Olek­sandr Danyliuk: “Ukraine’s econ­omy can’t grow as long as we don’t change the role of the en­force­ment agen­cies”

«Ukraine’s econ­omy can’t grow as long as we don’t change the role of the en­force­ment agen­cies»

The Ukrainian Week - - CONTENTS - In­ter­viewed by Lyubomyr Shava­lyuk

Fi­nance Min­is­ter on re­form­ing the State Fis­cal Ser­vice and other chal­lenges fac­ing do­mes­tic econ­omy

The Ukrainian Week talked to Fi­nance Min­is­ter Olek­sandr Danyliuk about re­form­ing the State Fis­cal Ser­vice and other chal­lenges fac­ing Ukraine’s do­mes­tic econ­omy.

So far, there’ve been more talk and scan­dals around re­form­ing the State Fis­cal Ser­vice (SFS) than ac­tual re­sults. What are your thoughts on that?

— Back in 2016, right af­ter I was ap­pointed, I eval­u­ated the re­form of the SFS, which had been go­ing on for more than a year, and gave it neg­a­tive marks. There were plenty of nicelook­ing re­ports, lots of num­bers and many lauded ‘vic­to­ries,’ but in re­al­ity the sit­u­a­tion on the ground had not changed at all. Cor­rup­tion reigned and pres­sure on busi­ness con­tin­ued. When you look at re­ports like that, you get the false im­pres­sion that things are so great that noth­ing needs to be done.

But the key point is what tax­pay­ers think of the way the SFS has changed. Ac­cord­ing to a poll of the busi­ness com­mu­nity pub­lished re­cently by the Amer­i­can Cham­ber of Com­merce, the SFS was #2 for cor­rup­tion af­ter the courts. In other words, we can talk all we want about re­forms, but this is what those who di­rectly work with the Ser­vice on a daily ba­sis had to say about it.

This means we have to look be­yond statis­tics that are be­ing mas­saged, be­yond the stan­dard clichés about how good ev­ery­thing is. For in­stance, let’s take a look at those as­pects that can’t pos­si­bly be suc­cess­ful with­out re­forms. Have new peo­ple come in? No. Has the level of in­flu­ence of lob­by­ing groups gone down? No. I would even say that it has in­creased. Do you want to know why? Be­cause one year ago, when we man­aged to in­tro­duce a trans­par­ent reg­is­ter for VAT re­funds against enor­mous re­sis­tance, some­one lost a few bil­lion. We com­pletely re­moved cer­tain peo­ple from the VAT re­fund process, which now takes place com­pletely trans­par­ently and au­to­mat­i­cally. Any at­tempt to abuse this sys­tem is now im­me­di­ately ap­par­ent. And those folks who lost out are try­ing to com­pen­sate their losses in other ar­eas, where they still have some lever­age.

What is your game plan for this re­form?

— We’re go­ing to con­tinue chang­ing the way the SFS op­er­ates but the key here is to change the peo­ple. That means start­ing with a trans­par­ent com­pe­ti­tion to se­lect the man­age­ment of this agency. Now that [ex-SFS di­rec­tor ac­cused of cor­rup­tion and ar­rested in March 2017 Ro­man] Nasirov has fi­nally been fired, we have both the op­por­tu­nity and the duty to run a proper com­pe­ti­tion. In this re­spect, I have al­ready or­ga­nized a few meet­ings, both in­ter­nal ones and ones with mem­bers of the SFS re­form project’s su­per­vi­sory board. This board in­cludes five am­bas­sadors—of the US, Canada, Ger­many, Swe­den and the EU—, rep­re­sen­ta­tives of the IMF, the EBRD and the Busi­ness Om­buds­man Coun­cil. Repre-

sen­ta­tives of part­ner coun­tries and IFIs have also been en­gaged in dif­fer­ent pro­cesses. For in­stance, they played an ac­tive role in com­ing up with ap­proaches to se­lect­ing man­agers at ma­jor state cor­po­ra­tions.

