Ukraine’s revolving door of reform and corruption
A spate of reformer resignations in Ukraine sounds alarm bells on corruption
Ambassadors of Western countries in Ukraine rarely sign joint statements like the one they put out after the violence on the Maidan which caused mass protests and led to the flight of then Ukrainian President Viktor Yanukovych. Recently we saw another joint statement from the same states, so what is the reason this time?
This time, Western countries have raised a joint statement just the resignation of Aivaras Abromavičius, the Minister of Economic Development and Trade. Ukrainian society, however, is extremely agitated by this resignation. Abromavičius resigned because he accused Igor Kononenko, a Member of Parliament and close friend of President Petro Poroshenko, of pressuring the ministry to appoint certain people as the heads of state-owned enterprises.
The public sector accounts for a significant portion of the Ukrainian economy. Further privatisation is needed, because state-owned enterprises are the main source of high-level corruption in Ukraine. However, the necessary market reform is being blocked by parliament. Corruption is ubiquitous in Ukrainian society, but the chasm between small bribes paid to low-paid doctors or teachers, and the millions transferred from state-owned companies to political parties, is huge.
During their 14 months in office, Abromavičius and his team did their best to fight this type of corruption by insisting on upholding standards of corporate governance, ensuring independent audits, publication of financial reports and independent boards of directors. In 2015, his team appointed 277 CEOs through open recruitment. That this reform undermined the very mechanism of political corruption and confrontation was inevitable.
These reforms were not the only achievement of the Ministry. When Abromavičius was appointed, he completely rebuilt the ministry. It used to be called the State Planning Committee and employed more than 1,400 bureaucrats, including from a dozen of other liquidated post-Soviet state agencies that it had absorbed in the last 25 years. In 2015 it was finally transformed into an institution worthy of its name. It was extensively restructured, with excess staff — 50 percent of its employees — being dismissed. These changes provided the foundation from which future reforms could be implemented.
The ministry has been responsible for several successful reforms, with the most well-known being the reform of public procurement. The pilot version of a transparent, online, open-source platform for public procurement called ProZorro was launched by the ministry in February 2015. ProZorro was used for small purchases at first, such as office paper, and then steadily increased in scale. It will be mandatory for all ministries to use the platform by 1 April 2016, and for all state purchasers by 1 August 2016. According to estimates, ProZorro has already helped the state save about 500 million hryvnias (€17m) of its budget. Another important domain of reform is deregulation, and since Abromavičius took up his post, 41 percent of all permits have been cancelled and the time needed to register a new business has been shortened to just two days. Another extremely important issue is export promotion: a free trade agreement (FTA) was signed with Canada and two more agreements (with Israel and Turkey) are in the pipeline, not to mention the Deep and Comprehensive Free Trade Area (DCFTA) with the EU that came into force on 1 January 2016.
All these efforts led many to believe that the Ministry of Economic Development and Trade was the most reformist of them all. Of course, the passing of so many reforms is not just the achievement of Abromavičius, but the achievement of his team too, who also resigned.
This is not the first resignation from the current Ukrainian government. On 2 July 2015, the Minister of Health, Aleksandr Kvitashvili, resigned, complaining that sectorial reforms were being blocked. On 11 December, the highly praised Minister of Infrastructure Andrii Pyvovarskyi — responsible for the transport sector with its huge state monopolies — resigned after he found it impossible to attract and retain skilled professionals on such low state salaries. Then on 29 January, yet another reformer, the Minister for Agriculture Oleksii Pavlenko, resigned.
This spate of resignations points to a real crisis in the inner workings of the Ukrainian government. What lies behind all of this and what are the ramifications?
Before the parliamentary elections in October 2014, experts and civil activists called upon political parties to create a technocratic government in order to accelerate reforms. Unfortunately, only two of the five factions in the parliamentary coalition had the courage to appoint technocrats according to quotas. All the ministers mentioned above came into government with private sector experience. As a result, the coalition government was a patchwork of reformist technocrats and anti-reformist representatives of political clans. The latter group includes Prime Minister Arsenii Yatsenyuk, whose party won the parliamentary elections with 22 percent of the vote, but currently has less than 1 percent of public support. This dramatic change in opinion was not caused by the unpopular reforms, but by the failure to deliver them.
As tensions increased, ministers began to resign. Abromavičius resisted, until many important state-owned enterprises were passed over to his ministry and the pressure became unbearable. After he resigned, very critical statements emerged from Western ambassadors, Ukrainian NGOs and the IMF. This was the moment that President Petro Poroshenko and Prime Minister Yatsenyuk realised that they had a real government crisis on their hands. They did their best to persuade the ministers to withdraw their resignations. All except Abromavičius formally did so, but made their reinstatement contingent upon conditions that are virtually impossible to fulfil, such as increased salaries for civil servants and an end to the pressure placed on the government by political clans.
In the midst of the deep discontent both inside the government and out, the parliament will hear an official government report on the anniversary of its being in office, on 16 February (postponed from December). This report is usually accompanied by a government reshuffle, so a lot could change that day. What are the possible scenarios?
The best-case scenario is that the government will be reshuffled to favour technocratic candidates who will implement all necessary reforms quickly and efficiently. Seventy-one percent of the population would also like Prime Minister Yatsenyuk to resign.
In the worst-case scenario, technocratic ministers will be pushed out of government and replaced by representatives of political clans – this option was seriously discussed by parliament. This would lead to more protests, since from the point of view of the man in the street, nothing would have changed.
The middle-of-the-road scenario might mean that all of the current ministers stay in their positions, except Abromavičius. If the next Minister of Economic Development and Trade is a politician, then he or she might reverse the progress that has been made in fighting corruption perpetrated by state-owned companies, and in public procurement, and deregulation. Ukraine’s successful reforms are not yet irreversible.
In any case, continuing business as usual will be impossible. Time and money are running out. The war in the east of the country and the financial crisis are no longer valid excuses. The best time for radical change is precisely when it is impossible to go on as before. If parliament is unable to resolve the crisis, we will have new elections – and indeed this is what half the population wants. But it is unlikely that the next parliament will be any better than this one. More than ever before, Ukraine needs a technocratic government with strong support from civil society and the West.
Valerii Pekar is co-founder of the Nova Kraina Civic Platform and teaches at the Kyiv-Mohyla Business School.
The European Council on Foreign Relations does not take collective positions. ECFR publications only represent the views of their individual authors.