“Candidate Pool” or What One Needs to Know to Start a Staff Reform

By Bogdan Balasynovych, Victor Maziarchuk, and Dmytro Boyarchuk

On September, 24 the deputy head of the Presidential administration Dmytro Shymkiv reported on finalizing the last preparatory work on a draft of an administrative bill for the temporary engagement of business professionals in civil service. “There is a need to engage business professionals as the heads of divisions and departments”, – he said at a briefing. According to Shymkiv, special funds financed through donor assistance and charitable contributions will be set up, and these funds will provide a source of fringe benefits to bring in new, effective employees.


The proposal, presented to the Presidential administration, is not only an interesting one, but also the correct one, as without competent people it is impossible to build a new country; however, the previous attempts by the public authorities’ to update their cadres brought about no results.


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US policy toward Ukraine in the remaining years of the Obama presidency

By Edward W. Walker, UC Berkeley.

I started a blog earlier this year, the intent of which is to try to predict major developments in post-Soviet space, including of course in Ukraine – so the emphasis is on what I think will happen, not what I want to happen. That’s the spirit of my talk today as well: I’m going to tell you what I think U.S. policy will be toward Ukraine in the remaining years of the Obama presidency, not what I think it should be. I will focus first on domestic development in the U.S., because domestic political factors inevitably influence a president’s foreign policy. I will then turn to U.S. policy toward Ukraine, beginning with some general points and then addressing the particular issues shown in Slide 1.


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Future of Reforms through the Lens of Campaign Promises      

By Vadym Volosovych, Erasmus University Rotterdam, the Netherlands.


Now when Ukraine is at the finish line before the 2014 Extraordinary Parliamentary Elections on October 26 it is not too late to reflect on the programs of the major political parties that are all determined to “purify” the Verkhovna Rada (Ukraine’s parliament) of the disciples of the previous regime, “reset” the Ukrainian political system, and provide impetus to economic and political reforms that the participants of the Euromaidan or the Revolution of Dignity fought for and the most of Ukrainians strive for.


One should not be naïve and hope that all the promises and claims in these documents would be fulfilled. Still, the programs of the contesting parties could give an idea what issues today’s Ukraine is concerned about and how solid, consistent, and reform-oriented the future policymaking could be. After all, the forces that would make it into the parliament will shape the policies which could at last kick-start the long-awaited in Ukraine and abroad transformation of the country to a thriving emerging market economy after two (lost?) decades of hopes and disappointment. This becomes especially important if Ukraine continues with the constitution reform shifting the power from the President to the parliament and to the regions.


The idea of this post is not to compare the programs but to guess what policies are likely to be pursued by the new parliament (see a companion posts here and here on detailed comparison of the programs).  For that, the author would highlight and evaluate those proposals in the programs which, in his opinion, are conducive to the goal of reforms, paying particular attention to economic measures. The readers and, hopefully, the parties themselves would also be warned about the key risks to the reform process that could materialize should the parties act on those negative parts of their campaign documents.


The programs of the following parties will be assessed from in terms of specificity, feasibility, economic soundness, and consistency/coherence (in alphabetical order): Batkyvshschyna (Motherland), Civil Position (CP), Communist party of Ukraine (CPU), Radical Party (RP), Opposition Block (OP), Poroshenko Block (BPP), People’s Front (PF), Samopomich (Self-help), and Strong Ukraine (SU).


The text of the programs can be accessed by following the links at the Ukrainian party names.


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Economic ranking of political parties           

By the Editorial Board of VoxUkraine

Ukraine is going to have a highly competitive parliamentary election in a week. Polls suggest that eight parties are going to make it. While some voters are dead set in their preferences, many voters are still uncertain about their choice. Indeed, there are many new faces in the political arena. If party programs provide any guide to how these parties are going to behave in the future, there is a broad spectrum of possibilities offered to voters.

