27 Billion Reasons Why Ukraine’s Next Leader May Not Want the Job
WHY YOU SHOULD CARE
Fixing a deeply broken system won’t be easy for the winner of Ukraine’s presidential election.
By Dan Peleschuk
The first round of Ukraine’s presidential election today caps an intense season of political posturing and often outlandish populism. And as old-guard politicians like President Petro Poroshenko and former Prime Minister Yulia Tymoshenko face off against comedian upstart Volodymyr Zelensky for the top job, many Ukrainians are hunkering down for what’ll likely be more volatility in the weeks to come.
Whoever wins — probably after a second-round runoff on April 21 — might want to think twice before celebrating. Ukrainians want to see progress, and those heading to the ballot box today expect to see tangible results soon. While the top electoral issue, according to a January poll by the International Republican Institute, remains the conflict in the Donbas, which allows for some finger pointing toward the Kremlin, the No. 2 concern is entirely domestic. Sixteen percent of those polled voters cited corruption as their primary concern, and on that score, Ukraine is struggling.
A bloated state bureaucracy means far too much money is lost on incompetence, poor decision-making or downright fraudulent conduct by government employees. In fact, according to the Kiev-based Center for Economic Strategy (CES) …
Improving governance could boost Ukraine’s budget by nearly $27 billion as a one-off lump sum payment.
Barring an immediate fix, however, Ukraine stands to lose nearly $9 billion each year thanks to poor governance — that’s more than neighboring Moldova’s entire economy.
The single biggest annual dent, around $6 billion, stems from a lack of income tax revenue thanks to widespread gray and black salaries — those that aren’t properly taxed due to being wholly or partially unofficial. The biggest one-off gain, meanwhile, could amount to a whopping $12 billion for the state — if only around 50 percent of currently state-owned land was sold at market-level prices, rather than rented. But such a move has been blocked for years by a controversial moratorium that prohibits the sale of agricultural land. Ukraine is one of just six countries — the only one in Europe — with such a rule.
Sure, these are estimates based on a so-called blue-sky scenario that imagines all public institutions functioning smoothly. What’s more, says CES project director Maria Repko, the study isn’t necessarily an authoritative list of Ukraine’s most pressing problems, but rather a rundown of its most easily calculated losses. Still, the estimates provide a useful window into just how widespread misrule remains in Ukraine.
Taken together, CES finds, these deficiencies highlight “the more general problem of trust in the Ukrainian state, [and a] lack of rule of law and good governance.” More than two-thirds of Ukrainians believe the country is headed in the wrong direction, and bad management is mostly to blame.
While corruption is just one part of the equation of poor governance, it’s a significant one. The International Monetary Fund, which has provided Kiev with billions of dollars in badly needed economic assistance in recent years, believes various forms of graft cost the country around 2 percent of gross domestic product growth, or just over $2 billion, each year. Transparency International’s Corruption Perceptions Index, meanwhile, actually boosted Ukraine’s score from 30 to 32 from 2017 to 2018 — but it still falls well below the world average of 43 and even the Eastern European average of 35 … though it outranks some other former Soviet republics. By contrast, the highest-scoring (or least corrupt) country in the world is Denmark, with a score of 88, and the United States scores 71.
Times aren’t exactly encouraging for Ukraine’s anti-corruption fighters: Struggling to dismantle a system of institutionalized graft that has been built up for decades, they’re running into resistance everywhere. Just last month, the country’s Constitutional Court struck down a law punishing officials whose assets exceed their officially declared wealth. That’s left the independent National Anti-Corruption Bureau, often hailed as one of the most important achievements of the so-called Revolution of Dignity of 2014, effectively toothless. Even more recently, the deputy head of the country’s National Security and Defense Council — and a former business partner of Poroshenko’s — was fired after his 22-year-old son was implicated in a defense spending scandal that sucked millions out of taxpayers’ pockets for overpriced military hardware.
According to Daria Kaleniuk, executive director of the Anticorruption Action Centre in Kiev, such grand-scale corruption remains a particularly stubborn problem. “There are oligarchs who own members of Parliament, who own judges, who own prosecutors,” she says, “and who use the power of law enforcement and intelligence agencies to intimidate their opponents, foreign investors and activists.”
That doesn’t mean Ukraine hasn’t made significant strides toward reform over the past five years. Observers have celebrated an electronic procurement system that’s reportedly saved the budget more than $2 billion since its introduction in 2016. They’ve also praised the government for taking meaningful steps toward cleaning up the notoriously corrupt banking and natural gas sectors. Moreover, Kaleniuk adds, a freer media climate and an emboldened class of civic activists also means Ukrainians know more about their crooked rulers than ever before.
But the question remains: What will those rulers do about it?
- Dan Peleschuk, OZY Author Contact Dan Peleschuk