After 100 days in office, President Viktor Yanukovych has detailed his much-anticipated plans for the nation – not just for the remainder of his five-year term, but for the next decade.
If Yanukovych’s vision is genuine and comes true, Ukraine will be a much better place to live. With the president’s commanding powers over the executive, legislative and judicial branches of government, he should face few obstacles in enacting his blueprint.
Still, skepticism remains about whether Yanukovych can and truly wants to bring about the much-needed changes. Some critics noted the lack of detail in the president’s plans as one source of their doubts.
In a nationally televised speech on June 3, President Viktor Yanukovych made no bones about the disastrous state of the nation. He called Ukraine “a ruin” after the 2008 global financial crisis, and said almost 50 percent of the gross domestic product is earned in the shadow economy, with corruption all-powerful and a Soviet-style system of redistribution of wealth through connections still in place.
But Yanukovych said that change was on the horizon.
“I am convinced that this sad page in the history of our state had been turned irrevocably,” Yanukovych told a crowd of officials, supporters and dignitaries at Ukraina Palace, including the entire government, heads of regional state administrations, and the first and second presidents of Ukraine, Leonid Kravchuk and Leonid Kuchma.
Activists of the Ukrainian women’s movement Femen, dressed as police officers, pretend to beat journalists, photographers and cameramen during their protest called “100 days” on Independence Square in Kyiv on June 3. The women were protesting curbs on democratic liberties, such as peaceful demonstrations, and freedom of the press, through attempted censorship, since President Viktor Yanukovych took office on Feb. 25. (Yaroslav Debelyi)
“Perhaps for the first time in Ukraine’s new history, we have received a chance to work calmly and without conflict, and finally start building Ukraine for the people, not for the authorities.”
– Viktor Yanukovych, President of Ukraine
“Perhaps for the first time in Ukraine’s new history, we have received a chance to work calmly and without conflict, and finally start building Ukraine for the people, not for the authorities,” Yanukovych said.
He said the goal of reforms was to turn Ukraine into a developed European society, becoming one of the world’s 20 leading countries with a competitive economy by 2020. He said it was “a national integrated goal that can unite my countrymen.”
Yanukovych proceeded to summarize for the public a reform program that, in its full version, runs to 87 pages, and was posted to the presidential website on June 2.
The reform plan he outlined in his 90-minute speech covered all spheres of Ukraine’s state and economy – including state finances, budget and tax codes, energy and pension, bureaucracy, financial sector, judicial system, law enforcement, education and health system.
Yanukovych claimed the reforms would accelerate economic growth to 6-7 percent per year.
Presenting the same program to the Economic Reform Committee on June 2, Yanukovych had named a target of only 5 percent annual growth, prompting criticism for lack of ambition. The economy already looks set to grow this year by 4-5 percent. But the sudden hiking of the growth goal from 5 percent to 6-7 percent betrays a worrying level of improvisation, analysts said.
“We welcome the broad scope and principles of the plan,” said Martin Raiser, head of the World Bank mission to Ukraine, who was present at the Economic Reform Committee session. “Targets such as GDP and life expectancy are, however, not directly controlled by the government, and are rarely used in Western European countries. It is important to look at operational targets which the government controls.”
Yanukovych also said June 2 that life expectancy would rise from 68 to 70 years.
Crucial for Ukraine’slong-term stability is overall consolidation of its parlous finances, as the country crawls out of a devastating collapse in 2009, only to find Europe crawling to the edge of a similar financial abyss.
“We would like to see more aggressive targets for achieving fiscal stabilization.”
– Martin Raiser, head of the World Bank mission to Ukraine.
Yanukovych declared that his government will reduce the huge budget deficit by only 1 percent per year through 2014 to reach 2 percent of GDP in 2014, and will cut inflation to only 6 percent by 2014.
With the International Monetary Fund pushing deficit-cutting measures globally, its representative in Ukraine, Max Alier, told Yanukovych on June 2 that his current target “will result in a growing public debt for several years before it stabilizes, undermining the commitment to fiscal consolidation.” He also said the inflation target of 6 percent was not ambitious enough.
“Reducing the deficit by 1 percent per year is not sufficient,” warned Raiser. “We would like to see more aggressive targets for achieving fiscal stabilization.”
Deputy Head of the Presidential Administration Irina Akimova, one of the reform plan architects, said she largely agreed with the IMF criticism, but defended the government’s inflation target.
