President-elect Volodymyr Zelensky: Face to face with old economic problems
Ukrainians have chosen their new president, the 41-year-old showman and actor Volodymyr Zelensky. According to the Constitution, the head of state does not directly oversee economic processes, but his policies should be in tune with the steps of the executive and legislative branches to address key economic problems. After polling a number of experts, UNIAN made an outline of the economic agenda of the new president.
Following the second round of elections, the post of head of state after the May inauguration will be taken by Volodymyr Zelensky, who received the maximum support in the history of independent Ukraine: 73% of voters. The new president faces a difficult task – to find a common language with the current Verkhovna Rada, a third of which is represented by supporters of the outgoing head of state and entering the active phase of preparations for the forthcoming parliamentary elections, which are likely to take place in October, as scheduled earlier.
The Constitution of Ukraine states that the president is primarily responsible for national security, foreign policy and, in part, the judicial power, but has the right to veto any law passed by parliament. The head of state can initiate the adoption by the Verkhovna Rada of the laws necessary to speed up the modernization of the country and, after the election of legislators in October, through his faction, take part in the formation of the government.
That is, not being a direct curator of economic processes, the head of state can influence them in one way or another, and therefore it is important that his policy be in tune with the steps of other branches of state power to solve economic problems facing Ukraine.
It would seem that so far, the national economy is developing in a positive direction: according to last year’s results, real GDP growth in Ukraine accelerated to 3.3% and reached its maximum over the past seven years, while inflation slowed to 9.8%, or to a five-year minimum. But in reality, the standard of living of Ukrainians has not improved dramatically.
“Today we are actually a few decades behind the economic development level of the neighboring countries. We understand that it is necessary to move faster in order to achieve such living standards and maintain them," said Prime Minister of Ukraine Volodymyr Groysman, summing up the results of the three-year work of his Cabinet of Ministers.
In other words, in order for the life of Ukrainians to really improve, the economy is waiting for urgent management decisions. UNIAN asked the experts to form an economic agenda for the country's authorities.
Experts name the main task of the Ukrainian authorities in the coming years – to maintain financial stability.
“In 2019-2021, Ukraine should pay about $20 billion of external public debt. This is impossible without the current program of the International Monetary Fund throughout this period," commented Hlib Vyshlinsky, executive director at the Center for Economic Strategy.
For the successful continuation of cooperation with the IMF, it is necessary to fulfill the conditions of the current program, including the adoption by Parliament of the “split” law (separation of the functions of regulating the markets for financial services) and the completion by the government of the reform of the State Fiscal Service.
In addition, the creditor is unlikely to enjoy the possible cancellation of decisions made under previous programs. Among such decisions is criminalization of illegal enrichment of officials, which the Constitutional Court abolished in February of this year, as well as raising gas prices for the population to the market level, flexible exchange rate formation in the foreign exchange market, and reducing the budget deficit.
"But this is the minimum program needed to prevent a country from default. In order to push the growth of the economy up to 5-7% per year, it is necessary to start new reforms," warns Vyshlinsky.
According to him, it is primarily about the opening of the land market, which requires as soon as possible to adopt a law on the turnover of agricultural land and abolish the moratorium on the sale and purchase of such land. In addition, it is necessary to speed up privatization, for which it is necessary to drastically reduce the list of enterprises prohibited for privatization, as well as sell all state-owned banks, and reform the State Property Fund, which for five years has shown complete inability to sell large objects.
Do no harm
Bankers tired of a massive cleansing of the banking market are calling on the Ukrainian authorities to at least do no harm, while maintaining the positive trends of recent years. Olena Korobkova, Executive Director of the Independent Association of Banks of Ukraine, believes that the national banking system today is much stronger compared to 2014 and can take a hit, but warns that, if a delicate balance is broken, resumption of lending and economic growth can be forgotten.
Korobkova called the continuation of cooperation with the International Monetary Fund and the preservation of independence of the National Bank so that the regulator could implement monetary policy without looking at the government’s wishes to give cheap loans key conditions for preserving economic stability in the country, which allows businesses to look into tomorrow and develop with confidence now."
"The first task of the authorities after the election season is to refrain from interfering in the work of the NBU and prevent the disruption of the program with the IMF. If the authorities fail to cope with this, a new round of financial crisis is not far off. The NBU and the IMF are not really popular among ordinary citizens, but voters will not be delighted with the rapid devaluation of the hryvnia either," she warned.
The next step, according to Korobkova, is the transformation of the country's economy from primarily raw material-based to a post-industrial one. As an illustration, she cited the example of the Ukrainian IT sector, which has enormous potential and is enjoys the support of officials, but in reality, it creates a “product” in Ukraine that generates profits for foreign companies.
"Promising Ukrainian projects quickly move to countries with more predictable doing business conditions and a more streamlined legal system. The problems impeding the generation of new businesses and the evolution of small businesses into large ones are well known. These are non-transparent rules of the game, pressure from law enforcement agencies, weak protection of property and investments, an under-reformed judicial system," the expert emphasizes.
Rule of law
Speaking on behalf of businesses, the Executive Director of the European Business Association, Hanna Derevyanko, cites the expectations of the Ukrainian authorities to ensure the rule of law and equal rules of the game for all, as well as building effective state institutions.
According to her, to ensure the rule of law, an effective judicial system is needed for the courts to make decisions according to the law, and not under pressure.
"Perhaps this will help the public punishment of judges for wrongful decisions. We need publicity and inevitability of punishment as opposed to the current system of impunity, which encourages abuse," Derevyanko said.
