nij 179

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Issue No. 180. - July 3, 2000.
    Contents :
1. Slovakia : PRAYING FOR RECOVERY AFTER A BIG POLITICAL MISTAKE
       By Peter Mikes
2. Ukraine: USE AN OLIGARCH TO CATCH AN OLIGARCH
       By Ivan Lozowy
3. Estonia: ARTIFICIALLY CONSTRAINING SMALL BUSINESS
       By Valeri Kalabugin

Slovakia: PRAYING FOR RECOVERY AFTER A BIG POLITICAL MISTAKE
    By Peter Mikes
    The recent serious condition of the Slovak president Rudolf
Schuster shows how valuable this man is for Slovakia. Although
lots of Schuster opponents among the politicians of the goverment
coalition cannot forget his comunist past or don't agree with his
often irrational decisions- they do not have an alternative, a
second Schuster in case he dies or doesn't fully recover.
    On the other side, there is Meciar.
    By Slovak constitution, the president is elected the popular
vote, directly. There are other possibilities of what would
happen, should Schuster die. In the first round, prime minister
Mikulas Dzurinda and the head of Slovak parliament Jozef Migas
have to take the presidential authority. Then they must announce
the new presidential elections. How much time they have before the
announcement is unclear because the Slovak constitution is here -
as in many other cases- very vague. The fastest and most probable
interpretation of the constitution is that Dzurinda and Migas can
share presidential rights for two month and seven days before
holding new presidential elections.
    In the light of recent situation when it seems that Schuster
will not die, but it is still possible that he will not fully
recover and retake his presidential function, there is another
timetable. Six months after the day Schuster became ill and was
proclaimed unable to act as a president, the Constitutional Court
will anounce that the office of the president is free. Elections
must be maximum two month after that announcement.
    So in the case Schuster will not fully recover- if either he
dies or is not able to continue being a president- in Slovakia
there will be new presidential elections after at least two and
maximum 8 months. The situation is serious for the ruling
coalition and the possibility of Meciar fighting his way to the
presidential chair seems real. It is also clear that Meciar has
very big chancees to win- he is the most popular politician and
his only rival at the other side is Robert Fico, a young poltician
and head of political party SMER who has similar popular support
in the polls. But Fico is too young and would probably not take
part in the possible presidential race. Neither party of the
Slovak ruling coallition has a candidate who could be a equal to
Schuster, no politician can now be an equal counterpart to Meciar-
his support of 25-30 percent is followed by Fico's 18 and
Dzurinda's 13 percents. The polls are very important because they
show the popular support and the president is elected by the
people.
    The biggest mistake of Slovak govermental coalition was
allowing themselves to be unprepared for this situation. After
Schuster's victory and Meciar's defeat every government
politician was happy, but nobody was able to prepare a second man
who could come after Schuster. It was a big political mistake. Now
the ruling politicians are surprised and do not know what to do.
They have two possibilities- to hope that Schuster will fully
recover in 6 month and nothing hapens or begin to do what they had
to do after Schusters presidential victory- searching for a No.2.,
for a man who can be on equal footing with Schuster. But to build
up a new candidate, who can be a comprehensive counterpart to
Meciar in maximum 8 month is very hard- in 2 month it is
impossible. Nobody is in the sight and nobody seems to be able to
became a comprehensive counterpart to Meciar even in this maximum
allowance of 8 months. The third possibility for govermental
coalition is to minimize the rights of future president nd
strengthen the rights of goverment, in fear that Meciar would be a
new president. But for this action the govermental coalition needs
two thirds majority in the parliament and it is unclear whether
the coalition can find enough MPs On the other side it would be
dangerous because if the Meciar's party Movement for democratic
Slovakia {HZDS} wins next elections and forms their goverment, it
will be the goverment of HZDS who would then wield these powerfull
rights...
    So for Slovak democrats there is only to pray for Schuster
health and his fully recovery in 6 month . Were Schuster to not
completely recover in 6 month then they have to pray for the
coming of a new Mesiah, a politician, who could once again defeat
Meciar as Schuster did. But the number of political miracles in
one period is determined also by the politicians' abilities. The
abilities of the ruling Slovak politicians from govermental
coalition are not too high...                            *** Ukraine: USE AN OLIGARCH TO CATCH AN OLIGARCH
    By Ivan Lozowy
    If looks could kill, then there would have been blood on the
floor following a TV program last week which featured two of
Ukraine's best known oligarchs - Hryhory Surkis of Dynamo Kyiv
fame and Yulia Tymoshenko, former protege of Pavlo Lazarenko, now
languishing in detention in the U.S. The discussion, if it could
be called such, reveals much about Ukraine's prospects for making
headway toward a market economy. The very term oligarch implies
antithesis to the market. It is the huge amounts of capital and
other economic resources amassed in the hands of about a dozen
individuals which stifles economic expansion. Today, an accepted
axiom is that the only way to make money in Ukraine is through the
budget. This involves pervasive corruption, which drives Ukraine's
present oligarchic economy.