We asked 13 economists from leading academic and policy institutions in Ukraine and abroad to evaluate the economics of each party’s program. Here is the ranking:

1. People’s Front (Yatsenyuk)
2. Civil Position (Grytsenko)
3. Batkivshina (Tymoshenko) + Poroshenko bloc
4. Samopomich
5. Opposition bloc
6. Communist Party (KPU)
7. Radical Party (Lyashko)

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Handling Frozen Conflicts: the Economic Angle

By Eric Livny (ISET) and Tom Coupe (KSE)

It now seems more and more likely that Eastern Donbass (the area currently controlled by the self-proclaimed Donetsk and Luhansk People’s Republics) will become a frozen conflict zone, a territory in which the Ukrainian government will have little power to enforce its laws and where slowly a parallel governance system, an unrecognized ‘quasi-state’, will emerge. In the absence of a viable military alternative, one option likely to be considered by Ukraine and its Western allies is to exercise ‘strategic patience’. As discussed in a Foreign Policy article by Lincoln Mitchell and Alexander Cooley, this approach has been until recently employed by Georgia and the US in their dealings with Abkhazia and South Ossetia. ‘Strategic patience’ consisted, according to Mitchell and Cooley, of:

“helping Georgia develop into a prosperous and democratic country under the assumption that once this happened the people of Abkhazia would naturally want to rejoin Georgia. In practice, therefore, StratPat meant doing nothing – certainly not building relationships with anyone in Abkhazia.”

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Minsk Protocol is a Big Failure?

By Kateryna Dronova (Berkeley, CA).

A month ago in Minsk, the Trilateral contact group (Ukrainian, Russian and OSCE representatives) signed a ceasefire protocol to restore peace in the eastern regions of Ukraine. In the first 24 hours after the agreement was signed, hope for peace was demolished by the renewed fighting near Mariupol: pro-Russian belligerents equipped with Grad rockets fired 16 times at Ukrainian positions allegedly from the Russian territory. Subsequently, Ukrainian forces in Mariupol were reinforced with additional troops. These events triggered a huge media storm and a widespread critique of the peace negotiations and Minsk Protocol as nonsensical, ineffective and useless strategies. Hence, Ukraine’s complex position was significantly weakened.

The Ukrainian government has to explain to its own nation exactly what is happening, and it hasn’t done so yet. […] The people of Ukraine will not accept peace at any price.
Konstantin Batozsky, adviser to Serhiy Taruta, Donetsk Governor.

The negotiations in Minsk (attended by former Ukrainian President Leonid Kuchma, prime minister of the self-proclaimed Donetsk People’s Republic (DPR) Aleksandr Zakharchenko, head of the self-proclaimed Lugansk People’s Republic (LPR) Igor Plotnitsky, Russian ambassador to Ukraine Mikhail Zurabov, and OSCE representative Heidi Tagliavini) progressed on September 19^th. The initial Minsk Protocol was detailed by another set of agreed provisions laid out in the Memorandum on the Protocol’s enforcement. These documents must also be read in light of two other legislative acts: Bill on special procedures of self-governance in certain areas of Donetsk and Luhansk regions of Ukraine (5081) (known as the “Law on special status”) and Bill on the prevention of the prosecution and punishment of persons who participated in events in Donetsk and Luhansk regions (5082) (also known as the “Amnesty law”). Serhiy Taruta, the governor of Donetsk Oblast, has recently published his critical and well-structured analysis of the truce. This post aims to evaluate the effectiveness of the abovementioned agreement and legislation (Minsk Protocol, Memorandum and two supplementing Bills) with regard to the existing practices of managing conflict and post-conflict negotiations, including drafting of cease-fire agreements. Thus, we shift the focus from discussing issues in the Minsk Protocol to factors omitted by drafters and negotiators and the significance of such omissions.

2014 Nobel Prize in Economics: Jean Tirole

2014 Nobel Prize in Economics: Jean Tirole

By Tymofiy Mylovanov (University of Pittsburg, USA)

The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2014 was awarded to Jean Tirole «for his analysis of market power and regulation. What is Jean Tirole’s contribution?

Market is the Key for Energy Independence

By the Editorial Board of VoxUkraine

Energy is at the core of the Russia-EU and Russia-Ukraine relationships. Since the 2009 gas dispute, which led to a 13-day interruption of the natural gas exports from Russia to the EU, European politicians have started publicly talking about reducing Europe’s dependence on Russian energy supplies. A lot more has been said than done on that front, admittedly. Yet, the issue has resurfaced recently, as Russia’s blatant disregard for international law and its aggression against Ukraine brought about fresh fears that the country will once again be leveraging the energy as a “diplomacy tool”.

