Ukrainian reforms – is the glass half full or half empty?

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV.COM Ltd.

Ukraine is making progress in many areas, however this needs to continue, as the glass is only half full. [Vadven/Shutterstock]

Over the last four years, Ukraine has made some tremendous changes to become a functioning market economy and a liberal democracy, a feat which is scarcely recognised by others, writes Ivan Mikloš.

Ivan Mikloš is the former deputy prime minister and minister of finance of the Slovak Republic. He currently serves as a chief economic advisor to the Ukrainian Prime Minister and chairman of the Strategic Advisory Group for Supporting Ukrainian Reforms (SAGSUR).

Ivan Mikloš’ s opinion piece was first published in German by Die Welt on 27 June.

Occasionally, reading the international commentary on Ukraine, you would believe that it has hardly changed since the Euromaidan protests and the Yanukovych era that they protested against. However, more than four years later Ukraine has achieved far more than it is given credit for.

For the first time in Ukraine’s modern history, the country is changing from a corrupt, dysfunctional, oligarchic system towards a functioning market economy and liberal democracy. There are still a lot of challenges left, but it is worth pointing out that during the last 4 years, more has been achieved than in the previous 20+.

Across the board, the best results were achieved in balancing the economy. Public finances have stabilised, inflation reduced, currency rates are more stable, and a wide cleansing of the banking sector has created a stronger environment for economic recovery and growth.

However, there is more work to do, especially in tackling corruption although the space for corruption was significantly reduced during Prime Ministers Yatsenyuk’s and Groysman’s governments.

Four out of the five biggest areas of large-scale corruption have been closed off or at least diminished.

Gas market: Three years ago, due to state subsidies the gas price for households was only 12% of the real market price. Well-connected oligarchs and businessmen stole billions of dollars yearly from public money by buying the cheap gas and then selling it to Ukrainian companies or for export at the real market price. This channel was closed by 2016, when energy prices were increased in line with market levels and the entire space for corruption in this area will be shut down as soon as the government liberalizes all gas tariffs.

Bank sector: Before the post-Maidan reforms, many privately owned banks served as ATM machines for their owners, a tool to withdraw money from taxpayers and line their pockets. Banks collected money from savers and businesses that was paid on to creditors. The strong majority of credits came to related creditors who intentionally didn’t return money to the bank. Then public funds had to guarantee people’s deposits. All of these banks (80 out of 180) were closed by now and the biggest private bank (Privatbank) was nationalised because of the systemic importance, being too big to fail. New, strict regulatory rules and a framework were introduced by the National Bank of Ukraine including capital adequacy and related party crediting control.

Public procurement: From August 2016 all public entities, including municipalities, are obliged to use an electronic public procurement system – ProZorro – which is considered internationally as very effective and unique. This way the third biggest channel for big corruption has been closed.

VAT refunds: Thanks to the launch of a new single automated electronic VAT refunds registry system, the previous ineffective and corrupt system based on individual VAT refund requests could be replaced.

State-owned enterprises remain the untouched reform sector. Ukraine has about 3,500 of these and despite declarations and plans, no progress has been achieved in this area. These companies are today the biggest source of corruption, political clientelism, wasting money, mismanagement and distortion of the business environment. But in January 2018, a new privatization law was passed and privatization is now speeding up.

Other reforms and changes that have had a positive effect on the fight against corruption are deregulation, energy reform, tax reform and decentralisation. And with the pension reform and health care reform, two additional important structural reforms have been passed in recent months.

Most importantly, partial progress was also achieved in creating new institutions for fighting against corruption: a National Anti-Corruption Bureau, special anti-corruption prosecutor and National Agency for Prevention of Corruption. But these new agencies need to be shielded to withstand attacks to marginalise them. Perhaps the most encouraging news is that the Anticorruption Court Law, which is completing the anticorruption architecture, finally passed in Parliament just last week.

In the course of the last four years, international partners have published many lists what Ukraine has to achieve; but only a few took the time to acknowledge the substantial progress achieved meanwhile. In every democratic society, reforms are much more a political challenge than a technocratic one.

But despite all challenges and delays, reforms in Ukraine are real and progressing. It will be important to continue and even speed up this process after the presidential and parliamentary elections in 2019, because the glass in Ukraine is still only half full.

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