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Ukraine
>> Regional Overview >> Ukraine Overview
Previous Years' Activities
2002, 2001, 2000, 1999, 1998, 1997
Last updated: 32
(text taken from the FY 2003 Congressional Budget Justification)
THE DEVELOPMENT CHALLENGE: Ukraine's transition to a prosperous market economy has been difficult. At independence in 1991, it inherited an obsolete industrial base that was dependent on low-cost Russian energy supplies, and that was closely linked to other economies of the former Soviet Union. With the Soviet Union's collapse, Ukraine lost protected markets and cheap energy, and found it difficult to manufacture products that meet world quality standards. An agricultural sector in need of deep structural reform further complicated this situation. The Ukrainian Parliament's inability to organize itself has made it difficult to quickly pass reform legislation, and has strengthened the executive branch of government at the expense of the legislative and judicial branches. However, Ukraine has managed to avoid the serious social unrest that accompanied independence in other some former Soviet republics.
Poor economic and political choices made in the mid-1990s further delayed Ukraine's democratic and free market transition. Hyperinflation in 1994-95 and the 1998 banking crisis wiped out most Ukrainians' savings. This period resulted in wage and pension arrears, barter trading, and the further weakening of the fiscal base as economic activities migrated from the formal to the shadow economy.
Official GDP in 1999 for Ukraine was only 35% of the 1989 level. Real economic growth in 2000 was 5.8%; and is estimated to be 9% in 2001. Inflation for 2001 is estimated at 6.5%. The GOU's budget deficit is 1.7% In the last two years, Ukraine's macro-economic stability and economic growth have improved remarkably. After nine years of contraction, Ukraine experienced its first real economic growth in 2002. This growth is expected to continue and perhaps increase in 2001. The inflation rate is the lowest in seven years. The Government of Ukraine's (GOU's) budget deficit is well within the International Monetary Fund's (IMF) guidelines. The GOU is in full compliance with the IMF Standby Agreement and Extended Credit Facility, and signed its latest Letter of Intent with the IMF in September 2001. Sector data showing broad-based growth in agriculture, industry and services, supported by improvement in exports, provide further evidence of a strong, broad-based recovery.
The financial sector is also showing increased ability to mobilise resources for private sector expansion. Interest rates, while high, decreased in 2001. However, credit risks remain high due to uncertainty over the rule-of-law. Consequently, foreign direct investment, critical for sustaining Ukraine's current economic growth rate over the longer term, remains weak. With better macro-economic management, rescheduling of debt, and evidence of economic recovery, some major international credit rating agencies have now upgraded Ukraine's international credit rating.
Ukraine's monetization ratio (Bank deposits/GDP) has risen from a low of 11% between 1991 and 199I to 17.5% in November 2001. In the last two years, commercial banks have doubled net lending to the private sector, and increased real lending by 80%. Ukraine's health statistics reflect the impact of nine years of economic decline. Life expectancy for both men and women has fallen. The number of HIV/AIDS cases is escalating rapidly in Ukraine, where AIDS deaths doubled from 1999 to 2000.
The population rated as "healthy" has declined from 54 % in 1995 to 46 % in 2000. Almost 42,000 Ukrainians are registered as HIV-positive. Health officials estimate the actual number to be closer to 500,000, or about 1 % of the population. Ukraine made significant progress on key reform laws in 2001. The new Land Code will help to develop a land market that is crucial to a more efficient agricultural sector. New codes were also passed for criminal and civil law, and customs administration. The Parliament also passed amendments to improve laws on political parties, elections, and the judiciary. This year's budget code contains provisions for intergovernmental transfer of funds, a key reform USAID advocated to support its objectives for local governance. Parliament passed a law on bankruptcy, which USAID advocated as critical to improve the regulatory environment for the private sector. These legislative accomplishments were exceptional, and reflect many years of effort by the Parliament, donor organizations and Ukrainian civil society. Despite these achievements, uch remains to be done to reconcile conflicting laws and to improve business regulation and tax administration. Judicial and regulatory institutions are notoriously weak, resulting in selective law and regulation enforcement. In 2000, Freedom House ranked Ukraine 15th of 27 transition countries for democratization, and 19th to 20th for economic reform. Parliamentary elections scheduled for spring 2002 will be closely watched for signs of progress in democratization.
