Re­form Watch

Kyiv Post - - National -


Al­though par­lia­ment is in ses­sion and elec­tions are not un­til 2019, the re­form agenda is stalling for two key rea­sons be­sides pol­i­tics: Rus­sia’s war re­mains a low-in­ten­sity, though deadly af­fair, and Ukraine’s econ­omy and fi­nances are on the re­bound -- giv­ing politi­cians more time to put off the tough de­ci­sions.


A new Supreme Court will be named in Ukraine in just two weeks, Ukrainian Pres­i­dent Petro Poroshenko said in an in­ter­view with Canada’s CBC News on Sept. 25. The pres­i­dent, seem­ingly re­cy­cling a sound bite he picked up from ex-U.S. Sec­re­tary of State John Kerry at the Yalta Euro­pean Strat­egy con­fer­ence in Kyiv ear­lier in the month, said ev­ery court in the coun­try would be­come an anti-cor­rup­tion court.

Poroshenko has been drag­ging his heels on in­tro­duc­ing anti-cor­rup­tion courts – one of the de­mands of the In­ter­na­tional Mon­e­tary Fund to un­lock more loans from its $17.5 bil­lion bailout to Ukraine. Ukraine has so far re­ceived a to­tal of $8.7 bil­lion in four tranches of the IMF loan. In or­der to re­ceive the fifth tranche, ex­pected to be worth a fur­ther $1.9 bil­lion, Ukraine also has to pass pen­sion re­forms, speed up pri­va­ti­za­tion and make progress in fighting cor­rup­tion, IMF spokesman Gerry Rice said at a brief­ing in Wash­ing­ton D.C. in mid-Septem­ber.

How­ever, since the UkraineEuro­pean Union sum­mit in Kyiv in July, Poroshenko has been push­ing for the in­tro­duc­tion of anti-cor­rup­tion pan­els un­der the Supreme Court, rather than spe­cial­ized courts. Crit­ics say this is be­cause such pan­els would be eas­ier to con­trol, as they would be di­rectly sub­or­di­nate to the Supreme Court – a body formed by the High Coun­cil of Jus­tice, over which Poroshenko al­ready wields con­sid­er­able in­flu­ence.


The World Bank and the IMF on Sept. 22 said they were wor­ried that Ukraine is wa­ter­ing down pend­ing pen­sion re­form leg­is­la­tion, which could im­peril the next tranche of its $17.5 bil­lion IMF loan pack­age end­ing in 2019. Par­lia­ment passed the first read­ing of the law in July, but it has been mod­i­fied with dozens of amend­ments ahead of sec­ond read­ing. Ukraine’s in­ter­na­tional lenders want Ukraine to pare back spend­ing on the fis­cally un­sus­tain­able pen­sion sec­tor, re­duc­ing the deficites to 3 per­cent of gross do­mes­tic prod­uct Ukraine cur­rently spends around 12 per­cent of its GDP on pen­sions, but there are al­most as many pen­sion­ers as work­ers and the pen­sions are a pal­try $2 per day on av­er­age. The law orig­i­nally aimed to raise Pen­sion Fund rev­enues by cut­ting the num­ber of pro­fes­sions that al­low early re­tire­ment, and in­creas­ing the time work­ers must work to qual­ify for a pen­sion. How­ever, crit­ics of the law say sav­ing can be made with­out in­creas­ing the amount of time peo­ple have to work to gain a pen­sion. Law­mak­ers are to vote on the leg­is­la­tion at sec­ond read­ing on Oct. 3.

Land re­form

With the mora­to­rium on farm­land sales set to ex­pire on Jan. 1, 2018, the World Bank and oth­ers are lin­ing up in support of those in Ukraine who want to cre­ate an agri­cul­tural land mar­ket. The abil­ity to buy and sell the na­tion's fer­tile land could at­tract $50 bil­lion in loans and in­vest­ments. The Agri­cul­tural Min­istry es­ti­mates the long­stand ban costs the na­tion more than $3 bil­lion a year. The World Bank also sees the ban as a brake on Ukraine’s eco­nomic devel­op­ment, and one of Ukraine’s other key lenders, the In­ter­na­tional Mon­e­tary Fund, has made re­mov­ing the ban a con­di­tion of its $17.5 bil­lion loan pack­age. Ukraine had promised to lift the ban by the end of De­cem­ber 2016, but with pub­lic support only at about 11 per­cent, par­lia­ment last year balked at the move, in­stead vot­ing to ex­tend the ban for an­other year.