The good news for both Europe and Ukraine is that a new player – USA – will be entering the European energy scheme. The currently ongoing shale oil and gas boom in that country is turning the United States into an oil exporter, and will likely bring US gas to Europe as soon as the relevant infrastructure is ready. A possibility of increased gas supplies from the Middle East could also change the balance in the European energy sector. It is our belief that:

• The EU and Ukraine need to confront Russia’s energy bullying by uniting their forces;
• In the short run, the EU and Ukraine should appoint a single agent to negotiate with Gazprom, with the European Commission taking a leading role. A preferred solution will be to sell Russian gas at the Russia-Ukraine border;
• In the medium run, Europe needs to actively pursue and encourage shale gas exploration and development. This will require striking a balance with the active environmentalist lobby movement (or culture) on the continent;
• In the long run, the EU and Ukraine should review their gas pipeline network, with the view of creating a structure similar to that present in the United States. The end goal should be redesigning of this infrastructure to facilitate creation of a single European natural gas market. This market will allow for a better substitutability between the energy suppliers, and will diminish the abuse of market power by Gazprom (or any other entity, for that matter);
• Ukraine needs to actively utilize market mechanisms and incentives to encourage development of energy saving technologies throughout the economy.

Presentation of Strategy-2020 for Ukraine. Impressions and reflections

 By Ilona Sologub, KSE

The presentation of the Reform Strategy-2020 for Ukraine by Dmytro Shymkiv, Deputy Head of the Presidential Administration, on September 29^th 2014 has left me with the mixed feelings.

On the one hand, it is good that the Ukrainian officials are thinking about strategic issues and forming a vision for the future. On the other hand, I would not call a two-page leaflet “a strategy”. Mr. Shymkiv mentioned that there is an extended version of this document. However, it is not published since it is “under discussion”. Why this raw version cannot be published to invite a broader discussion, is not quite clear.

The first page of the leaflet lists 62 reforms and state programs that should be implemented over the next six years. Many of these reforms and programs overlap. For example, there is “energy sector reform”, “energy efficiency program” and “energy self-sufficiency program”, which are different aspects of the same problem. “Energy sector reform” also overlaps with de-monopolization and infrastructure development. Constitutional reform is a part of decentralization and local self-government reform, economic and monetary policy reform includes tax reform, deregulation and enterprise development, corporate rights reform and so on. I’ve got an impression that the authors just listed all the reforms mentioned  to them by the different think tanks and experts (Mr. Shymkiv named about 20 contributors to the Strategy). Besides, as noted by Serhiy Datsuyk, 62 reforms in six years are too much both for the government and for the society.

Why Ukraine’s Army Received A Cold Welcome in the Liberated Towns of the East

By Anna O. Pechenkina (Carnegie Mellon University, USA)

 

Perusing my facebook feed’s many discussions about the war in the Donbas, I was struck by a comment that the soldiers of Ukrainian army were treated “worse than stray dogs” in the liberated towns and villages of eastern Ukraine. Another poignant comment remarked: why should my brother risk his life to liberate the   from separatists while the locals in eastern regions are not even grateful for his sacrifice? Despite numerous anecdotes of elated civilians greeting the Ukrainian army, it would be a mistake to conclude that Severodonetsk residents’ chanting of “Thank you” and “Glory to Ukraine” is the norm for the territories recaptured from the separatist militias in eastern Ukraine. This raises an important question: why did local population so often greet the Ukrainian service members coldly in liberated towns? The answer is indiscriminate violence employed against civilians.

So, should Ukraine go MAD? Andrew Kydd vs VoxUkraine.

Discussion that took place between VoxUkraine and Andrew Kydd from the University of Wisconsin-Madison.


The article Can Ukraine play MAD with Russia? by the Editorial Board, that was recently published by VoxUkraine, as well as by the well-known Ukrainian outlet, Liga, has gained popularity very quickly. To provide some evidence, more than 73 000 people viewed it on the mentioned Ukrainian resource during the first 3 days after publication. Overall, ideas stated in the article generated quite a hot public debates both among Ukrinian citizens, and among Western academics. Below we are presenting the dialog that took place beween VoxUkraine and Andrew Kydd from the University of Wisconsin.

