Thursday, October 22, 2009

In Ukraine: To Sign or Not to Sign? That is the Question.

by Tammy Lynch

Ukraine President Viktor Yushchenko has a big decision to make. What will he do about legislation that raises the minimum wage beginning in January 2010? The legislation was approved by parliament on 20 October and now sits on the president’s desk waiting for his decision. Will he sign it or veto it?

The wage increase (which also will affect pensions) was vehemently opposed by Prime Minister Yulia Tymoshenko, who referred to it as “an atom bomb under the finances of the country.” The International Monetary Fund also expressed concern.

An IMF mission currently is in Ukraine to assess the country’s progress on promised reforms in return for its $16.4 billion loan and to determine if it will release the next loan tranche. In a meeting with Parliamentary Speaker Volodymyr Lytvyn, IMF representatives questioned Ukraine’s ability to control its deficit while under the pressure of higher social payments. The country has experienced severed industrial output contraction this year and seen its currency devalue by over 25%.

However, the vote came just one day after the official start of the presidential election campaign. It provides its backers – in particular presidential candidate Viktor Yanukovych – a useful talking point against Tymoshenko, who is his chief opponent in the election.

Can you imagine the advertisements? “The Prime Minister won’t raise your minimum wage, but I will!” The legislation, of course, doesn’t explain where the country will find the money.

But what of President Yushchenko, who is running for re-election. For years, he has criticized Tymoshenko because of what he terms her “populist” nature. He has repeatedly called on the government to rein in spending, and just last month, suggested that the country was not meeting IMF guidelines because its policies were too populist.

In January of this year, he went so far as to call Tymoshenko’s budget a document built on “lies.” He said, “On behalf of the entire country, I demand that the government and parliament immediately prepare an honest budget, where expenditures correspond to the capabilities of the economy.”

Now, Tymoshenko is calling on Yushchenko to veto the minimum wage legislation, which passed with 254 votes (226 needed). If the legislation is vetoed, it is unlikely its backers could muster the 300 votes necessary to override the President’s veto.

But if he signs the legislation into law, the president has an opportunity to isolate Tymoshenko, making her the only presidential candidate to speak against providing higher wages to voters. The action would not be unprecedented. During his first campaign in 2004, Yushchenko promised higher pensions; they were raised during the first year of his administration.

So which Yushchenko will we see in the next few days – the fiscally conservative president who demands controlled spending, or the candidate who offers assistance to voters?

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