BALANCING ECONOMIC DEVELOPMENT AND ENVIRONMENTAL PROTECTION IN UKRAINE

Dr. Stanislav I. Sokolenko
Chairman of the Board
UKRIMPEX Joint Stock Company

Five years have passed since Ukraine, as an independent State, undertook reforms for the transformation of its economy. Organisational changes are being rapidly introduced in the country. In the early 1990’s, when the process of reforming the economy had just started in the New Independent States (NIS), Ukraine had the best starting conditions, according to the assessments of the majority of the leading economists. However, by the end of 1996, due to a number of factors, Ukraine ended up lagging in the area of economic reform, as compared to the rest of the NIS countries. One of the most important reasons for this delay has been the existence of serious environmental problems in the country.

It is well known that disregard for the environment in the name of economic development can possibly lead to the destruction of civilisation, as a result of disturbing the ecological balance. The unrestrained race for material wealth has brought humanity close to a global catastrophe. Unfortunately, this danger increases from year to year. It is quite possible that humanity first realised the gravity of the situation only after the Chernobyl disaster, a disaster that occurred in a small town, only 100 km away from the city of Kiev – the capital of Ukraine. This is the sole positive result of the Chernobyl disaster. Europe, safe as a whole in the 1980’s, was shocked by the possible consequences of such a catastrophe, equal to more than a thousand times the effect that the drop of the atom bomb on Hiroshima had on the environment. The existence of a great number of nuclear power stations in many densely inhabited parts of the world and, especially in Europe, demanded immediate measures for increasing, in every possible way, the safety of nuclear power stations globally. This was boosted by Ukraine, which experienced maximum negative after-effects from the Chernobyl disaster.

The 20th century, quickly becoming a thing of the past, has often burdened humanity with environmental catastrophes caused not only by wars, but also by nuclear and chemical tests, industrial accidents, tankers and pipelines. The negative impact that technology had on the environment grew to critical proportions. According to a number of researchers, Ukraine, among European countries, has the highest integral level of human induced negative environmental impact, with two thirds of its regions having suffered severe environmental damage.

The Society-Nature system should function without conflicts, since human beings are an integral part of nature. When destroying nature or irreversibly transforming nature, human beings destroy themselves. Unfortunately, 20th century ideology glossed over the issue of a material responsibility for environmental damages. As a result, on the eve of a new millennium, humanity is trying to work out a code of corporate practices and financial responsibilities for activities with respect to nature management. With reference to this concept, the world community should search for production processes and natural resource usage that would meet current needs and would not disturb the environment or jeopardise the survival of future generations, in other words, create a system of environmental safety on the planet.

An attempt to bring together business and environmental interests was made during the UN Conference in Rio de Janeiro, in 1992. The importance of environmental protection and preservation, as a major factor for the future development and survival of humanity on Earth, was officially documented at this Conference. Therefore, the strategic developmental plan for the world community, as a whole, and, for each country individually, lies in searching for production processes and natural resource management that can meet current needs without compromising future environmental quality. This is the strategy the world community needs to follow in order to secure environmental safety on the planet and guarantee the rights of future generations.

Thus, maintenance of environmental safety in Ukraine is to be considered as a guaranteed provision of environmental quality, that would favour a healthy way of life for the population, secure preservation of the abundance and diversity of all forms of life and its ability for self-reproduction (renewal), as well as secure the harmonisation of the society-nature system. Ukraine, which has recently entered the world community as an independent State, strives to secure its environmental safety within the framework of the global environmental safety regime, and to build its biopolicy on the basis of values common to all humankind. Otherwise, as the President of Ukraine, Leonid D. Kuchma, had to recently admit: “We will become the first country in the world not able to handle its own industrial and military potential, but able to create serious environmental threats for neighbouring countries. This will be a moral disgrace to the nation.”

