“The Government must immediately stop mooching on VAT non-repayment to exporters and utter a public statement on documenting the overdue indebtedness” – S.Stoianov, Director General, Ukrainian Agrarian Confederation

The VAT-refunding issue has driven many up the wall in Ukraine. This concerns both a number of branches of the national economy and some business entities. What worries me is the agricultural sector. The very sector of Ukrainian economy that, for the past two years on the row, has been showing a positive trend in output growth, earning hard currencies for the coffers, as well as carrying half-Ukraine on its broad shoulders.

However, the resources for maintaining this trend have been already run out. The spring sowing season is just around the corner, and the agrarians are in short of more than UAH 12 billion to carry it out. It appears to be impossible to directly help them out with money or resources like it happened in the earlier years. I do not believe it will be possible to use appropriate banking credit facilities. The latter won’t be available.

The search for a way out will unavoidably bring us to the market of grains and vegetable oil crops whose stock as of March 1, 2010 totaled 12.8 and 3.1 million MT, respectively, including 6.3 and 1.1, correspondingly, in the storage facilities of agricultural enterprises. And that is only according to the official data provided by DerzhKomStat (Ukrainian State Committee of Statistics. – editor’s note)

Those grains and sunflower seeds must be sold by agrarians to the exporters and processors at the maximally possible prices and, concerning grains, in the maximally possible amounts. This, as I have to stipulate at this point, is to avoid breaking down of the national food security.

However, the aforementioned markets, particularly that of grains, are in a depressed state. This results from low activity of the grain traders drained of funds because of VAT non repayment, on which UAH 3 billion are overdue. The grain traders do not have hryvnias, they are not willing nor capable of purchasing grains for hryvnias. They have been buying grains in the sea ports for hard currency, which decreased our grain export down to 1.3 million MT last February. The decline, no doubt, will continue further on.

Unless the Government steps in__ No, not the way the Government is used to and is able to meddle in.

In order to resuscitate the grain market and extract from it the most of available resources, redirecting it to agriculture, the Government must immediately stop mooching on VAT non-repayment to exporters, particularly, by reason of the above, in relation to agricultural products.

The first step toward withdrawal from this “mooching” is to re-establish, by personal ordinance of the Prime Minister to Ministry of Finance and State Tax Administration, a clear and fair – without any exemptions or “whims” (it’s not the time for them!) – repayment of the current indebtedness on VAT to the exporters of agricultural products. The amounts of due repayments declared by the exporters of agricultural products as of December 2009 can be taken as a basis to this end. This is because these due amounts are supposed to be verified by Monday, March 22, and thus become overdue as of this date. The value of “December export VAT” on grain and vegoil amounts to UAH 600 million. If repaid, they without delay will go the market, to the goods producers!

And – from month to month – follow this line and never retreat from this approach!

Yes, precisely in the “manual mode”, we have to start living by law. Because just in this manual mode, trampling on the law, the previous Government was driving the agrarian market into a deadlock. Let them call me an “agrarian lobbyist”, but I assert – there is no other way, since there won’t be enough money for all at once!

Only this turn of events can commence recovering the faith of the grain exporters in“their” Government (note by the author: the experts refer to the current Government as the “government of exporters”), and, which is more important, revive the market, not only and not so much in the current season, but generate hope for the prospective marketing year. The hope, of which there is no trace of at the present time!

Only this way it will be possible, by the end of the marketing year, to achieve an optimal amount of export and optimal prices for grain sold by grain producers during spring sowing season with respective peak demand for resources – both financial and material ones.

Only after these actions of the Government, there will appear a minimal hope that our traders will be able to take a decent position on the external market for the new harvest, and that the grain conveyor “field-(grain elevator)-sea port” will not get bogged down at the start of the reaping season.

If the Government takes the “road of self-correction” as described above, the agrarians will receive in the neighborhood of UAH 2 billion of extra financial resources by July 1, and that’s just after resuming a fair VAT repayment.

Foreseeing a barrage of criticism, I believe that this is the maximum the Government can do as a result of taking the “road of self-correction”, i.e. – I repeat – immediately starting repayment of VAT arrears according to the current claims of the exporters of agricultural products.

This will be the maximum unless the Government “scrapes the bottom of the barrel” of the National Bank of Ukraine! Unless it lends an attentive ear to quite possible and soon-to-come IMF recommendations concerning “VAT problem” solution! And – in the end – unless it is sincere and fair toward the agrarian sector!

Because definitely it won’t be lethal to borrow a certain sum of money from the gold and foreign currency reserves for financing the Agrarian Fund on forward purchases of grains. Provisionally. On a repayable basis. Only to help with sowing. Let those reserves be “materialized” in the grains for some time! After all, didn’t they borrow from the gold and foreign currency reserves for the payments against the natural gas invoices?!

Or why not arrange – provisionally and on a repayable basis as well – a special purpose refinancing of the government-owned banks, e.g., for credit financing of the sowing needs?

One way or another, we reap as we sow. And this time the results of this “reaping” – meaning those of management – will be under responsibility of the current, new Government, whose efficiency of actions and decisions will – just now, in April-May – predetermine how the agrarian sector, and the whole economy as well, will find a way out of the situation, and what trends will dominate.

Recurring to the subject of VAT, I think, the main part of the state’s indebtedness will unavoidably be subject to restructuring for about five years term. Obviously, while the “budget process – 2010” is on, the Government has to utter a public offer to the business sector on repayment of the overdue indebtedness, just like it happened in case of the Bill on State Budget for 2004, via amortization bonds of the domestic government loan.

Roll on!