• Can Ukraine play MAD with Russia?
• Initial comment. "Should Ukraine go MAD?" by Andrew Kydd
• Reply to “Should Ukraine go MAD?” by the Editorial Board of VoxUkraine
• Reply to the Reply."It’s a MAD World" by Andrew Kydd

Summary of the Ukrainian struggle for lustration

By Agnieszka Piasecka (The Open Dialog Foundation)

 

The origin of term “lustration” comes from Czech Republic that had implemented lustration in 1991, weeks after the last Soviet troops left the country. It is often understood as vetting but there is a difference. Vetting – screening – can (and should be) be used in every state for verification of candidates for public service. Lustration is also a form of vetting, but its main purpose is to block those whose influence may be dangerous for the newly emerging democracy.

Can Ukraine play MAD with Russia?

By the Editorial Board of VoxUkraine

The stand-off between Russia and the West is increasingly reminiscent of Cold War times. Russia’s annexation of Crimea, giving weapons to separatists in the East of Ukraine, shooting down MH17, and most recently the direct invasion of Ukraine by Russian troops has made Russia an isolated, pariah-like state. In all likelihood, this confrontation is likely to continue for a while—at least until Mr. Putin steps down—so Ukraine should prepare for a long period of tensions with Russia with a significant risk of escalation into an open war. As military assistance from NATO will likely remain limited and the West appears unwilling to inflict any meaningful economic damage on Russia unless and until an EU/NATO country is attacked, Ukraine will have to predominantly face this confrontation alone.

Obviously, the prospect of an open Russo-Ukrainian war is terrifying not only for Ukraine but also for Russia since the death toll is going to be huge. Russia has every tool to stop escalation and normalize the relationship between countries if it wishes to do so. Since Ukraine is a “little brother” in this relationship, its ability to stop the “big brother” from bullying is more limited. However, the experience of the Cold War teaches us that there are a number of policies Ukraine could follow to make the prospect of a war so costly for Russia that it will not invade Ukraine openly and en masse.

Ukraine: Strategic considerations.

By Andrei Kirilenko (Sloan School of Management, Massachusetts Institute of Technology)

In this essay I outline a strategic vision for the state of Ukraine. I begin with the main principles of the role of the state. I then argue that the Ukrainian state has largely failed to fulfill its role. I rejoice in seeing spontaneous volunteer efforts outside the failed state structures and suggest that instead of trying to administer a multitude of these efforts, the state needs to set a strategic overall direction so that its people can rally behind it. I suggest that this direction is ensuring independence from direct foreign interference now and in the future. Then, I argue that the place to start is with energy independence. I show that there are not enough resources in the entire domestic financial system to support Naftogaz in its current incarnation and that it cannot continue without external technological and financing resources. I argue that because of their systemic importance, the decisions on Naftogaz are inherently political and then outline options on dealing with the decision paralysis at the top, as well as a possible process for getting things started. I then suggest that once a political decision is made, the process would start with a standard problem of valuing risky cash flows. I outline the main sets of cash flows and describe potential but not insurmountable difficulties in valuing them. I then remark that once the risky cash flows are valued, policymakers can be presented with the recommendations about what to keep, what to sell off and for how much, and what to get rid of. I conclude with thoughts on other types of independence that need to be achieved in tandem.

DCFTA is delayed – so what?

or Implementation of the Association Agreement was delayed. Estimation of Economic and Political Consequences

By the Editorial Board of VoxUkraine

On September 12, the EU announced that provisional application of the Association Agreement between Ukraine and the European Union will be postponed till 2016. This decision was a result of tripartite ministerial meeting of the EU, Ukraine and Russia aimed to resolve Russia’s trade concerns regarding allegedly negative impact of the EU-Ukraine DCFTA on Russia’s economy.

What does it mean for Ukraine? Let’s consider key points of the arrangements.

