The issue whether crisis is the best time for the long term economic reform will be discussed during the debates to be carried out by the Foundation for Effective Governance together with Intelligence Squared (London) on April 15, 2009, in Kiev.
Structural economic reform in Ukraine has been on the agenda of the government and business since the end of 1990s. The importance of long term economic reform is emphasized by Ukrainian experts and recognized global organizations. The set of reforms and their goals are clear: adoption of the Tax Code, liberalization of the regulatory approval system, public service reform, land reform, etc.
However, the economic downturn made many of us start thinking whether it is the right time for the reform. Global expertise does not give a clear answer whether it is right to implement fundamental reforms at the time of the country’s deep economic recession. On the one hand crisis is a unique opportunity to implement urgent transformations aimed at saving the country. On the other hand crisis significantly increases the risks inherent in deep transformations: failure might bring the weakened economy to catastrophe.
Arguments in favor of immediate implementation of the reform are based on the belief that the only efficient tools against crisis are transformations aimed at improvement of the business environment and competitiveness of Ukrainian businesses. Non-monetary measures of business boosting, namely reforms, come into the first place at the time of heavy deficit of budget funds.
In addition, the complex economic situation reveals the most urgent problems hidden during better times and helps overcome political resistance to transformations. The delays in reform until better times come will result in stagnation after the downturn. Only reformed economies have a chance to survive at this time of much stiffer competition between the countries over meager investment flows. Thus, being ranked near the bottom in a recent survey over the tax and regulatory approval system, Ukraine will not be able either to attract new investors or keep the existing ones. Investments so important for recovery of the Ukrainian economy, which was hit by the recession, will flow into more investment-attractive countries.
Arguments against deep long-term transformation during the crisis are based on the opinion that weakened economy is like a patient in a critical condition who is not allowed any immediate medical intervention until he is in a stable condition. Unsuccessful reform at these hard and unstable times might bring to irreversible consequences. For instance, as the result of land market liberalization and low demand land will be purchased at reduced prices. In its turn, immediate tax reform might bring to significant reduction of tax receipts to the budget. Also, adaptation to new accounting rules will be one more burden for a company at the time when it is struggling to survive.
One more argument against the reform is high probability of failure of the reform as the result of relatively weak state institutions, which need a deep reform themselves. In addition, urgent crisis control measures will require maximum attention and resources of the government and will put any long-term objectives aside.
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