When members of Ukraine's newly-appointed government walked into their offices just over a month ago, on top of a military invasion, a looming economic collapse and other external challenges, they discovered the mess in their own back yard is almost as massive a problem.
Most of the civil service turned out to be completely
dysfunctional, highly corrupt and disruptive, turning every step and every
decision almost into an act of heroism.
“We have worked for just 34 days, but we feel as if we
have worked for more than two years,” Ostap Semerak, minister of the Cabinet,
told a room full of investors at the Dragon conference on April 2. Semerak’s
job is to coordinate the work of the government and its staffing policies.
The government has made a decision to dismiss 10
percent of civil servants, or 24,000 people. However, some ministers confess in
private that it would probably be fair to keep 10 percent of the existing
staff, but they cannot do this because they are constrained by legislation and
potential lawsuits that would drain time and energy.
The problems run the gamut. Igor Bilous, deputy
finance minister who oversees the work of the tax system, says he inherited
60,000 tax personnel whose “thinking grew in the wrong environment.”
With salaries hovering around Hr 1,500, corruption within
the department previously was presumed. As a result, regular tax inspectors who
came to audit businesses, offered to “solve their problems” at a small cost.
But the bigger fish dealt with bigger money and more complex schemes, such as
VAT return schemes. Bilous said he and the new staff he brought in three weeks
ago have already identified 16 inspectors who specialized in facilitating the return
of fake VAT claims.
“Still, Hr 2
billion worth of wrong VAT declarations are in the system” out of the total of
Hr 30 billion VAT arrears to business, Bilous says. And they take a long time
to clean up.
Bilous says that Ukraine lost Hr 150 billion in VAT
tax optimization each year alone. The revenues to the 2014 budget are planned
at Hr 372 billion.
“A lot of people are saying there is a new government
in place, and old schemes are still working. Yes, they’re working because that
train was traveling at 150 kilometers per hour, and it’s impossible to stop in
three days,” Bilous says.
Semerak is also trying to clean his house. He says
when he first came to work, he was offered to use a taxpayer-sponsored Mercedes
bought in 2007 that had run 754,000 kilometers, according to its odometer. He
could not understand how the car of an office clerk could travel such an
accumulative distance.
He found that the Cabinet drivers tampered with odometers
to increase the mileage and sell the free fuel they received to cover it. “So,
if the drivers of those ministers were doing that, imagine what the ministers
did,” Semerak concludes. Now, the government is preparing to sell off 71 of its
142 cars through an auction in June.
Indeed, corruption at the top ran far and wide,
affecting many markets and industries in Ukraine. Prime Minister Arseniy
Yatsenyuk said in a recent speech that from financial system alone some $70
billion had been siphoned off by the former government. National Bank Governor
Stepan Kubiv says some of the money was taken out via government bail outs of
nearly-bankrupt banks, which then swiftly disappeared into the pockets of their
beneficiaries, many of them closely linked to the government.
Many banks used to be financial branches of oligarchic
business, which will no longer happen in Ukraine, Kubiv said. “We won’t have ‘dear
friends,’ I am saying this as the National Bank Governor,” he said.
Volodymyr Lavrenchuk, Chief Executive Officer of
Raiffeisen Bank Aval, said that according to the banking community information,
between 10 and 48 banks of Ukraine’s 180 belonged to “the family,” or close
circle of former President Viktor Yanukovych, which hugely distorted the
market.
“This was not equal competition, the market was not
equally competitive,” he concludes.
As if corruption itself was not enough for the Cabinet, there is
internal sabotage through attempts to change the system. Semerak says in one
case, after the government took a decision to clean up the sector of evaluation
services, the first phone call from a vested party requesting a meeting came
just three hours after the first paper was signed. This indicates that there
are plenty of agents still hovering around.
Another problem is staff incompetence. Acting Foreign
Minister Andriy Deshchytsia said that ambassadors-at-large, who represent a
substantial chunk of his ministry of some 400 people, are not used to doing
much work and when they produce strategy papers, they tend to be long, boring
and lacking on specific recommendations and actions.
Bilous estimates that it would take him up to nine
months to make real, deep and visible changes to the tax system. Much of this
cleanup can be facilitated or sped up with the help of technical assistance
from the European Union. But the dialog between Ukraine and the EU is yet to be
started, ministers and diplomats in Kyiv say.
In the meantime, the government appealed to businesses
for help. “If you see we have made a mistake in staffing, please let us know,”
Semerak said.
Kyiv
Post deputy chief editor Katya Gorchinskaya can be reached at
[email protected].
