to approve all the economic moves of the Ukrainian Government with respect to small businesses. It is even more surprising to realize that the IMF seems (or is so reported) to press the Government to complicate the terms of business in the economy which is still far from being an embodiment of liberal approaches.

Among its provisions, the mentioned draft Code narrows the applicability of a so-called Simplified Procedure of Accounting and Reporting (SPAR) introduced in 1999 to foster small business development that gave millions of Ukrainians a chance to switch from the state employment to self-employment.

The Code complicates the reporting, lowers by half the threshold for a small business to operate under the SPAR, gives more powers to tax inspections, raises the tax rate thrice the current amount, introduces new payments to the pension fund, etc.

It is not just feasible to list here all the new taxation provisions the Code introduces and the IMF seems (or is so reported) to approve of.

Unfortunately, I do not represent any small business association, but I believe that the IMF mission should not just meet the government officials but listen to those who in their everyday activity try and make Ukraine a prospering, modern and sustainable economy.

Best regards,

Oleksandr Voroshylo

successfully sent to all the above addresses Nov. 11, 2010, 12:43

Tuesday, August 31, 2010

German investment is sought after in Ukraine, but will it listen?

Ukrainian President Viktor Yanukovych said during an official visit to Germany on Monday that he hoped to see an increase in German investment in his country.

The Ukrainian president told journalists in Berlin that Germany had invested some $6 billion in Ukraine's economy since the collapse of the Soviet Union in 1991, while investment in Russia was "ten times higher."
"It is very little for Ukraine, especially since Ukraine is closer to Germany geographically [than Russia]," he said.

Tuesday, April 27, 2010

Gas deal: still many things are unclear

President of Ukraine Viktor Yanukovych and President of Russia Dmitriy Medvedev agreed to apply a 30% discount to the price formula for gas imported to Ukraine from Russia. However, according to Astrum investment management experts, the absolute amount of this discount is capped by USD 100 per 1,000 cubic meters. The discount comes into effect as of 2Q10. The parties agreed that Ukraine will import 30 bln cubic meters of natural gas in 2Q10-4Q10 and 40 bln cubic meters in 2011. According to our estimates, the discount for the price formula essentially means that Ukraine will obtain imported gas for USD 233 per 1,000 cubic meters in 2Q10, for USD 245-255 in 3Q10, and for USD 255-265 per 1,000 cubic meters in 4Q10. As Ukraine has already imported as much as 6.5 bln cubic meters of natural gas in 1Q10 at a price of USD 305 per 1,000 cubic meters, the average price for imported natural gas in 2010 should be close to USD 260 per 1,000 cubic meters, up 24% compared to the average 2009 price of USD 210 per 1,000 cubic meters.

What remains less clear is the physical volumes of gas to be imported in 2010. The parties agreed that Ukraine will import 36.5 bln cubic meters in 2010, including the 6.5 bln cubic meters already imported in 1Q10. However, our estimates show that 33 bln cubic meters of imports will be enough for the economy. If the 33 bln cubic meters option materializes, then Naftogaz will have to pay USD 2.3bln less for the imported gas. However, if Ukraine indeed does import 36.5 bln cubic meters of gas in 2010, the total 2010 imported gas bill should amount to USD 9.3-9.4 bln, which is only USD 1.4-1.5bln less than the scenario envisaged according to the previous agreement although Ukraine will import an additional 3.5 bln cubic meters. We think that the latter scenario is more probable and downgrade our external trade deficit forecast for 2010 from USD 2.3bln to just USD 0.9bln. We also adjust our current account forecast for 2010 from a deficit of USD 0.5bln to a surplus of USD 1bln.

The impact of the new gas accords on internal gas prices remains unclear. As the average 2010 imported gas price should still be 24% higher than the 2009 price, we expect that there will not be any significant gas price cuts for industrial consumers. We see the most likely scenario is the freeze of these prices throughout 2010. At the same time, the issue of gas price increases for households and municipal utilities is still high on the agenda. We maintain our view that the government will still have to increase these prices in 2010. However, the government is likely to negotiate with the IMF about a residential tariff increase in 2010 which should be much less than the 95% cumulative growth we previously envisaged. Thus, we put our inflation forecast for 2010 under review.

Friday, April 9, 2010

Russia suspends duty-free imports of Interpipe's pipes

Astrum

Since April 1, the Federal Customs Service of the Russian Federation started levying duties on imported pipes of Interpipe due to the lack of agreement on the size of 2Q10 quota for dutyfree imports. The final decision on the quota prolongation and its size should be approved on April 15.

In the case that there is no positive decision on the prolongation of the duty-free import of Interpipe’s pipes to Russia, the Group’s sales should go down significantly.

In 2009, Russian pipe market accounted for up to 40% of the Group’s sales, while Interpipe controlled Nyzhnyodniprovsk Pipe (NITR: U/R) and Novomoskovsk Pipe (NVTR: BUY) sold to Russia 46% and 26% of their pipes.

Monday, April 5, 2010

China may give opportunity to Ukrainian steel makers

The projected increase in procurement prices of iron ore for Chinese steel makers will be favorable for Ukrainian steel makers.

According Steelguru, Vale, Rio Tinto and BHP Billiton, the world's leading exporters of ore, reachred agreement with Japanese steel company Nippon Steel and Sumitomo Metal Industries regarding 90% increase in price for iron ore to $ 100-110 per ton at the II quarter of 2010, with subsequent quarterly review.

Chinese steel makers consume about 75% of total world iron ore traded. Syncom Capital investment company forecasts that if they are “convinced” in a similar price increase for iron ore, then China may become netto-impoter of steel in next months, especially considering substantial increase in prices for coke for China.

This created possibilities for Ukrainian steel producers to increase their market share in world steel market.

Saturday, April 3, 2010

Portnov becomes Yanukovich's lawyer

Interfax

Ukrainian President Viktor Yanukovych has signed a decree on the appointment of Andriy Portnov deputy head of the presidential administration in charge of legal reform and judicial system.

The decree was posted on the presidential Web site on Friday.

Portnov is a member of the parliamentary faction of the Bloc of Yulia Tymoshenko. He was Tymoshenko's representative at the Supreme Administrative Court in a suit challenging the Central Election Commission's decision to declare Yanukovych the winner of the presidential race.

Friday, March 26, 2010

yanukovich warns of a new vote

Reuters

Ukrainian President Viktor Yanukovich said Friday he would call a snap parliamentary election if a court ruled that the creation of the ruling coalition broke constitutional rules.

Parliament amended the rules on forming coalitions earlier this month, paving the way for the new government of Prime Minister Mykola Azarov -- a close ally of Yanukovich who was elected to the top post last month.

Former Prime Minister Yulia Tymoshenko, a bitter rival of Yanukovich in the presidential election, had called the amendment a "constitutional coup d'etat."

"If the decision of the Constitutional Court will be that the coalition was formed illegally, then I will take a decision on a snap election," Yanukovich told a delegation from the European Parliament.

"I will never go down the path of breaching the constitution that is in force."

Yanukovich said the Constitutional Court had already begun reviewing the case. It was unclear when it could issue a ruling. On urgent matters the court rules within weeks but on matters deemed less urgent it can take months or even longer. ...
 
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