Overview
Parliament’s autumn session began with tragedy on Aug. 31, as three National Guardsmen were killed in a grenade blast near the Verkhovna Rada after lawmakers gave preliminary approval to changes to the Constitution. Some claim the changes will lead to recognition of Russia’s proxies in occupied Donbas. One of the junior partners, the Radical Party, left the governing coalition because of the vote. Parliament also approved other important bills like on e-commerce, media ownership and road-repair financing.
Economy & Finance
International Monetary Fund chief Christine Lagarde praised the government during a visit to Kyiv for avoiding default by reaching a debt restructuring deal with foreign private bondholders. The deal included a 20 percent write-down on the nominal value of the bonds, reducing Ukraine’s debt burden by some $4 billion.
Russia, which is owed $3 billion in eurobonds by Ukraine, insisted that these bonds weren’t part of the deal and threatened to obstruct further IMF lending to Ukraine if the bonds weren’t serviced when they mature on Dec. 20.
A group of holders of Ukraine’s shortest sovereign bonds, maturing on Sept. 23 and Oct. 13, want to block the restructuring deal, Bloomberg reported. Holding less than 5 percent of Ukraine’s debt, the holders say the deal discriminates against them. The current deal split all the sovereign bonds maturing 2015 to 2023 into an equal set of nine new bonds that mature between 2019 and 2026.
According to Kyiv-based investment house Concorde Capital, the amount outstanding of the two shortest eurobonds is $1.17 billion or 6.5 percent of the total sovereign eurobonds that are going to be restructured.
After the restructuring deal, the government decided on Aug. 31 to use the fiscal breathing space to raise salaries and pensions from Sept. 1, coming ahead of local elections on Oct. 25. The minimal post-taxation monthly salary will now be Hr 1,378 ($63), compared to Hr 1,218. Critics said the 13 percent raise was insufficient.
Finance Minister Natalie Jaresko has been pushing for a comprehensive reform of the tax code in order to close the gap between taxation of various types of income. In particular, she wants to eliminate the discrepancy between the high tax burden on hired labor, and the low tax revenues from entrepreneurial activities. Jaresko proposed a 20 percent rate for payroll tax, value-added tax and personal and corporate income tax.
The parliamentary tax committee, however, wants more radical measures. To attract investors, committee head Nina Yuzhanina proposed to reduce value-added tax and corporate income tax to 15 percent instead of 20 percent and 18 percent, respectively; reduce personal income tax to 10 percent (currently, 15 or 20 percent), and payroll tax to 20 percent (currently 36 to 40 percent).
Rule Of Law
Ukraine on Sept. 8 accepted the jurisdiction of the International Criminal Court for prosecution of international crimes committed in Ukraine since February 2014. Foreign Minister Pavlo Klimkin described Kyiv’s recognition of the court’s jurisdiction as an “historic moment,” fulfilling Ukraine’s “moral responsibility.” However, Kyiv has yet to ratify the ICC’s founding Rome Statute, which would grant the court full authority in Ukraine in cases that fall under its mandate, including genocide, crimes against humanity, war crimes, and crimes of aggression.
A competitive process of selecting 700 local prosecutor jobs began throughout the country on Sept. 5. In this first wave of hiring, 6,000 candidates, 60 percent of whom have never worked as prosecutors before, undergo vetting. Meanwhile, 50 civic organizations will monitor the integrity of the process, according to President Petro Poroshenko. A total of 639 regional, interregional and local prosecutor’s offices are to be consolidated into 178 local offices, and 2,250 managing positions reduced to 700 as a part of the reform.
The Constitutional Commission on Sept. 4 approved two competing draft bills of constitutional changes in the judiciary and submitted them to the Venice Commission. Notably, the president has backed the more radical of the two bills, which was drafted by the Reanimation Package of Reforms civic initiative. While the moderate proposals include vetting the nation’s existing corps of judges, the new proposal envisages a complete overhaul of the judicial pool with open competitions for jobs.