Alier also expressed major doubts about implementation, and called for the government to draw up an action plan including a timetable andresponsibility. Otherwise, said Alier, there is “a high risk that many key measures will not be enacted while other reforms of lesser importance are pursued.”
According to Deputy Prime Minister Sergiy Tigipko, such an action plan is due to appear in one month. Tigipko said the government is intending to fine-tune the plan, and move forward implementation dates.
According to Raiser, “this is a large country with a large bureaucracy, so it is fair enough if these things take time, as long as there is subsequently consistent implementation. In all these questions, the devil is in the details, so it is important that they get it right.”
But Kseniya Lyapina, a deputy from the Our Ukraine group in Parliament, is less optimistic. “Yanukovych’s plan envisions enacting several reforms which are defined rather abstractly,” Lyapina said. “How they will be implemented is unclear. The decision to break them down into stages of implementation means one thing: Everything important will be postponed until later. Instead of proposing to actually implement reforms, they are offering us to adopt 335 new laws.”
Analysts say the crunch test for how serious reform intentions are is the government’s willingness to take unpopular but vital measures in the energy sector, including hiking utility tariffs for households, as well as overhauling the pensions system, including raising pension age.
“We continue to believe it is not a question of whether, but when these measures will be implemented.”
– Martin Raiser, head of the World Bank mission to Ukraine.
Here Yanukovych’s reform has bitten half the bullet, programming for a 20 percent increase in domestic gas prices this year. The plan also foresees incrementally increasing the pension age for women, by six months each year over ten years, to raise the pension age from the current 55 years old to 60 years old by 2010. But it is not clear in the plan whether pension age increases will start immediately.
“We advocated in our 100-days plan raising domestic gas prices by 100 percent and starting increasing the pension age for women immediately in 2010,” said Raiser. “We continue to believe it is not a question of whether, but when these measures will be implemented. But it is important to accompany such measures with others aimed at tightening tax legislation to reduce loopholes and tax evasion, especially by large and well-connected corporations, in order to create a level playing field for business. This should be done without increasing the tax burden on medium-size enterprises.”
One of the more immediate reform measures to be implemented is the introduction of a new tax code. “I will demand that the domestic tax system be reformed as quickly as possible. It is one of the world’s most complex and non-transparent. I set an ambitious goal for everybody – we should have a new tax code in 2011,” Yanukovych said in his speech to the nation.
While the government is moving too slowly in some respects, here it may be rushing ahead. “Although we welcome the introduction of a new tax code, it was not one of the measures we suggested doing immediately,” said Raiser.
“With the tax code, the devil is in the details, and we expected the government to take time to work on this and consult. The benefit of a tax code is that it provides stability for several years going forward, so it’s important you get it right so you don’t have to amend it later. The introduction of a property tax is something we have advocated, but again it is important to get it right. We would need to see specifics in terms of its implementation.”
Overall, the Yanukovych reform program, developed by McKinsey& Company and a Yanukovych-linked think-tank, represents a consensus opinion of what Ukraine desperately needs. Insomuch there is little that has not been heard many times in the past.
“At the same time, the program is very cautious. It evades answering a lot of uneasy questions”.
– Oleksiy Blinov, Astrum Capital.
“The program is comprehensive and technocratic,” says Oleksiy Blinov of Astrum Capital. “The proposed reforms are not revolutionary ones. They follow what may be called “Ukraine’s liberal agenda,” a set of policy directions that have been pronounced in numerous policy proposals by international financial organizations and think tanks. It envisages privatization, liberalization, fiscal decentralization, reforming public services, etc.
“At the same time, the program is very cautious,” Blinov said. “It evades answering a lot of uneasy questions. Moreover, most of the real reforms are slated for implementation in 2012 and beyond. This indicates that the current government is still unsure about the reforms’ de facto implementation and may reverse or postpone some of the plans. Thus, Ukraine risks losing another window of opportunity for change while the current government enjoys strong support in the parliament.”
Olena Bilan of Dragon Capital cast her lot with the skeptics.
“Aiming to cement its grip on power, Yanukovych’s Party of Regions is pushing through a proposal to schedule nationwide elections to regional councils for the end of October. Should parliament approve this motion, the proximity of another election will mean hardly any unpopular measures required by the IMF will be adopted.”
Kyiv Post staff writers Graham Stack and Yuriy Onyshkiv can be reached at [email protected] and [email protected]. Staff writer Peter Byrne contributed to this report.
