Yatsenyuk’s two Cabinets implemented the minimum of promised reforms over the year

Finance Minister Natalie Jaresko must act circumspect of the IMF

Photo: UNIAN

In one year Ukraine has changed two governments headed by Arseniy Yatsenyuk. The first Cabinet was unique as it consisted of ministers proposed by the Maidan – namely, individuals that had no bureaucratic experience in the past. The second Cabinet was replenished with a number of people from the financial sector and business circles. Those in both Cabinets were masters at making ambitious promises. One would think that owing to the composite of the two governments reforms would not remain on paper, but would be implemented to the benefit of the national economy.

But this miracle did not happen. So far, the number of structural reforms can be counted on one hand, according to experts. “Businesses also do not see any real reforms implemented by the first or second Cabinet,” said Executive Director of the European Business Association (EBA) Anna Derevyanko. For this reason, the index of investment attractiveness assessed by the EBA was still declining in Q4 2013 and dropped to 2.5 points from 2.72 in Q4 2014. Business expected a more fierce fight against corruption, significant deregulation and restoration of justice in the courts, but was disappointed with the results of the year, according to Derevyanko.

Laconic reforms

The government may label signing of the Association Agreement with the European Union, restoration of cooperation with the International Monetary Fund and establishment of dialog with leaders of other countries as its success, experts say unanimously. Be that as it may, the governments headed by Yatsenyuk will not likely be remembered for implementation of internal reforms.

One of the few initiatives for which the government should be commended at year-end is deregulation, said Acting President of the American Chamber of Commerce in Ukraine Taras Kachka. In July, the parliament adopted the laws On Standardization, Metrology and Metrological Activities and Safety and Quality of Food drafted by the Ministry of Economic Development and Trade, which at the time was headed by Pavlo Sheremeta. The first provides for the establishment of a single national, though not public standardization authority and introduction of voluntary two-level standardization, similar to the system practiced in the European Union – namely, national standards and standards and technical specifications adopted by enterprises, institutions and organizations. The second and the third should contribute to promotion of Ukrainian exports, primarily to the EU.

The new Law On Public Procurement is also one of the beneficial ideas proposed by the ministry headed by Sheremeta. It virtually eliminated purchases from “one market player”, cut the number of exceptions, which apply a non-competitive procurement procedure, reduced the terms of public procurement and instructed enterprises engaged in public procurement to make information about such operations public. The truth be told, Kachka says the document still needs some follow-up revisions.

Moreover, Executive Director of the international Bleyzer Foundation Oleh Ustenko adds that the government deserved a reward for downsizing of state employees, which can be interpreted as a preparation for the reform of the public administration system. “The government decided to downsize 10% of the total number of the state executive bodies. Of 249,000 state officials we will have to dismiss 24,000,” promised Yatsenyuk, conducting this year’s first budget sequestration at the end of March. He also warned of the reduction of the number of officials in the central bodies of executive power by 20%. He kept his promise, though only partially. In practice, there was no 20% downsizing of government personnel. In October, Chairman of the National Agency of the Civil Service Kostyantyn Vashchenko reported that after six months, since April, 27,000 employees of the central bodies of executive power were laid off, which is about 10% of the staff.

Heritage burden

First of all, Yatsenyuk’s new Cabinet took over from its predecessors the adoption of fiscal and budgetary reforms, as well as laws on deregulation and the national budget for 2015, which were to become its “merit” in the first month of work. It was assumed that the Ministry of Finance headed by Natalie Jaresko would finalize the business unfinished by Shlapak and rejected by the parliament in September through consultations with businesses. However, in practice the process of finalization of reforms and revision of the national budget was too rapid and lacked transparency.

“Now it is in fashion for the government to consult with businesses in order that the new Cabinet conducts open dialog with its representatives at the working level. But the need to make urgent decisions affects the extent to which the government takes into account the proposals of representatives of business circles,” says Kachka. In general, compared to the previous authorities, according to Derevyanko, there was no major breakthrough in the quality of dialog between big business and the authorities. Just as it was in the past, the government hears, but does not listen.

Thus, the Cabinet hastened with the introduction of the concept of electronic VAT administration. “This is the case when it would be best for the Cabinet to consult with businesses for an extra week to gain support in the parliament, instead of trying to prove that it was a good initiative post factum,” said Kachka.

The VR adopted the relevant law in July and VAT accounts should be introduced starting January 1 of next year. The law was replete with numerous flaws, which is why it deserved criticism. For example, it lacked the procedure according to which the state would pay VAT refunds to companies and the stipulated procedure for the advance payment of VAT could result in the depletion of 8–15% of working capital of paying companies.

In the coalition agreement MPs supported the business sector and promised to eliminate VAT accounts, but the State Fiscal Service (SFS) did not agree. One of the few concessions of the SFS to businesses was deferral of the introduction of electronic VAT administration until April 1. It was only at the stage of consideration of tax reform in the parliamentary committees that businesses could “reach out” to the authorities. MPs promised to postpone the novelty for a year, if not to cancel outright.

Among other tax initiatives in which the Cabinet ignored the opinions of owners of businesses is the increase in rental payments and an increase in the number of excisable goods (for more information about the tax reform go to page 12). In addition, the government did not consult with businesses on the temporary introduction of additional import duties of 5–10%. Meanwhile, such a step may adversely affect the ability of businesses to purchase technology and make capital investments and may even undermine the competitiveness of Ukrainian exports abroad.

Clear the fog

While the future plans of the new Cabinet were assigned by its precursors and therefore were initially clear, its intentions for the longer term remained blurred. On December 9, the government approved its action plan for 2015–2017. “This plan is more of a strategic vision that needs specification and detailed elaboration in every direction,” says Ustenko, who was one of the members of the working group that drafted the plan. In particular, it specifies the timing of reforms, but now there is a need for creation of a kind of statement of work for each area – positions and duties in detail and in time frames, the economist believes.

Also, according to Director of the Open Society Foundation Ivan Sikora, the plan does not have enough indicators to assess performance. It does not even use the already calculated 25 key indicators envisaged in the Reform Strategy 2020 proposed by President Petro Poroshenko. Yet, experience shows that Ukrainian governments rarely have to report on implementation of their long-term programs. Usually, the next Cabinets give assessments. It is possible that this practice will be repeated in this particular case.