stantial quantities
of meat, milk, grain, and vegetables to other republics. Likewise,
its diversified heavy industry supplied the unique equipment (for
example, large diameter pipes) and raw materials to industrial and
mining sites (vertical drilling apparatus) in other regions of the
former USSR. Ukraine depends on imports of energy, especially
natural gas, to meet some 85% of its annual energy requirements.
Shortly after independence was ratified in December 1991, the
Ukrainian Government liberalized most prices and erected a legal
framework for privatization, but widespread resistance to reform
within the government and the legislature soon stalled reform
efforts and led to some backtracking. Output by 1999 had fallen to
less than 40% of the 1991 level. Loose monetary policies pushed
inflation to hyperinflationary levels in late 1993. Ukraine's
dependence on Russia for energy supplies and the lack of significant
structural reform have made the Ukrainian economy vulnerable to
external shocks. A dispute with Russia over pricing in late 2005 and
early 2006 led to a temporary gas cut-off; Ukraine concluded a deal
with Russia in January 2006 that almost doubled the price Ukraine
pays for Russian gas, and could cost the Ukrainian economy $1.4-2.2
billion. Ukrainian Government officials eliminated most tax and
customs privileges in a March 2005 budget law, bringing more
economic activity out of Ukraine's large shadow economy, but more
improvements are needed, including fighting corruption, developing
capital markets, and improving the legislative framework for
businesses. Reforms in the more politically sensitive areas of
structural reform and land privatization are still lagging. Outside
institutions - particularly the IMF - have encouraged Ukraine to
quicken the pace and scope of reforms. GDP growth was 6% in 2006, up
from 2.4% in 2005 mainly because of high steel prices worldwide and
strong demand for Ukrainian goods. The privatization of the
Kryvoryzhstal steelworks in late 2005 produced $4.8 billion in
windfall revenue for the government. Some of the proceeds were used
to finance the budget deficit, some to recapitalize two state banks,
some to retire public debt, and the rest may be used to finance
future deficits. Although the economy is likely to expand in 2007,
long-term growth could be threatened by the government's plans to
reinstate tax,