Ukraine has always been in dire straits when it comes to its state budget. Teachers, doctors, firemen and other state employees have always been paid miserly amounts. Money allocated to the army, universities, research institutions, and other government programs was chronically not paid up come year’s end. With endemic corruption continuing its depredations and the costs of the war defending against Russia’s invasion mounting, it is small wonder that Ukraine has run out of money. Only international lenders can help. The IMF is providing the bulk of what will be needed to keep Ukraine afloat, close to $18 billion. Europe will provide another $10 billion.
Even given the favorable political context of Ukraine as the victim of a brutal invasion by Russia, however, the IMF must have had misgivings about lending Ukraine so much money. The IMF has had a rough time of it in Ukraine. After seeing pledge after pledge from successive Ukrainian governments to reform the pension system, liberalize the agricultural sector, restructure Naftogaz Ukrainy and conduct a host of other long-promised reforms fall by the wayside, the IMF halted cooperation during the regime of the Party of Regions and President Viktor Yanukovych, who were ousted in 2014 by the Maidan revolution.
One important factor which doubtless had a significant impact on the IMF’s decision was that Ukraine brought in a number of foreigners to take up key posts in the new government formed last December. These include the Lithuanian Aivaras Abromavicius as Minister for the Economy, the American Natalie Jaresko as Minister of Finance, the Georgian Alexander Kvitashvili as Minister of Health, another Georgian Eka Zguladze as First Deputy Minister of the Interior and, more recently, David Sakvarelidze as a Deputy Prosecutor General.
At first glance, the new high-level government officials present an impressive array of fairly reputable foreign experts and former officials. Their role seems clear: to open the floodgates to foreign aid, not just from the IMF and European institutions, but on a much broader and more ambitious scale. Prime Minister Arseniy Yatseniuk set out the task: “In order to survive, in order to prevent a default, we need an international donor conference.”
Last December, Sevki Acuner, an EBRD official, told Yatseniuk the EBRD would need to see firmer proof that the troubled country's government is cracking down on corruption and implementing reforms before the bank would approve more loans. By March, Jaresko was signing a EUR 65 million energy loan deal with the EBRD. Hardly a breakthrough, but by the logic of the government, every little bit counts.
The problem lies not in Ukraine’s needing money to cover external payments, but with the show that is being put up for Western consumption in the form of foreigners leading government ministries. Enough time has passed since the new government was approved to see that little is changing in the most critical areas.
Put simply, President Petro Poroshenko and Prime Minister Yatseniuk are exploiting the image of a supposedly reformist government artificially created by the introduction of foreigners into several key posts. But “the system,” as Ukrainians call it - the very system the Maidan was supposed to change - plows on practically unchanged. For example, although tax investigations of companies are supposedly frozen, the tax service is initiating criminal cases in order to conduct the same investigations it used to under a different legal heading.
Worst of all, corruption remains rampant. Mykola Hordienko, who served as head of the State Financial Inspectorate and was removed from his post by Yatseniuk, recently accused the prime minister of “taking over corrupt schemes” from the Yanukovych regime. Allegedly, Yatseniuk’s government is responsible for billions of hryvnias being siphoned out of the state budget. Scandal after scandal has accompanied significantly increased outlays to the army. Ready-to-eat meals donated by the United States appeared for sale on the Internet within weeks of reaching Ukraine. The Ministry of Defense ordered a quarter of a billion hryvnias worth of fuel from a small intermediary company at inflated prices. NATO’s representative in Ukraine, Oleksandr Lapko, says that soldiers are forced to pay thousands of dollars in bribes just to equip themselves and receive weapons. The list goes on.
Meantime, the government seems adrift, other than kow-towing to the overriding mantra: “We need more money.” As one of the few Maidan-era ministers still at his post complained in a private conversation: “There is no overall strategy or direction, no ῾team’ in this government.” Even the foreigners at ministerial level have not impressed. Jaresko seems, thus far, to be focused solely on convincing Western institutions to give Ukraine more money. Abromavicius has not provided any details about reform plans despite being on the job for a fourth month running and continues to speak only generally about deregulation and reform. Regarding one of Ukraine’s biggest problems, the militia, Zguladze has spoken about new methods of hiring, but the minister’s, Arsen Avakov’s, reform plan boils down to a name change and new uniforms. Probably most important in any reform effort is the Prosecutor General’s Office, which Sakvarelidze says will take “several years” to “cleanse.”
The foreigners in Ukraine’s current government, like their Ukrainian predecessors, will come and go. Some will probably leave in a huff once they realize they will be blocked from introducing any meaningful reforms. Others may even get caught up in corruption scandals. Meantime, Ukraine’s corruption looks set to remain. Too bad, because if it could just stamp out the corruption, Ukraine would have plenty of money.
Ivan Lozowy is a Ukrainian political activist, analyst, and business consultant.