Editor’s Note: The Kyiv Post will be tracking the progress made by Ukraine’s new, post-EuroMaidan Revolution leaders in making deep structural changes in the national interest. The Reform Watch project is supported by the International Renaissance Foundation. Content is independent of the financial donor.
1. Security & defense
The nation is at war, so this priority vaults to No. 1. The economy, investment and living standards will suffer as long as Russia is waging a war against Ukraine that is, quite literally, bleeding the nation, with more than 4,000 people killed since March.
The nation was simply not prepared for Russia’s military invasion of Crimea and separatist war in the east, but is reacting fast – with volunteer fighting battalions, citizen donations to the military and intensifying security partnerships with neighboring nations such as Lithuania.
Ukraine, however, has spent dismally on defense since the 1991 collapse of the Soviet Union. But President Petro Poroshenko has vowed to put the nation on a war footing and to spend at least 3 percent of the nation’s currently shrinking gross domestic product on defense. That GDP, however, may be less than $150 billion this year.
The nation has had four defense ministers this year. The task is to modernize the army and cut out corrupt procurement practices, as well as improve security forces and eliminate Russian spies in the ranks. NATO is offering advice and intelligence, but Ukraine has little chance of becoming a member of the Western military alliance in the near future.
2. Energy
Ukraine’s corrupt or opaque energy schemes have created a black hole in the nation’s budget. State-owned Naftogaz runs a deficit of $500 million to $1 billion a month, roughly 7 percent of the nation’s GDP, more than the government spends on health, energy and education combined.
Ukraine will have to pursue several paths to energy independence. One is to adopt market-based pricing for all gas consumed, another is to find the money to encourage conservation and efficiency and a third is to stimulate domestic production of oil, gas and renewable energy sources.
3. Rule of law
Ukraine’s notoriously corrupt courts, prosecutors and police have created insecurity among foreign investors and Ukrainian citizens alike by not acting in the public’s interest. The judicial system seems perpetually unable to credibly prosecute the most serious murders and grand-scale cases of corruption. Few people trust the courts, whose judges are known for their private hearings and political subservience. Jury trials are non-existent. Contract fraud and corporate raider attacks add to the woes.
Many believe a new judicial system needs to be built from scratch, and one that includes a powerful anti-corruption bureau.
4. Public Administration
Ukraine’s public spending is both bloated and inadequate. Ukraine’s public sector spending is at least 53 percent of its gross domestic product, with pensions alone taking up 18 percent of GDP. Yet, the pay for public servants is so poor as to practically invite corruption or force the most qualified people into the private sector. Even though spending on pensions is high, most Ukrainians receive only about $100 a month from the state, not enough to survive. This army of bureaucrats perpetuates a stifling set of taxes and regulations to justify their existences – and their precious stamps. It all serves to scare away investors and ensure an unproductive, inefficient economy that stifles the private sector.
5. Land
With most of the rest of the economy in decline, agriculture has been one of the few bright spots, showing consistent growth due to Ukraine’s incredibly fertile soil and attractive climate. But growth in the sector could be much higher and more profitable if a private market for the buying and selling of agricultural land is created. Instead, a succession of post-Soviet leaders in Ukraine has blocked the idea of private agricultural land, viewing it as a state asset. However, this has allowed much corruption in leasing. In the words of U.S. Ukraine Business Council president Morgan Williams: “Land needs to be able to be collateral for agricultural financing. Currently, the largest asset in Ukraine cannot be used to finance the major economic sector. Ukraine is way behind the curve in this area.”