Mean­while, with the ob­struc­tion of re­forms at Ukraine’s state-owned oil and gas com­pany Naftogaz of Ukraine lead­ing to the res­ig­na­tion of the last two re­main­ing in­de­pen­dent mem­bers of its su­per­vi­sory board on Sept. 19, the Euro­pean Bank for Re­con­struc­tion and Devel­op­ment said it would pull the plug on its loan for the com­pany un­less cor­po­rate-gov­er­nance re­forms there get back on track soon. The EBRD has al­ready dis­bursed $300 mil­lion to the com­pany over the last three years, but no new money will be forth­com­ing un­til a new, in­de­pen­dent su­per­vi­sory board is ap­pointed, and the govern­ment’s block­ing of changes to im­prove the com­pany's per­for­mance and man­age­ment ends, the bank’s re­gional di­rec­tor Fran­cis Malige said on Sept. 22. In­creas­ing gas prices and elim­i­nat­ing dodgy in­ter­me­di­aries saw the com­pany in 2015 make a profit for its first time in five years. How­ever, an­a­lysts say mea­sures to separate the gas tran­sit and stor­age busi­nesses from Naftogaz have met stiff re­sis­tance from within the govern­ment, and may have prompted the in­de­pen­dent mem­bers of the su­per­vi­sory board to re­sign af­ter only 18 months on the job.


The num­bers in Ukraine look bet­ter: in­fla­tion down from 61 per­cent in April 2015 to just 13.5 per­cent now. The econ­omy back to growth - 2.3 per­cent in 2016 and roughly the same ex­pected this year. And to top that off, Ukraine’s $3 bil­lion dol­lar-de­nom­i­nated bond is­sue on Sept. 18, which has an an­nual yield of 7.375 per­cent, was an “un­be­liev- ably pos­i­tive as­sess­ment of re­forms,” ac­cord­ing to Ukrainian Pres­i­dent Petro Poroshenko.

How­ever, some an­a­lysts are al­ready wor­ry­ing that the suc­cess­ful bond is­sue, which ac­cord­ing to a re­port in the Econ­o­mist was over­sub­scribed by $7 bil­lion, may en­cour­age Ukraine to ease up on pur­su­ing re­forms – es­pe­cially if de­mand for high-yield sov­er­eign bonds re­mains high.

Ac­cess to cash from the bond mar­kets may en­cour­age Kyiv to be­lieve it can rely less on the Western in­ter­na­tional fi­nan­cial in­sti­tu­tions that saved it from to­tal eco­nomic col­lapse in the wake of the EuroMaidan Rev­o­lu­tion and Rus­sia’s war in 2014. The $17.5 bil­lion life­line pro­vided by the IMF helped Ukraine sta­bi­lize its econ­omy in 2014 and 2015, came with con­di­tions. It’s no co­in­ci­dence that most progress in Ukraine was made when the IMF’s money was most needed. Now that Ukraine’s need for fi­nan­cial support is less dire and it has other op­tions, the pres­sure to make changes is less­ened. Go­ing off the IMF pro­gram has hap­pened time and time again in in­de­pen­dent Ukraine's his­tory.


Ukraine has torn up thou­sands of pages of reg­u­la­tory acts over the last year, mak­ing it much eas­ier to do busi­ness in the coun­try, Ukrainian Prime Min­is­ter Volodymyr Groys­man said at the open­ing of the Kyiv In­vest­ment Fo­rum on Sept. 26.

He said his govern­ment had taken prac­ti­cal steps to “cre­ate real dereg­u­la­tion” in the coun­try, and that the busi­ness en­vi­ron­ment is im­prov­ing. He said he ex­pected the new re­al­i­ties will at­tract more in­vest­ment to the agri­cul­ture, in­fra­struc­ture and tourism sec­tors.

Ukraine is now 80th in the World Bank’s Ease of Do­ing Busi­ness rank­ing, one place up on the pre­vi­ous year. But it only moved up four places in the most re­cent World Eco­nomic Fo­rum's Global Com­pet­i­tive In­dex, re­leased Sept. 26, mov­ing to 81st among na­tions from 85th place.

A man comes out of Naftogaz head­quar­ters in Kyiv on Sept. 21. (Volodymyr Petrov)

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