Monday, August 4, 2014


Ending the Russian-Ukrainian War


Volodymyr Bilotkach (Newcastle University, UK), Yuriy Gorodnichenko (UC Berkeley, USA), Tymofiy Mylovanov (University of Pittsburg, USA), Oleksandr Talavera (University of Sheffield, UK)

Millions of Ukrainians want to see an end to the Russian-Ukrainian war. In this post, we review some pressing issues in the East and propose a set of solutions.

Ending the war

  • Buy loyalty of the indifferent, which is majority in the region, by increasing salaries of state employees and pensions by 20-50%, even if temporarily.
  • Provide an exit option to the locals committed to insurgency by offering amnesty to those who were not involved in grave crimes (murder, torture, etc.), and stipulate that the amnesty will not apply to those who will continue to fight.
  • Send a message that corruption is over by prosecuting most flagrant cases of local corruption, including new cases in the recaptured regions (e.g., abuse of the humanitarian aid), systematically firing corrupt officials and neutralizing their networks, and staffing the state offices with new people, loyal to Ukraine and the region.

Sustaining peace

  • Rely on the middle class by helping them restart their businesses through tax forgiveness, cheap credit, training and capacity building.
  • Create independent local media and activist groups from the pool of regional bloggers, volunteer networks supplying the military, local entrepreneurs and farmers
  • Create jobs by employing locals in reconstruction projects, providing incentives for businesses to enter the region, and simplifying regulation for the small and medium size enterprises

The war will be over, one way or another, maybe as early as in a month. This will be a pivotal moment in Ukraine’s history but everyone should understand that the end of the war does not mean a lasting peace. The scars of the war are already running deep and the short-run problems (unemployment, shortages of essential goods, destroyed infrastructure) are likely to continue to alienate locals in the East to the new Ukrainian government. Without solving these problems, a new wave of violence may erupt.

Institutional poverty: When the conflict is over and a city (town, village) is liberated from the terrorists, the key problem is that the local ruling elite (mayors, political parties, police) is discredited  by cooperation with the terrorists as well as affiliation with the Party of Regions. Indeed, as Ukrainian forces are taking control over cities in the East, many from the local elites flee in fear of being prosecuted.  The level of trust is low and the power vacuum makes the recovery of normal life painfully slow.

This vacuum has to be filled in as quickly as possible. After a city is taken over by the Ukrainian forces, there should be a group of administrators ready to run the city to establish a clear and effective system of temporary governance. The President can appoint temporary mayors and the like with increased powers so that decision-making can be fast and more decentralized. The new administration should “import” police and officials from other locations as well as recruit locals with clean records. Unfortunately, the latter may be a weak source for staffing. For example, the Ministry of Internal Affairs is running its staff from the “terrorist occupied” territories through polygraphs and estimates that 50-80 percent of its staff collaborated with terrorists. Since the region is ripe with endemic corruption and strong ties to terrorism, perhaps top local administrators, city council members, judges, and other key local officials should take a polygraph test to ensure that they are not compromised. Other policies can also be employed depending on specifics of the town. To further ensure that the new power is not corrupted as much as the previous one, the government can set up hotlines to report corruption and use all legal powers to punish corrupt officials as well as follow the experience of other countries and report salary of each public servant (for example, California puts all information about salaries of its public employees online).

To provide “carrots” to the new people in local governance, the government should raise their salaries at least temporarily because their work involves increased risk.

Finally, the public should have access to independent local media—rather than the current media serving special interests—to ensure that people have access to objective information to forge high trust between new government and the public. Given enormous interest of media in the events in Eastern Ukraine, this objective should be easy to achieve. National media should introduce a number of series, programs that monitor activities in the area and create a more positive image of the East.  

