On eve of appointment as new Minister of Economic Development, Pavlo Sheremeta sets out his vision for Ukraine

2014/03/10 • Analysis & Opinion

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Just hours before his appointment as Minister of Economic Development in Ukraine, Pavlo Sheremeta, the President of Kyiv School of Economics, spoke of how Ukraine needs to “fully reboot” its entire system. He also noted, in an interview with Money magazine, that the lesson for Ukraine will be experience of Georgia.

What should the government’s first steps be?

First, we need to restore control over state institutions. Second, we need to return order to the streets. Now the situation is more or less calm, but people don’t always feel safe. That’s an issue for the the Ministry of Internal Affairs and others. But until  order is restored on the streets, it is pointless to talk about economics.

Afterwards, we’ll start seeing all the important economic questions because the state treasury is empty. This is basically a tradition. We experienced the same in 2004 after the government of Yanukovych, except today everything is considerably worse.

We need quick decisions that will open up opportunities for financing from international financial organizations. These will require, among other things,revisions to the budget as it was prepared in December on the basis of  very different economic indicators. Totally, totally different.

“Revisions”, as you know, is  putting it softly. It actually means a drastic reduction in public expenditures – in the first instance, to those used to finance the state apparatus. Then we’ll need to look at other things. First up:  a transparent scheme for the sale of gas and transparent gas tariffs. Right now, there’s not just disorder here. We’re talking about corruptions schemes worth billions of dollars.

Also important: the transition to a free floating exchange rate. This is already happening.

These steps will allow for IMF financing, which is badly needed to avoid default.

And then?

We need structural reforms. For instance, I would aim to bring Ukraine within the list of the top ten countries in the world for ease of doing business. [Now Ukraine is 112.] You may not know, but I had the privilege of being an advisor to the Government of Malaysia, where it’s possible to register a business online within an hour. Our system is still very bureaucratic. It would be impossible, of course, to move up the ranks like that in, say, half a year, but the legal framework could be created in the span of three to six months.

We need a marked improvement in deregulation to support small and medium businesses. Now the SME sector is almost non-existent – another traditional legacy of Yanukovych government, which, in the best case, treated it as a cash cow and, in the worst case, an enemy. It’s clear though that it’s small and medium businesses that will stabilize the economy or even allow for an economic breakthrough.

Next. We need to establish the economic conditions that would allow us to reduce the cost of borrowing because a loan at 20-30% is a drag on the economy. I think that one of the prerequisites for reducing interest rates is a floating exchange rate.

The last thing on my list  list, but a very important one nonetheless, is probably foremost in other people’s minds. We need sharp and immediate measures against corruption because it is an enemy that eats away at the country from within. It was this, in fact, that brought such a mass of people out onto the streets. It was no longer about association with the EU but rather about the impossibility of living in a country with such massive corruption. People don’t just want to repaint the façade, even if it’s with national colours. They want to completely wipe out a corrupted government. I think we could learn a good deal from the experience of Georgia as to how to overcome corruption in police and government as quickly as possible.

For each of these, there will be some factor or another that could affect the extent to which this could all be carried out. I don’t think this applies to the IMF loan, but how significant are the other risks?

I agree that the chances of obtaining financing from international organizations are quite good if used for reforms and provided to a new government. What are the chances of these reforms falling through? I must admit that, we, Ukrainians, are masters of lost opportunities. But we need to understand, and I hope that the people in the new government do understand, that there aren’t going to be very many opportunities like this. This is basically already the third: 1991, 2005, 2014 … This is our big chance. We can’t afford to lose it, like we did the other two. If we do, that would be very unfortunate. This, at minimum, should be what drives us in implementing these reforms.

Maidan is not gone. Maidan remains, and this is the second force that should agitate for the reforms. Civil society in Ukraine, which played a huge role in the recent events, will not be content with a mere repainting of the façade. It needs to demand a complete overhaul of the entire system.

How do you assess the Russian factor?

Let me start with the personal. I spend a lot of time in St. Petersburg and Moscow. I teach at the Russian Presidential Academy of National Economy and Public Administration. It’s fairly easy to find common ground with colleagues there. First, we all speak Russian, even though some of us may have a Ukrainian accent. Second, we discuss issues common to both countries – improving economic competitiveness, promoting innovation, the transition from a resource-based industrialized economy to a post-industrial one, improving the business climate, fostering small and medium businesses.

These are all areas where we share common ground. They are very important questions. If we can succeed in focusing on these and finding solutions in this context, we stand a good chance at having very fruitful cooperation. The problem is that we often start from what divides rather than unites us. And this is precisely what we should try to avoid.

The Financial Times published an article by Zbigniew Brzezinski on the need for a Finnish model for Ukraine-Russia relations. This means independence, EU membership, no NATO membership, and an understanding of Russian interests. I agree with Brzezinski.

Source: http://podrobnosti.ua/interview/2014/03/03/962247.html

Translated by Oksana Poliakova, edited by Lesia Stangret

 

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