As you know, when the Naftogaz Ukrainy board mem­bers quit, this led to a lot of con­cern, in­clud­ing at Naftogaz it­self. The sit­u­a­tion had to be re­solved very quickly. Wor­ries about the fate of this com­pany were jus­ti­fied, as it’s very large.

But let’s look at the SFS. If we look at it like an en­ter­prise, its indi­ca­tors are sev­eral times larger than those of the state. For in­stance, the SFS col­lected taxes and du­ties worth over UAH 840 bil­lion in 2017 alone. Yet its ac­tiv­i­ties in­flu­ence the level of cor­rup­tion and the busi­ness cli­mate in the coun­try and, in the end, com­pe­ti­tion. Ob­vi­ously if one com­pany in a sec­tor pays taxes and its neigh­bor does not, this dam­ages the com­pet­i­tive­ness of the sec­tor. That’s why we can’t take a purely for­mal ap­proach to se­lect­ing the SFS man­age­ment. This com­pe­ti­tion should re­store some trust in the or­ga­ni­za­tion. But to achieve this, we have to en­gage the com­mu­nity as much as pos­si­ble. With­out this kind of ap­proach, there will never be any con­fi­dence not only in the cho­sen man­agers but in the very re­form of the Ser­vice.

There’s an­other im­por­tant point. If we just do things pro forma, in the best case we will hire peo­ple who are prop­erly qual­i­fied, have man­age­rial skills and so on. So what do you think? Can a per­son who worked 10-15 years in the SFS or even in the pri­vate sec­tor, like Nasirov, might meet these re­quire­ments? I think that they cer­tainly won’t be the worst can­di­date on the list. But what they will be miss­ing is hon­esty. Be­cause the worst op­tion for us will be to hire a smart man­ager with re­ally strong con­tacts and great com­mu­ni­ca­tion skills but in­clined to cor­rup­tion. That kind of pro forma se­lec­tion will be cor­rect, but noth­ing will have changed.

Trans­form­ing the SFS into a trans­par­ent ser­vice agency is the #1 re­form for Ukraine. This one aspect af­fects the busi­ness cli­mate, and that means the coun­try’s in­vest­ment ap­peal and eco­nomic growth. So every­one who’s in­ter­ested in this should take part in the trans­par­ent se­lec­tion of the State Fis­cal Ser­vice man­age­ment and keep a close eye on the process.

The SFS re­form plan goes like this. Af­ter a num­ber of Cab­i­net res­o­lu­tions were can­celed [by the Gov­ern­ment on Jan­uary 11; the res­o­lu­tions re­ferred to the re­or­ga­ni­za­tion of the SFS struc­ture, the ap­point­ment of new peo­ple and fi­nal abo­li­tion of the tax po­lice] we will once again sub­mit them to the Cab­i­net and they should get a new lease on life. I’m con­fi­dent my col­leagues will sup­port them. Changes in the struc­ture of the Ser­vice and the se­lec­tion of new staff will help di­min­ish the like­li­hood of cor­rup­tion and will cut off the in­ter­est groups that cur­rently con­trol some as­pects of the Fis­cal Ser­vice’s work.

There have been prece­dents where com­pet­i­tive hir­ing has turned into a farce, such as in the case of UkrSpirt, the al­co­hol mo­nop­oly. How pos­si­ble is it that this could hap­pen again?

— It’s quite pos­si­ble. Look at how the process works. There’s a [com­pe­ti­tion] com­mis­sion, we’re sup­pos­edly tak­ing all the right steps, we’re in­clud­ing ex­ter­nal ex­perts to en­sure trust in the process, and af­ter­wards we feel in­sulted when they see a scam go­ing on and turn their backs, say­ing that they don’t want any­thing to do with it.

Right now, the premier is set­ting up a new group for se­lect­ing man­agers in line with rec­om­men­da­tions from our part­ners and based on gov­ern­ment pro­pos­als. In other words, we are re-launch­ing the process of se­lect­ing man­agers for state en­ter­prises and are ap­ply­ing a new ap­proach to it.

