Ukraine: light at the end of the tunnel

Ukraine: light at the end of the tunnel

Ukraine has a history of 70 years of communism followed by more than 20 years of mismanagement. The odds seem stacked against the country, yet there are signs of hope, writes Prince Michael of Liechtenstein.

Ukrainian society and its economy suffer from too much bureaucracy, too many laws and an extravagant number of civil servants. Together, they breed rampant corruption, which hampers the economy and is the country’s biggest problem.

Once mismanagement and corruption becomes a habit, it cannot be rooted out by new laws or more police. Such behaviour can only be changed by replacing the players, not only on the political scene, but also in the administrative and law enforcement apparatus at every level.

A good example was set in Georgia. After that country won its independence from the Soviet Union, it became one of the most corrupt in the world until the government of President Mikheil Saakashvili (2004-2007, 2008-2013) drastically reduced the number of civil servants and simplified the law. As a result, corruption stopped and the economy started to boom. The former Soviet states in the Baltics also succeeded in developing viable economies with slim and modest administrations.

In Ukraine, President Petro Poroshenko and Prime Minister Arseniy Yatsenyuk realised that success could only be achieved by taking radical and forceful action. The Economy Ministry is now headed by Aivaras Abromavicius, a former investment banker from Lithuania with strong ties to Ukraine, who is a proponent of austerity measures, spending cuts, deregulation and privatisation.

Abromavicius cut his staff while recruiting well-educated young people willing to work for little pay to acquire unique experience. The new team’s top priority is to attract foreign direct investment, knowing full well that the surest way to scare away investors is to tolerate corruption.

How to go about this task is revealed by Abromavicius’s plans for Ukraine’s auditing body for small and medium-sized businesses. This office, with a bloated roster of some 65,000 employees, was grossly oversized and corrupt, and devoted most of its time to shaking down firms and thwarting entrepreneurialism. To get the bureaucracy off the backs of small businesses, the government declared a moratorium on audits until the end of 2016. The chamber’s staff will be slashed to 12,000.

Similar reforms are happening at the Finance Ministry in Kiev under the direction of Natalie Yaresko, an American-born Ukrainian investment banker.

The provincial government of Odessa, Ukraine’s main Black Sea port and home to many Russian speakers, was long regarded as a hotbed of corruption, particularly within the police. President Poroshenko took the extraordinary step of appointing Saakashvili, the Georgian reformer himself, to shake up the local administration.

The new governor’s efforts started to bear fruit in August with the arrest of senior law enforcement officials for bribery and the disbandment of the old militia. In its place, Saakashvili, who once fired Georgia’s entire 30,000-strong traffic police, has vowed to install a completely revamped force trained by the US Federal Bureau of Investigation.

Bureaucracy and corruption remain the biggest obstacles to economic growth in Ukraine. The country’s controversial draft law offering more autonomy to local governments, which passed its first reading in parliament on Aug. 31 despite violent street protests, could help break up the old, corrupt administrative structures.

If Ukraine’s government stays the course and attracts enough support at home and abroad, there really is hope for the country’s future.

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