    The two heavyweight oligarchs who traded insults in front of a
national audience last week have much in common. Surkis oversees
a wide-ranging empire ranging from his base of the Dynamo Kyiv
football team, which forms, among other things, the basis of a
private customs service, to agriculture and publishing. Tymoshenko
amassed a fortune as the lead manager of United Energy Systems of
Ukraine, which was granted a monopoly in the natural gas market by
Pavlo Lazarenko during his stint as Prime Minister from 1996 to
1997.
    Yet their stories diverge. For the past several years, Surkis
has concentrated most recently on using his economic resources to
gain political power. The party he backs, the Social Democratic
Party of Ukraine (united) is among the most influential in
parliament. One of Surkis' key partners, Deputy Chairman of
parliament Viktor Medvedchuk is already being groomed for the post
of president in 2004. Another partner, Oleksandr Zinchenko, heads
up Inter, one of Ukraine's three largest TV stations.
    Tymoshenko, on the other hand, has been locked out of the
oligarchic loop since at least 1998. Her benefactor, Lazarenko,
has just been sentenced in absentia to 18 months in prison in
Switzerland. Though she and Lazarenko formed the Fatherland party
together, it is now fully controlled by Tymoshenko. With this
party Tymoshenko began a gradual shift toward the
national-democratic side of the political spectrum. Fatherland's
political advertisements play up national pride. Tymoshenko
herself, though coming from Russian-speaking eastern Ukraine, has
learned Ukrainian, which she now uses exclusively.
    For Tymoshenko, the real break with her past came following
last year's appointment by President Leonid Kuchma of Ukraine's
first reformist Prime Minister, Viktor Yushchenko. The former
Chairman of the National Bank of Ukraine went on to tap Tymoshenko
for a newly created post, that of Vice Prime Minister for the Fuel
and Energy Complex. In this post Tymoshenko has been busy. A new
structure she has proposed envisions eliminating barter and credit
operations, returning to an open, cash-only trading exchange
system which, she says, would eliminate the windfall profits
garnered by, among others, Surkis and company.
    During their mutual exchange of enmity during last week's TV
program, Tymoshenko stated clearly what she has set out to do. She
alleges that Surkis controls at least seven Oblenergos, the
regional energy companies which provide electricity to the
population. In the past, the Oblenergos effected payment in cash
at a rate of only 6% of outstanding debt, blaming insolvency on
presumed lack of payments by end users. Tymoshenko's scheme would
place responsibility squarely on the oblenergos, wiping out
hundreds of millions of dollars of profits which were funnelled
out of the system. Small wonder that Surkis was enraged. During
the TV debate, he brought up a plethora of incidents from
Tymoshenko's past in an attempt to discredit her - a brief arrest
for holding undeclared cash, her company UESE's tax debts, her
ties to Lazarenko and implication in laundering money. Yet most
observers agree that Tymoshenko won the public relations side of
the debate. She concentrated on the task before her, which she
portrayed as setting order to Ukraine's multi-billion dollar
energy market, which made Surkis' jibes look mean and petty.
Surkis' own looks, which include a facial scar and mannerisms
associated with street gangsters, did not help. The debate between
the two (one of them possibly former) oligarchs carries strategic
significance to Ukraine as a whole. The oligarch problem is
sufficiently serious that most analysts see Yushchenko's reformist
government replaced by an oligarchic one, which would be a first.
The SDPU(u) is considered particularly dangerous in this regard.
As one banker puts it, if the SDPU(u) comes to power, it will be
for a hundred years. The president, Leonid Kuchma, seems unaware
of the problem. He recently complemented Surkis on building up an
internationally accliamed football team, disregarding the fact
that Dynamo was a football powerhouse long before Surkis got a
hold of the team.
    Kuchma's semi-detachment aside, the struggle which stands
behind the debate carries apocalyptic significance for Ukraine.
