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Dr. Kalymon: The War is Stalling Reforms

Aug 6, 2014 | Newpathway

The war in the Donbas is overshadowing all other Ukrainian issues, including the issue of much needed reforms. At the same time, economic and government reforms are equally vital for the survival of the country because without them Ukraine's economy will crumble under the burden of corruption and war. Moreover, a reformed Ukraine is what the Heavenly Hundred and all those soldiers in Donbas have died for.
The New Pathway has interviewed Dr. Basil Kalymon, Professor Emeritus, Ivey Business School, who is the Chair of the Economic Advisory Council at Ukraine's Ministry of Economic Development and Trade. The Council also includes Dr. Oleh Havrylyshyn of the Munk Centre, University of Toronto, and the “father” of Georgian reform Kakha Bendukidze. Dr. Kalymon got back to Toronto from Kyiv on July 24.
NP: Professor, who is the Council working with in Ukraine, is it just the Ministry of Economic Development and Trade?
BK: We have also established contact with Dmytro Shymkiv, deputy chief of the President's Administration, in charge of overseeing reforms, and had a productive 2-hr meeting with him.
NP: What are your impressions of Messrs. Sheremeta and Shymkiv, how open are they, what do you think about their ideas?
BK: I've known Pavlo Sheremeta for probably 15 years because he used to be the Dean of the Kyiv Mohyla Business School where I lectured for many years. He is a person of integrity and relatively young, in his early forties. He is totally commited to undertaking reform, but he is completely new to the political game and working in the government. The unreformed Verkhovna Rada is about to change in the new elections, but it is blocking the new initiatives at the top. At the bottom, he has the mass of the bureaucracy which has not been reformed. So, anything is very difficult in terms of getting achievements. He's made some breakthroughs – managed to get a law on government procurement which was good. But his project on taxes has not been passed and overall the process of reform is quite slow. I wouldn't blame his motivation – the whole instability of the situation and the lack of co-operation have been very negative.
In terms of Dmytro Shymkiv, he is a very young, dynamic and well-trained person, he was a CEO of Microsoft Ukraine and a Maidan activist. He has been recommended to me by people, who know him well, as a commited reformer. He leaves a good impression, but he's been in his position for just a couple of weeks.
NP: The reforms in Georgia, which were designed and carried out by Kakha Bendukidze, are considered by many as a miracle. How similar to those will the Ukrainian reforms be?
BK: The number one issue, which is retarding all economic progress in Ukraine is corruption. Unless you lower the corruption, business cannot function, investment will not come in, there is no economy that can function with that level of corruption. So, we absolutely believe that drastic reform, i.e. reducing the bureacracy, reducing the number of regulatory agencies, the number of licences, imposing the rule of law, are critical.
Ukraine is a much bigger country and has much more complex issues than Georgia. But Kakha and everyone else on the Council believes, and there is unanimous consensus, that the fight against corruption in Ukraine has to be taken along pretty dramatic lines that are similar to what has been done in Georgia and other Eastern European countries.
NP: In this respect, have you proposed that the Ukrainian government do what they did in Georgia, at least in the police force, – fire everyone and start from scratch?
BK: For the regulatory bodies and government in general, which is significantly overstaffed, we have proposed to cut the personnel drastically. This way, they would hopefully be able to pick and choose the best people.
NP: How open do you think is President Poroshenko to drastic reforms? He was (or still is?) an oligarch, and oligarch in Ukraine have never been considered open to reforms. Is he open?
BK: It is a very political question and to be honest, I’m not a political analyst, I am more interested in the economy.But there is no question that that is a very critical issue. If Petro Poroshenko is not interested in reform than there won’t be any reform. The people of Ukraine voted overwhelmingly to put him in office, it was not a fake election, so, the collective opinion of the electorate is that he is interested in reforming the system, he campained on the basis of reform and he got a mandate on that basis. And this not my opinion, it's a collective opinion.
I have spoken to people I trust and they believe he will be a reformer and that he will undertake reforms. The only other thing I can add to that, is that Poroshenko is of course, an oligarch of the system. But there are oligarchs and there are oligarchs. And what I mean by that is most people acknowledge that he didn’t just steal all of his assets like the Yanukovych family did, but that he actually built up the business. He may have acquired some of his assets on favourable terms but he is a good manager. This is what everobody was telling me, that he was able to build a business that was able to compete against Kraft Foods and others. This is quite an accomplishment, if you can do that, so he has managerial skills and his skills are not just how to work the system.
NP: How is the war impeding the reform process? Have you noticed if, regardless of the war, the government is still doing what they can to reform?
BK: I think the reform process is tremendously impeded by the war because, properly speaking, the war is consuming the main energies of Poroshenko and his administration, and the government. It has to happen – they have to allocate that energy to the war because if they don’t, there won’t be a Ukraine. This is what they have to do, but it is true that there is a lack of attention to reforms, if nothing else.
At the same time, the war is extremely expensive and puts a lot of budgetary pressures on the government, so that the options of the government as to what they can do and how to maneuver are extremely reduced. Obviously, the second huge issue is the gas cut-off which is an economic issue but also a crisis question: how do you deal with that? The government has been struggling with that as it is a dominating part of the economic equation. The third part is the cut-off of trade with Russia. Russia is doing everything to hamper and disrupt trade in order to further destabilize the Ukrainian economy.
So, the physical war, the gas war, the trade war – all of these are tremendously negative in terms of being able to concentrate on reform changes. Now, this does not excuse everything. I still think they could have started to do more than they have. However, that combined with the political instability – Yatseniuk resigning – who knows how they will change the ministers, etc. Everything is on hold because of that.
NP: This is a pretty serious picture. Do you think Ukraine will make it economically?
BK: Ukraine has substantial financial backing starting with the IMF, they have obtained an agreement for USD 17 billion worth of credit. They have signed an association agreement with the EU which includes quite substantial credits as well, approaching EUR 15 billion over the long run. So they have financial support from the West to deal with some of the economic pressure. If they didn’t have these, Ukraine would be completely in default and would have extreme problems.
Ukraine's economic situation, if you remove the war, with the credits they have obtained and the opportunity to switch substantial ammount of its trading to the EU which is so much bigger as a market than Russia, there is absolute no reason Ukraine could not prosper. Ukraine has tremendous opportunities in agriculture, IT, energy (shale oil and gas for instance) sectors. Some of the budgetary issues can be solved by simply reducing corruption. That was a huge drain on the budgetary issue for Ukraine. It was corruption in many different ways, such as supporting industries linked to politicians, phony tax schemes where businesses did not pay taxes but rather payed off Yanukovych’s people.
NP: What is your assessment of Yatseniuk’s resignation?
BK: Again, I am not a political analyst but it’s fairly clear that it’s a political statement. There is an element of frustration because Yatseniuk was trying to finish some business in the issue of Parliament hasn’t ratifying the EU agreement, and the Parliament needed to pass some laws funding the military. So Yatseniuk did feel some frustration. But, not knowing all the details, a lot of the reasons for his resignation are political as they are facing elections.

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