No easy task ahead of Balcerowicz in Ukraine

Prof. Leszek Balcerowicz (Photo: PAP)

Ukrainian commentators are fairly sceptical in their assessment of the chances of two former deputy PM – Polish Leszek Balcerowicz and Slovac Ivan Miklos – who are to assist in reforming the Ukrainian economy.  Considering the extremely difficult wartime conditions in the eastern and southern parts of the country, it will be hard to put through even the best reformist ideas.

In mid-April, Ukrainian Prime Minister Arseniy Yatsenyuk was replaced by Volodymyr Groysman, a trusted associate of President Petro Poroshenko. This shift was followed by the nominations for Leszek Balcerowicz and Ivan Miklos.  

Over a few days Leszek Balcerowicz became – according to the formal nomenclature in Ukraine – a “co-chair of the Group of Strategic Advisors for the Support of Reforms in Ukraine”, a “non-payroll advisor to the Ukrainian President”, a “member of the National Council of Reforms” and a “representative of the Ukrainian President in the Cabinet of Ministers”. Ivan Miklos combined the role of a “co-chair of the Group of Strategic Advisors for the Support of Reforms in Ukraine” with sitting in the National Council of Reforms.

Poroshenko’s stake in Leszek Balcerowicz is largely the effect of Poland’s positive image in Ukraine. Poland is among the countries Ukrainians like the most – 15 percent of those surveyed by the Sociological Group “Rating” evaluated their feelings toward Poland as very warm, and 43 percent as warm. Only 4 percent assessed their attitude towards Poland as cool. This is a better result than that achieved by the European Union which was positively and very positively viewed by every other Ukrainian resident and negatively by every tenth.

Many Ukrainians see Poland as a model to be followed, whereas Leszek Balcerowicz, as the “founder of the Polish reforms”, allows the current cabinet, holding power but with practically no support of society, to function under the “Polish banner”, which brings positive associations to mind.

Political marketing instead of reforms

 “Balcerowicz – a good reformer. But it all depends on the willingness of the Ukrainian government. Without the full support of the leadership, he might be a three-time Nobel Prize winner or the cleverest man in the world – little will he manage to do in Ukraine. I have no doubt that Balcerowicz will be able to present the right recommendations but, on the other hand, I have my suspicions which are not unjustified that as soon as things take the course of making real, painful changes in the old system, breaking the corruptive patterns, interests, friendships – problems are likely to appear. That’s why, instead of asking about the competences of Balcerowicz, it’s more important to ask whether they will let him do his job”, Oleg Rybachuk, former Ukrainian Deputy Prime Minister, commented on the nomination of Balcerowicz.

A Ukrainian political scientist, Viktor Taran, is convinced that the nominations for Leszek Balcerowicz and Ivan Miklos will have no real impact on the economy and they are but a marketing stunt of Poroshenko. In his view, the oligarch president will use the western politicians to break up the reformist niche, which has been occupied by the former President of Georgia, Mikheil Saakashvili, unexpectedly emerging as one of the key rivals of Poroshenko. In fact, the point of inviting Balcerowicz and Miklos to Ukraine is not the reforms but the weakening of the political opponent.

>>more: Ukraine is losing the fight against corruption

It is widely believed in Ukraine that Poroshenko’s days are numbered anyway, and Saakashvili, declaring to fight the omnipresent corruption, is perceived by the President as a direct rival, so the oligarch will do anything to get rid of him as soon as possible. In a poll on socio-political opinions of Ukrainians conducted by the Sociological Group “Rating” for the American International Republican Institute, Saakashvili, whose activities were supported by 34 percent of the respondents, knocked out Poroshenko, who can count on a mere 19-percent support.

Support for the oligarch president is even weaker than for the former minister of the economy, Ayvaras Abromavychus, whose work was positively assessed by 22 percent of the respondents. Saakashvili himself stated that at the present stage of the reforms, Ukraine needs neither Balcerowicz nor Miklos.

 “They are offering to bring us some foreign reformers. When we say that someone was prime minister or minister 25 years ago, this isn’t to say that we should bring them out and let them govern Ukraine. It’s a disgrace,” commented Saakashvili in an interview for the TV station 112.

