Reforms in Ukraine

Two years after the Revolution of Dignity, also known as Euromaidan, Ukraine finds itself in political turmoil.1 The coalition and government crisis sparked by the resignation in February of the minister of economy Aivaras Abromavicius made it all too clear that the old system of governance that has prevailed in Ukraine since independence has yet to be dismantled. On the other hand, however, the current political crisis offers an opportunity to give fresh momentum to reforms that have been delayed.

Looking back at the past two years, many observers agree that Ukraine has achieved more than at any time since its independence.2 Yet a new social contract, which would seal the country’s transformation, has yet to materialize. Given this contradictory state of affairs, how can one best explain current developments and trends in Ukraine?

This article argues that the country’s ambivalent track record of reform is directly linked to complex and deeply rooted legacies. At the same time, the entry of new reform-minded actors into the system, and the intense pressure that civil society is now able to exert, both constitute entirely new phenomena in the Ukrainian setting that make a big difference. The first factor is often underestimated, while the second is not sufficiently recognized, resulting in premature disillusionment and “Ukraine fatigue”.

To better understand the processes and trends in today’s Ukraine, we need to look closely at the ongoing struggle between an old system fighting for survival and new reform-minded actors who entered the scene after the Maidan protests. These new actors are fighting for a radical overhaul of the old system of governance and for a new social contract. This struggle is taking place at different levels, national and local, in different sectors and on a daily basis. Therefore, while it is important to keep the long-term perspective in mind, the ultimate success of the battle for a “new Ukraine” will depend on everyday battles and victories.

Numerous reform efforts with mixed results

Before having a closer look at current developments, it makes sense to consider the overall trajectory of events and the direction in which the country is moving. How have reform efforts so far contributed to shaping what we might call the “new Ukraine”? Looking back at the aspirations of the Revolution of Dignity, and bearing in mind the goals set out in the documents guiding the current reform process,3 it is logical to conclude that the ultimate goal is to transform Ukraine from a “natural” into an “open access” social order.4 That is, from a system of governance where those in power seek rents at the costs of the rest of society, to a system governed by impersonal norms and competition, where everybody has access to resources and decision-making processes. Which is precisely where the new social contract comes in, as demanded during the course of the Euromaidan protests and for which the reform-minded forces in Ukraine are fighting.

President Petro Poroshenko and prime minister Arseniy Yatseniuk at a meeting of the National Reforms Council, Kyiv, 23 June 2015. Photo: Drop of Light/Shutterstock.com. Source: Shutterstock

Without underestimating the efforts of the Ukrainian authorities to stabilize the macro-economic situation and to launch numerous reform initiatives in many areas, assessment of which can be found elsewhere,5 this article looks at those reforms that are essential for the transformation described above to take place. In respect of which, there are three major aspects: political accountability, the demonopolization of public resources, and the rule of law. Efforts to fight corruption and reform the civil service, which cut across all three aspects, are also considered.

Accountability
Accountability starts with access to information and transparency. In this respect, a lot has been achieved.

The public finance system has become more transparent. The official web portal “E-Data”, which provides information on public spending, was launched in September 2015.6 The free online service traces public spending at all levels, from national to local. As of 2016 it also covers information on the use of public funds by state-owned and municipal enterprises, with data being updated every day.

As of February 2015, it has been possible to follow certain public procurement operations online too. Bidding and selection processes have therefore become more transparent and competitive, which, according to experts, has already reduced the corruption component in transactions from 30 per cent to between 10 and 12 per cent. As of 2016, this online system, called ProZorro, began covering all public procurement operations in Ukraine. Experts claim this will help to save about 50 billion UAH (roughly two billion US dollars) in Ukraine’s state budget for 2016.7

Property and asset registers are now open and can be searched not only by asset but also by the name of the owner. Moreover, a separate law on the ultimate beneficiaries of companies was adopted. This further reduces the risk of corruption by obliging companies to disclose information about their ownership structure, founders and ultimate beneficiaries, who may be based offshore.

Access to public information in general has increased. The procedure for requesting and receiving information has become more user-friendly and the spectrum of information that is subject to disclosure has broadened.

Importantly, these initiatives only offer tools. To activate these tools, there must be willingness and competence on the side of public authorities on the one hand and, on the other, the capacity and initiative on the side of society to make use of the tools. Thus, transparency per se does not automatically translate into accountability. By the same token, the opennesss of the authorities does not guarantee that society will have an increased impact on decision-making. Civil society activists in Kyiv and elsewhere confirm that there is a lack of capacity in many cases at the grass-root level to use these tools. While authorities in Kyiv have become more open and civil society in Kyiv has proved very capable, this has not always been the case at the regional and local levels.8

De-monopolization
A number of initiatives to de-monopolize public resources, be they economic, political or informational, have been launched. Since Ukraine previously functioned as a “captured state”, meaning that only a limited group of actors controlled nearly all public resources, the release of these resources should be a vital task.

