On August 24, 1991, after the collapse of the Soviet Union, Ukraine declared its independence, and the political system underwent rapid changes. Ukraine became a member of the Commonwealth of Independent States (CIS), a loose confederation of countries that were formerly states of the Soviet Union. In 1991, the first democratically elected President of Ukraine was the former chairman of the Communist Party, Leonid M. Kravchuk. He stayed in office until July 1994, when he lost the election to former Prime Minister Leonid Kuchma.
Ukraine has a parliamentary democratic government with separate executive, judicial, and legislative branches. The head of state is the president, who nominates the prime minister. The president is elected for a 5-year term. The prime minister must be confirmed by the parliament. The 450-member parliament initiates legislation, ratifies international agreements, and approves the budget. Its members are elected to 4-year terms. On June 28, 1996, Ukraine adopted a new constitution. The Constitution adopted a multi-party system, and legislative guarantees of civil and political rights for national minorities.
There are 8 major organized political forces in Ukraine. First, there is the Communist Party of Ukraine or Komunistychna Partiya Ukraine (KPU). The KPU is the strongest organized political force. It opposed the Ukrainian Constitution of 1996 and most economic reforms. They are supporters of closer ties with Russia. The second major group is the Popular Rukh of Ukraine or Narodny Rukh Ukraine (Rukh), established in 1989, which draws its support from the intelligentsia (the intellectual and professional class) and some political elites. Third, there is the Socialist Party (SP), which was established in 1991. The SP advocates for more state control of the key economic sectors and closer ties with Russia and the CIS. The SP formed a faction with the leftist Peasant Party, which was established in 1992.
The fourth main party is the Green Party (GP). Formed in the early 1990s, the Green Party supports environmentally-friendly policies, an overhauling of Ukraine's tax system to better accommodate business and consumer interests, and Ukrainian neutrality in most foreign policy matters. The People's Democratic Party (PDP) is the fifth major political group. The PDP advocates economic reform, including a reformed tax system, an improved climate for investment, integration into the world economy, and privatization and land reforms. They favor strong relationships with both Russia and the West. Hromada, established in 1993 by a group of former Communists is the sixth main group. They strongly oppose economic reforms.
The seventh significant political group is the Progressive Socialist Party (PSP), who split with the SP in 1997. They are anti-reform and are among the hard left of the political spectrum. The PSP want to rebuild a Soviet Socialist Ukraine, abolish the presidency, and establish closer ties with Russia and Belarus. They also oppose cooperation with NATO and international financial institutions like the International Monetary Fund (IMF) and the World Bank. The eighth and final faction is the Social Democratic Party (United) or SDP(U). The SDP(U) supports a "socially-oriented market economy," using market economics to generate resources for better social protection, the state-supervised sale of land, and closer ties with both Russia and the West.
The level of taxation is moderate when compared with that of the nations of Western Europe and slightly higher than tax rates in the United States. The maximum personal income tax rate is 30 percent. Corporate taxes range from 20 to 30 percent depending upon the size of the company's profits. Employers also must pay social security taxes for their employees. These include the Social Insurance Fund, Pension Fund, and Employment Fund. These social security taxes are equal to an estimated 47.5 percent of wages and dramatically increase labor costs. For instance, for each worker earning $10 per hour, an employer would have to pay $10 in wages and $4.75 in taxes or $14.75 per hour. In addition to taxes on wages, Ukrainians must pay high taxes on the purchase of goods and services. This tax is known as the value-added tax (VAT) and the standard VAT rate is 20 percent. The VAT is charged on the majority of goods and services except insurance, reinsurance, and education. Ukraine also has high taxes on imported goods. These import duties range from 5 to 200 percent and there are excise taxes that range from 10 to 300 percent.
Ukraine's foreign debt stood at $12.6 billion in 2000. The largest amount is owed to Russia and Turkmenistan, primarily for past trade credits of gas deliveries, which have been rescheduled into long-term state credits. Ukraine owed approximately $5.07 billion to international financial institutions and bilateral export credit agencies.
Ukraine is a net recipient of foreign aid. In 1998, the IMF provided $2.2 billion to Ukraine. Since the mid-1990s, Ukraine has received an average of $500 million annually in aid. The European Union (EU) and the United States are the main providers of aid. The nation's large external debt ($12.6 billion in 2000) and continuing deficit are a drain on the Ukrainian economy. In proportion to GDP, Ukraine's debt is about twice that of comparable countries in Europe. In 2000, the deficit was 5 percent of GDP and required 3.5 percent of total GDP to make payments on the debt.
In 1999, the nation spent $500 million in defense outlays. Overall, military spending accounts for 1.4 percent of GDP. The Ukrainian military numbers approximately 500,000. In its effort to establish closer ties with the West, Ukraine joined NATO's Partnership-for-Peace Program. Ukrainian troops have joined in joint exercises with NATO and contributed troops to NATO's peace-keeping mission in Bosnia.