Ukraine’s judicial system and law enforcement agencies are among the “main obstacles” to the development of Ukraine’s economy, Finance Minister Oleksander Danyliuk said on March 1.
“Unreformed law enforcement agencies — the state Security Service (SBU), the tax police, the general prosecutor’s office. They suppress the business. That’s a legacy of the Soviet past,” Danyliuk told Dragon Capital’s 14th annual Ukraine Investor Conference. “That is, unfortunately, the reality. That is also something that can be overcome.”
Without a major restructuring of these institutions, Ukraine “cannot achieve the growth” it needs to achieve prosperity, Danyliuk said.
He said that “vested interests” are blocking reform of the State Fiscal Service, which oversees taxes and customs. He called its reform — mainly through the hiring of new personnel — his “No. 1 priority.”
“That institution works directly for business,” he said of the State Fiscal Service. “They are responsible for fairness and the business climate.”
While improvements have been made, notably the introduction of a transparent system of value-added tax refunds and a “single window” to streamline customs clearance, Ukraine “will need to change people in the State Fiscal Service.”
Danyliuk said that there is fierce resistance among vested interests to the creation of a Financial Investigation Service that would investigate the most seriously financial crimes against the state. Ukraine has lost billions of dollars to unpunished bank fraud and tax evasion, he said.
The situation is producing “a big bottleneck in the country at the moment,” Danyliuk said. “Some try to preserve the powers of state Security Service (SBU), National Police, General Prosecutor’s Office. They historically get used to their work.”
Creation of the Financial Investigation has been “adopted by the government and stuck in the process somewhere,” Danyliuk said. “We’re committed to move forward despite resistance, not only because it improves the business climate, but because there is no one trusted institution in the country that could investigate economic crimes against the state. As finance minister, I can count the billions we lost in banking system or on the tax rolls. There should be an answer how we get this money back and how to prevent financial crimes in the future.”
The European Union’s ambassador to Ukraine, Hugues Mingarelli, echoed some of Danyliuk’s themes, particularly the need for an independent anti-corruption court.
He said Ukraine has achieved a breakthrough in that the majority of the population and elite want to modernize the nation along European standards, but said it will take time and effort to stop the nation being used as a “cash machine” for the 50 richest and most powerful citizens.
“Absence of rule of law is the same problem,” Mingarelli said. He said something must be done to convince young Ukrainians to stay in the country instead of going abroad for work. “The potential is huge. The movement is in the right direction,” he said. He also calls for “social cohesion,” saying Ukraine cannot be a country “where the majority struggles to survive on $200 a month” while there are thousands of Porches and Ferraris on the street. He said those reforming the country must keep in mind the need to take care of “the most vulnerable segments of the population,” otherwise populist politicians will take power, he said.
Similar messages came from conference organizer, Dragon Capital CEO Tomas Fiala, who said lack of rule of law and corruption were the main barriers to attracting foreign direct investment in Ukraine.
Fiala called on people to support economic and anti-corruption think tanks, such as Transparency International. He said Dragon Capital has made $300 million in equity investments in the last year and “what we support most of all is independent media,” citing his creation of Novoye Vremya news magazine and his recent purchase of a news and talk show radio station.
The station “will increase the reach of independent news in the country,” Fiala said.
