Reforms expected to produce effect

We must give the current Ukrainian leadership their due: the pace of the ongoing reforms is really impressive. When President Viktor Yanukovych visited Davos later last week, he did not mince words. “Reforms will be carried out in practically 21 vital fields. […] The reforms are now gaining momentum,” he said. Then he specified: taxation, budget, administrative, and judicial reforms. According to Yanukovych, the beginning of the deregulation process also helps combat corruption. “This builds confidence among Ukrainian citizens who continuously increase their deposits in Ukrainian banks,” the president assured the audience.

On January 30, Iryna Akimova, first deputy chairperson of the Pre­si­dential Administration, took on the role of reform campaigner. Commenting on Ukraine’s low international rankings on TV, she said she was sure Ukraine would improve in terms of ease of doing business in 2011. “The main changes in Ukraine occurred in the second half of 2010, and I am convinced they will be mirrored in Ukraine’s ranking,” the administration deputy chief said re­assu­ringly. In her opinion, amendments to the laws on public purchases, the energy market, the Tax Code, the Budget Code, and deregulation will have a positive effect. Akimova also “fought off” the report by the British risk analysis firm Maplecroft, which emphasizes that in 2010 Ukraine worsened in terms of corporate governance, macroeconomic stability, the observance of human rights by law enforcement agencies, and the level of education. In addition, the degree of state re-gulation of business increased. An increased overall stress level and level of terrorist danger allowed Ukraine’s investment attractiveness to fall compared to 2009 and move from 62th to 74th place (out of 196 countries), finding itself between Burkina Faso and the Republic of East Timor. Good neighbors for a European country?

But it was Prime Minister Mykola Azarov who was especially ada­mant in defending and propagating the Ukrainian reforms. “If people do not feel the impact of reforms, this means the reforms are being carried out in the least painful way, without affecting the people’s interests too much,” he said.

Noting that “all deadlines [for reforms] have been set and are being met by and large,” the premier did not hesitate to recall that the Tax Code had been adopted somewhat behind the schedule. We will not hesitate to add that the tax reform did not remain unnoticed by Ukrainians and, for this reason, has not yet been carried through. As if hearing this observation, Azarov began to make excuses, albeit not too convincingly: “The dates may be shifted a little due to a difficult process of passing the law.”

No one denies this. The point is that reforms should be carried out to produce an economic effect, be of benefit for the grassroots, and gain a positive response among the latter, no matter whether it is on or behind the schedule.

Meanwhile, the National Bank of Ukraine has reported a noticeable rise in the purchase of foreign currencies by the populace. The last four months of 2010 saw 6.1 billion dollars drawn from the banking system, making up 80 percent of the total outflow of hard currency last year. Some experts immediately commented that the tendency towards “dollarization” of the economy may grow this year. Moreover, as the greater part of hard currency is being bought by businessmen rather than by ordinary people, to use it for all kinds of schemes to minimize tax payments, experts are predicting a likely growth of the gray sector in the economy.

What attitude will the International Monetary Fund, whose mission is expected to visit Kyiv soon, take to this and other dangers of “incomplete reform”? This worries Serhii Tihipko, Deputy Prime Minister for Social Policy, who is in charge of the reform and — please forgive me the harsh comparison — the government’s scapegoat for all the drawbacks that may occur in the course of it. “Speaking of the current stage, we are not yet prepared [to receive another IMF installment],” this top official says. “There still are some decisions that we have not yet discussed and made.” He noted that Ukraine had made more than 20 decisions — as demanded by the IMF. “It is our responsibility. It is a Ukrainian problem, and we ourselves must tackle it,” the deputy premier said and emphasized that, unfortunately, Ukraine is getting poorer not only in comparison with other European countries.

The politician maintains that “European countries are resolutely dropping the practice of social populism” and gives, as an example, the decision of Spain to raise the pension age to 67. He says that we, too, “have no more time for populism.”