In order to avoid this, a lot is being done in Ukraine to conform legislation to the demands of the current Constitution, which was adopted in the summer of 1996. This process is also pertinent, to a considerable degree, to the development of environmental legislation and is determined by Constitution norms referring to the issue of “securing environmental safety and the maintenance of the ecological balance on the territory of Ukraine.”

Linking environmental protection and economic development

Ten years ago, nobody in my country could have predicted that such a bulky and cumbersome institution as the former USSR, as well as one of its constituent parts, Ukraine, would pursue democratisation in the 1990’s. This shift included:

  • Freedom of Information. People of my generation are, for the first time, able to get acquainted with the real history and culture of our nation, as well as freely express our opinion.
  • Freedom of Entrepreneurship. Although difficulties still exist, it is now possible for private enterprise to function.
  • Establishment of a Democratic Electoral System. For the first time in the history of Ukraine, nobody could predict who would win the elections! The next elections are scheduled for 1997 and there are currently more than 100 small parties in the process of being legally registered.
  • Privatisation of State Property. The private sector has expanded from 5% in 1990 to 45% in 1996.
  • New Pricing Policy. Ukraine used to have a State pricing committee. Presently, prices reflect 70% of production costs, which is much more motivating for producers.
  • Development of a Market Infrastructure. Banking systems, insurance institutions, capitals markets and other elements are currently being developed.
  • Slowing Down of Inflation. In 1993, the inflation rate was 10,000%. This rate dropped to 40%, in 1996, and is estimated to reach 20% in 1997. The GNP growth rate is estimated at 1.6%, for 1997.
  • Changes in State Economic Functions. Centralised government policy is giving way to more independent planning. The State is still responsible, however, for tax policy and tariff regulation.
  • Government Decentralisation. Municipal and regional authorities are now responsible for local resource supply and socio-economic policy.
  • Transfer of a Number of Public Service Functions to the Private Sector. Privatisation and local management are constantly being put into effect.

Naturally, the above mentioned developments are not always smoothly introduced, and frequently lead to distortions and tension. This is due to a hasty preparation of the legislative basis. At this point, we need to use common sense, patience and appropriate market mechanisms to bring everything in order. Changes in the Ukrainian economy had a significant effect on the way environmental problems were handled. The economic crisis in Ukraine is very closely related to the environmental crisis. The deformed structure of production processes and the implementation of obsolete technologies have severe environmental consequences:

  • in the course of mining, 70% of the oil and 40% of the coal reserves are lost
  • in the course of mining, 70% of the oil and 40% of the coal reserves are lost
  • water consumption (demand) for production process is 2-5, and sometimes 10, times higher than the norm for water demand by modern technologies
  • due to extensive agricultural development, 80% of available soil is cultivated
  • 33% of cultivated soils are eroded
  • more than 4.6 million ha of land in 11 regions is contaminated by radionucleides from the Chernobyl disaster
  • due to hazardous industrial atmospheric emissions, from 1981-1994, more than 3,000 ha of woodland perished.

These problems, however, are not limited to Ukraine. Thoughtless human activity has resulted in severe environmental deterioration. The load on nature is fast approaching the threshold of its environmental self-restoration ability. It cannot be stressed enough, that on the eve of the 21st century the environmental factor has become, not only decisive in economic development, but also determinative for the survival of humankind.

Economic reforms in Ukraine – problems and environmental impact

The reason reforms in Ukraine have been delayed is, to a certain extent, purely psychological. The introduction of a market economy, in the early 1990’s, created an impression of euphoria; everything seemed to be easily accessible. World-experts from prestigious universities gave “recipes” for the quickest possible way of overcoming the crisis. It seemed simple: the State hands over the majority of its property and market control to private enterprise, budget expenditures decrease, inflation is eliminated and, simultaneously, private initiatives flourish and rapid economic growth is secured. However, things were significantly more complicated and it soon became evident that rapid privatisation was utopic, unless it was accompanied by the necessary social transformations.

