Tuesday, October 25, 2005

Ukraine Discusses Spending Windfall Funds

KIEV, Ukraine -- Lawmakers on Tuesday argued over how to spend the massive windfall earnings from the privatization of Ukraine's flagship steel plant - the single largest foreign investment ever for the former Soviet republic.

Ukraine's Verhovna Rada or Parliament

The world's largest steel producer, Mittal Steel, acquired Kryvorizhstal for 24.2 billion hryvna (US$4.8 billion, euro4.04 billion) Monday, well above what analysts had predicted. The sale of the mill, which produces 20 percent of Ukraine's entire metal output, is equivalent to about 20 percent of this year's anticipated budget revenues.

Ukraine has no experience with receiving such a windfall, and lawmakers are divided over whether to use the money for social needs, cover the budget deficit or to develop the country's economy.

"We are creating a mechanism so that this money is used to benefit every Ukrainian," President Viktor Yushchenko said, according to his office.

He mentioned a number of projects, including modernizing apartment buildings, offering support to villages and developing high technology and science.

Finance Minister Viktor Pinzenyk said the government also plans to cover the budget deficit and pay off state debt. However, Socialist and opposition lawmakers, who opposed the sale, proposed compensating Ukrainians who saw their bank savings wiped out during the Soviet collapse.

"Money must be given to Ukraine's people who really owned Kryvorizhstal," said opposition lawmaker Nestor Shufrych.

"Every Ukrainian citizen must feel that the state sold their property and everyone must receive something from it," said Socialist lawmaker Mykola Rudkovsky.

Others pleaded for restraint.

"The main thing is not to eat up the money instead of putting it toward economic development," said Kost Bondarenko, a political analyst at Kiev's Institute of National Strategy.

Pinzenyk insisted that all new spending would only be done within the framework of the budget, rejecting concerns that the money would be "eaten up."

"When we pay a salary to a teacher, we are spending money on the country's economic development," Pinzenyk told The Associated Press in a telephone interview.

When the mill was first sold off in a murky deal in 2004, Ukraine received five times less. That sale to former President Leonid Kuchma's son-in-law Viktor Pinchuk and tycoon Rinat Akhmetov was annulled earlier this year.

Oleksandr Peklushenko, an ally of opposition leader Viktor Yanukovych, argued that the money should be used to improve the country's investment climate, but he warned the government not to hurry to spend it.

The mill's former owners still have legal appeals pending before the European Court of Human Rights. Mittal Steel also still has 60 days to deliver the cash.

Economics Minister Arseniy Yatsenyuk warned such a huge influx of cash into the economy could trigger inflation.

Monday's televised auction was hailed as a huge success for President Viktor Yushchenko, who held it up as a show of transparency. Pinzenyk said it should be a good sign for investors.

"I hope it will become a new era of privatization in Ukraine," he said.

Source: AP

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