Ukraine's strategic position between Europe and Eurasia, large population, and industrial potential make it crucial to regional stability. The United States has a national interest in helping Ukraine to develop a democratic, market-oriented, prosperous state founded on the rule of law that is better integrated into European and Euro-Atlantic institutions.
THE USAID PROGRAM:
FY 2002 Estimate: $154.20 million FY 2003 Request: $155 million The Program Data Sheets provided below cover the 13 strategic objectives for which USAID is requesting funds. These objectives focus on: supporting economic and fiscal reform; developing a market oriented agricultural sector, including the privatization of agricultural land; private enterprise development, especially small and medium-sized enterprises (SMEs); financial sector and commercial law reform; energy sector reform and restructuring; strengthening civil society, the media, and the electoral system; judicial reform; promoting more responsive and accountable local government; promoting good health and access to quality health care; and social insurance and pension reform. Several special initiatives are aimed at: anti-trafficking; women's economic empowerment; public education for market reform; economic development in the Kharkiv Region; Polish-Ukrainian partnerships to share knowledge and experience on SME development, local government, and cross-border issues; the application of remote-sensing and geographic information systems technology to environmental problems; and a Small Business Loan Program and strengthened economic education and research capabilities. FY 2002 funds will be used to implement on-going programs in all of these areas. The Mission is now developing a new strategy that is likely to entail fewer and more focused strategic objectives.
OTHER PROGRAM ELEMENTS: The Europe and Eurasia Bureau supports a program on mother-to-child transmission of HIV/AIDS. The World Health Organization provides a grant for tuberculosis control, and the POLICY project for reproductive health. USAID/Ukraine participates through a buy-in to the centrally managed Eurasia Foundation for its economics education program and for small research grants. Other centrally managed activities include the E&E Bureau Utility Partnership and the National Association of Utilities Commissioners.
OTHER DONORS: The European Bank for Reconstruction and Development (EBRD), with a diversified portfolio in enterprise development, privatization, financial sector assistance, infrastructure, and energy, is the largest donor in Ukraine. The World Bank ranks second, with its portfolio concentrated in public sector management, community development, institutional development and rural finance. As Ukraine's largest bilateral donor, followed by the European Union-Technical Assistance to the Commonwealth of Independent States (EU-TACIS) program, USAID is concentrated in institutional, legal and administrative reforms, economic reform and private sector development and the social consequences of transition. Germany and Canada provide assistance in SME development, agriculture and the energy and social sectors. Critical cooperation links are with the EU and Germany for the energy sector, the World Bank and the EU-TACIS for policy reform, the World Bank and the EU for the social sectors, the EBRD for SME development, and with Canada, Germany and the EU-TACIS for agriculture.
Program Data Sheets
- 121-0120 Increased Soundness of Fiscal Policies and Fiscal Management Practices
- 121-0130 Accelerated Growth and Development of Private Enterprise/A More Market Responsive Agricultural Sector
Includes:
- A More Market Responsive Agricultural Sector, 121-1130
- Privatized Enterprises Are More Competitive and Efficient, 121-2130
- Expanded Role of Small and Medium Enterprises in National Economy, 121-3130
- 121-0140 A More Competitive and Market-Responsive Private Financial Sector
- 121-0150 A More Economically Sustainable and Environmentally Sound Energy Sector
- 121-0160 Increased Environmental Management Capacity to Promote Sustainable Development
- 121-0210 Increased Better-Informed Citizens' Participation in Political and Economic Decision-making
- 121-0220 Legal Systems that Better Support Democratic Processes and Market Reforms
- 121-0230 More Effective, Responsive and Accountable Local Government
- 121-0320 Increased Promotion of Good Health and Access to Quality Health Care
- 121-0340 Mitigation of Adverse Social Impacts of the Transition to Market-Based Democracies
- 121-0420 Cross-Cutting Objectives
Country Background Information Resources
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State Dept. Country Information
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Last Updated on: May 29, 2002 |
