24 October 2016

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OpinionWhy are reforms lagging

"If the reform package is approved, then the effect will be seen ahead of the elections. The stakes are enormous because this year, economic growth begins in Ukraine. It is still slow, and it will depend on the implementation of reforms in the country, whether this growth will continue or accelerate," Co-Chair of the strategic group of advisors Leszek Balcerowicz said at a briefing on Thursday.

This group of strategic advisors was established this spring, headed by two co-chairs: former Deputy Prime Minister, ex-Finance Minister of Poland Leszek Balcerowicz and former Deputy Prime Minister of Slovakia Ivan Miklos.

Eminent reformers, who contributed to the fact that their home countries had joined the European Union and demonstrated significant progress in economic development, agreed to share their experience at the invitation of the Ukrainian authorities.

Recent events have shown that the engine of reforms in Ukraine began to act up ahead of schedule.

During this period, strategic advisers had time to prepare for the President, Government and Parliament proposals on the main directions of reforms to bring Ukraine to the path of stable development.

However, as it turned out, those who had invited them, are in no hurry to implement the reforms proposed and they try to sit on two chairs at a time. Introducing minor improvements, they leave the most important sectors intact.

Making his statement, Balcerowicz made it clear that with the approach of the elections, the spirit of reforms is being blown away from the high offices, while all the attention will be drawn to retaining ratings. Therefore, major changes need to be implemented as soon as possible, ideally before the end of this year.

At the same time, recent events have shown that the engine of reforms in Ukraine began to act up ahead of schedule. Advisory Group co-chairs at their briefing in the Ukrainian House once again explained what steps the Ukrainian authorities should take to achieve GDP growth of 5-6% rather than the mere 1-1.5%.

And at the same moment, in the Verkhovna Rada just a few blocks away, the deputies once again extended for one year a moratorium on the sale of agricultural land. The launch of the land market is constantly referred to by strategic advisors and international lenders of Ukraine headed by the IMF. The neighboring Eastern European countries have long implemented this reform, but the Ukrainian agrarian lobby, with the use of populists, has repeatedly managed to back-shelve the reform indefinitely.

Low support of reforms by the Rada was repeatedly called one of the problems in the way of Ukraine's development. Deputies adopt only about a third of the bills submitted by the government. However, yesterday, Minister of Infrastructure Volodymyr Omelyan personally attended the parliament session to finally witness the long-awaited adoption of the bill on the establishment of the Road Fund.

But where was the Minister of Agrarian Policy and Food, Taras Kutoviy? Why nobody from the government tried to persuade those 297 MPs who pressed the Yes button and deprived the Ukrainians of the right to dispose of part of their legitimate property for one more year. Why hasn’t Kutoviy offered an alternative - the bill on the creation of the market of rights to the lease of land?

The thing is that the previous law on the moratorium tasked the Government with developing and submitting to the Rada of the bill on the establishment of a land market. Consequently, the failure of the land reform is not only the parliament’s "merit".

Another important step toward building up a normal market economy is privatization, the advisors say. In an interview with UNIAN, Ivan Miklos noted that it was a long and difficult process, the results of which could be seen in a couple of years. But a showing example with the failure to sell the Odesa Portside Chemical Plant, the most “delicious peace of pie”, has made it clear that the government is not ready to go on this path, either.

Another thing proposed by foreign advisors is a pension reform. The huge deficit of the Pension Fund, very low pensions for the majority of elderly people, and the continuing division of society into castes due to “special pensions” - this is an incomplete list of problems in Ukraine’s pension system.

While the issue of raising the retirement age is debatable, the abolition of early retirement for prosecutors, special pensions for judges and other provisions that divide the society in half is quite a feasible task. The advisors offered Ukraine to leave a separate system of pensions only to the military. And the Rada even supported the relevant bill.

However, a logical rollback ensued. To begin with, the Constitutional Court has withdrawn the category of judges from under this law, which was supposed to raise questions to the Constitution guarantor and all others responsible for the judicial reform. The next thing was the government-offered draft law on public service being adopted. And once again, civil servants became a “little more equal” than the rest of Ukrainians by qualifying for special conditions for retirement.

Another important step toward building up a normal market economy is privatization, the strategic advisors say.

The authorities don’t wish to consider the cuts in social spending, either, on which Ukraine’s international partners insist. The sums allocated for subsidies and other benefits are growing by leaps and bounds, while control of their disbursement remains minimal. The minister of social policy jokes that even the deputies can get a subsidy. But the bitter truth is that no one prevents anyone who concealed their income from deceiving the country.

Verification of recipients of social benefits, launched by former Finance Minister Natalie Jaresko, sees no support in the government. The Ministry of Social Policy is in no hurry to create a single electronic register of recipients of social assistance. As a result, no one can say exactly how many people receive social assistance, and in what amounts. In the meantime, a parliamentary committee on social policy, employment and pension provision is not sure whether the Ministry of Finance should be given the right to monitor spending of those who receive social assistance.

In fact, today’s reforms in Ukraine are fragmented. Utility tariffs were raised, deregulation started, a single social contribution was reduced. At the same time, pressure on business remains high, while the State Fiscal Service remains unreformed. As a result, the reduction of the single social contribution has not led to large-scale de-shadowing. Investment attraction levels are still very low, deregulation has not become complex, while the anti-corruption efforts are miserable.

This can satisfy neither the public nor the country’s Western partners. Strategic advisors repeat again and again: the essential benefits of the reforms can only be achieved thanks to the cumulative effect, therefore reforms need to be implemented quickly and comprehensively.

However, the authorities seem to be trying to play a hero of a cheap sci-fi movie, who sets one foot into the future, while leaving the other in the past. In such movies, this usually ends with the hero being torn apart.

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