Government’s First 100 Days in Office – 5 Striking Failures and 11 Key Successes

The new Ukrainian Government has recently marked its first 100 days in office, and the time has come to evaluate its performance. Prime Minister Arseniy Yatsenyuk reported about the successful implementation of the governmental plans and reforms, the ministries provided a list of their achievements on their official websites. However, public and expert opinion is not so unambiguous. In this article we have tried to conduct a comprehensive analysis of the work of the Government, the National Bank of Ukraine, NJSC “Naftogaz” over the past 100 days, to understand who from the newly appointed officials managed the tasks and made at least one, but major breakthrough, and who could “boast” only failures in their work.

In 1933, when Franklin D. Roosevelt assumed the Presidency of the United States, he first pioneered the 100-day concept. Faced with the calamity of the Great Depression, he managed in a very short time to address a great deal of problems. Thus, the first 100 days of the New Deal of the President Roosevelt became a model of bold leadership for the future.

The new Ukrainian Government has recently marked its first 100 days in office, and the time has come to evaluate its performance. Prime Minister Arseniy Yatsenyuk reported about the successful implementation of the governmental plans and reforms, the ministries provided a list of their achievements on their official websites. However, public and expert opinion is not so unambiguous. In this article we have tried to conduct a comprehensive analysis of the work of the Government, the National Bank of Ukraine, NJSC “Naftogaz” over the past 100 days, to understand who from the newly appointed officials managed the tasks and made at least one, but major breakthrough, and who could “boast” only failures in their work.

Our conclusions are based on the evaluation of several key sources of information. First of all, these are the results of three surveys conducted by the VoxUkraine working group together with Kyiv School of Economics, Index for Monitoring Reform, Reanimation Package of Reforms and Reform Support Centre. It includes the Expert Survey (128 responses) and Public Opinion Survey (220 responses) – where respondents were asked to evaluate the events reported by the news agency Interfax about the most substantive actions performed by the ministries (see Table). Also, it includes the survey held by Liga.Business on the basis of information provided by VoxUkraine (3017 responses). Secondly, this is an evaluation of the action plans’ implementation by the ministries conducted by the VoxUkraine working group. In addition, we analyzed the official governmental reports about the first 100 days in office, ministerial briefings, and the news available from the public sources (including the websites of the news agencies Interfax and Ukrainian News).

In this article we summarize only the biggest successes and failures, which were listed randomly. Notably, some ministries are present in both rankings.

Biggest Failures:

1. The Ministry of Energy and Coal Industry under the leadership of Volodymyr Demchyshyn in its first 100 days of work has been recalled not as the ministry that managed to implement reforms or secure coal supply from alternative sources, but because of the scandal around the signed contracts on electricity import from Russia and its supply to the Crimea. The State Commission on Investigations declared the contracts economically unbeneficial. The contracts foresaw the electricity supply to the occupied part of Donbas, and, moreover, included formulations according to which the Autonomous Republic of Crimea was determined as a “federal district of the Russian Federation”. The Minister Demchyshyn has assured that the word-combination “federal district” was absent in the final versions of the contracts, but refused to publish them, insisting on confidentiality. The fact the contracts were concluded without the intermediaries is important for the energy market transparency. However, the contracts have to be concluded on the profitable terms for Ukraine and made publicly available.

2. The launch of the Ministry of Information Policy did not result in any evident changes in the sphere of state information security, and according to the majority of expert and public opinion, was a failure. The ministry led by Yuri Stets after two months of work (since the Cabinet approved relevant provisions) could not create its own structure, attract valuable professionals, develop the strategy of information policy and security, provide objective information about the events in Ukraine to the world media and, above all, did not perform actively to diminish Russian propaganda myths in Eastern Ukraine and the Crimea. The launch of “Ukraine’s Information Army” project became the greatest achievement of the first two months of work. Instead, one expects from the newly established Ministry to modernize the information industry and to coordinate effectively the work of already existing information agencies for the benefit on the national security of Ukraine.