At the same time, we have to get go­ing with pri­va­ti­za­tion. The 2018 Bud­get an­tic­i­pates UAH 22.5bn in rev­enues from pri­va­ti­za­tion, so I hope that Ukraine will be able to get this process go­ing. I’ve al­ready met with peo­ple from the EBRD and a num­ber of in­vest­ment banks to think about how to launch pri­va­ti­za­tion, given that next year is a dou­ble elec­tion year.

I re­mem­ber an ex­am­ple from my own in­vest­ment days: when you look at the prospects for in­vest­ing in dif­fer­ent coun­tries, you al­ways con­sider the po­lit­i­cal sit­u­a­tion. This is nor­mal global prac­tice. And when elec­tions are loom­ing, they of­ten say: “Let’s wait and see what hap­pens af­ter the elec­tion.” I’m sure this will be hap­pen­ing in a lot of fi­nan­cial cen­ters this time as well, and it will be very dif­fi­cult to per­suade in­vestors to put their cap­i­tal into some­thing be­fore these elec­tions. This fac­tor needs to be taken into ac­count, but that’s not a rea­son for us to stop the process. Oth­er­wise those who are sit­ting at state en­ter­prises will con­tinue to man­age them poorly, to siphon off as­sets and to work against the na­tional in­ter­est. It’s Ukraini­ans who will feel the loss of tens of bil­lions of hryv­nia ev­ery year be­cause of this.

Let’s as­sume that the SFS hires new peo­ple who are re­for­m­minded. How far will this go to re­store con­fi­dence in the Ser­vice?

— This is a nec­es­sary but in­suf­fi­cient con­di­tion. A good deal will also de­pend on tax pol­icy as well. It has to be aimed at elim­i­nat­ing po­ten­tial sources of cor­rup­tion, like the launch of the au­to­matic reg­is­ter of VAT re­funds or the “one-stop shop” at Cus­toms. Both the Tax and Cus­toms Codes need to be un­der­stand­able and not al­low for a va­ri­ety of in­ter­pre­ta­tions. This means chang­ing laws, which is a task for the Fi­nance Min­istry, which es­tab­lishes pol­icy, and the Gov­ern­ment and Rada.

Yet an­other im­por­tant el­e­ment in restor­ing trust is stream­lin­ing pro­ce­dures at the SFS, be­cause the sim­pler they are, the less they de­mand of tax­pay­ers and the fewer op­por­tu­ni­ties of­fi­cials have at var­i­ous stages to in­ter­fere in com­mer­cial ac­tiv­i­ties. And that re­duces cor­rup­tion risks enor­mously.

One very im­por­tant change that MinFin ini­ti­ated last year was the “one-stop shop.” This is a rev­o­lu­tion­ary step for us as it forces all state agen­cies, such as the State Con­sumer Prod­uct Ser­vice, the State En­vi­ron­men­tal In­spec­tion, the State Bor­der Ser­vice, and the SFS, which con­trol goods on the cus­toms ter­ri­tory of Ukraine, to work as a sin­gle unit. So, for goods to en­ter Ukraine, a busi­ness needs to only deal with the gov­ern­ment in elec­tronic form. Right now, busi­nesses are be­ing sold a story that there’s no state but there is Cus­toms that ex­ists as a sep­a­rate en­tity, with bor­der guards, ecol­o­gists, phy­tosan­i­tary ser­vices and so on. They say, “We at Cus­toms have done our job and you’ll just have to go look else­where to find the other over­sight agen­cies. That’s not our prob­lem.”

That’s why eco­nomic growth is at such a slow pace here. If we be­have this way to­wards those who help our econ­omy de­velop, we get the re­sult we de­serve. I’m cer­tain that peo­ple in all agen­cies who are of­fi­cially—and oc­ca­sion­ally un­of­fi­cially— en­gaged in over­sight all get their cut and they will def­i­nitely in­sist on main­tain­ing the ex­ist­ing sys­tem. We’re against this,

and launch­ing a “one-stop shop” will go a long way to re­solv­ing this prob­lem.

