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31 March, 2011  ▪  Alina Pastukhova

Ukraine Summit: empty talk

The Ukrainian government used the Ukraine Summit for PR purposes leaving investors unheard

“Can real reform be delivered?” This was the topic the Economist Group suggested for discussion at the Ukrainian Summit which the group organized, but participating businessmen did not receive any answers to this question from government officials speaking at the event. In fact, no real discussion of the government’s political course occurred. The officials who arrived at the forum merely praised their own economic successes and publicly patted themselves on the back. After delivering their addresses, they quickly left to attend to other matters. They decided they were not interested in hearing what businessmen and the opposition had to say about their work.

The first to take the floor was Deputy Chief of the Presidential Administration Iryna Akimova. In presenting the 2011 reform plan, Akimova noted that laws on the government debt and the Customs Code would soon be passed, restructuring would begin at Naftohaz, nearly 700 enterprises would be privatized and pension and land reforms would be implemented.

“On January 1, 2012, the agricultural land market will become open. It must be open not only to citizens of Ukraine but also to foreign nationals who want to work in this important area,” she said, adding that free-trade zone agreements would be signed by the end of 2011.

Deputy Prime Minister Serhii Tihipko spoke in the same vein about the government’s plans and achievements, saying that the government succeeded in cutting the budget deficit, restoring trust in the banking system (in particular, securing the pre-crisis amount of deposits), and reducing the Pension Fund deficit.

Mr. Tihipko also tried to justify the recent increase in utility rates: “It was a difficult decision to raise the rates, but there is no way around it. I believe that in the future we need to achieve real and economically justified rates regardless of whether these decisions will be popular or not. We have found a nice solution — subsidies. We introduced a norm under which poor working families should not spend more than 15% on utilities and a family of pensioners no more than 10%. Furthermore, we have simplified the process for obtaining subsidies.”

Mr. Tihipko also emphasized that the government had set two main goals for itself. First, the Naftohaz deficit should be cut to UAH 8.5 billion in 2011 and reduced to zero in 2012. Second, a law on government procurement should be adopted to make purchases more transparent. Tihipko also promised that Parliament would amend labor legislation and pass a law legalizing salaries and jobs to solve the problem of salaries being paid off the books.

Mr. Tihipko also boasted of tax reform. “We cut the number of taxes from 43 to 22 and the income tax rate from 25% to 23%", he said, "and VAT will be reduced to 16% in 2014.”

Despite these assurances, most of the businessmen in attendance and former-Prime Minister Yulia Tymoshenko, who was invited to participate in the discussion, found these statements unconvincing.

The Ukrainian state has not completed work to improve democratic institutions, and economic reforms cannot succeed in these conditions, Ms. Tymoshenko said, expressing one of the greatest concerns that foreign investors have today. Until the government starts implementing democratic principles, we should not expect an association agreement with the EU or an influx of direct foreign investments to Ukraine.

Ms. Tymoshenko continued: “In the past year, the government carried out two reforms: constitutional and judicial. These reforms received fairly extensive publicity. But what can we say about the quality of these reforms if the Venice Commission made over 30 critical remarks after judicial reform was carried out, each of which noted that this reform put an end to the administration of justice?”

“If there is a need to attract investors, rather than launching business projects, you need to start by answering the question: Can investors operate [in a country] where the judicial system is a big question mark? Can they protect their property and that which is associated with their business in these conditions?” she added.

Businessmen and experts also stressed the need for a revision of the current judicial reform and pointed out more problems in addition to those mentioned by Ms. Tymoshenko.

“[These problems include] a weak information policy and weak interaction between the government, society and business. Its [government’s – Ed.] approach to reform looks like fighting rather than cooperating. For example, the Tax Code was passed by parliament without any debate,” noted Roman Shpek, Senior Advisor at Alpha Bank.

“Some reforms are complicated. It should not be presumed that all these things can be accomplished with one stroke of the pen.  Reforms need to be prepared carefully; haste will prevent good results,” World Bank Country Director for Ukraine, Belarus, and Moldova Martin Raiser said.

The majority of forum participants emphasized that if the government is interested in attracting direct foreign investments, it needs to focus its efforts on fighting corruption.

Businessmen have little faith that the government will be able to solve their concerns. “It is too bad that the government representatives did not stay for the discussion. Again we are left talking to ourselves about our concerns. We can only hope that government representatives will understand our needs,” summed up the participants.

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