In order to best assist the transition to a market economy, the government decided to urgently assume greater responsibility, through tax policy, quoting, licensing, certification, a more severe penal system and other unpopular measures. Unfortunately, these measures did not aid the situation, and even resulted in the development of a “shadow” underground economy. The major consequences of this unsuccessful procedure were:

  • shut-down of a large number of enterprises, due to poor management and enterprise insolvency
  • decrease in the population purchasing power. With very few companies earning local currency, Ukraine became a barter economy. Delays in paying salaries reached 6-9 months.
  • introduction of new taxes and increased taxation, in order to lower the deficit caused by a decrease in government earnings
  • introduction of a new penal system
  • introduction of different kinds of exemptions and privileges, mainly for small companies
  • a major investment crisis and the slowing down of structural transformations in the economy.

In addition, due to historical developments, Ukraine has received from the previous regime a very compromised environmental heritage. The Ukrainian industrial profile consists of metals and heavy machinery industries. This, along with the lack of proper environmental management, has caused serious disturbances to the environment, an increase in air and water pollution, and an enormous production of wastes. Some of the major environmental problems in Ukraine include:

  • extensive increase in industrial emissions, raising the content of noxious gases in the atmosphere and causing the “greenhouse effect,” that leads to global warming. This process has, in turn, aggravated other environmental problems in Ukraine and has resulted in severe climatic changes, floods, hurricanes, earthquakes and even modifications of the entire coastal zone.
  • disastrous decrease in flora and fauna biodiversity
  • soil saturation and plant contamination by heavy metal elements. This seriously affects biological processes in living organisms, including humans.
  • considerable deforestation and desertification
  • contamination of the sea surface layers and a reduction in total phytoplankton mass, resulting in a decreased biological productivity of water reservoirs
  • toxic substances in the atmosphere and the soil, such as products of chemical plant operation, including chlorine, CFC’s and pesticides

The primary excuse for this situation has focused on how difficult and painful a transition period can be for society.

How to improve on the present situation

For the past ten years, Ukraine has shown the typical signs of dynamically developing economies. A great step in the direction of a more pragmatic and socially oriented economy has been recently made. Visitors to Ukraine in the mid 1980’s, may remember shops with no merchandise and the population receiving goods and products through different funds and distributors. Today, Ukraine has a vast network of private sales organisations, distributing goods from all over the world. There is only one question to be solved: how and where to earn money. Presently, there are attempts to solve this problem, in a civilised manner, on the basis of the following measures:

  • It is important, for the State as a whole and for each enterprise individually, to increase their income and reduce spending. Parliament has voted to introduce 215 new laws, in October 1996. Regarding enterprises, benchmarking, reengineering and other modern economics models are being used.
  • Conditions for the development of active and effective entrepreneurial activity have to be established. It is evident that no State is in a position to survive without an effective taxation system. Nevertheless, when this system jeopardises domestic industry, the State should take urgent measurers to correct it. First, the taxation system should promote the development of necessary production activities. Secondly, taxation laws and regulations should not be dubious, contradictory or ambiguous. Today, even lawyers and specialists in Ukrainian legislation can be at a loss when it comes to interpreting the particulars of certain laws. Thirdly, the stability of the taxation policy becomes of particular significance when the process of uncontrollable and constant taxation either ruins tax payers or makes them join the underground economy. Tax payers in the lower tax brackets suffer the most, as they are the ones burdened with all possible forms of taxation.
  • Incentives for decentralised economic activities in industrial areas, and other regions and municipalities with different forms of local self-governance, need to be promoted.
  • It is necessary to reduce expenditures by eliminating obsolete privileges and reforming the social financing system, as well as complete the reforms on municipal public services.

Environmental protection, at the national level, directly depends on the financial potential of the State. In Ukraine, the complicated situation in the area of production activities is accompanied by an extraordinarily complicated situation in the sphere of natural resource management and usage, and environmental control. It is, presently, of paramount importance to involve entrepreneurial initiatives and capital investments in this sphere.

