UKRAINE NEEDS TO SPEED UP STATE REFORMS TO
WITHSTAND GLOBAL ECONOMIC SLUMP
UNDP's Blue Ribbon Analytical & Advisory Center (BRAAC) Urges Adoption of Overdue Reforms
United Nations Development Program (UNDP)
Blue Ribbon Analytical and Advisory Centre (BRAAC)
Kyiv, Ukraine, Thursday, April 16, 2009
KYIV - The United Nations Development Program's (UNDP) Blue Ribbon Analytical and Advisory Centre urges adoption of overdue reforms. A new report from Blue Ribbon Analytical and Advisory Centre highlights the urgency for high-priority economic and institutional reforms; argues that economic crisis could open windows of opportunity for state reforms in Ukraine.
A new report issued by the Blue Ribbon Analytical and Advisory Centre, an independent body of renowned national and international experts that operates with support from the Delegation of European Commission and United Nations Development Programme (UNDP) in Ukraine, has identified high-priority reforms that the Government and Parliament need urgently to enact to weather economic recession and promote growth and better living standards in Ukraine.
While saluting the country's high rankings for political freedoms and development of democratic institutions, which are higher than those of other countries in the CIS, the report warns that in many areas time has been wasted and reforms are long overdue.
UKRAINE WAS PARTICULARLY VULNERABLE
The Report's authors argue that Ukraine was particularly vulnerable to the global financial and economic crisis because of the slow pace of reforms in recent years. This unprecedented economic meltdown has become a litmus test demonstrating shortcomings in the country's institutional arrangements and economic basis.
"Ukraine is one of the worst-hit countries by economic slowdown in Eastern Europe due to sharp decline in demand for metallurgical and chemical products in the global market. It is vital to analyse the recent achievements and shortcomings and revisit the agenda of national human development priorities," explained Cihan Sultanoglu, Deputy Director at UNDP Regional Bureau for Europe and the CIS, who came to Ukraine on official visit.
"The new report urges for a concerted reform effort in Ukraine, analysing recent developments against a set of 170 policy recommendations, which indicate most relevant measures aimed at building market institutions, providing macroeconomic stabilization and taking advantage of international trade on a path to regaining dynamic, long-term growth that will give the country the international prominence it so richly deserves" she added.
TOP PRIORITIES IN UKRAINE STATE REFORMS
As top priorities in state reforms, the report urges the Government and Parliament to:
[1] implement monetary policy measures adopted in Memorandum of Economic and Financial Policies agreed with IMF;
[2] gradually reduce the ratio of recurrent spending to GDP;
[3] undertake reforms of the pension system;
[4] strengthen the financial sector's prudential and supervisory framework;
[5] make fighting corruption a national policy priority issue;
[6] develop and implement judicial reform aimed at strengthening the independence, impartiality, and efficiency of the judiciary;
[7] decentralize public administration according to the principles of the European Charter of Local Self-government in order to
increase efficiency and accountability of local self-government;
[8] increase energy security by stimulating energy savings by allowing prices to reflect costs;
[9] establish transparent real estate and land market; and
[10] finalise negotiations with EU on establishment of a Free Trade Area.
CHALLENGES FACED BY UKRAINE IN THREE MAIN AREAS
These priority recommendations are selected from a detailed analysis that addresses the challenges faced by Ukraine in three main areas:
1) ensuring macroeconomic stabilization;
2) enhancing market institutions to support further reforms and
3) improving Ukraine's integration into the world economy.
Analysis has shown that Ukraine's few remarkable achievements during 2008 and the early part of 2009 have been largely overshadowed by modest progress in most areas. "Ukraine's WTO accession and the launch of negotiations on FTA with the EU, adoption of a modern joint stock company law, progress in public procurement law, and transition to a more flexible exchange rate regime are seen as the most important accomplishments" - said Marcin Swiecicki, BRAAC Director.
But the list of pending reforms is yet long as there was small or no progress in combating corruption, privatization, empowering local authorities, lifting the moratorium on the sale of agricultural land, implementing the next stage of pension system reforms, instituting better targeted social policies, lowering inflation, abolishing the Commercial Code, and strengthening independence and impartiality of the judiciary.
HRYHORIY NEMYRIA, VPM OF UKRAINE
Speaking during the presentation, Hryhoriy Nemyria, Vice Prime Minister of Ukraine, praised the overall recommendations. In addition he said that, according to his assessment, Ukraine has managed to implement about 60 per cent of the recommendations presented in the Blue Ribbon Commission Reports over past years. "Ukrainian Government is very grateful to the report's authors. I confirm that our Government is ready to cooperate in real practice, so that in the next year we increase the amount of what has been finally achieved, as compared to what has been recommended here," he added.
The report treats good governance as the starting point for all reform. Its authors underline that Governance failures lie at the heart of the global economic crisis. Thus, making the Government more efficient and accountable is a precondition for success in all other areas. In several post-communist countries crucial reforms happened when it became clear to political leaders and civil society that existing institutional arrangements could no longer serve the wellbeing of the people.