Lack of security:  After the terrorists raped the cities they controlled, people in these cities have a great sense of insecurity and lack basic goods and services such as food, water, electricity. It will take some time before life in these cities goes back to normal, but every effort has to be made to ensure that people have basic needs satisfied and are protected from more violence. For example, the government can use international aid to ship in goods (e.g., medicine and food) into affected areas, use volunteers (locals and from other parts of Ukraine) to assist police in patrolling cities, use resources (power generators, field kitchens, water filters) of the State Emergency Service and Ukraine’s Armed Forces.  

Unemployment: Because many businesses are destroyed or shut down in the conflict zone, high unemployment is a major threat for stability. The government should provide opportunities to get employment. There are several possibilities. First, the government can use reconstruction projects with the emphasis on labor-intensive projects (at least initially) such as debris clearing, fixing roads and human settlement, restoring electricity and telecommunication, economic and social infrastructure, etc. Second, the government should restore employment in the public sector (hospitals, schools, etc.) as soon as possible. Third, the government can place orders with local state owned enterprises to increase local employment. For the latter, there is a risk that orders will go to local corrupt officials. Maximum transparency of tenders in this area is vital, and should be one of the priorities for the entire country. Fourth, the government can provide 1-3 month apprenticeship training courses (plumbers, welders, bricklayer) for local people to improve their skills. This system of practical education could be later used as a starting point for region-wide initiatives of transforming focus (e.g. from mining towards IT) and enhancing human capital.  

Stagnant business: The terrorists routinely confiscated or destroyed business assets. As result, economic activity is close to a complete halt. To revitalize, local businesses need abundant, cheap loans. There are several possibilities. First, the government can provide a subsidy (e.g., pay a fraction of the percent on loans) but the banks have to have skin in the game to ensure high quality of loans. Second, the government can direct state banks to channel some of their lending to the post-conflict zone and provide some insurance on the loans in the zone. Perhaps, the government can set up a development bank to coordinate these activities. Third, the government can encourage micro-finance funding of projects in the East of Ukraine.  This source may be particularly valuable because the industry in the East was dominated by large firms but small/medium size enterprises (SMEs) are engines for high employment, innovation, and economic growth. Standard banks are likely to deny credit to SMEs in the East because of high risk. However, one can get credit to these SMEs via micro-finance banks similar to those working in developing countries and post-conflict zones. Fourth, the government can use help from the World Bank, the European Bank for Reconstruction and Development and others to provide cheap credit to the businesses affected by the war. Finally, infrastructure investment could be done via private-public partnerships.
We do not recommend using special economic zones with blanket tax breaks and poor law enforcement. (The benefit of two such zones in the Donetsk oblast appears to be minimal while their reputation as a place to avoid taxes is clear.) However, some targeted measures (e.g., do not charge penalty on tax liabilities of destroyed businesses, allow tax holidays for a limited period, or temporarily permit accelerated amortization) may be effective tools to stimulate reconstruction and accumulation of capital.

Restoring Infrastructure: Now is a great opportunity to start replanning and optimization of infrastructure (e.g. railways/roads). It might somewhat early to say, but it is important to keep Donetsk well connected to Kyiv. An idea of high-speed train connection (real high speed connection 250+ km/hour) has been around for a while. The planning should start now when many bridges/roads are destroyed and substantial construction is required.  A similar point applies to motorway construction.

A serious challenge is restoring capacity of the manufacturing plants that have been destroyed during the military conflict. The source of funds, safeguards against diversion of funds, and decisions about which infrastructure to restore will require a systematic approach. This might be an opportunity to modernize the inefficient aging industries in the East.

Coordination of foreign aid: Ukraine is likely to get a lot of aid from donor countries and international organizations. The government should coordinate activities of these organizations. For example, Georgia assigned each agency to a specific task to make responsibility clear and to avoid waste/duplication, with EBRD being responsible for roads, World Bank being responsible for power and water lines, etc. 