3. Over the past years the JNSC Naftogaz was called a “black hole” in Ukrainian budget and a major source of corruption. Even in 2014, ⅔ of gold and foreign exchange reserves of the NBU were directed to support Naftogaz. To achieve a non-deficit budget in 2016 (and reduce deficit to 3.1% of GDP in 2015), two main conditions had to be met. First, according to the joint plan worked out by the Government, Naftogaz and the IMF, Naftogaz had to increase the tariffs for population while eliminating the cross-subsidization. Second, the restructuring of the entire Naftogaz system had to take place, through division into three separate companies – production, transportation and storage. The first part of this plan was fulfilled – it was announced that the tariffs would increase starting from April 1, 2015. A schedule for further gas and heat tariffs’ increase was developed, reducing the government subsidies to Naftogaz. In addition, much has been done to diversify the gas supplies, reducing significantly Ukraine’s dependence on the Russian resources. However, non-transparent structure and financials remain Naftogaz’s main problem, its annual financial reports for the last three years has not been made public yet. The public and experts futilely demand to publish a detailed structure of gas consumption by different categories of consumers, so to understand where a huge deficit comes from that exceeds the state’s budget deficit. The Natftogaz itself would benefit from providing this information, as it would let the expert community to evaluate the decision to raise tariffs and withdraw the suspicions of corruption and inefficiency.

4. In the event of long-lasting Russian military aggression in the eastern Ukraine, it is difficult to overestimate the role of the Ministry of Defense. The challenges, which Stepan Poltorak faced when appointed to lead heavily bureaucratized and corrupted Ministry, were extremely serious. The recently announced initial reforms is a positive and important start – the implementation of electronic system to simplify the public procurement, volunteers’ involvement in the Ministry’s work (supervision of public procurement), improvement of cooperation between ministerial departments, elimination of double functions between the Ministry of Defense and the General Army Headquarters, and public announcement of key vacancies at the Ministry. However, all these initiatives cannot be effectively implemented without systemic reforms, full reorganization of the Ministry’s structure and new recruits in top positions both within Ministry and the General Headquarters, in particular young professionals and professional military officers who proved their capabilities at the war in the East. Furthermore, the new Military Doctrine should be developed, involving both Ukrainian and international experts. Despite the positive steps, the Ministry has made a number of serious failures, in particular when providing weapons and military equipment for the armed forces. Moreover, reporting false information and impunity for such actions, particularly as to the real losses in Ukrainian armed forces while defending and withdrawing from Illovaisk (in September 2014 Ministry of Defense reported about 108 killed near Illovaisk, and on March 16, 2015 the Military Prosecutor reported about 360 killed, 180 missing, and more than 500 injured). Another example is a strategic railway knot in Debaltseve, the Ministry reported about its complete demolition, and yet, in less than two weeks it was fully recovered by the Russian militants. It is clear that the General Headquarters, led by V. Muzhenko provides this false information to the Ministry of Defense.

5. It has become a tradition to criticize the National Bank of Ukraine (NBU). NBU has often been accused of not keeping a currency market under control, but rather following it. The lack of effective communication with public when hryvnia ended up in free-fall considerably undermined the reputation of NBU and its Head Valeriya Hontarieva. However, the recent stabilization of the exchange rate indicates that in crisis NBU is able to act swiftly and decisively. Therefore, apart from hryvnia’s free-fall, the NBU has a number of achievements, which will be mentioned later.

Key Achievements:

1. The Ministry of Economic Development and Trade under the leadership of Aivaras Abromavičius was among the few ministries that succeeded to implement crucial reforms in the first 100 days of their work. Its main achievement was the start of deregulation via the adoption of the Cabinet of Ministers’ Resolution no. 42 on deregulation of some areas of economic activity and the Governmental Bill no. 1580, approved by the Parliament, to simplify the conditions for doing business. The Ministry has actively started to eliminate the corrupt schemes in various economic sectors through the abolition of licensing for 26 business activities and elimination of 16 regulations, inefficient monitoring and expertise, and 15% discount at the oil auctions. Moreover, the ongoing restructuring within the Ministry gives a very positive signal – staff reduction by 30%, new leadership and appointment of the highly qualified specialists.