Last year, we launched a pi­lot project on a vol­un­tary ba­sis. As of Fe­bru­ary 1, 2018, our “one-stop shop” be­came manda­tory for all agen­cies across the coun­try, with some pro­vi­sions for a tran­si­tion pe­riod. This has re­quired ma­jor changes in the way all these agen­cies op­er­ate. When things got stuck, we were forced to call these agen­cies to­gether at the min­istry, to work out a com­mon vi­sion and re­solve is­sues that they were un­able for some rea­son to re­solve be­tween them on their own.

What do we see to­day? Built-in in­ter­de­pen­dence. Now it’s a lot harder to hide some­thing be­cause the doc­u­ments have to be de­liv­ered on time—this ap­plies to all doc­u­ments for goods go­ing through Cus­toms are sub­mit­ted in ad­vance—, and by the time goods ar­rive at Cus­toms, they are al­ready regis­tered with the var­i­ous ser­vices. This has made it very dif­fi­cult for a ve­hi­cle to jump through un­no­ticed or to skip one of the manda­tory in­spec­tions. Peo­ple who have been abus­ing the sit­u­a­tion can al­ready see that they will be caught, as ev­ery­thing is vis­i­ble in the sys­tem now. Busi­nesses are slowly start­ing to un­der­stand clearly who’s re­spon­si­ble for the process, what doc­u­ments need to be sub­mit­ted and how long the over­sight will take, who’s re­spon­si­ble for any de­lays and whether there are grounds for them. We are mon­i­tor­ing this process and work­ing to im­prove OUR GOAL IS TO TRANS­FORM THE SFS INTO A SER­VICE AGENCY. THAT MEANS THAT IT CAN­NOT IN­CLUDE A LAW EN­FORCE­MENT UNIT, LET ALONE ONE WITH THE REP­U­TA­TION THAT THE CUR­RENT GROUP HAS WITH BUSI­NESS. THIS KIND OF “WHIP” HAS NO PLACE IN THE SFS AND IT SHOULD NEVER EVEN BE AN OP­TION TO USE IT TO PUT PRES­SURE ON BUSI­NESSES pro­ce­dures all the time. To­day, about 80% of all doc­u­ments are be­ing han­dled through the one-stop shop.

We have a few other ini­tia­tives as well, which we hope will be in­tro­duced at the leg­isla­tive level so that Ukrainian busi­ness can con­tinue to co­op­er­ate unim­peded with for­eign part­ners and so that Ukraine doesn’t find it­self on any black lists in Europe. For in­stance, by the end of this year, we hope to fin­ish im­ple­ment­ing the min­i­mal re­quire­ments, that is the first four steps of the OECD plan to pre­vent tax base ero­sion and profit shift­ing (BEPS). This in­cludes join­ing the MLI or mul­ti­lat­eral in­stru­ment, which makes it pos­si­ble to amend all bi­lat­eral agree­ments about dual tax­a­tion. I think that in the next while we will also im­ple­ment this. In short, we’re tack­ling re­forms from three an­gles: chang­ing peo­ple at the SFS, stream­lin­ing SFS oper­a­tions and pro­ce­dures, and im­prov­ing tax poli­cies.

What im­pact will elim­i­nat­ing the tax po­lice have on the re­form of the SFS?

— This is an­other key is­sue, with­out which real re­form will be im­pos­si­ble. The tax po­lice have ef­fec­tively been out­side the law for over a year, but we’ve been un­able to com­pletely close them down. That’s be­cause one of the MinFin res­o­lu­tions can­celed by the Gov­ern­ment pro­vided pre­cisely for this. In other words, the tax po­lice are now part of the SFS, but its ac­tiv­i­ties are not rec­og­nized in law. Yet it con­tin­ues to op­er­ate and to be funded out of the bud­get. Mean­while, its staff has no in­cen­tive to work be­cause they know that their de­part­ment will soon be closed down. We re­ally need to fin­ish this process.

Why is elim­i­nat­ing the tax po­lice so im­por­tant to the re­form of the SFS? Our goal is to trans­form the SFS into a ser­vice agency. That means that it can­not in­clude a law en­force­ment unit, let alone one with the rep­u­ta­tion that the cur­rent group has with busi­ness. This kind of “whip” has no place in the SFS and it should never even be an op­tion to use it to put pres­sure on busi­nesses. Once that is done, us­ing the right ap­proaches, peo­ple, pro­cesses and key per­for­mance indi­ca­tors (KPI), we can look for­ward to the suc­cess­ful re­form of the State Fis­cal Ser­vice.