Earlier, on July 24, the EU’s Venice Commission called the changes “an important step forward towards the establishment of a truly independent judicial system.” However, it also criticized the exclusion of parliament from the process of electing members of the High Council of Justice, a key judicial body that hires, fires and disciplines judges. It also is opposed to the president having the right to dismiss judges.
Meanwhile, the disciplinary commission of the Higher Council of Justice on Aug. 27 opened proceedings against 19 judges for hearing cases against protesters during the EuroMaidan Revolution.
And on Aug. 26, Ukraine’s government filed a fourth claim against the Russian Federation in the European Court of Human Rights. Most of the claim concerns judicial abuses against filmmaker Oleh Sentsov and other Ukrainian citizens, “held hostages by the Russian Federation and illegally sentenced by ‘pocket’ Russian courts,” said Ukrainian Justice Minister Pavlo Petrenko.
Earlier, on Aug. 25, Poroshenko approved a national strategy that aims to improve the protection of human rights.
Security & Defense
The National Security and Defense Council will review military spending in the 2016 state budget. “We have to ensure there is increased financial support of Ukrainian soldiers,” Poroshenko said at a government meeting on Sept. 8, noting that the nation’s military budget is “40 times smaller than the aggressor state (Russia’s).”
In view of Russia’s ongoing war against Ukraine, parliament on Aug. 31 scrapped an agreement on industrial and scientific cooperation between the defense enterprises of the two countries.
On Aug. 25, Ukraine’s Defense Ministry finalized a military doctrine and a five-year defense program for the development of weapons and military equipment of Ukraine’s Armed Forces. The new doctrine declares Russia a “military opponent.”
Public Administration
The Justice Ministry tops the ranking of reformist executive bodies, according to the Cabinet of Ministers. It has executed 63 percent of the government’s action plan adopted on Dec. 11. The ecology and energy ministries were at the bottom, only fulfilling 4 percent and 14 percent of the action plan, respectively.
Deregulation of freight processing procedures took effect in the country’s seaports on Sept. 8. The number of vessel inspections has been reduced and an electronic system was introduced to simplify freight registration and cut the opportunities for corrupt officials to extort bribes.
The reforms, initiated by the Infrastructure Ministry, are expected to save the country at least Hr 5 billion yearly.
Parliament on Sept. 3 passed a transparent media ownership bill that was recommended by the Council of Europe. The public can now link the ownership of media with their editorial policies.
Moreover, Russian citizens are barred from owning online media outlets in Ukraine.
Via the passage of the law on e-commerce, parliament has now ensured that deals completed electronically have the same status as paper deals and purchase contracts.
According to changes that parliament made to the tax code on Sept. 3, three of Ukraine’s westernmost oblasts will now be able to channel surplus funds from customs revenues into much-needed road repairs and improvements. However, the new funding method will only kick in if Volyn, Odesa or Lviv oblasts manage stamp out customs corruption and collect more funds than projected in the budget.
The State Treasury of Ukraine has made information on enforcement of court decisions public. It can be accessed at: http://www.treasury.gov.ua/main/uk/docsearch/list.
The Cabinet of Ministers on Aug. 26 reduced the number of licensing bodies from 33 to 26.
Starting from Aug. 21, the State Intellectual Property Service of Ukraine opened up online access to information on trademark applications, which will be updated on a daily basis. This will allow trademark owners to monitor applications that might violate their intellectual property rights, and to block their registration through appeal procedures, according to Alla Zharinova, the head of the Intellectual Property Service.
Energy
Ukraine’s Naftogaz will receive $300 million to purchase natural gas for the winter from the European Bank for Reconstruction and Development and International Finance Corporation. EBRD will lend $500 million in the next few weeks, the financial institution announced, while IFC will lend the remainder, according to central bank governor Valeria Gontareva.
Ukraine had 14.9 billion cubic meters of gas in storage as of Sept. 9, 1.1 billion cubic meters less than a year ago. Ukraine’s desired pre-winter level of stored gas is 17-18 billion billion cubic meters. “Naftogaz may still succeed in offsetting the shortage” when factoring in the financing from EBRD and IFC, Dragon Capital wrote in an emailed note on Sept. 10.
Kyiv Post editor Mark Rachkevych contributed to this report.
