Ukraine at a crossroads

Ukraine has to make a choice: either seriously participate in Euro-Atlantic integration and join the nations of democracy and free markets, or remain in the `grey zone` of the European periphery by reviving its traditionally close relations with Russia...

Ukraine has to make a choice: either seriously participate in Euro-Atlantic integration and join the nations of democracy and free markets, or remain in the `grey zone` of the European periphery by reviving its traditionally close relations with Russia, argues Marek Dabrowski in a Centre for Social and Economic Research (CASE) paper published ahead of the Ukrainian elections.

Ukraine has broken with its Soviet and totalitarian past but its democracy is still relatively young and fragile and therefore vulnerable to various political shocks, believes Dabrowski.

Basic civil and economic freedoms are not well protected due to numerous legal and institutional imperfections, most notably a poorly-performing judiciary, the author argues.

He also states that despite Ukraine`s success in building the basic institutional foundations of a market economy, its capitalism is still heavily distorted and its economic transition far from complete.

According to the paper, the economic landscape is still dominated by so-called `oligarchs`, whose short-term interests override the interests of SME owners, foreign investors and consumers due to non-transparent political mechanisms.

Although the economy is growing at a relatively high rate, the long-term sustainability of this growth will depend on an improvement in the investment climate, the author states.

Similarly to other CIS countries, Ukraine is in urgent need of new reforms, primarily to address institutional and structural weaknesses, according to the CASE paper.

Policymakers have to go well beyond the purely economic agenda and also address issues of legal, administrative and political reforms.

The author regards such reforms as absolutely critical for creating a healthy business environment and integrating Ukraine with the world and European economy. Failure to design, launch and implement these reforms could undermine prospects of economic growth, the paper warns.

Furthermore, the author considers Ukraine`s road to EU and NATO membership to be more difficult than that of the central and eastern European countries, due to the weaker external incentives for Ukraine to act in comparison with those countries which joined the EU in the last three years.

According to the author, the country is deeply divided in political, cultural and regional terms and therefore he does not expect a clear winner to emerge from this September`s parliamentary elections.

He even forecasts an ongoing political struggle until at least the 2009 presidential election. The only solution would be a wide cross-party political consensus, he concludes.

By Marek Dombrowksi, Centre for Social and Economic Research (CASE)

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