Summary: After the war, we are facing destroyed infrastructure, diminished human capital (some of the dislocated people might choose not to return, and this process might not be random, with more skilled people more likely to find employment at the new place), inefficient state-run enterprises, and poverty. People in Eastern Ukraine are likely to distrust the new government, and do not expect any changes for the better. Higher salaries, cheap credit, tax breaks, and new jobs are a good way to prove the opposite.  The key elements of a program to achieve these goals include employment-oriented reconstruction projects, strong incentives for investment in both infrastructure and business, and in longer run reviewing and, if necessary, phasing out the state-run enterprises in the medium and long run as well as intensive programs to retrain workers to deal with inevitable skills mismatch. Of course, a successful implementation of reconstruction of Eastern Ukraine requires rule of law, dealing with corruption, and building a strong, politically engaged middle class.

 

23 comments:

  1. I like this analysis. Unfortunately, there is a “but”. Who is going to pay for it? EU and US taxpayers? Is there any special or strategic interest in it? There are many other conflicts on earth. The US has lost 4 trillions in two wars. It is on retreat for some time. The EU is still recovering from the Great Recession. One should remember the Taliban after the withdrawal of Russia in 1989. No support at all. There is no guarantee that this scenario will not repeat.

    Would the investment in a free-of corruption, democratic and market oriented Ukraine pay for itself? As far as I know there is one case in history, where this happens: The Marshal plan for Western Europe under the threat of a communist takeover.

    It is difficult to forecast the future and I also see the need of multi-billion investments in order to overcome the current crisis in Ukraine. But I do not see donors who are willing to provide the necessary amounts of finance. Particularly, the EU – Ukraine association agreement is a low-cost, low-impact alternative to a membership perspective. There will be no Greece-like support program. Accordingly, the IMF program is structured to ease making business for foreign capital, whether it fits to the needs of the country in question or not. The discussion about the Washington consensus is decade-old. It is solved on an academic level, but not on an institutional level.

    There is one scenario, where help will come: full state failure and millions of refugees trying to cross the border to the EU. Hopefully, the situation will not become so bad.

    Sorry, this is just an academic exercise without an reality check.

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  2. I read this plan and agree with the proposals for the most part except for the weight it puts onto state involvement.

    I agree that the way out to deal with unemployment in the East region would be to create some sort of FDR's plan in the US after 1930 recession. I also agree that this should be a short-term solution. However, there are two issues for this to be a short-term.

    First, the budget of Ukrainian government is empty. And I doubt the government simply can afford the measures you suggest.

    Second, the reputation of the central (read: Yatsenuk's) government in terms of "running business" in the new way still remains to be seen. I believe we need several years (a decade?) to change the attitude to corruption and respect of private property (two main pillars of "good institutions").

    In short, I see an inherent tension between the measures you suggest IN THE SHORT RUN and feasibility of those measures IN THE SHORT RUN.

    What could be done?

    For the first issue, I think Ukraine has a better chance to go Polish way and rely on small business development and entrepreneurship. This includes the East region which was probably most dominated by large enterprise model (akin to Korean chaebols) cherished by Ukrainan oligarchs for the whole independence years. In this respect your idea of giving training on "hands-on professions" is a great one, I think. More generally, Ukrainians should change their attitude to the professions involving manual labor. The country has way to many "universities" of dubious quality and way too few professional schools (the former "tekhnicums"). For example, in Holland, where I now live, lots of people work as plumbers, gardeners, repairmen. And they are very respected and proud of their professions. Ukrainians should realize that quick money careers are rather myth than reality and you can achieve quite a lot not being a manager, trader, whatever.

    For the re-development of region part, I think Ukraine should do utmost to attract PRIVATE foreign investment. IMF loans and all sorts of development aid is only a seed money, you know that. Private FDI would bring the necessary funds and create pressure for local elites (as well as would break their grip on economic and political life). How to do this? First step is security (yes, ending the war and making the border protected); second, infrastructure (here is where the aid money should be spent on and local people employed at). Then comes some schemes to attract FDI. I did not think through the measures yet.

