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"Agenda for 2010: top-priority reforms to ensure stable growth of the Ukrainian economy"
For Ukraine, deliverance from the economic crisis rests on attracting external finanical resources that are presently scarce. Given that the limited capital available will flow to countries with the most favorable business operating environments, an urgent need exists for reforms that maximize national competitiveness. Positive changes that promote stability and ensure growth prospects can no longer be scuttled. A reform agenda in 2010 is pivotal to creating stimulus for investment and bettering international ratings, which currently reflect that Ukraine lags behind peer countries in economic performance.
To effect meaningful, lasting change, the government and president will need to explore policy reforms too numerous to list. Rather, we have identified seven indispensable reforms that will have an immediate impact on Ukraine’s competitiveness, can be realized within short timeframes and adopted during 2010 feasibly, do not require significant resources, and simultaneously produce a short-term anti-crisis effect and establish the foundation for long-term economic growth. Regardless of the future leaders’ political affiliations, the following must be given priority in the country’s reform agenda for 2010.
1. Reforming the banking sector. Ukraine has 182 banks, many of which have been rendered unviable by the crisis. A restructuring of the sector is inevitable and needs completing. Further action, such as liquidation, sale or government bailout, must be taken on failed banks. The prevalence of non-performing loans must also be addressed, and it needs to be decided whether these assets should remain in banks or be transferred to a central "bad loan bank.” Furthermore, a blueprint for Ukraine's future financial system, which theoretically could be comprised of several large or additional mid-sized banks, must be developed.
2. Simplifying the business regulatory environment. According to the World Bank’s “Doing Business 2010” report, Ukraine ranks 142nd out of 183 countries in ease of doing business. It is critical to implement a reform that relaxes registration and requires approval terms and procedures, eliminates a range of licensing documents, and introduces the implied assent principle; revokes the 30 percent of licenses in Ukraine that protect neither consumer nor state interests; strictly regulates all business audits and considers imposing a moratorium on audits until 2011; and stimulates the development of self-regulated organizations.
Ukraine places 181st among 183 countries in the “Doing Business 2010” ranking in construction starts. Currently, it takes two and a half years on average to obtain all required construction start approvals. Such heavy bureaucracy impedes development of the construction sector, creating adverse business conditions. Approval lead times must be cut to at most six months.
Ukraine’s technical standards system is the next important focus. Previous attempts to substantially reform it have failed. The outdated system can no longer guarantee the quality of goods for consumers, and moreover, it harms exporters of Ukrainian products. Technical specifications and certification procedures must be adapted to EU standards so that Ukrainian businesses can gain access to European and other global markets.
3. Approving the tax code. Ukraine’s extensive tax regulatory framework needs to be streamlined through a unified tax code that is uncontroversial and appeases tax authorities. The tax code has been in development for several years, and must be finalized and adopted. Two variations of the code, as well as a strategy for tax system reform, are currently available.
4. Unfreezing the agricultural land market. Lifting the agricultural land sale moratorium and establishing an effective farmland market would release new assets into the economic turnover and free up billions of dollars of potential investment. Because of the moratorium, land cannot be used as collateral, which hampers farmers’ ability to obtain loans. The farmland market can function within the existing regulatory framework.
5. Instituting public-private partnerships. While public-private partnerships are popular globally, they are virtually non-existent in Ukraine. This absence is detrimental to the country, especially given the poor state of its infrastructure. Only through private capital assistance are reconstruction and the building of new facilities achievable in the near-term. Legislation must be modified and local governments must be educated to give rise to public-private partnership infrastructure projects, which will facilitate economic growth and enable Ukraine to realize its significant transit potential.
6. Improving insolvency procedures. Exit strategies are an integral aspect of the business environment, and particularly critical in light of the many bankruptcies that have stemmed from the economic crisis. The government must put in place a transparent procedure to update market segments quickly and introduce productive assets into the economy. This procedure must give debtors the opportunity to restore solvency and protect creditors’ claims on assets.
7. Transforming the government apparatus. The success of any reform depends on the performance and professionalism of those involved in public service. De-motivation of government personnel is a systemic problem in Ukraine, however, and the country experiences a high rate of attrition among public servants. Officials do not have immunity from politicians, frequent government changes result regularly in the dismissal of public administrators, and work lacks consistency. As is the case in the world’s most developed countries, the political administration in Ukraine must be separated from the government apparatus. Politicians’ decision-making authority regarding personnel has to be limited, and the functions of public administration bodies such as ministries need to be optimized with a clear division of powers and responsibilities. Delaying this reform would come at great expense to Ukraine, as the government machine must operate as effectively as possible amid the economic crisis.
The seven priorities we have outlined for 2010 are not an exhaustive list of the reforms that will need to fill Ukraine’s agenda. They are, however, the requisite springboards for a more competitive and compelling Ukraine.
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Foundation for Effective Governance
23F Kudrjavska Street Kiev 04053, Ukraine
Reception: +380 44 501 41 00 PR Department: +380 44 501
41 07 Fax: + 380 44 501 41 05
e-mail: feg@feg.org.ua |
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