In­ter­na­tional Mone­tary Fund's Goesta Ljung­man: What is eco­nomic cost of cor­rup­tion In Ukraine?

Kyiv Post Legal Quarterly - - Contents - GOESTA LJUNG­MAN

The Ukrainian econ­omy needs to grow. For far too long, Ukraine has fallen be­hind neigh­bor­ing coun­tries’ eco­nomic de­vel­op­ment, with the pop­u­la­tion pay­ing a high price through low earn­ings, un­em­ploy­ment, low-qual­ity pub­lic ser­vices and a de­te­ri­o­rat­ing in­fra­struc­ture. The rel­e­vant ques­tion to ask is: What do pros­per­ing coun­tries have that Ukraine does not? With the many ad­van­tages that Ukraine en­joys — a well-ed­u­cated work­force, en­vi­able a land, vast a good area en­dow­ment ge­o­graph­i­cal of uniquely of fer­tile lo­ca­tion natural agri­cul­tural — re­sources, Ukraine should share the eco­nomic suc­cesses of the coun­tries on its western bor­ders. An im­por­tant part of the ex­pla­na­tion why Ukraine con­tin­ues to lag be­hind in eco­nomic de­vel­op­ment is that it has not suc­ceeded in re­duc­ing cor­rup­tion. Var­i­ous mea­sures of cor­rup­tion, col­lected by dif­fer­ent or­ga­ni­za­tions and for dif­fer­ent pur­poses, all show a strik­ingly

27 sim­i­lar re­sult: cor­rup­tion in Ukraine has been and con­tin­ues to be wide­spread. In Trans­parency In­ter­na­tional’s sur­vey of the per­ceived level of cor­rup­tion, Ukraine scores only 30 out of 100 (with 0 be­ing com­pletely cor­rupt and 100 be­ing com­pletely clean). This stands in con­trast to peer coun­tries in the re­gion, which score 50 and higher. The Cor­rup­tion In­dex in the In­ter­na­tional Coun­try Risk Guide and the World Bank’s Con­trol of Cor­rup­tion In­dex ar­rive at the same re­sult: cor­rup­tion is a much big­ger prob­lem in Ukraine than in other Euro­pean coun­tries. Self-serv­ing pub­lic of­fi­cials abusing their pow­ers for per­sonal ben­e­fit goes against the fun­da­men­tal demo­cratic prin­ci­ple of ruleof-law. But cor­rup­tion also harms eco­nomic de­vel­op­ment in var­i­ous ways. In­vestors will only make long-term in­vest­ments into the de­vel­op­ment of Ukrainian pro­duc­tion once they are con­fi­dent that their busi­ness will be treated fairly by gov­ern­ment au­thor­i­ties, that com­pe­ti­tion is even, and that prop­erty rights are guar­an­teed. If not, they will sim­ply set up their busi­ness in Ukraine’s western neigh­bors. And this is what is hap­pen­ing. But it is not only that for­eign in­vestors stay away, do­mes­tic in­vest­ment in phys­i­cal cap­i­tal in Ukraine is also low, much lower than in Ro­ma­nia, Hun­gary and Slove­nia. That it is cor­rup­tion that holds back in­vest­ment is con­firmed by busi­ness sur­veys, which con­sis­tently rank the un­cer­tainty of prop­erty rights, over­reach by gov­ern­ment agen­cies and short­com­ings in the ju­di­cial sys­tem as the main con­cerns. There is also a di­rect cost when pub­lic re­sources end up in the pock­ets of cor­rupt of­fi­cials or their al­lies, rather than be­ing used to Kick­backs tracts use pub­lic gov­ern­ment to fras­truc­ture pro­vide pro­vide of going state funds in ed­u­ca­tion, prop­erty, and of pro­cure­ment, high-qual­ity in­crease to re­sources friends de­fense. health and costs and that As em­bez­zle­ment gov­ern­ment pub­lic and care, an fam­ily, could il­lus­tra­tion, de­prive pub­lic ser­vices. be pri­vate used con- the in- of the 1,600 ing tance lack NGO Ukraini­ans of of safe­guard­ing Pa­tients medicine, die of un­der­lin­ing Ukraine daily pub­lic from es­ti­mates re­sources the the im­por- re­sult- that and en­sur­ing ed pur­pose. that they are used for their in­ten­dels Not of cor­rup­tion sur­pris­ingly, tend coun­tries to be richer. with This low sug- lev­gests that Ukraine could grow its econ­omy by suc­cess­fully re­duc­ing cor­rup­tion. A study by the IMF from 2017 shows that by bring­ing the level of cor­rup­tion — which is now one of the high­est in Europe — down to the av­er­age level of cor­rup­tion in the Euro­pean Union, Ukraine would in­crease an­nual GDP growth by about 2 per­cent. This would make a sub­stan­tial dif­fer­ence to em­ploy­ment and in­comes over time, and would ac­cel­er­ate the con­ver­gence of in­comes in Ukraine to the av­er­age in­come lev­els in Europe. While much has been done since 2014 to cre­ate anti-cor­rup­tion in­sti­tu­tions, par­tic­u­larly the Na­tional Anti-cor­rup­tion Bureau of Ukraine, cor­rup­tion re­mains a prob­lem. In­ter­na­tional ex­pe­ri­ence high­lights the im­por­tance of trans­parency to de­tect cor­rup­tion. Pro­zorro — the elec­tronic pro­cure­ment sys­tem — and the elec­tronic as­set dec­la­ra­tions for pub­lic of­fi­cials are sig­nif­i­cant de­vel­op­ments. The next step is now to en­sure that th­ese in­stru­ments lead to con­crete re­sults. High-level of­fi­cials en­gaged in cor­rup­tion should be held to ac­count for their crimes. In this re­gard, strength­en­ing the ju­di­cial sys­tem is key, in­clud­ing the swift es­tab­lish­ment of an in­de­pen­dent anti-cor­rup­tion court of the high­est stan­dards. Goesta Ljung­man is the In­ter­na­tional Mone­tary Fund res­i­dent rep­re­sen­ta­tive in Ukraine.

The Podil­sko-voskre­sen­sky Bridge across the Dnipro River. Con­struc­tion of the two-level, 7pkilo­me­ter bridge, which will carry road traf­fic and a fu­ture metro line, started 25 years ago and is not ex­pected to be com­pleted un­til 2021. (Volodymyr Petrov)

A man looks at ex­hibits at the Park of Cor­rup­tion ex­hi­bi­tion in Hryshko Botan­i­cal Gar­den in Kyiv on June 1. (Volodymyr Petrov)

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