Big Bucks and Bigger Worries

How to get a new Ukraine instead of an old Russia as a result of restoration

article by Yuliya Samayeva, ZN.UA Economics Editor

translation by Alexandra Kuvshinova

editorial text finalizing by KS Lack

The European Commission is ready to give us funds in exchange for reforms and under strict supervision. Obviously, this is not how the victorious government had imagined the restoration…

Let's put patriotism aside for a second and try to f answer this question honestly: will anything really, fundamentally change in Ukraine after the victory? If you believe so, then here's another one for you: why were there no fundamental changes either after the Orange Revolution or the Revolution of Dignity? Solidarity, altruism and the pursuit of a common socially significant goal, aka "our strength is in unity" dissolve when faced with of everyday life. Solidarity is replaced by clannishness, altruism by selfishness, and everyone focuses on their own personal goals. Therefore, the authorities’ dissatisfaction with the fact that the money will be given to us under strict control and on strict conditions seemsodd.

Honestly, after decades of rampant and unpunished corruption, with our  judiciary and law enforcement systems completely discredited, we inspire little confidence.. Yes, we did surprise everyone and they talk about us and admire us.made them talk about and admire us. Yes, the president did indeed show courage,but his team hasn’t changed. No impact on the rotation in his team.

Those who give us money know well that, before it’s military valor, Ukraine was mostly famous for it’s corruption. So it is understandable that the European Commission wants to link funding for the restoration of Ukraine to reforms, portion, out te money, lending no more than 500 million at a time, and have the approval of subsequent tranches depend on the implementation of previous tasks. It's just unclear how we can meet such requirements.

Remember how any other IMF aid agreement with similar mechanics has been implemented: forus, the challenge has always been simply fulfilling the agreement. We hit the first tranche, because its the easiest to do. Then the government squeezes the second tranche out of the IMF with blackmailing or tears, and, if they're lucky, the third one, too. And that's it. It’s on to the next agreement since the old one has expired. I don't know if the IMF ranks countries by the amount of penalties paid for unpaid tranches, but if they did, Ukraine would be number one on the list..

Meanwhile, here in Ukraine, this process has always been paired with a heated discussion, teetering on the edge of common sense, about external management levels. People rarely understand that the agreements are a result of negotiations, and the Ukrainian party often promises something without even knowing if the promise can be fulfilled. Most Ukrainians are convinced that the heads of international financial organizations all dream about how to control Ukraine, slow down its development, turn it into a raw-material colony, steal its land, its people, etc: In short, it’s an endless global conspiracy against Ukraine.

In fact, if not for our extremely low efficiency rates and extremely high corruption risks, there would never be any external management. Frankly, it wasn't Soros who made Ukraine an underdeveloped, raw-material colony. The people who give us money are simply not sure if it will be used as it is intended, or even used at all (there are examples).

It is no coincidence that donor countries prefer to cooperate with local rather than central authorities. They know it is much more difficult to control funds flowing into one huge cauldron than that which has been allocated to the restoration of a city or region. For us, this option is also ideal, but for other reasons. If we allow the entire country to become financially dependent to the central government directly, we risk rebuilding not a new Ukraine but the current Russia—where only the central government decides which business live and which ones die, while regional development heavily depends on the loyalty of local leaders to the Tzar and the media is either in service to the state or in poverty and exile. To turn Ukraine into Russia is not our goal. Unfortunately, placing huge amounts of money for recovery into the President’s office puts Ukraine at significant risk of just this scenario.

Remember how our government officals start all their speeches regarding the future restoration? That we must decide for ourselves, manage the money by ourselves, that we need as much money as possible, going directly to the budget, and that there should be less control mechanisms put in place. . It is clear that the people who say this have no comprehension of what 500 billion euros, which is what the European Commission has estimated our recovery will cost. Using our pre-war budget, we could have lived on this money for 15 years; it is only logical that the owners of this money want to have some control over of it.

Our heroism in the fight against the Russian Federation has not changed anything: they do not trust us, and there is a reason for this. While some are winning on both the front and rear lines, others can’t wait to profit from this victory. It seems like every person who can write is drafting a recovery plan for Ukraine. The National Recovery Council is headed by Andrii Yermak, an honored economist. Fifteen hundred people (not an exaggeration) were recruited into National Council expert groups.. To do what? Blur the responsibility for the results as much as possible?