NEW RECOMMENDATIONS INTENDED TO HELP SHAPE POLICY
"These new recommendations are intended to help the President, the Government, and the Verkhovna Rada to shape policy in coming months, and also to give Ukrainian civil society a useful tool to monitor reform progress in key areas," says Joanna Kazana-Wisniowiecka, Acting UNDP Resident Representative in Ukraine. "UNDP stands ready to support these efforts in order to promote sustained economic growth and thus even out regional disparities in Ukraine and close the income gap between Ukraine and its Western neighbours."
The Verkhovna Rada failed to adopt a number of crucial draft legislative acts. As a result Ukraine's global ranking remains low for corruption, ease of doing business and transformation indicators which undermines the trust of foreign investors and local businesses, which may only be renewed by introducing effective policies.
IMPLEMENTATION OF IMF MEMORANDUM
The further implementation of the Memorandum agreed with IMF may well serve not only to provide macroeconomic stabilization, but also help renew the trust of foreign and domestic investors, as many experts say.
"The cooperation with IMF is a necessary condition of trust-building with other lenders: international financial institutions like World Bank, EBRD, and other governments. Broadly speaking, trust of foreign and domestic investors depends on next agreement with IMF" - underlined Aleksander Kwasniewski, former President of Poland, who was the guest of honour during the today's report presentation in Kyiv. "But even a stronger impulse for investors may be provided by rapid and effective harmonization of Ukrainian legislation and regulatory environment with the European ones" - he added.
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I. KEY RECOMMENDATIONS (Page 7-8)
[1] Provide macroeconomic stabilization
• Implement monetary policy measures adopted in Memorandum of Economic and Financial Policies agreed with IMF:
o Implement a flexible exchange rate regime;
- Abolish the exchange rate band as monetary policy target;
- Base the official exchange rate on the market exchange rate, and,
- Adhere to transparent and predictable strategy of interventions into the interbank foreign exchange market.
o Reduce level of inflation (CPI) to 17 percent by end-2009 by:
- Targeting growth of monetary base by about 11 %;
- Bringing the NBU interest rates on deposit closer to refinance rate;
- Restoring previous reserve requirement rules; and,
- Continuing deposit auction.
o NBU, as a key player and regulator, on the foreign exchange market should design its actions in a way enhancing market mechanisms
• Gradually reduce the ratio of recurrent spending to GDP.
• Reduce tax rates over time, subject to the expansion of the tax base and/or reductions in government spending, and balanced budget.
• Undertake reforms of the pension system: assure financial stability of the first pillar, enact the second pillar, and increase retirement age.
• Strengthen the financial sector’s prudential and supervisory framework to increase the sector’s resilience to adverse shocks.
[2] Enhance market institutions
• Make fighting corruption a priority issue of national policy; develop and implement a detailed plan for implementing the national anti-corruption strategy.
• Commit to and undertake transparent and competitive privatization. Adopt the State Program of Privatization
• Develop and implement judicial reform aimed at strengthening the independence, impartiality, and efficiency of the judiciary; ensure noninterference
in the work of the courts at all levels.
• Complete the creation of administrative courts, which need to be adequately staffed and funded.
• Decentralize public administration according to the principles of the European Charter of Local Self-government in order to increase efficiency and accountability of local self-government
• Create transparent land and real estate markets in Ukraine by lifting the moratorium on the sale of agricultural land and establishing a single registry for
real estate and agricultural land property rights.
• Abolish the Commercial Code. (The Code establishes an outdated and peculiar system of legal entities and hampers modernization of economic legislation in various areas of regulation.)
• Adopt a limited liability company law.
• Amend the Law “On Joint Stock Companies” to comply with the EU Company Law directives and improve the mechanisms that protect the rights of minority shareholders and their involvement in governance in order to increase competitiveness of Ukrainian issuers at the world financial markets.
• Establish “one-stop shops” for business registration and streamline the registration process by reducing the paperwork and permits required. Compile a complete and exhaustive list of permits into a single law to reduce the numbers of permits and activities subject to mandatory licensing.
• Continue improvement of the public procurement law.
• Increase energy security by promoting competition among private producers and stimulating energy savings by allowing prices to reflect costs.
[3] Improve Ukraine’s integration into the world economy
• Continue and finalize negotiations on a new enhanced agreement with the European Union (EU) (including a deep and comprehensive Free Trade Area as a
core element of the agreement); reduce the number of exceptions and transition periods, and fully open trade of agricultural and food products.
• Accelerate of harmonization of Ukraine’s certification and standardization system with international and European ones
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[1] LINK to News Release: http://brc.undp.org.ua/press/news/78
[2] LINK to PowerPoint Presentation by BRACC Director Marcin Swiecicki on April 16, 2009, Kyiv, Ukraine: http://brc.undp.org.ua/img/news/attachs/125/Recommendation2009eng.ppt
[3] LINK to Entire Report: "Policy Recommendations On Economic and Institutional Reforms 2009," to read the entire 199 page BRACC report go to: http://brc.undp.org.ua/img/news/attachs/125/PolRec_Eng.pdf
UNDP Blue Ribbon Analytical and Advisory Centre (BRACC)
1/14 Sadova St., 4th Floor, Kyiv, Ukraine 01021
Tel: 380 44 253 5866, 253-5869; Fax 380 44 253 5611
Web: http://brc.undp.org.ua