The tax po­lice and its at­tacks on busi­ness should be­come a thing of the past. On the other hand, we do need a Fi­nan­cial In­ves­ti­ga­tions Ser­vice (FIS) and this episode also reads like a de­tec­tive story. In March 2017, the Gov­ern­ment vet­ted a bill on set­ting up the FIS that had been drafted by the Fi­nance Min­istry to­gether with other min­istries and agen­cies, ex­perts and busi­ness. Un­for­tu­nately, that’s as far as it got. Once this bill is passed, it will mean very se­ri­ous changes, in­clud­ing the loss of in­flu­ence of a num­ber of en­force­ment agen­cies. De­spite the fact that we have been an in­de­pen­dent na­tion for so many years, our en­forcers still play a very large role, not just in the econ­omy, but in ev­ery aspect of the lives of our cit­i­zens. A far too large one. This is com­pletely un­ac­cept­able for a demo­cratic coun­try.

Once there is an FIS, the func­tion of in­ves­ti­gat­ing white-col­lar crimes against the state will be shifted from the SBU, the Na­tional Po­lice and the Pros­e­cu­tor Gen­eral’s Of­fice and the tax po­lice will be elim­i­nated al­to­gether. The 15,000 peo­ple who work in these agen­cies to­day will be re­duced to a max­i­mum of 3,500. Most of them will be new in­di­vid­u­als whose hir­ing will be based on very dif­fer­ent prin­ci­ples and who will un­dergo spe­cial train­ing. The ex­pe­ri­ence of the cur­rent lot in this sphere is not needed at the FIS. We need peo­ple who can fight in a broad-based way with com­pli­cated fi­nan­cial crimes such as tax eva­sion, money-laun­der­ing, de­lib­er­ately bankrupt­ing banks and state en­ter­prises, and so on.

Ukraine’s econ­omy can’t grow as long as we don’t change the role of the en­force­ment agen­cies. Do we need the SBU? Yes, very much, but as an over­sight agency. Coun­ter­in­tel­li­gence of­fi­cers should have very high salaries, be pro­fes­sion­ally trained, and pro­tect the coun­try from for­eign agents work­ing against us—right now there are many of those. These peo­ple should be an elite force, but when they see next to them a huge de­part­ment en­gaged in ac­tiv­i­ties that are not its re­mit, in­ter­fer­ing in all kinds of com­mer­cial pro­cesses on ab­so­lutely fic­tive grounds, and mo­ti­vated by rea­sons that are all too ob­vi­ous to every­one, this harms morale in the coun­ter­in­tel­li­gence units and es­tab­lishes a com­pletely in­ap­pro­pri­ate im­age of the agency as a whole.

The same is true for other agen­cies, es­pe­cially the Pros­e­cu­tor Gen­eral’s Of­fice. Does it need to be pow­er­ful? Ab­so­lutely—in or­der for the coun­try’s in­ter­ests to be pro­fes­sion­ally de­fended in the courts, and for op­er­a­tional and in­ves­tiga­tive ac­tiv­i­ties to be prop­erly over­seen. Ab­so­lutely not in or­der to put pres­sure on busi­ness and on civil so­ci­ety, to pre­vent the re­turn of money that has been si­phoned out of the bank­ing sys­tem, and so on.

Cur­rently, this di­vi­sion of spheres of in­flu­ence is ham­per­ing the process of set­ting up a new, in­de­pen­dent agency. So, yes, progress will not be easy, but all those who are try­ing to slow down this process need to start think­ing about their coun­try and not just their own nar­row in­ter­ests.

Right now there’s a lot of de­bate about how Ukraine should grow its econ­omy. One side talks about a com­pletely free mar­ket. The other side talks about the Asian tigers, where the state sup­ports the es­tab­lish­ment of its own transna­tional cor­po­ra­tions and then lets the float freely on ex­ter­nal mar­kets. What do you think about this?