As for equal rules of the game, the expert explains that everyone should pay taxes according to the law, but in practice, this is not the case.
"The shadow business in our country feels comfortable, and moreover, due to unpaid taxes, it increases its profitability and market share, taking it away from legal businesses. It harms the economy. Those who do not abide by the law must be punished," she explained.
The association is confident that the presence of these two components – the rule of law and equal rules of the game – will help the real and effective fight against corruption. In addition to these two components, the state needs strong and effective institutions that are already being reformed, but so far the system of state administration as a whole is far from being perfect.
"We need even more professionals, competent and honest ones. And to this end, decent motivation, market wages are needed. Each ministry or department should review staffing and salaries. This is already happening, but not in all government bodies," Derevyanko added, citing as an example the competition for tax and customs top officers, where it is important to form a professional team.
Derevyanko warned that there is no need to expect any quick effect, but it is important to take consistent and correct steps, reinforcing public hope that the country is moving in the right direction.
“The key goal of these steps is to increase the level of citizens' well-being. Each of us will experience qualitative transformations in the form of a substantial reduction in the share of the informal sector, an increase in investment, an increase in the level of wages, an increase in productivity, and new jobs. There should be a more pro-active economy in the country, inflation should be under control, and loans should become cheap,” the expert encourages, stressing that all this is quite realistic as there is enough will and professional approach.
The day after the second round of elections, which saw Zelensky win, the European Business Association (EBA) announced seven priority steps that the business community expects from the new head of state.
In particular, businesses expect that the first step of the newly elected head of the Ukrainian state should be to appoint to the positions of prosecutor general and chairman of the Security Service, minister of foreign affairs and minister of defense professionals with an impeccable reputation and no ties with oligarchs or large businesses.
The second step is to present a plan for reforming law enforcement agencies in order to reduce pressure on businesses and fully facilitate the implementation of this plan by newly appointed officials.
The businesses also expect the new president to restart the National Agency for Corruption Prevention and the Specialized Anti-corruption Prosecutor's Office, to support the activities of the National Anti-corruption Bureau (NABU), and the All-Ukrainian Association of Credit Unions.
According to businessmen, the new president should ensure macroeconomic stability, including signing a memorandum with the International Monetary Fund (IMF) to continue cooperation, as well as ensure the independence of the National Bank and publicly support the low budget deficit policy.
"The fifth one is the protection and extension of structural reforms carried out in previous years, including, but not limited to, the following: public procurement reform, continuation of automatic VAT refund and deregulation, Fiscal Service (GFS), health care reform, decentralization, and the like," the press service noted.
In addition, the business community expects the newly elected president to comprehensively support continued structural reforms, including through public support and the initiation of legislative changes, starting with the launch of the land market and the transparent privatization of large state-owned enterprises with the possibility of applying British law.
Also, EBA members expect that the new head of state will ensure the independence of market regulators, starting with the Anti-Monopoly Committee and the National Energy and Utilities Regulation Commission.
Responsibility for reforms
Summing up, the key role in the execution of the agenda proposed by the experts is laid on the Ukrainian parliament. It is in its competence to adopt laws envisaged by the IMF program and reject frankly populist initiatives, cancel the inviolability of corrupt judges and officials, transform state structures from Soviet-style offices to European service centers. Let's not forget that it is the newly elected parliament that at the end of 2019 should form a new government of Ukraine. And the direction of the country's movement in the coming years depends on how reformist the new Rada will be.
But the reality is somewhat alarming. For example, the “split” law provided for by the IMF program has been in parliament for almost three years. And the list of initiatives stuck in the Rada is not limited to this draft law.
“In the near future, it is necessary to adopt a bill on concession and a bill on the ease of doing business, which we submitted two and a half years ago. We must also decide on the model and move forward on the financial investigations agency with a concentration of powers in one pair of hands to investigate economic crimes and demilitarize this function,” commented Maxksy Nefyodov, First Deputy Minister of Economic Development and Trade of Ukraine.
A strange situation emerges – the parliament does not support the initiatives of the government, which it formed, forgetting that such actions cast doubt on the seriousness of intentions to improve the well-being of citizens and abandon corruption schemes.
Meanwhile, the clock is ticking. Recently, S&P Global Ratings recalled that before the end of the year Ukraine needs to pay about $3 billion in foreign debts, and in 2020 – another $5.5 billion. Like the Ukrainian experts, S&P analysts consider continued cooperation with the IMF to be a guarantee of repayment of these debts. In order to adjust to the current program, the authorities have less than a month; otherwise, the payment of the next tranche will be at least postponed.
The situation is aggravated by the fact that the voters of the new president want stability and justice, but they are not yet ready to pay the price. According to a survey of the Kyiv International Institute of Sociology, conducted on the eve of the second round of presidential elections, almost 40% of Ukrainians in the first 100 days of the new presidency expect utility tariffs to drop.
On the other hand, the results of the same poll clearly confirm the electorate’s readiness to forgive unpopular steps if the image of the head of state is not overshadowed by corruption scandals. More than a third of Ukrainians in the same hundred days expect from the new president bills to lift immunity off deputies, judges and himself, as well as investigations of the highest-profile corruption-related crimes.
Presidents come and go, while problems in the economy remain. Once again, people are waiting for a genius who will finally unite the country and set out on the path of progress and prosperity, not promote cronyism and corrupt schemes, which have firmly taken root in society. Someone who will explain his every step. After all, in fact, you have to pay for everything: if you do not want corruption, do not give bribes, if you want justice, do not break the law, if you want a decent pension, work and pay taxes. Otherwise, we are once again set to face cruel disappointment.