Author: Not Mentioned
Posted on: Financial Times | Wednesday 20th December, 2017
An old French saying goes, bad news flies in a flock. The situation in Ukraine is certainly conforming to those wise words.
Just in recent days the credibility of law enforcement was severely tested by its failed attempt to arrest political leader Mikheil Saakashvili; the parliament’s reform credentials were shattered by the introduction of a bill widely understood as designed to clip the wings of the competent and successful anti-corruption bureau; a court injunction was granted, purporting to protect the former shareholders of PrivatBank from lawsuits; and land reform was brought to a halt by the extension, for at least another year, of a moratorium on land sales, which perpetuates a system whereby powerful people operate the land without paying rent to the state and which deprives millions of people of a fundamental freedom — that of selling their possessions if they freely decide to do so.
Reform in Ukraine is being rolled back, it would seem. The country is impossible to reform, some say already. It is hopelessly corrupt, one hears. The thunder of “we told you so” is rumbling in the distance.
But while the pushbacks are real, they also show that reforms are biting.
It is easy to speak of Ukraine as a single actor: “Ukraine needs to . . . ”, “Ukraine has launched . . . ”. But like anywhere else, Ukraine’s leadership is made up of individuals whose ability and willingness vary greatly.
Some are genuine reformers and others are deeply conservative. The genuine reformers come from many walks of life — both public and private sector, young and old, from all corners of Ukraine, and even from abroad. These women and men give all for their country.
They also share some characteristics.
First, they are courageous and determined. Very often they or their families receive threats; they face a myriad of obstacles in their efforts, destruction of their property, and much more besides.
Yet some find the strength to carry on and achieve extraordinary results. This is why, when I am asked what the most important characteristics of a reformer are, I always put courage and determination first. Competence, while important, comes third.
But Ukraine’s reformers have another trait in common: they count on the international community.
International support is tangible and delivers results. Many an initiative is funded through technical assistance. For example, the EBRD, with EU support, has put in place reform support teams in key ministries.
The bank financed the technical assistance that is taking Naftogaz out of one of the darkest corners of state-owned corporate Ukraine and transforming it into a modern, profitable company.
The international community also plays a role in designing the relevant reform architecture, sometimes focusing on a single, apparently technical but in fact revolutionary, measure, such as the radical redesign of related party lending regulation that opened the door for the central bank to overhaul the banking sector.
Lastly, the word of international financial institutions and friendly countries still carries weight, especially when we all speak with one voice, and adds wind to the sails of these courageous women and men. It emboldens a remarkable civil society to speak up and demand change.
Four years after the Maidan events we have reached a period of uncertainty. Election time is coming and the IMF plan that provides a stabilising framework and a protective umbrella for the entire reformist community will expire in March 2019.
Achieving reform in these times requires an approach that tightly coordinates the positions of the international community around shared objectives.
The G7 presidency, which next year rotates to Canada, a country with a large Ukrainian diaspora and a vocal friend of Ukraine, offers a great pulpit.
It also requires an approach that structures investments carefully to make them directly conditional on the actual implementation of reform milestones.
In the past, the two have not always been sufficiently tightly linked, and implementation has too often meant merely submitting a law to parliament. Real implementation is hard to achieve; it requires feet on the ground.
We have observed first hand, for example, that patiently but firmly enforcing proper procurement standards generates substantial savings, often up to a third of the estimated budget.
Looking ahead, upfront funding, or investments by international institutions that are not directly linked to specific reform implementation on the ground, should be avoided.
Many investments, even in the private sector, could be structured to include strong, effective conditionality.
Lending to a state-owned bank to develop small and medium-sized enterprises could come with conditions regarding the banks’ governance transformation; land reform could be tied to a large agribusiness lending programme or the development of a land guarantee fund to give smaller farmers access to finance.
Financing new roads and railways could be linked to new ways of enforcing weight limits on the roads (overloaded trucks are the main cause of the sorry state of Ukraine’s roads) or opening the beleaguered rail sector to competition.
The EBRD is one of the few institutions with the local presence to lead and measure implementation.
More manpower is urgently needed for this purpose. This would complement the macro conditions that come with budget support, such as the long-overdue establishment of an anti-corruption court and an in-depth reform of the prosecutor-general’s office.
Now is not the time to give up on Ukraine. It is in the power of the international community to not allow the empire of vested interest to strike back.
Giving up on Ukraine means abandoning courageous and determined people, alongside an entire country, at a time when they need us and when we can protect past successes and achieve much more, if we do it right.