The former President of Georgia is not the only one in Ukraine who looks disapprovingly at Leszek Balcerowicz and Ivan Miklos. Economist and political scientist Taras Zahorodny is even more outspoken in his criticism of their participation in the work of the Ukrainian government. “Balcerowicz can’t be an effective representative of the president in the government. He can’t speak Ukrainian. How can he possibly take part in discussions? Most probably, Berezenko or Kononenko will set up a corrupt structure and Balcerowicz will (unknowingly) cover it up [Sergiy Berezenko and Igor Kononenko, Poroshenko’s closest associates, are accused by his opponents of organizing corrupt structures – the author’s note],” he estimated on gazeta.ua.

The doubts about the actual capacity of the “western reformers” for taking action seem to be reflected in the official actions of the government.

On 25 April, Poroshenko issued a decree appointing Balcerowicz and Miklos to the National Council of Reforms together with Vitaliy Kovalchuk – former head of his campaign staff and the “grey eminence” of the presidential party Petro Poroshenko Bloc, who – as the Ukrainian media remark – has nothing to do with economic reforms, on the contrary, charges trail behind him for being implicated in financial scandals.  

According to the presidential decree, Kovalchuk will have more say in the council than Balcerowicz and Miklos. It says that Vitaliy Kovalchuk has been appointed to join “the members of the National Council of Reforms participating in its work on all matters”, whereas the “western reformers” have been incorporated to the “National Council of Reforms as members who are invited to examine separate issues”. 

The lot that is likely to befall Leszek Balcerowicz and Ivan Miklos in Ukraine is best illustrated by the story of a well-known American economist, Arthur Laffer, brought over to Ukraine last year to assist in reforming the country’s tax system, for years considered one of the world’s most complicated in international rankings. His presence as advisor to the minister of finance did not bring any measurable effects, apart from a few public appearances. Already during his term as advisor, the government drafted a project of tax changes tightening the screws on the already tight tax system, effectively destroying small and medium-sized enterprises.   

Privatization versus reality

The former Polish deputy prime minister points to the privatization of state-owned enterprises as the priority. The idea is regarded by most Ukrainians today as quite detached from reality.  

“Most of the state-owned companies aren’t working at all, and some are not working quite well. A privatization program is necessary,” the Ukrainian media quoted the first public statement by Balcerowicz in his new role.

According to the government plans announced several months ago, the first enterprise to be privatized this year is the Odessa Portside Plant, situated in Yuzhne, 40 kilometres from Odessa. Meanwhile, as Leszek Balcerowicz was advocating privatization in Odessa, pro-Russian armed groups prowling more and more openly nearby raided a tent city established in front of the city hall by residents protesting against the separatist mayor with a Russian passport, unknown attackers shelled the seat of one of the banks with an antitank grenade launcher, and a bus full of passengers was shot with firearms at the entry to Odessa.

At the same time, the Ukrainian military intelligence reported on the danger of the Russian troops landing in the territory of Kherson and Mykolaiv Oblasts bordering on Odessa Oblast. Speaking, in this situation, of the necessity of rapid privatization of the state-owned estate sounds rather unreal to Ukrainians. Genuine investors and normal revenues from the sales of a company can just as well be forgotten.

>>more: Ukraine wants to accelerate privatisation

A buyer of one of the key facilities of the Ukrainian chemical sector will certainly be found but it can only be a Ukrainian oligarch or his Russian counterpart, operating via a dummy company from the West (Russian companies have been excluded from privatization), who will buy the privatized facilities for a fraction of their actual value. However, this will have little to do with privatization meant as a process of well-thought-out transformation of the economy and search for owners willing to invest capital in the modernization and development of enterprises put up for sale by the state. The governmental privatization plans are criticized by the pro- European and pro-reform party, Samopomoc, among others.  

“A good landlord does not sell the estate at the time of war. State-owned companies are the state’s estate today, and oligarchs and capitalists are the only ones who feel like selling them cheaply. Let’s wait until the war ends and we will sell those companies that we will manage, at a high price. Then it will be beneficial to the state,” Oleg Berezyuk, head of the parliamentary faction of Samopomoc, commented on the privatization plans of the Ukrainian government announced last year.

This is indirectly admitted in the CASE-Ukraine associated with Leszek Balcerowicz, and it is argued that the privatization of state-owned companies is the right direction at the moment. “It is unprofitable to hold these enterprises as state property. It’s profitable to sell them and redeem part of our debt with the money, which will reduce burdens on the budget.

Many will of course start crying that it isn’t a good time to sell these companies now. Sure enough, our state-owned companies cost less today than they will cost when stability and economic growth prevail in the country and the Russian aggression ceases. But when this is going to happen – we don’t know and we need the money right now,” commented Vladimir Dubrovskiy of CASE-Ukraine, interviewed by the Focus weekly.

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