Unfortunately, due to the current economic crisis, this task cannot be easily accomplished. Therefore, it is essential to implement the concept of stable (steady), self-reproducing (renewable) development, as based on the idea of preserving the biosphere for future generations, by striking a balance between socio-economic and environmental development. For Ukraine, today, this is the only reasonable alternative. In order to stabilise the volatile environmental situation in Ukraine, it is necessary to radically change:

  • production technologies, in order to provide environmental protection and prevent future destruction. This can be accomplished through the transformation and re-structuring of current production processes, and the introduction of clean and energy efficient technologies.
  • society’s philosophical stance on environmental issues. It is important to compensate for negative effects through the use of economic sanctions and use the revenue for financing environmental projects. It is also essential to establish nature reserves and parks, reduce the use of non-renewable natural resources and promote pollution prevention techniques.

It is worth mentioning that Ukraine signed all the documents at the 1992 UN Conference in Rio de Janeiro, and has proceeded with the establishment of a national plan of action for environmentally-compatible development.

Overcoming the crisis

In order to overcome the current crisis in Ukraine, the following measures, to be implemented in three stages, have been approved by Parliament:

Stage 1 – Development under Crisis Conditions (1996)

  • inflation reduction
  • payments stabilisation
  • increase of exports
  • gradual transition to a free market economy and reduction of protectionism
  • reduction of government involvement in economic regulation

Stage 2 – Stabilisation (1997-2000)

  • promotion of private investments
  • expansion to new markets
  • export diversification

Stage 3 – Intensive Development (post 2000)

  • considerable freedom of entrepreneurial economic activity
  • expansion into foreign markets

Like Europe, striving to become environmentally-friendly in the third millennium, Ukraine is presently working out criteria and standards for better natural resource management. Environmental and economic problems facing Ukraine today are complex in nature. However, with the aid of research and the right development programmes, solutions could be found within one or two years. Thorough studies and long-term, global measures are essential. We fully understand that to prevent further destruction to the biosphere, joint efforts from the world community are necessary.
As a member of the United Nations Commission on Sustainable Development, Ukraine has undertaken the following activities, aimed at securing environmental safety:

  • formation of a legal basis to provide proper control over transboundary transportation of environmentally hazardous substances, including radioactive and toxic wastes
  • natural resources preservation through management projects, as well as priority investments in energy efficient and clean technologies
  • intensification of international co-operation on energy conservation and climate change prevention
  • prevention of environmentally-hazardous industrial branches to penetrate the Ukrainian economy, via foreign investments
  • establishment of environmental services, priority crediting of environmental projects and the development of clean technologies

Concepts and ideas elaborated by the Biopolitics International Organisation for the last eleven years, are extremely sufficient for Ukrainian development and should be a part of the master Plan of Action of my country.


Dr. Stanislav I. Sokolenko, currently Chairman of the Board of UKRIMPEX Joint Stock Company, holds a Ph.D. in Economics from the All-Union Marketing Institute, Moscow. From 1975-1981, he was Senior Advisor at the Council of Ministers of Ukraine, responsible for strategic planning, economic development and foreign trade development. From 1981-1986, Dr. Sokolenko was Senior Officer at UNIDO, Austria, and supervised programmes for developing countries. Following a one-year appointment with the Ministry of Foreign Affairs of Ukraine, he became Director General of UKRIMPEX, the first foreign trade association ever in operation in Ukraine. In 1993, he was appointed the First Deputy Minister of Foreign Economic Relations of Ukraine, focusing his efforts on the improvement of foreign trade structure, capital market development and the attraction of foreign investments to Ukraine. In order to more effectively follow through on his ideas, he returned to UKRIMPEX, which was subsequently privatised, under his leadership, in 1994. Dr. Sokolenko is a member of a number of inter-governmental bodies, has more than 60 articles on macro- and microeconomics published in Ukrainian and foreign journals, and has recently written a book on Modern World Markets and Ukraine.