    But Chilean system of capital controls on short-term speculative capital is first what comes to mind. Here is a quote from Kristin Forbes's JIE 2007 paper (Forbes, Kristin J., 2007. "One cost of the Chilean capital controls: Increased financial constraints for smaller traded firms," Journal of International Economics, Elsevier, vol. 71(2), pages 294-323, April.) describing the system: "The encaje, or unremunerated reserve requirement (URR), was a key component of these restrictions. It required that a fraction of certain types of capital inflows must be deposited at the central bank in a non-interest bearing account for a fixed term. The encaje was initially set at a rate of 20% and only applied to fixed-income securities and foreign loans, excluding trade credits (as long as the shipment occurred within 6 months). The tax did not initially include portfolio flows or FDI. The holding period at the central bank was initially equal to the loan's maturity, with a minimum of 90 days and maximum of 1 year. Investors were also given the option of either making the deposit at the central bank, as described above, or paying an up-front fee equivalent to the interest cost of the URR."

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    1. With small business development in Donbas there can be a mental bloc, which prevents flourishing of private entrepreneurship. Miners and plant workers, who enjoyed good wages and status during the Soviet period look on private entrepreneurs as on profiteers (‘spekulanty’) and assumes instead that those high wages of old were the norm and they were stolen by new rich. Check the number of votes the Communist Party of Ukraine receives in Donbas, especially before the formation of the Party of Regions as a local power.

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    2. You are correct, Oleksandr, that the number of SME might be low, but there is an active community of enterpreneurs who are eager to help develop the region. If they succeed, others might follow. Also, there are tons of small farmers.

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  3. I read this plan and agree with the proposals for the most part except for the weight it puts onto state involvement.

    I agree that the way out to deal with unemployment in the East region would be to create some sort of FDR's plan in the US after 1930 recession. I also agree that this should be a short-term solution. However, there are two issues for this to be a short-term.

    First, the budget of Ukrainian government is empty. And I doubt the government simply can afford the measures you suggest.

    Second, the reputation of the central (read: Yatsenuk's) government in terms of "running business" in the new way still remains to be seen. I believe we need several years (a decade?) to change the attitude to corruption and respect of private property (two main pillars of "good institutions").

    In short, I see an inherent tension between the measures you suggest IN THE SHORT RUN and feasibility of those measures IN THE SHORT RUN.

    What could be done?

    For the first issue, I think Ukraine has a better chance to go Polish way and rely on small business development and entrepreneurship. This includes the East region which was probably most dominated by large enterprise model (akin to Korean chaebols) cherished by Ukrainan oligarchs for the whole independence years. In this respect your idea of giving training on "hands-on professions" is a great one, I think. More generally, Ukrainians should change their attitude to the professions involving manual labor. The country has way to many "universities" of dubious quality and way too few professional schools (the former "tekhnicums"). For example, in Holland, where I now live, lots of people work as plumbers, gardeners, repairmen. And they are very respected and proud of their professions. Ukrainians should realize that quick money careers are rather myth than reality and you can achieve quite a lot not being a manager, trader, whatever.

    For the re-development of region part, I think Ukraine should do utmost to attract PRIVATE foreign investment. IMF loans and all sorts of development aid is only a seed money, you know that. Private FDI would bring the necessary funds and create pressure for local elites (as well as would break their grip on economic and political life). How to do this? First step is security (yes, ending the war and making the border protected); second, infrastructure (here is where the aid money should be spent on and local people employed at). Then comes some schemes to attract FDI. I did not think through the measures yet.

    But Chilean system of capital controls on short-term speculative capital is first what comes to mind. Here is a quote from Kristin Forbes's JIE 2007 paper (Forbes, Kristin J., 2007. "One cost of the Chilean capital controls: Increased financial constraints for smaller traded firms," Journal of International Economics, Elsevier, vol. 71(2), pages 294-323, April.) describing the system: "The encaje, or unremunerated reserve requirement (URR), was a key component of these restrictions. It required that a fraction of certain types of capital inflows must be deposited at the central bank in a non-interest bearing account for a fixed term. The encaje was initially set at a rate of 20% and only applied to fixed-income securities and foreign loans, excluding trade credits (as long as the shipment occurred within 6 months). The tax did not initially include portfolio flows or FDI. The holding period at the central bank was initially equal to the loan's maturity, with a minimum of 90 days and maximum of 1 year. Investors were also given the option of either making the deposit at the central bank, as described above, or paying an up-front fee equivalent to the interest cost of the URR."