Yushchenko's government has moved quickly in the half year since
its appointment to finally transform all collective farms into
private associations, eliminate 25% of accumulated debt on pension
payments, put together a tax code which would practically
transform Ukraine into a tax haven. The planned reform of the
energy sector under Tymoshenko's guidance is sweeping. All this
government reform activity, so new to Ukraine, spells disaster for
the vested interests which comprise the oligarchs. Surkis and
Tymoshenko were slugging it out on national TV not as oligarchic
competitors, but as representatives of the forces of good and
evil. Whatever the eventual outcome, Ukraine has already won from
the fact that the battle for a better future has finally been
joined. *** Estonia: ARTIFICIALLY CONSTRAINING SMALL BUSINESS
    By Valeri Kalabugin
    Aleksander, a 52 year old designer, registered himself at the
Estonian Tax Board as a private entrepreneur. In 1999, however, he
earned nothing with his private business, because in the beginning
of January he took a job of programming engineer at a software
company. His only income during the whole year was his salary. The
taxes for his salary were duly transferred by his employer each
month. His private entrepreneur's declaration for the year 1999
contained zeroes only. Yet the Tax Board told him that he owed the
State a considerable sum of money.
    The reason was that, considering his income from business
undertakings being equal to zero, Aleksander did not pay the
so-called advance tax payments. Every natural person-entrepreneur
in Estonia must quarterly pay approximately $120 - a sum that
makes up half the monthly net income of an average Estonian. In
case of small profit - that is, if it turns out that the total sum
of advance payments by the end of the year has exceeded the amount
to be paid -- the Tax Board returns the difference. However, if
the advance payments were not made in time, the interest starts
growing. And this interest is not returned even if the
entrepreneur has earned nothing.
    These rules do not originate from 1993-1994 when Estonia
started its transition. At that time, it was decided to choose the
low taxes policy and to give the green light to private business.
A flat 26% tax was established. Later, however, the state started
making difference between the big and small business, making
favours to the former and harshly treating the latter.
    SOCIAL TAX: A PLAYING-GROUND FOR SOCIALISTS?
    Apart from the income tax, all wages and salaries in Estonia
are subject to the so-called social tax. This tax puts a private
entrepreneur in obvious disadvantage against a joint-stock
company: wages and salaries make up just a small part of a big
company's turnover, while in the case of a private entrepreneur
all the net income is taxed.
    The income tax is rather flexible in Estonia. It sets some
minimum yearly net profit (approximately $500) exempt from
taxation. Also, persons under 18 are released from the income tax.
Not so with the social tax: it is rigid and it is higher: 33%.
    The unfavourable conditions of an individual entrepreneur were
further toughened by the new Social Tax Law passed by the Estonian
parliament before the last elections, in January 1999. The lefties
dominated Commission on Social Affairs prepared and the left
majority in the parliament approved harsh amendments that made a
great number of poor, single, unemployed and elderly people to
escape the tax pressure by striking off the register. Abolished
was the exempt of social tax in case of a small yearly income
(under 15 minimum month wages). The requirement of advance
payments was added, clearly directed against entrepreneurs (no
advance payment is demanded from wage-earners). Furthermore, the
amount of social tax advance payments was tied to the official
minimum salary, with no regard to whether the actual income is
over or under this minimum. A blow was hit on the private medical
service: the 20% social tax and the 13% payment to the sick-fund
were combined together and made obligatory (every socialist's
favourite word). Earlier, everyone could choose whether to visit
state-owned polyclinics or private doctors; now this is no more
so.
    SOCIAL EFFECTS OF SOCIALIST POLICY
    Those who have most suffered from these innovations were the
poorest, the long-term unemployed and the state. The poorest have
no money for advance payments. The unemployed, having lost a means
of legally earning money, continue illegally. In effect, the state
has lost a lot of money in unpaid taxes.
    The worst of all, however, was the blow to the image of the
state and to the public moral. This happened because, under the
present law and the new rules, the Estonian Tax Board is compelled
to behave like an extortioner. It ignores the fact of double
payment of social tax (by the private entrepreneur and his casual
employer). Instead of using one single personal account for all
sums paid by a taxpayer, the Tax Board counts them in divergent
way. It bluntly refuses to return the overpaid social tax. Thus,
it cheats a taxpayer as well as a tax inspector: both see the fact
of double taxation and, in an effort to reestablish justice, they
start twisting entries in a declaration of income so as to make
the calculation more 'humane'.
    Not only entrepreneurs but common citizens, too, have now
started learning how to hide their incomes and avoid payment
taxes. One and a half year since this law was enacted, citizens
have learn to perceive the Tax Board as an enemy. Such was the
effect of a 'socially orientated' law.