Campaigning in the run-up to the next parliamentary and presidential elections won’t be accepted as an excuse to delay the creation of an independent anti-corruption court and raise gas prices, Ukraine’s foreign backers said at the 14th annual Dragon Capital investor conference.
The comments came on a panel held on March 1 featuring U.S. Ambassador to Ukraine Marie Yovanovitch, IMF Resident Representative Gösta Ljungman, European Commission enlargement representative Katarina Mathernova, EBRD regional chief Francis Malige, and International Finance Corporation Regional Director Jason Pellmar.
“It would be extremely unfortunate to have early elections in this country,” said Mathernova, obliquely referring to rumors in Kyiv political circles that the government plans to call early elections this year.
“Now we have the opportunity to implement reforms, and getting into a pre-election cycle would really cut that short,” she added.
While each of Ukraine’s foreign financial backers has different priorities, concerns that Ukraine is failing to progress have coalesced around two key issues: the creation of an independent anti-corruption court and bringing gas prices to import parity.
Ljungman echoed previous statements from the IMF, saying that “legislation establishing an anti-corruption court” is “key” to receiving the next tranche, and that the fund will make sure that “previous agreements adjusting domestic gas tariffs in line with import prices are followed.”
Credit where due
All of the panelists took time to laud the Ukrainian government for the work that has been completed since the 2014 EuroMaidan revolution — before urging it to do more.
“There is a very corrosive story about Ukraine, certainly in Europe, that its practically a failed state,” Mathernova said. “I cannot disagree more. It’s a Russian narrative that has been peddled both here and very successfully abroad.”
Mathernova pointed to the near-destruction of gas price arbitrage, as well as the cleanup of the banking sector and corporate governance reform at Naftogaz as key successes that the government has managed to pull off.
But corruption within Ukraine itself has corroded the country’s reputation.
As Ljungman noted, Ukraine has not begun to made up for the ground it lost in 2014 and 2015, when 20 percent of its GDP was destroyed after Russia illegally annexed Crimea and fomented a war in the country’s east.
Pellmar, the IFC manager, bemoaned the absence of positive conditions to allow investors to “comfortably deploy capital.”
“There’s no reason why we can’t see 6 percent GDP growth in Ukraine in the near future,” he added.
Anti-corruption court
Malige, the EBRD director, called the anti-corruption court “essential,” and added that “if we can’t say to the investors we’re trying to attract into Ukraine, ‘you can build a plant and produce here, and your plant is not going to be stolen from you,’ it’s hard to attract them.”
But there are problems with how exactly the anti-corruption court will function. A nominally independent, specialized court could still be chaired by a politically compromised judge, or have an appeals process that goes to a graft-ridden supreme court.
“We want to see the proposed legislation being strengthened in a few areas,” Ljungman said. “It’s going out for a first reading in parliament, and then there will be the possibility to introduce those amendments.”
Malige pointed out that the anti-corruption issue, as well as others like privatizing state-owned land, would not require a “kamikaze” government to make progress on.
“All of these issues are feasible, can be resolved reasonable quickly,” Ljungman said.
IMF or private funding?
A key question at the heart of this year’s political battles is whether the government will return to the IMF program or attempt to fund itself through a combination of eurobond issuances and banking on international investment to help replenish the country’s foreign currency reserves.
Yovanovitch cautioned against going off the IMF program.
“We think that’s a risky strategy, and one that Ukraine cannot afford to take,” she said.
One element of the conference appeared almost staged to stoke investor confidence.
During a Q and A session with Prime Minister Volodymyr Groysman and Invest-Ukraine Chief Daniel Bilak, the prime minister reached for his iPhone.
“Oh, look,” he said. “The Rada just passed the anti-corruption court legislation at first reading.”
The audience of investors and businesspeople immediately applauded.