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  4. The article presents some very good recipes, which require a lot of money. So I would like to make two suggestions:

    1. Not every town/village in the region should be renovated. In some towns (Torez, Shakhtarsk, Snizhne and some others) there has been no job and almost no infrastructure for years (see, for example, http://mobile.tyzhden.ua/Society/88644 or http://archive.today/b2wox ), but people could not leave them because they had no money for relocation. It is cheaper to help the dwellers to settle in some other place – and now there is a unique opportunity to do that.

    2. Where to find the money? An obvious decision is – from local oligarchs who financed separatists. Ukraine urges the world to introduce sanctions against former officials, yet, it does not introduce local sanctions against them. There is some evidence that Yanukovich’s and Kurchenko’s business still works in Ukraine. Efremov is still in the parliament, and deputies of Donetsk and Luhansk local councils who openly supported separatists are not even under investigation. I think, their assets should be confiscated and sold (yes, it is not democratic but financing terrorists is not democratic too). At the same time, closing up the “corruption loopholes” (which is not done now) should deliver millions of dollars to the state budget.

    Ilona Sologoub, KSE

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    1. with oligarchs supporting separatists there can be a problem with proving it in a court, especially bearing in mind that our system is extremely corrupt and the oligarchs in question have a lot of assets to protect themselves. E.g. Yes, we have a video, where the mayor of Shakhtarsk says that Efremov supported separatists, but it is not an official document and the mayor can be either ‘silenced’ in many ways or ‘exposed’ as a liar (recall control over media by the oligarchs)

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    2. I strongly against all "confiscations", etc. The moment you confiscate you send a strong signal to the future potential investors : these guys (the Ukrainian government) does not respect property rights. Forget about the foreign investment. Ukraine is not a large like China or Argentina where private money flows simply because "you gotta be there". The way out is to offer some sort of amnesty to the money earned by "questionable means".

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    3. It would be interesting to find out for a fact how separatists are supported financially. There is a lot of talk and accusations, but I have not seen any convincing data.

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  5. The donors are available. I have talked to NBU and others, and there are free funds in the country and on stand by outside of it. The constraints are different: 1. corruption that might result in diversion of funds makes potentional donors very weary. 2. politics - increasing salaries for the East will piss off the rest of country.

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    Replies
    1. Maybe these donors could fund supplies for the army.

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    2. both of these reasons aren't likely to be solvable in the short run unfortunately.

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    3. That's right, but we would like to find a solution subject to these and other existing constraints