— I pre­fer the first model—an open mar­ket and com­pe­ti­tion. That’s my gen­eral po­si­tion, es­pe­cially with re­gard to Ukraine. First of all, his­tor­i­cally, any kind of state in­ter­fer­ence led to cor­rup­tion or was so in­com­pe­tent that it hurt growth. Se­condly, our state in­sti­tu­tions are too weak. They need to be re­formed long be­fore we can even con­sider let­ting such in­sti­tu­tions man­age the coun­try’s econ­omy. So the only proper choice for Ukraine is a lib­eral one, max­i­mum com­pe­ti­tion, and lim­ited gov­ern­ment in­flu­ence over the econ­omy.

One of the most sig­nif­i­cant im­pulses to Ukraine’s econ­omy right now should be­come trans­par­ent pri­va­ti­za­tion. For in­stance, for many years now, we’ve been de­bat­ing land re­form, but noth­ing’s been done. To­day, those who say that Ukraini­ans are against land re­form are sim­ply ma­nip­u­lat­ing the facts. In­deed, those who are gain­ing eco­nomic and po­lit­i­cal ad­van­tages from the mora­to­rium are against re­forms. These peo­ple spent years scare-mon­ger­ing Ukraini­ans and those pho­bias have helped en­tire par­ties gain seats in the Verkhovna Rada, earn money and live a lot bet­ter than the farm­ers that they are sup­pos­edly try­ing to pro­tect. Play­ing on such ir­ra­tional think­ing has turned out to be a pretty good busi­ness for them.

Af­ter all, re­forms are not in­tended to sat­isfy those who have been liv­ing off or­di­nary Ukraini­ans who own land. A free land mar­ket is our chance to give the econ­omy a real shot in the arm. For changes to be felt across the coun­try, the econ­omy has to be grow­ing at 7-8%, and that’s quite im­pos­si­ble with­out land re­form.

Agri­cul­ture is now one of the main driv­ers of the do­mes­tic econ­omy. Ukraine has def­i­nite com­pet­i­tive ad­van­tages on world agri­cul­tural mar­kets and it has been show­ing good re­sults: #1 in the world for ex­ports of oil, in the top 5 for cream­ery but­ter, among the top 10 ex­porters of food prod­ucts to the EU, and among the top 10 ex­porters of flour in the world, and more. And this is de­spite the ob­sta­cles we have gen­er­ated all by our­selves! The farm sec­tor has lots of po­ten­tial be­cause of the sit­u­a­tion on world mar­kets. The ques­tion is, how should it be de­vel­oped? Land re­form is a big part of the an­swer to that. If the farm sec­tor be­gins to de­velop, we can look for­ward to new jobs and more bud­get rev­enues. But right now there’s a mora­to­rium and some­one is pay­ing for that: peo­ple get smaller salaries or pen­sions, while oth­ers can’t af­ford to pay for higher qual­ity health­care. The ban on the sale of farm­land lim­its the growth of agribusi­nesses, it has a neg­a­tive im­pact on the econ­omy as a whole, and it re­duces op­por­tu­ni­ties to cover pub­lic spend­ing, es­pe­cially for so­cial ser­vices.

Our op­po­nents say, “How much can you talk about agri­cul­ture. We need to de­velop high tech­nol­ogy.” My take on that is that we should first fig­ure out what’s hap­pen­ing with the most ob­vi­ous things. How are these ‘mar­ket ex­perts’ plan­ning to gen­er­ate some­thing new? Through an­other mora­to­rium? “OK, so, to de­velop high tech­nolo­gies, let’s in­sti­tute a ban: you do what­ever it is you do, but we won’t let you com­mer­cial­ize or sell it, be­cause that will cheapen it. That’s how we plan to pro­tect you.” If ‘spe­cial­ists’ with this kind of ap­proach try to de­velop other sec­tors of the econ­omy, lots of folks will pack their bags and leave.

It’s been 10 months since we’ve had a tranche from the IMF. Does the Gov­ern­ment have a Plan B for gen­er­at­ing the nec­es­sary re­serve of hard cur­rency, given how much we will have to pay out over 2018-2019?