1. Ratification first – flexibility next. The arrangements come into force in the case of ratification of the Association Agreement. According to the Joint Ministerial Statement “… the Commission is ready, in the event that Ukraine ratifies the Association Agreement with the EU, to propose additional flexibility.” It is important as it means that there will be no changes in the text of the Agreement, and the ratification – i.e. irreversibility of the Agreement – is a precondition for any temporary concessions.
2. EU market remains open. The EU will prolong autonomous trade preferences for Ukraine till 31 December 2015 thus providing the Ukrainian exports free-market access for majority of products. Autonomous trade preferences replicate the schedule of trade liberalization envisaged for the first year of the implementation of the Association Agreement and set duty-free regime for 95% of industrial products and 84% of agricultural goods, and duty-free tariff rate quotas for the rest of agricultural goods. It is definitely beneficial for the Ukrainian business currently reorienting its export flows from Russia towards the EU. According to the State Statistics Service of Ukraine, exports to the EU grew by 14.9% yoy in the first half of 2014, while exports to Russia dropped by 23.3% over the same period.
3. Ukraine’s business gets extra time to improve competitiveness. The delay in the implementation of the DCFTA provides the Ukrainian business with additional time to get ready to trade liberalization and intensified competition on the domestic market. However, we should understand that sharp devaluation of hryvnia has already provided much more serious shield for the domestic market compared to delay in gradual elimination of import duties, the average level of which is currently about 4%.
4. Russia committed to adhere to the CIS FTA. According to the Joint Ministerial Statement, “…Russia and Ukraine confirm that they will continue to apply the CIS-FTA preferential regime”. This commitment reduces the risk of revocation of duty-free regime for Ukrainian exports to Russia. In July, Russia published draft regulation envisaging the increase of import duties to the MFN level for selected categories of Ukrainian exports. The regulation was expected to be enacted after ratification of the DCFTA. Now probability of its introduction is much smaller. Also, Russia should not be able to refer to Annex 6 of the CIS FTA as there is no free-trade regime for the EU exports to Ukraine. However, non-tariff rather than tariff barriers have always been major trade impediments in exports to Russia. Likelihood of continued ad-hoc barriers on exports explained by alleged violation of TBT or SPS requirements remains high.
5. Major risk is postponement of reforms. Key feature of the Association Agreement is harmonization of the Ukrainian legislation with the EU acquis. It should ensure not only better quality of the Ukrainian legislation, but also its proper implementation – hence, improvement of investment climate in the country. Postponement of the provisional application of the Association Agreement means that the implementation schedules embedded in the Agreement are shifted and there is less international pressure for reforms. Definitely, reforms can and have to be continued for the sake of Ukraine itself, but one of the ‘sticks’ is temporary removed creating risk of delay.
6. Additional time for Russia’s pressures. The delay of provisional application and continuation of tripartite talks create additional space for Russia to bargain further concessions and delays in the implementation of the Association Agreement. This risk is amplified by unstable political environment in Ukraine.

Hence, we would wrap up that in the economic terms the delay in implementation of the Association Agreement might have a moderate positive effect for war-torn Ukrainian economy, although the risks, namely the reform stalemate and continued Russia bullying, should not be underestimated.

The political implications of this decision are harder to interpret, especially as no much information on the negotiations is available yet. The optimists could take a view that Russia should now be appeased by the delay in agreement implementation and stop meddling into the Ukrainian affairs. So, in other words, it provides a face-saving exit for the President Putin, which got at least part of what he wanted, while at the same time will avoid further sanctions to be imposed on the already weakening Russian economy.

However, there could be also an alternative, less rosy, view. It’s pretty clear that the ultimate goal of Russian leaders is to retain Ukraine in its sphere of influence, while the delay in implementation of Association Agreement does not change Ukraine’s external orientation vector. Moreover, this decision could be considered by Russia as a sign of weakness (first of all on the EU side) and it might try to build up on this success by increasing the pressure on Ukraine by different means.

Reform priorities: expert survey results

By the Editorial Board of VoxUkraine

After many years of mismanagement, Ukraine badly needs reforms in nearly all areas. A key question is where to start and how to set priorities. In the first week of September, VoxUkraine conducted a survey among Ukrainian and international economists asking them to rank political and economic reform priorities for Ukraine and comment on their choice. 30 responses were received. Given the challenges currently faced by Ukraine, the majority of professional economists suggest to follow an integral approach to ensure complementarily of reforms and hence to improve outcomes. Survey results identify five clusters of most urgent reforms.