To this end, a public broadcasting service was introduced and an independent supervisory/editorial board established (it includes eight representatives appointed by the authorities and nine representatives from civil society). Importantly, once fully implemented, this service will reduce the monopoly of commercial and political interests in the informational space, since it will offer impartial and potentially higher quality media products. In a situation where most influential TV channels are owned by “oligarchs”, who often use them to further a specific political agenda, public TV can make a difference.

Additionally, a law on transparency in media ownership was passed. Coupled with the law on state funding to political parties, which will decrease the dependency of political parties on oligarchic funding, it will create a more competitive environment for young grass-root political forces.

Initiatives aimed at ending monopolies in some sectors of the economy and revising or cancelling state subsidies to businesses have been launched. Reform of the natural gas market is well underway: the introduction of market prices has already helped to reduce corruption. There have also been attempts to reform the management of state enterprises. There are currently 3300 state enterprises in Ukraine. According to the former minister of economy, they have been jointly responsible for a loss of five billion US dollars annually.9 Many of them are poorly managed and entangled in severe corruption. In some of these enterprises, the management has been replaced, but there is strong resistance to this process, backed by influential vested interests. In the longer run, the plan is to privatize the majority of these enterprises, while bringing together the most important ones in the form of a state-owned consortium.

A number of decisions on the deregulation of the economy have been taken. Ukraine has advanced four places in the 2016 World Bank Doing Business ranking, mainly reflecting the substantial reduction in the length of time it takes to start a business. By the end of 2015, the total number of permission documents that businesses are obliged to complete was reduced from 143 to 84.10 These changes will contribute to establishing free and equal market access and to the development of entrepreneurship.

As we can see, genuine de-monopolization has not yet occurred; only initial steps have been taken that now need implementing.

Rule of law
Rule of law reform is an essential area of transformation and here the reform of the judiciary is a key. For fair, impartial and efficient enforcement of laws and norms is what creates a system based on the rule of law.

Reforms here have moved much slower than expected. The most visible success story has probably been the launch of a new police force, which came into existence as of November 2015. In Kyiv, Odessa, Lviv and other cities, newly trained officers and new police cars patrol the streets. Police presence is now more visible than before, yet in a very positive way, since the attitude of the new personnel is service-oriented, and bribes, once omnipresent, are now practically impossible.

However, the reform of the judiciary and prosecution services has not yet succeeded. Amendments to the constitution concerning the judiciary have finally been agreed by all stakeholders and are expected to be accepted upon the first reading. In the best-case scenario, the reform, which will pave the way for the overhaul of the entire judiciary, both in terms of the system and the judges, will come into force in autumn 2016.11

Fighting corruption might be seen as a central element that cuts across all three dimensions. Most notable among the new important institutions established is the Anti-Corruption Bureau, which is supposed to fight high-level corruption. The Bureau is independent of all political influence, with independent experts from civil society controlling the staff selection procedure and overseeing the Bureau’s work. After some tensions, an anti-corruption prosecutor was appointed and the Bureau begun to work towards bringing corrupt high-level officials to justice, signalling to society that things have changed. The Bureau has launched 56 criminal investigations, some of them against MPs and judges.12 Yet, according to experts, the Bureau needs more staff to work at full speed (expected in April), and the collection of evidence is often complicated.

At the same time, there has been strong resistance to setting up the National Agency for Preventing Corruption and launching an efficient system for the electronic declaration of assets, both reforms being preconditions for securing visa free travel to the European Union. In practice, corruption continues to persist at different levels.

The Ukrainian state budget has been losing 500 billion UAH (20 billion US dollars) a year through the inefficient work of the customs services alone.13 The ministry of health is a further source of major corruption, not only in terms of billions of UAH in losses from the state budget, but of depriving patients of access to health care services.14 Numerous corruption scandals have yet to be pursued.

The reform of civil service is another component that will ensure the successful implementation and sustainability of reform initiatives. So far, there has been major resistance against positive change taking root. A new civil service law passed in December 2015 comes into force this May and offers the opportunity to launch a new system with newly trained personnel. It largely incorporates the demands of civil society and international donors, although does not yet tackle the problem of low salaries.

This short overview shows that in the areas that are essential for Ukraine’s transformation and the securing of a new social contract, changes in the right direction have been initiated, but hardly implemented such that they make a real difference. Ukraine is still locked in the old system, even if that system has started to be shaken up.