— I think it’s too soon to talk about a Plan B. Our po­si­tion is to con­tinue co­op­er­a­tion with the IMF. Why is it that we could leave the pro­gram be­cause we didn’t set up an Anti-Cor­rup­tion Court? How will we ex­plain how this hap­pened? Be­cause we don’t want to work with the IMF or we don’t want to fight cor­rup­tion? Let’s not con­fuse causes and ef­fects.

This is not go­ing to be an easy year for us. Even if we sur­vive it and make it to 2019, the coun­try faces ma­jor pay­ments on ex­ter­nal debts that have ac­cu­mu­lated in the last few years. Of course, the Min­istry has the nec­es­sary in­stru­ments to reg­u­late in­di­vid­ual prob­lems. And we are ex­pand­ing our set, we’re in­creas­ing do­mes­tic bonds, and we’re gen­er­at­ing op­por­tu­ni­ties for for­eign in­vestors to bor­row in hryv­nia. We’re do­ing a lot, but it’s not in or­der to say that we don’t need re­forms of we can do just fine with­out the IMF. We’re do­ing it be­cause such in­stru­ments should be avail­able in any proper fi­nan­cial sys­tem.

The IMF pro­gram is also linked to the trust of for­eign in­vestors, a sig­nal to them that we are tak­ing on re­forms. One thing that also needs to be un­der­stood: for the econ­omy to grow much faster than now, se­ri­ous in­vest­ments are needed. Who gen­er­ates new jobs, whether it’s an in­vestor from Mu­nich or from Myko­layiv, doesn’t mat­ter. Un­for­tu­nately, it’s turned out that a lot of our lo­cal in­vestors, who of­ten ac­quired their busi­nesses through du­bi­ous pri­va­ti­za­tion deals, moved their prof­its off­shore. That’s what we call a na­tional in­vestor? And then they come along and say, “Why do we need for­eign­ers?” For Ukraine’s econ­omy to grow, we need in­vest­ments and in­vestors who be­lieve in the coun­try, who want to hon­estly grow their busi­ness and pay their proper taxes. So we need to show them that Ukraine is mov­ing for­ward with re­forms.

And so we in­tend to do ev­ery­thing that’s needed so that Ukraine can suc­cess­fully com­plete a co­op­er­a­tion pro­gram with the IMF for the first time in his­tory. I think we will man­age to launch the Anti-Cor­rup­tion Court. This is one of the points in the mem­o­ran­dum, but this is not be­cause the IMF needs it but be­cause Ukraini­ans want it and it’s a key step in the trans­for­ma­tion of our coun­try.

As to the nat­u­ral gas sec­tor and rates, we’re look­ing for a so­lu­tion there. More than 50% of Ukraini­ans are re­ceiv­ing sub­si­dies from the gov­ern­ment to­day and are so­cially pro­tected. Rais­ing rates will only in­crease the num­ber of sub­si­dized house­holds and pub­lic spend­ing on them. Yet given the way the sys­tem cur­rently works, this won’t be com­pen­sated by prof­its from Naftogaz Ukrainy. More im­por­tantly: re­form­ing the gas sec­tor isn’t just about rais­ing rates but about set­ting the nec­es­sary con­di­tions for com­pe­ti­tion to grow in this mar­ket. We’re talk­ing to the IMF about all these things in a com­pre­hen­sive way and look­ing for the mech­a­nism that will re­duce the im­pact on or­di­nary folks as much as pos­si­ble. We un­der­stand very well just how painful this is­sue is.

It’s also worth not­ing that quite a few of our hard cur­rency pay­ments are tak­ing place us­ing in­ter­nal in­stru­ments and some of the pay­outs sched­uled for 2018-2019 we plan to re­fi­nance on the do­mes­tic mar­ket, as the IMF pro­gram an­tic­i­pates as well.

In ad­di­tion to this, we have be­gun ac­tive oper­a­tions with our ex­ter­nal bonds. Dur­ing the place­ment of eurobonds in Septem­ber 2017, we re­placed most of those that ma­ture in 2019 with new 15-year bonds.


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