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  6. I would say this is good and comprehensive analysis. Most of the suggestions are up to the point, but I just do not like the idea of increasing salaries and pensions. I did not get fully whether this proposal was about whole Ukraine or Donbass only. In former case, the government just simply has no money for that in the situation when fiscal deficit is to exceed 10% of GDP this year. As for increasing wages and pensions to Donbass people only, I'm sure this is really bad idea and will not go well in the rest of Ukraine (also I don't understand how you technically can do it - the only way might be to provide them with one-time subsidies or transfers). This scheme looks like bribing the people to stay in Ukraine and it's not gonna work.
    I would also suggest to strengthen the appeal of the article by stressing that the war provides unique opportunity for Donbass to start from the clean sheet - i.e. to wipe out old elites, which were controlling and robbing the region (and the country) for 23 years and use Donbass as the model case in launching the trasnformation of the country - public administration reform, court system, SME business promotion and support, infrastructure improvement etc
    Another point I would like to add is about urgency of the measures. The plan of necessary short-term measures should be developed immediately. In particular, it's not enough to restore electricity and water supply in liberated cities. The functioning local administrations and police should be established immediately, there should be an efficient communication with the local community - with both those who stayed and who fled but is going to return. People should know when the schools and hospitals will open, how they can get the compensation for lost and damaged property etc. I believe to restore the confidence of the local population asap should be the key task.
    Finally, the plan of infrastructure renovation should be also developed as soon as possible. In this respect I do not agree with the comment of Stephan that there is no money donors can provide for that. First, we are talking about much smaller sums than, for example, Greece got for macroeconomic stabilization (over USD 200 bn) or CEE countries were elegible for under EU Cohesion Policy (Poland got USD 100 bn for that in 2007-2013 and is planning to get roughly the same amount in 2014-2020). I don't have a ready estimate of Ukraine's needs to renovate Donbass infrastructure in hand, but I draw the parallell with EURO-2012. That time Ukraine spent around USD 13 bn mostly for infrastructure improvement (stadium spendings were around USD 1.5 bn). So, if we have total bill of, let's say, USD 10-20 bn and half of that to be financed by Ukraine and private investment than the contribution of foreign donors could be not more than USD 5-10 bn - hardly a big amount for WB, EBRD, EIB and others. But, the crucial point in getting this external support is to have a clear plan how this money is to be spent (including the assessment of long-term impact) and to ensure the donors that these projects will not peppered with corruption and vested interests

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  7. I'd like to add that to win the region over to the Ukrainian side there is a strong need to anchor its economy to the rest of Ukraine and, particularly, to the EU markets, to create a strong stake in pro-Western stance of the country. My impression from conversations with refugees from Donbass was that they all have a very strong belief that the economy of their region is very tightly connected to Russia - which is not really true, as only 20% of Donetsk oblast's exports go there, same as to the EU. Breaking that impression through a counter-propaganda campaign and attracting investment into EU-oriented exporting enterprises might be vital for the long-term pacification of the region.

    Civil society initiatives - particularly, both Ukrainian and European business-associations - may be the go-to tool for fostering SME development and for re-orienting the regional economy towards greater pro-Western stance. Take a look at part 3 of this article, for example - http://petrimazepa.com/slavyansk/hoorah.html . Ukrainian civil society has been hugely successful with its logistical and other forms of support for the army, perhaps this approach could work for development as well.

    Ultimately, a lot depends on the ability of Ukrainians as a nation to initiate the process of meaningful changes, that people in Donbass (who mainly seem to believe that "extractive" nature of the country's institutions, which they despise as much as everyone else, cannot be changed) could appreciate. Even if the changes are partial and not too efficient (i.e. the currently proposed lustration law), the very message that "things are different" on the central and regional level (even outside of Donbass) is hugely important.

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  8. Ukraine government severely lacks qualified human capital to carry out what is proposed here. This is a huge challenge.

    Regina Yan

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  9. Thanks to the authors, good analysis, but why the six bullet points in the top summary refer only to the regions affected by the war? All, except for one (exit option to the locals committed to insurgency by offering amnesty, which I think has been announced repeatedly by the GOU) are applicable to the entire country. You cannot do this in just one or two region, it must be done systematically on the national basis, and here we come back to the need for radical, structural and systematic reforms from top to bottom. The current governance, legal, judicial, etc. anti-system must be replaced, otherwise all good ideas and attempts will sink in its corrupt swamp. Irina Paliashvili

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  10. One might distinguish: what should happen in order to improve the situation and what will most-probably happen. There is a big gap between the two. And the probability of a worst-case scenario is equal to the probability of a best-case scenario. Just two considerations:
    1. The US could increase its GDP within one year for 5 per cent, if it adopt a health care system according to best practice (lower costs, better results). There are good reasons not to do so, but the fact is that an easy-to-manage systemic change worth several trillion USD does not happen for decades. Economic development is always embedded in social context. The economic losses of corruption in Ukraine are dwarfed by this and other phenomena.
    2) The Iraq was a natural experiment to start without the old elite. For some tie, there was a pure and ideal market society. The result is well-known: civil war and full state failure. Libya is the other example. The current elite in Ukraine is corrupt, but there is no replacement or no replacement strong enough to take over with a chance to succeed (otherwise this would have happened during the past). This way, it cannot be excluded that the alternative to an extremely corrupt elite is a society in turmoil. Civil society institutions are not a replacement of a functioning state. All post-soviet societies went through a phase, where oligarchs were dominating. But, depending on circumstances, this phase was quite short or not.