Resistance to change

To understand why change has been so difficult, it is important to understand the dimensions of the challenge that Ukraine’s reform-minded actors face in terms of resistance to change.

Post-Euromaidan Ukraine has to deal not only with the legacy of Yanukovych’s four-year rule but of previous authorities all the way back to the early 1990s. In the absence of any serious transformation, cosmetic changes or partial reforms created a system of state capture under the auspices of a small circle of political and economic actors who offered society at large only limited access or none at all to decision-making processes and public resources. Twenty-five years of independence left dysfunctional institutions in its wake, institutions that now have to be re-built from scratch. Moreover, a poor political culture complicates attempts at finding consensus among the various branches of power and hampers the development of genuine political parties, as opposed to short-lived top-down political projects.

It is important to bear these factors in mind when assessing the pace and success of reforms. Against this background it becomes clear that radical change is not possible and more time and effort will be needed for reforms to succeed.

State capture and vested interests
During 25 years of independence a system evolved where a handful of rich men owned most popular and influential TV channels, and financed political parties that allowed them to have their interests represented in decision-making processes in parliament and government, while preserving monopolistic control of entire sectors of the economy and extracting rents from public resources. Thus, a small clique of political and economic actors called the shots without proper parliamentary and societal consultations. Even now, two years after Euromaidan, the assets of the 100 richest Ukrainians are equal to approximately a quarter of Ukraine’s GDP; 60 per cent of these assets belong to only ten individuals. This is despite the fact that between 2013 and 2015, the 100 richest individuals lost half of their aggregate wealth.15

Which explains why any attempts to dismantle this system and establish new rules have faced fierce resistance. The most prominent example was the conflict around the semi-state company Ukrnafta, where Ihor Kolomoisky, the third richest Ukrainian, owns 42 per cent of shares. For years he blocked the state (which owns 50 per cent +1 of shares) from withdrawing its dividends – to which end, a quorum of 60 per cent of the shareholders would have been needed. The law that changed this situation was passed with many difficulties, while the replacement of the company’s Kolomoisky-controlled management resulted in a direct confrontation with law-enforcement agencies. As a result of this conflict, Kolomoisky had to resign from his position as governor of the Dnipropetrovsk region, a post he held from March 2014 to March 2015.

A no-confidence vote against the government on 16 February failed, despite negative assessments of the government’s performance by the majority of MPs. This is the most recent example of how informal politics behind the scenes overrides formal institutions. The fact that several influential MPs from the Petro Poroshenko Block, the majority of the Oppositional Block, and two independent groups Vidrodzhennia (Renaissance) and Volya Narodu (People’s Will) failed to support the no-confidence motion provided grounds for some reformers and journalists to claim that the outcome of the voting was agreed beforehand between Petro Poroshenko and Arseniy Yatseniuk, in tandem with the oligarchs Rinat Akhmetov, Ihor Kolomoisky and Serhiy Liovochkin.16

Weak democratic institutions
On top of all of this, Ukraine inherited unstable and weak democratic institutions. The constitution has changed back and forth several times. After the Orange Revolution in 2004, constitutional provisions allowed for more power-sharing between the president and the parliament, but presidential rule was largely restored in 2010 by Yanukovych. The Revolution of Dignity returned to the 2004 constitutional provisions. Althought president Poroshenko and prime minister Yatseniuk have so far avoided the kind of political infighting between Yushchenko and Tymoshenko that doomed the Orange Revolution, the fact is that conflict is still enshrined in the constitution, which prevents efficient cooperation among the various branches of power. Electoral legislation is changed before every new election: Ukraine has experienced a purely majoritarian system, a mixture of majoritarian and proportional systems, a proportional system and, in 2012, a return to the mixed system once again. A new law on local elections came into force less than a month before the elections of 25 October 2015, in contravention of internationally recognized standards. The electoral law continues to undergo changes.

The old dysfunctional system is particularly deeply enshrined in the law-enforcement authorities, judiciary and civil service. This was especially evident during the Maidan protests, when both the judiciary and the police were used in repressive measures taken against the protesters. According to the Kyiv Post, Ukraine has 18,000 prosecutors, 10,000 judges and 150,000 police officers and investigators, and “none of them can deliver justice or rule of law”.17 This is coupled with an over-sized and dysfunctional civil service: according to experts, reforms are often blocked or delayed at this level.