2. Arsen Avakov leads the Ministry of Internal Affairs of Ukraine for more than a year, but only over the past 100 days he managed to achieve progress in reforming the law-enforcement system, largely due to the new appointments, in particular, of the First Deputy Minister Eka Zguladze. First of all, the process of creating a new patrol police has started, which is set to replace the State Auto Inspection. In Kyiv, already in June, and soon after in Odessa, Dnipropetrovsk and Lviv the new patrol police will operate on the streets. The new Ukrainian policemen, who went through the very competitive selection procedure would be trained by Ukrainian and American instructors. Secondly, the substantial progress in reforms was achieved through elimination of the veterinary police, the transport police, the Department for Combating Organized Crime, as well as reorganization of the Registration and Examination Offices.

3. Igor Shevchenko, as the Minister of Ecology and Natural Resources, has focused mainly on reforming the area of utilization of natural resources. Through court decisions, he returned to state ownership important gas production assets in Sakhalin oilfield and cancelled 19 illegally issued permits by Golden Derrick LLC on gas and oil extraction. Furthermore, the Minister granted public access to information about all special permits issued for utilization of natural resources. This became a first step towards “openness and transparency” as declared earlier by the Minister.

4. The most important task for the Minister of Finance Nataliya Yaresko over the last 100 days was to work effectively on balancing the State Budget, and subsequently to introduce necessary amendments. The balanced budget, the gas tariffs’ increase, changes in pension legislation and the new law on the responsibility of bank owners have all contributed to reaching the agreement on financial aid from the IMF in the amount of $17.5 billion plus $7.5 billion from other international partners. The first part of the tranche will be used to renew the NBU’s gold and foreign currency reserves and to repay foreign debts. In addition, the IMF program foresees extra $15 billion to be generated through the debt bonds. The current challenge for the Ministry is to successfully restructure state debt to strengthen Ukraine’s financial situation and to lay the basis for economic recovery.

5. Over the last year the agricultural sector was the only one to demonstrate growth in difficult economic conditions. The biggest success of the Ministry of Agrarian Policy and Food under the leadership of Oleksiy Pavlenko was twofold: the start of deregulation, namely the abolition of 14 permits and 6 licenses, and the fight against corruptive schemes through open competitions for leading positions at the state enterprises involving leading HR-companies and independent experts. Besides, the work continues on the Strategy for Agriculture and Rural Development for 2015-2020. The eight working groups, formed by the Ministry with the support of European and international partners, take part in the process.

6. The Ministry of Foreign Affairs represents Ukraine in the world, and in the events of Russian military aggression in the East and illegal annexation of the Crimea must secure overwhelming support for Ukraine from key foreign partners and international organizations. The Ministry, led by Pavlo Klimkin, over the past 100 days has done a good diplomatic job by actively lobbying Ukraine’s interest in the world. However, the most fundamental success of the Ministry was the adoption of the law on Ukraine’s revoking its non-aligned status and initiation of a deeper cooperation with NATO through the Annual National Cooperation Program Ukraine-NATO.That said, quite soon the Ministry will pass another big test on its performance – EU Council will make a decision regarding the visa-free regime for Ukrainian citizens. Hopes on its positive recommendations before the Riga Summit are minimal. In addition, the Ministry is expected to incite the ratification of the Rome Statute as required by the Association Agreement between Ukraine and the EU.

