Poroshenko’s Dead End

With less than ten months left before presidential elections in Ukraine, Petro Poroshenko, who came to power on the heels of the courageous Revolution of Dignity, is increasingly looking like yet another dead end in Ukraine’s decades-long drive to reform itself.

When he was elected as Ukraine’s President four years ago, very few observers had doubts that radical change in country’s bureaucratic tradition were in the offing. The government of Arseniy Yatsenyuk was bristling with reformers, many of them foreigners. Natalie Jaresko of the United States, Aivaras Abromavičius of Lithuania, and Alexander Kvitashvili of Georgia were all granted Ukrainian citizenship the day they were appointed ministers. Western nations lent their full support to the reformers: Ukraine’s $15 billion in debt was restructured in 2015, and the IMF and the European Union dis­bursed more than $6 billion in new loans. But Jaresko’s ambitious efforts were stymied by the Presidential Administration, and the subsequent fall of Yatsenyuk’s government in April 2016 was seen as a huge setback for Ukraine’s reformers.

In order to calm investors, the new Prime Minister, Volodymyr Groysman, swore in a young UK-based investment banker, Oleksandr Danylyuk, as his Finance Minister, who in the process gave up his British passport upon taking up the post. Danylyuk—a reputed libertarian—managed to retain the trust of Western politicians, despite the fact that both the tax burden and the effective cost of borrowing increased notably on his watch. His other not-quite-libertarian achievements include the introduction of new licensing requirements for Ukrainian businesses, which drove scores of entrepreneurs to abandon Ukraine’s jurisdiction; he also introduced a system for tracking imported goods from the border to retailers’ shelves—a costly and inefficient measure ostensibly meant to combat smuggling. And as the outspoken Ukrainian economist Mykhai­lo Kukhar points out, the Finance Minister did his best to oppose mo­ves both the Ukrainian business community and parliament sup­port, like substituting the country’s profit tax with a corporate income tax, as was done in Estonia. Danylyuk was ousted two weeks ago, and has no chance for returning into Ukrainian politics after all the disappointments that he had caused. (For many Western observers, he somewhat perplexingly remains a trusted liberal figure—a victim rather than a failure.)

Beyond the nuts and bolts of the economy, another huge issue looms over Ukraine: agricultural land reform. Ever since the privatizations of the early 1990s, Ukraine’s various governments have tried to walk back that fateful early decision. In 2001 and in 2002, the deputies that later established Viktor Yanukovych’s “Party of the Regions” introduced a moratorium on selling the land—ostensibly for one year, each time they did it. The moratorium has been reinstated every year since. Today, the moratorium affects 41 million hectares of arable lands, or 96 percent of the country’s total. You may own the land, but you are unable to sell it. (Similar practices remain only in North Korea, Cuba, and, since the early 2000s, in Venezuela.) Western donors have been pushing the Ukrainian government to fundamentally change the rules of the game, but even the activist pro-market First Deputy Minister for Agrarian Policy Maxim Martynyuk has been unable to make it happen: the parliament reinstalled the moratorium four times since the Revolution of Dignity deposed President Yanukovych. Yulia Tymoshenko, now leading the polls in the race for the presidency scheduled for next year, openly declares she supports the status quo.

The foot-dragging around establishing the special anti-corruption court is even more telling. Its creation was one of the main demands both of the popular movement that stood behind the Revolution of Dignity, and of the Western supporters of the Ukrainian cause. Since the National Anti-Corruption Bureau took into custody the director of Ukraine’s State Fiscal Service Roman Nasyrov in March of last year, opposition to this new court became extremely strong. Nasyrov himself remai­ned in office for ten months while out on bail, presumably as a means of ensuring his immunity from prosecution should the court have been put in place. (He was finally fired in January 2018.) And even after the court’s creation was OK’d by parliament in the face of Prime Minister Groysman’s threats to step down, no one was sure whether the court actually becomes fully operational before the upcoming presidential elections.

It’s quite common today to hear that Ukraine still is very corrupt country. That banality doesn’t fully capture what’s happening. A recent World Bank report insist that more than 20 percent of Ukraine’s economy is directly controlled by companies closely associated with the country’s political establishment. These companies appear to be less efficient and productive than an average Ukrainian corporation, and yet get a privileged access to the banking loans and to the priva­tized state assets.

I would argue that in Ukraine nowadays, we are witnessing a very special situation, somewhat resembling the one that evolved in Russia more than a decade ago. While the early post-Communist societies in both Russia and Ukraine were dominated by so-called oligarchs who played the role of political kingmakers (with bureaucrats as their junior partners), today a new system has arisen in which governance itself becomes the most profitable kind of business. Nowadays, political leaders have become major “stakeholders” in their respective nations’ wealth and resources, with a layer of oligarchs serving them, and not vice versa. Ukraine’s system is still more “pluralistic” than Russia’s, and so there is genuine contestation for the ultimate spoils, but underneath, the new dynamic is more similar than not. Western policymakers should take note. There are no ready answers for how to transform a society in this situation. But the first step to progress must be a correct diagnosis.

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