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Ukraine in 2016: A brief summary

If you ask an average citizen in Ukraine about the progress of reforms in 2016, you will most likely hear that nothing has changed. According to many, over the past year there has been little improvement when comparing the population’s high demands and expectations with the actual results. However, a closer look at the reforms might prove the opposite.

January 9, 2017 - Valerii Pekar - Articles and Commentary

Lavra Kyiv

A new pace of reforms was expected after a government change in April 2016. However, this did not happen and the operational capacity of both the government and the parliament remained low. Moreover, the reforms dramatically slowed down – the National Reform Council met only five times in 2016, down from 17 in 2015.

However, despite this, in 2016 a number of important reforms were implemented. The most prominent one was the requirement that all public officials submit financial e-declarations. All of them have been required to openly declare their giant assets, and, as one civil activist noted, Ukraine is now not only the most corrupt, but also the most transparent country in Europe. However, both features cannot exist simultaneously for too long. The new law provides for the establishment of an independent anti-corruption court, although it is not yet in place and society cannot expect any rulings against corrupt officials in the near future. Nonetheless, the reform has been a great success, achieved thanks to the pressure of Ukrainian civil society and Western governments.

The gas industry reform was another important change. Although populists used it to complain about increasing poverty because of the rising gas rates, Ukraine finally broke its long dependence on Russian gas. Moreover, another extremely important consequence of the reform is that it is no longer possible to build a fortune on corrupt gas deals, which was the case with almost all Ukrainian oligarchs.

In addition, Ukraine began the selection of new judges for the re-launched Supreme Court of Ukraine, which set the foundation for an important judicial reform. Furthermore, the government conducted local elections in the new municipalities and made a number of successful steps towards decentralisation. Ukraine has also seen some positive change when it comes to economic deregulation, including the abolition of price regulation and simplification of the export of services (a crucial issue for the growing IT industry), partially improving tax legislation, ensuring an early and transparent start of the budget process, and making the public procurement platform called ProZorro obligatory for all public purchases.

However, there were also great disappointments. The most important ones were the failure to privatise more than 3,500 state-owned enterprises and the extension of the moratorium on agricultural land sales. Oligarchic clans use both types of assets to ensure corruption revenues and with these two limitations in place, the level of direct foreign investment remains low and so does the growth of local entrepreneurship. Populist politicians advocate state ownership and land moratorium using leftist arguments, however, they in fact protect the interests of corrupt clans.

The second great disappointment was related to economic growth. A comprehensive tax reform was postponed for the third year in a row. The current taxation system still supports an old-fashioned resource economy and corruption, while suppressing innovative solutions and investments (high taxes on labour and low taxes on capital). Instead of serving the interests of taxpayers, the fiscal service still remains a pump for dirty money. It remains a closed state-within-a-state, as the parliament failed to put fiscal data under the control of the Ministry of Finance. Budget and pension reforms have also moved slowly. One of the painful failures has been the lack of a mechanism for verifying subsidies, an area prone to enormous abuse. The government failed to combine the databases of different state agencies and establish an effective system of verification.

The launch of the long-awaited civil service reform can be considered another great failure; some people with tarnished reputations won the first contests for the top positions of state secretaries of ministries, which outraged civil society and Western observers. At the same time, several key reformers from 2015, a breakthrough year, left their offices with a great real loss for the state.

When it comes to the economy, a slight recovery began and will hopefully continue in 2017. However, no one expects any spectacular changes. The successful nationalisation of Privatbank was also a positive change. While the taxpayers will bear financial responsibility for the process, it will still cost them less than if the bank fell. Despite small improvements, however, the economic recovery has not influenced the real income of most people.

Politics was business as usual. The parliamentary coalition exists only on paper, as they do not have enough support to implement even the most important reforms. At the same time, an early election is not a good idea, as the ratings of populists have slightly increased and no new united political force representing the two overlapping categories of active post-Maidan citizens and the middle class has appeared.

In the military sphere there was no news either. The ceasefire is just a distant dream, as Russian forces and their local collaborators continue to shoot Ukrainian positions on a daily basis. Fortunately, their attacks are unable to move the front line, as the Ukrainian defence remains strong. Thus, the war of attrition continues and nobody knows what the new United States administration and disjoined Europe will do in terms of sanctions.

In the social sphere we have to note the increased frustration of Ukrainians both with the policy makers (who enjoy a historically low level of confidence) and Europe (since people feel ignored and aggrieved by the continuous postponing of a visa-free regime). But the most important issue that has contributed to the increase in social tensions has been the lack of punishment for the Maidan shootings three years ago, large-scale corruption and the lack of punishment for Russian political agents. The positive energy of Maidan dried up, while a negative one has been on the rise. This means that 2016 left a bad legacy for the new year.

Overall, the last year brought frustration, but passed without any major catastrophes. The question is whether time is playing on our side. If so, things will be manageable. If not, we wasted another important year without a radical social transformation.

Valerii Pekar is co-founder of the Nova Kraina Civic Platform and teaches at the Kyiv-Mohyla Business School. He is a former member of the National Reform Council.

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