A state cannot make a citizen happy. It only creates conditions, believes economist Ihor Burakovskyi

The Ukrainian authorities are focused on parliamentary election. This will not allow the country to meet the conditions of the International Monetary Fund and receive a tranche, predicts one of the largest world banks JP Morgan. Could it lead to an economic crisis?

– Since 2014, Ukraine has had problems with compliance with its commitments to the International Monetary Fund. A number of agreements were performed in an untimely manner or not in full, the programs were adjusted. However, this cannot calm us down. Cooperation with the IMF is crucial for us – as an incentive to pursue reforms and a positive signal for other donors and investors.

Failure to receive the next tranche will not lead to an immediate economic disaster. But we will still suffer from consequences, in particular, from political ones. Many changes in Ukraine took place under pressure exerted by the IMF. It taught our state what a market economy is, helped to establish the work of the National Bank, and introduce budget discipline. The Fund is a kind of ф fuse protecting us from populist decisions and a guarantor that reforms will not roll back.

Cessation of cooperation with the IMF will mean that Ukraine will lose one of the sources of replenishment of foreign exchange reserves and funding for some budget programs. After all, this is what the IMF’s money is spent on. The assistance provided by the rest of the donors depends on it. These funds are not superfluous, given the peak payments to repay the external debt in 2019-20 20.

Prime Minister Volodymyr Hroisman says that it is feasible to increase own production, obtain energy independence and reduce gas prices. What do we need to do this?

– We should distinguish between technical-economic and technological issues. What gas should we extract, what methods should we use, which investments do we need? Energy independence is not only about extraction, but also about the use of energy resources. We must encourage alternative sources and rationalize energy use wherever possible. We should not get hung up on cheap oil and gas.

What else can we do to achieve energy independence?

– We, Ukrainians, always set ourselves up as an unhappy consumer begging for resources. We have to move to the paradigm “the customer and the consumer is the king.” This requires an appropriate policy.

First of all, we must realize that energy independence means efficient economy and a functioning market. And in the economy there is nothing free, so a reasonable market price should be paid for the resources.

Secondly, energy markets are monopolized. It is important to increase the role of the Antimonopoly Committee. Since the price for the population is regulated by the state, it may be worth reviewing the energy regulation tools and pricing mechanisms.

Thirdly, when it comes to energy, it is necessary to separate the political component from the economic one. And this, in general, is a fundamental issue for the Ukrainian governance system. Energy policy cannot be a social protection tool. The gas price will never suit everyone. Here we face the issue of targeted assistance to socially vulnerable groups. However, targeted subsidies must be carefully monitored.

What do you consider the biggest problem of the Ukrainian economy?

– It needs large-scale upgrade so that Ukraine could catch up with the developed countries. Source of upgrade: investments, new technologies and production-commercial ties. Upgrade also means a transition to sustainable development: we should give our children a better world than the one we had received from our parents. Society and politicians need to understand what the state should do in the short, medium and long term. No government can make its citizens happy. It just creates conditions for this.

We need to understand where the businesses’ responsibility ends and what it’s about. This is a matter of state aid and regulation of production and commercial activity. Finally, it is important to understand where and how businesses and the state should cooperate. Scientific research, promotion of national economic interests abroad and the personnel training spring to mind here.

The human resources problem is one of the most pressing ones now. We lost part of our labor potential through the annexation of Crimea and the war in Donbas. This is accompanied by labor migration and problems with the quality of education. We have practically done nothing to attract human resources from other countries – I mean an active migration policy.

An efficient non-corruption state cannot be cheap. Society must pay a reasonable price for it.

What are the key reforms of the past five years?

– Each reform has three stages: decision making, implementation of changes and protection of achievements. As the Ukrainian experience shows, it is very easy to roll back. Over the past five years, we had implemented or started a series of important changes. One of the most successful ones is the public procurement reform. It needs to be protected, given the creative nature of Ukrainians who are always ready to circumvent the rules.

We have implemented a serious reform of the banking sector. We have eliminated a number of insolvent banks, although not everything has been done flawlessly. We have arranged procedures for bank refinancing, introduced open disclosure about the end users. National Bank today is not only a regulator, but also a think tank. In the field of public finances, the introduction of long-term budget planning has begun.

Medical, pension and educational reforms have been initiated. They need to go on.

I consider the decentralization reform to be a great success. By the end of 2020, it has to be completed. The amalgamated communities have already received their money. But if some of the authorities and money is transferred to the local level, then the question arises: how do we transfer anti-corruption mechanisms there and prevent the creation of semi-feudal structures in the regions? We need to find a sufficient number of financial managers who could manage community budgets. Now this money is often stored on deposit accounts. On the one hand, it’s good, at least it was not stolen. On the other hand, it should work for the community.

The investment climate has improved. The VAT refund system for exporters has been reformed. Consequently, conversion platforms and related corruption have disappeared. Much has been done to simplify and streamline the system of services provided by the state. Administrative services centers have been created, e-government technologies have been introduced. The state has opened registers and a lot of other information.

An important achievement is the creation of a system of institutions for combating corruption: National Anti-Corruption Bureau, National Agency on Corruption Prevention, Specialized Anti-Corruption Prosecutor’s Office. But they need time to start working efficiently and become politically independent.

What mistakes should we take into account when moving forward?

– We are lagging behind with the judicial reform. I mean a mechanism for resolving disputes, without which the normal life of the country is impossible.