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  11. Thanks for the article!

    - I love your itemized style! So much easier to follow!

    Here is what I think

    - Trust in those that rule (administrators at all possible levels: schools, universities, immigration offices (pasportni stoly), tax authorities, local and of cause central government: you name it!) has been broken and regaining this trust is the most pressing issue.

    - People and state exist in parallel since people has ONLY bad things to say about what state does.

    - I think the pressing issues in the east cannot be considered separately from pressing issue in the whole Ukraine

    - For example: you write "Send a message that corruption is over by prosecuting most flagrant cases of local corruption." But why not sending a message .. of corruption in Zhitomyr, Cherkasy, XXX (some small town), Kyiv. The message should be no corruption in the entire country! As far as I know there has not been a single showcase of punishing corruption anywhere.

    - This war is a sad enough event, but it should at least serve its purpose: this is a chance to build the COUNTRY, not just get back one region and concentrate on it

    - "The President can appoint temporary mayors" is THE issue for people in Donbas. Extraordinary deeds in extraordinary times: if that should happen, it should be EMPHASIZED that this for X months to assist the people to elect a government that has not been marked by misdeeds (corruption, criminal record, and other unethical behavior)

    - The people need information. What is being done and what not a state secret (such as military stuff) should go into a regular (weekly) bulletin that is publicly available at web, but also stands in front of local authorities.

    - After the war. Specialists (those you mention in the summary) will not go voluntarily to Donbas. Extraordinary conditions could though spur their willingness: be it monetary or career endeavors.

    - And the last. [Most] people from East have not been in central and western parts of Ukraine. The are the most distrustful people of all in Ukraine. Many of them consider the rest of Ukraine hostile (be it rumors or propaganda from TV). How can this be changed, how can they get to love Ukraine??? Very often, they do not even identify themselves to be Ukrainians. This the hardest task, I guess, but it should not be ignored. The exchanges from the young to adults should be encouraged by the clever state policy. Sponsored [by oligarchs!?] excursions to different cities for school students. [Mandatory] student exchanges for 1-2 semesters in state-owned universities. State support (tax breaks) of tourist industry that helps such exchanges.

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  12. Comments from someone I respect very much who decided to stay anonymous:

    1. I think it is good as it is detailed, pragmatic and practical, but it is too cynical and machhiavelian. I would never use "Buy loyalty” in a public document

    2. you cannot punish corrupt guys for what they did when corruption was everywhere. You can fire and start a new but not put in jail.

    3. Also, do very specific and generous about federalisation - elections of mayors, delegation of authority to mayors, and language rights

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  13. I would like to express my support to the recommendation of avoiding
    Special Economic Zones (SEZ), at least avoiding the ways this
    instrument had been used in Ukraine in the past. Preliminary results
    in my research of the impact of SEZ on employment and wages exploiting
    the unexpected closure of all such designated territories in Ukraine
    suggest that there was no productivity and employment enhancing effect
    but rather relocation effect within the same regions between affected
    and unaffected sectors. This findings may suggest existence of
    corruption mechanisms at the time of designating regions and sectors
    of economy with the SEZ status.

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  14. Konstantin Sonin published a comment, and there are comments on his comment, at ksonin.livejournal.com/546968.html He rightly points out that the political part of the proposal is rather weak.

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  15. Thanks for the article. It's nice, but it remains so so theoretic .... Glance at what the reality is about:

    http://blogs.pravda.com.ua/authors/chornovol/53f1df9cd0ac9/

    It's not a reproach. It's an observation.

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