Poor political culture
The poor political culture manifests itself in many ways. One of them is the poor coordination of efforts among public institutions and the various branches of political power. Thus, since the new parliament started its work in December 2014, it has passed only 36 per cent of bills prepared by the government.18 MPs and government representatives point to various reasons for this situation: the flow of bills is simply overwhelming (approximately 40 laws a day are considered), the lack of expertise behind the bills and the vested interests that seep into the bills at different stages.19

Moreover, the government has not acted as a coherent team. Instead, individual ministers have pushed for certain reforms within their sphere of expertise. There is a limit to this kind of policy-making, especially when the cabinet has to deal with conflicting objectives (for instance, the collision between securing more budgetary revenues and creating a more favourable taxation environment for small and medium-sized enterprises).

The lack of ideals and values around which political actors might unite is another manifestation of the poor political culture. There are almost no political parties in Ukraine with the kind of ideology and programme that would enable them to represent different social groups. Where these do exist, their regional and local membership base is weak. Instead, Ukrainian political parties are mere political projects, organized in a top-down way and often centred on one leader. Moreover, parties that succeed in entering parliament are mostly backed by oligarchs, both financially and through media resources. Of the six political parties that entered parliament in the October 2014 elections, only Fatherland previously existed as a party. All the others were created, for the most part, in 2014, after the Revolution of Dignity.20 The local elections that took place in October 2015 once again showed the strong role that oligarchs play behind the party political scene. Rinat Akhmetov succeeded in Zaporizhzhia and Donetsk regions, as did Ihor Kolomoisky in Kharkiv. Both oligarchs competed with each other in Dnipropetrovsk region, where they came to share their influence after the elections.21

Is it going to be different this time? New trends, sources of hope

While resistance to reform has been around for years, the emergence of reform-minded enclaves within the system, strong social capital and pressure from civil society are features that make the post-Euromaidan Ukraine different from the country that emerged after the Orange Revolution. The opening up of entry points for new reformers to become a part of the system, who have the leverage to actually change things, is in fact a game-changer. Not only can they promote and implement new legal norms and practices, they also make the deficiencies of the old system more visible and help to channel pressure from civil society. Strong social capital reflected in an active civil society and voluntary activities is also a new phenomenon, which is an important prerequisite for the transformation that will need to take place if a new social contract is to be secured.

Reform enclaves within the system
Though both president Petro Poroshenko and prime minister Arseniy Yatseniuk have lost their image as radical reformers of late, they have allowed reform-minded actors to enter parliament and take important public positions. Thus, despite the overall lack of political will, important reform-minded enclaves have emerged in the political system, within both central and local government. They promote reforms and change practices in the areas where their skills sets apply and over which they exercise some degree of power. Around 50 reform-minded MPs have entered parliament since the October 2014 elections. Since they entered parliament on different party lists, they created the inter-factional group known as the euro-optimists and try to promote initiatives that represent new values and a new type of political behaviour. Recently, reform-minded MPs from the Petro Poroshenko Block rebelled against alleged corruption among members of their own faction and MPs.

The reform-minded enclaves in the government, according to different sources,22 include around 200 people. Some of them were formerly foreign nationals who accepted Ukrainian citizenship, others were recruited through the Professional Government Initiative,23 an initiative launched by Ukrainians with academic degrees from western universities. They mostly took the posts of ministers, deputy ministers and heads of departments. The degree of success varies. Vox Ukraine rated the ministry of economy and trade, ministry of finance, ministry of justice, ministry of social policy and the ministry of agriculture and the National Bank of Ukraine as the best performers.24 There are such enclaves at the local level as well. In the Odessa region, Mikhail Saakashvilli, despite all the controversies around his personality, replaced all heads of district administrations with new reform-minded professionals who can lay claim to a management background and western education, and who were selected through open competition.25

Young political parties are slowly making their way into big politics. One such example is the party People’s Power (Syla Liudei), which received 230 seats in 62 local councils and mayoral positions in 20 regions. This party had only 200 members in 2014; by the local elections of 2015, membership had increased to almost 3000 people.26 The party transparently reports all sources of financial support and its statute prohibits individual donations exceeding 40,000 UAH, making it impossible for the party to accept support from oligarchs. In several cities and towns, candidates with next to no administrative resources or strong financial backing were elected as mayors or returned unexpectedly good results. Such cases include Mykolaiv in southern Ukraine, where the representative of the pro-European Self-Reliance party beat the Opposition Bloc representative and Glukhiv, a small town in the Sumy region, where a French businessman with Ukrainian roots won despite the obstacles that local authorities put in his way.

The new police and the Anti-Corruption Bureau already mentioned above are examples of new institutions created from scratch. In both cases, employees hired through a rigorous selection procedure are well paid, and there are safeguards to protect the integrity and professionalism of their work.