The second issue is public communication. The society pays money to the state and must know how it is used and by whom. People have to understand who should be responsible for the bad roads and how they were punished therefor. It is impossible without a judicial system.

Another problem is the economy demonopolization. Antimonopoly Committee should play an active role in this process. So far we do not see it.

We have to complete the public administration reform to avoid traditional post-election shuffling of ministries.

The reform of tax and customs services has become ripe and overripe. The first steps have been made here. Customs is also an element of national security.

We need to implement the EU-Ukraine Association Agreement ASAP. It has always been a guideline for change. Ukraine lacks the ability to effectively use the opportunities of globalization, taking into account our lay of the land.

For several years, the economy of Ukraine has been growing by 3 percent. How do we increase the pace to 10-15 percent? What reforms should we do first of all?

– The economy grows when restrictions on businesses are lifted, when large-scale economic reforms are implemented. But growth depends on the global situation. If our goods are not bought abroad, we will have a downturn.

3 percent is a low rate. For Ukrainians to feel real change, we need at least 5-7 percent over the course of five or seven years. To this end, the state should stimulate business development and integrate into the global economy; attract foreign investments, join the global value chains, such as outsourcing sites (outsourcing means transfer by a company of part of its tasks or processes to third parties – Kraina).

It is necessary to reduce the period for the implementation of any idea. The key instrument of modern competition is not to invent a new Pythagorean Theorem, but to introduce it as soon as possible into a hypothetical iPhone. Ideas get old very quickly. Therefore, we need to create good conditions for the development of startups.

How will new methods of production – cyber-physics systems, artificial intelligence, 3D-printing – change the world and Ukraine? How should Ukraine respond to them?

– Industrial revolution is changing a lot in relations between people. Many issues are solved online. What the human brain used to do before is now done by a computer. Every country is looking for answers to the challenges of Revolution 4.0 (the Fourth Industrial Revolution – Kraina), because it changes our perception of the world. It has both good and bad sides. For example, with the advent of 3D printers, things that can be printed are sold less and less. Before, one needed huge money to open a channel. With the advent of the Internet, almost everyone gets such an opportunity.

People are forced to consume a lot of information. It is difficult to navigate it. For the Revolution 4.0 to be effective, we must improve the quality of education. People not only need to know how computers work, but also have critical thinking skills.

For the state, the challenges of the fourth industrial revolution are in the field of governance, in particular, in the cybersecurity of e-governance. Our politicians do not discuss such strategic topics. This is a problem. In the information age, society thinks about everything and nothing at the same time. This makes it possible to manipulate public opinion.

What threat will return of Privatbank to Ihor Kolomoiskyi pose to Ukraine?

– The problem has political, economic and legal components. During nationalization, Privatbank was in a bad condition. The support of international partners helped Ukraine to keep it afloat. I think the negotiations with former owners Ihor Kolomoiskyi and Hennadii Boholiubov were complicated. They tried to make money on nationalization.

This is a difficult process in every sense. Now our courts can make specific decisions. It would be best for the country to leave this situation as it is.

Is deoligarchization possible in Ukraine?

– Oligarchs are large entrepreneurs. In Ukraine, there are about 800 large businesses which account for about half of industrial production. This is the backbone of the Ukrainian economy, whether we like it or not. These “oligarchic” enterprises are the largest taxpayers, and in many cases, monopolists.

In this situation, it is important to separate the political influence from the economic one. Ukraine should adopt laws on lobbying business interests. We must understand: who is lobbying, why they do that and for whom. In the United States, this process is transparent. Illegal lobbying ends up in prison. The framework of relations between businesses and civil servants should be stipulated at the legislative level.

Big companies with political interests are a fact of our lives. Only a strong state can counteract the negative consequences.

One of the main challenges for the new president is to maintain international support for Ukraine. Will Zelenskyi succeed in doing this?

– From what Zelenskyi and his team have said, it seems that they understand the problem. But we do not know what will happen in practice. It should be borne in mind that political leaders are changing in Europe: Lithuania’s President Dalia Grybauskaitė and German Chancellor Angela Merkel are leaving. The generation of Emmanuel Macron (the president of France, won the election in 2017 at the age of 39 years – Kraina) is taking over. We must work out how to establish contacts with them and maintain good relations.

We should not campaign for Ukraine from the standpoint “we are your problem, please help us”. We must encourage partners with successes. The world gets tired of conflicts very quickly.

What successes can we use?

– First of all, the fight against corruption. We have managed to overcome many schemes through the public procurement system. Corruption disappears when game rules change. For example, VAT refund has been introduced and fraud schemes in this area vanished. But people want punishment for corruption. And that’s right. If society sees that nobody is brought to liability for their crimes, it gets disappointed.

We should not only demand anti-Russian sanctions from Western countries, but also propose reform initiatives.

You refer to the restoration of the territorial integrity of the country as the key precondition and resource of development. Why so? It is believed that the return of the occupied territories will require enormous resources for integration, rebuilding, and will impede political progress.

– If we are in the shadow of Russia, we will not achieve anything. It is independent countries that are successful in economic development, not all of them though. We must understand that we will have to pay for the economic reconstruction of the occupied territories. We can do this at the expense of international assistance, our own resources.

But we must see this reconstruction as an investment in the development of the region and the country as a whole. We should have done something in Donbas long before the beginning of Russian aggression. It can be economically rehabilitated only after the restoration of the territorial integrity and sovereignty of Ukraine in the presence of a clear strategic plan.

Source: Kraina Magazine