These 23 expert groups dedicated to reforming virtually everything are the administration’s response to Ursula von der Leyen's words on what we need to focus on: administrative consistency, the fight against corruption, judiciary independence, and the rule of law. It is very clear by now that the government has concentrated only on proving their administrative viability.

This expert battalion will prepare a comprehensive “Plan” for the recovery from the consequences of the war. At the same time, the President’s office issued their own “Plan” for economic recovery a month ago. As did the Ministry of Economic Development.. As did others. But those plans were not comprehensive like this new plan will be, apparently, and high-quality just like everything done by a group of nonames. The group for the development of financial markets, for example, includes a world-famous financier Nikolay Tishchenko.

At the same time, none of the creators of this new Ukraine has yet found time to understand what prevented our economy from developing before the war, nor to form an economic model that would not only get us out of post-war poverty but also from a group of developing countries.

On the one hand, you can waste billions of euros on infrastructure restoration, giving experienced "large companies" lots of budget money to play with. Or you can develop high-quality regional investment projects and shift part of infrastructure restoration to investors, simultaneously restoring and developing the regions. You can pour tens of billions into the development of industrial parks, or you can scale the concept to the local level and provide attractive working conditions throughout the country. You can limit financing to "priority economy sectors", nurture new oligarchs and support our part of being merely a raw-material colony course, or you could change priorities by providing support exclusively to high-tech producers of goods with high added value and a high level of localization. You can waste billions on programs, plans, strategies (underline which one you prefer) for the return of migrants, or you can focus on creating financial investment instruments for them and attract a labor force from third countries. In general, you can either create a healthy financial sector with normal stock exchangers, an adequate regulator, a wide range of tools and your own arbitration, or you can rely on Tishchenko and get nothing in return.

And whatever path we take, von der Leyen is right: without a deep reform of the judicial and law enforcement systems, without the reform of the Antimonopoly Committee, we will get nowhere. Half a trillion euros is a lot of money, but, the amount we get will depend on our success, and even then it will be stretched throug ten years. Given our previous experience, it will take us a quarter of a century to assimilate it. .

So we need to build a country where not only politicians, but also businessmen, will want to invest. We did not have much traction with investors before, owing to corruption in the government and the courts., The permanent military threat and all the risks associated with the loss of half of GDP have only made us less appealing.. Theoretically, Ukraine could be regarded as a territory for a potentially rapid growth, but we must guarantee security— not just physical, but also financial.

We still have "problem solvers" operating at all levels,starting with shops selling "humanitarian" armor to customs, where, after the cancellation of the duty tax, "real patriots'' began to pocket $1,000 per container, all the way up to the President’s office, where they have decided long ago who lead get which “recovery streams”. Therefore, yes, a little external management and a bit of European bureaucracy will not hurt us. At the same time, we must still conceptually determine the trajectory of our development. Instead of blindly agreeing to the first idea that comes along, we should clearly understand which reforms (excluding judicial, law enforcement and antimonopoly reforms) we really need in the first place.

It would also be a good idea to narrow down the number of people who are responsible for the success of this cooperation worth hundreds of billions. If EYermak is so irreplaceable, then let Yermak be responsible, but only he. We should know who exactly bears all the responsibility. We still remember how the number of signatures under the IMF memoranda has grown over the years: soon, every Head of Department will have to sign it. But those responsible for the failures are nowhere to be found. Ask anyone about anything, and they will answer: "My part is done, it's their fault...". We need to know exactly who is personally responsible for this cooperation, because in all the positive outcomes of exchanging money for reforms, it wil be a long and difficult path. We will have to keep up the pace, and avoid slipping into fraud. Let's remember how much legislative junk has been done while hiding behind the requirements of the IMF. This was a Sunday school picnic compared to what awaits us.

Yes, in the future, with competent supervision, we really can carry out useful reforms while getting an unprecedented amount of money for restoration. The European Commission says that the main principle by which funds will be allocated is for a country to do better than it was. We sincerely hope that, at least here in Ukraine, there is an understanding that the bar for our future changes should be much higher than our “was".

Read this article by Yuliya Samayeva in russian and Ukrainian.