Strong social capital and pressure from below
In the wake of the Revolution of Dignity, people’s expectations of society have increased and the pressure that civil society is able to exert has intensified. It was Euromaidan that enabled the recasting of all political institutions through elections – the president, the parliament, the government and, recently, also local government. Millions of Ukrainians went to the streets and more than a hundred lost their lives for the chance to transform the country. Even more lives have been lost in the military conflict in Donbas, and Ukraine’s borders have been altered. That Ukrainian society has paid a high price for a new chance to thrive puts political elites under pressure in a way that they have not experienced before.

Numerous advocacy and watchdog initiatives exert pressure on the authorities on a daily basis to deliver results. A notable example is the platform Reanimation Package of Reforms (RPR),27 which emerged directly after Euromaidan and brought together over 30 civil society organizations from all over Ukraine. These have accumulated substantial expertise in various areas of reform over the years. It is mostly due to the mobilization of civil society that the above-mentioned reforms were initiated. Around 75 RPR initiatives resulted in laws passed in parliament.28

Another important trend is the booming of investigative journalism and broad media coverage of corruption cases. Numerous Internet resources, but also TV programmes (which was not the case before), have been launched, exposing corruption at the highest level and gaining broad audiences. Based on these media reports, the Anti-Corruption Bureau has launched several investigations.

Strong social capital is reflected in widespread voluntary activities, another important feature of post-Maidan Ukraine. According to an opinion poll conducted back in September 2014, 77.7 per cent of Ukrainians provided support to the army and to internally displaced persons between May and September 2014.29 In view of which, it is not surprising that voluntary initiatives topped opinion polls conducted shortly thereafter, surveying levels of trust in public and civic institutions in Ukraine: on a scale of one to ten, trust in volunteers reached 7.3 points, far above trust in public authorities.30

One of the new important trends in Ukraine is the appearance of small entrepreneurs producing a diversity of goods that were previously imported. “Made in Ukraine” rapidly became a sought-after brand, mainly among middle-class Ukrainians in the big cities. Further, citizens can now file electronic petitions online. Once the required number of signatures have been collected, national and local authorities are obliged to take these into consideration. The popularity of these petitions shows that certain sectors of society are ready to take matters into their own hands without waiting for reforms to be introduced from above.

Conclusions

The enthusiasm connected to Euromaidan was quickly followed by disappointment among many observers of Ukraine. The war, the catastrophic economic situation, the persisting influence of oligarchs, corruption and the lack of political will from the side of the new government – all these factors have contributed to growing disappointment, which soon became fatigue and lack of interest. The strong presence of the Russian narrative in the western media presenting developments in the country as a civil war and Ukraine as a failed state contributes to this fatigue. The most recent political crisis, following the resignation of the minister of economy Aivaras Abromavicius, underlined once again the persistence of vested interests and further undermined confidence in Ukraine’s success.

Indeed, disappointment and fatigue prevail as western politicians and the general public focus mainly on the Minsk process. The situation in Donbas is perceived as a burden, and any solution that might pave the way inter alia for “business as usual” (and the lifting of sanctions) with Russia is welcomed. While it proved to be difficult to make Russia comply with the Minsk provisions, much pressure is being put on Ukraine to conduct local elections in Donbas without thinking about the long-term implications such a step might have for the country. Unless Ukraine regains control over its border with Russia and the Russian military withdraws, local elections in the occupied territories cannot be free and fair; they would only legalize the criminal regimes in Donbas and give Moscow further leverage over Ukraine.

Given the deadlock in Donbas, many important but less visible developments in Ukraine go unnoticed. While some tendencies provide grounds for pessimism, observers often fail to see these as the result of almost 25 years of imitating reforms – thus failing to recognize the severity of the challenge that Ukraine now faces.

A key point to understand is that there is a constant struggle between the new reformers and old structures/actors that protect the status quo. The struggle is taking place at different levels and in different sectors; with uneven progress made in each, the ultimate outcome remains unclear. While many expected changes have yet to take place, a number of success stories deserve attention. Those successes can be attributed to the enthusiasm, professional skills and commitment of new actors, the like of which has not been seen in Ukraine until now.

It is also important to understand that the creation of a new social contract is a process that has taken decades in other countries. Ukraine needs time, and its success will be an important contribution to the project of European integration. With this vision in mind and given the struggle that is taking place in Ukraine, the West can make a difference by tipping the balance in favour of reforms. Strong conditionality, supporting reform efforts and critiquing actions that block reforms should be part and parcel of western policies geared toward building a “new Ukraine”.