7. The Ministry of Infrastructure led by Andriy Pyvovarskyi has became one of the most transparent ministries in its work. All information about the procurement made by the Ministry’s controlled enterprises was published online. The competition for leading positions at the Ministry was made public and the process of holding tenders was streamed on-line. The transparency is indeed a necessary part of reforms, but not least important is to be consistent. The main task for the next stage is to continue the reforms and to effectively implement the recently signed project with EBRD on roads’ construction with $150 million funding, which would engage not only foreign companies, but also Ukrainian manufacturers and workers. Moreover, after the successful visit of the Minister to Spain we are looking forward to the positive negotiations with the UK, and the subsequent signing of the Common Aviation Area Agreement with the EU.

8. The Ministry of Justice is among those who already can show the first results of its work. The Minister Pavlo Petrenko has made focus on the two priority areas. First, protection of Ukraine’s interests on the international arena – at the moment there are three cases against Russia at the European Court of Human Rights, each backed by the considerable evidence. Second, initiating reforms within the Ministry – fight against corruption and improving the effectiveness the Ministry’s performance. The Ministry has already dismissed 400 high rank officials based on the lustration law. Furthermore, the Ministry has introduced the Electronic Auction System for Detained Property CETAM, which has showed its efficiency during the trial period – in six months 38,000 auctions were held with lots amounting at about 5,5 billion UAH. Except for the key goal to fight corruption, the introduction of electronic services is aimed at improving Ukraine’s position in Doing Business ranking.

9. The NBU has had a number of worthwhile achievements, namely Internal restructuring, new appointments through the open competitions, and total cleansing of the banking system, which led to the liquidation of several banks due to insolvency. Furthermore, NBU strengthened the state control over banking operations and adopted a number of resolutions to increase the level of bank capitalization to ensure the stability of the banking system given the existing financial risks. The fall of the national currency and the closure of several banks provoked a considerable outflow of deposit funds and increased the panic among the population. Despite all NBUs efforts – increasing the required reserves of the banks and raising the discount rate to 30% – it is hardly possible to overcome the panic among the population with the tools of monetary policy only, therefore one has to wait for a decline in social tension. Cleansing of the banking sector is a bitter pill, but it has to be swallowed.

10. The Minister of Education and Science Serhiy Kvit continues to actively reform higher education institutions. Their number has decreased dramatically (at the beginning of 2015 there were 802 higher education institutions in Ukraine, at the moment there are 317, and till the end of the year only 270 will remain), and those that lasted have experienced numerous staff replacements. However, this step is entirely justified, given the quantity/quality ratio of Ukrainian graduates that is not in favor of the latter. The Ministry aims at reforming domestic education according to the European standards. The process of granting bigger autonomy to higher education institutions, expansion of their financial, academic and organizational rights has already begun. Notably, the Ministry also signed the Framework Agreement with the Microsoft Ukraine to promote both – the higher education reform and legal use of software in administrative and tuition processes.
    

11. A pension reform, launched by the Minister of Social Policy Pavlo Rozenko, became one of the most debated topics over the past 100 days. The novelties include the uniform principles of calculating pensions, introduction of high pension taxation and future elimination of special pensions for judges, prosecutors, deputies, etc. Furthermore, a long-awaited reform of subsidy system has been implemented and would come into effect in May 2015. It should be noted that the Ministry is constantly under the social and media pressure, mainly because of the unpopularity of its reforms. However, Minister Rozenko is aware of the importance of effective communication and regularly provides information through the official website and his personal Facebook account.

 To conclude, such ministries as the Ministry of Health, the Ministry of Culture, the Ministry of Regional Development, Construction and Housing, and the Ministry of Youth and Sport of Ukraine over the first 100 days of their work have neither achieved any successes nor have they made loud failures. Some of them, like the Ministry of Culture, have shown reluctance to reorganization and ousting the outdated and bureaucratic system of decision-making.

Media-partners: Interfax-Ukraine, Liga.net

Authors: Tetiana Kedzierska (UBS) and Yaryna Basystyuk (University of Pennsylvania), and other members of the working group* consisting of members of VoxUkraine Editorial Board and participants of the initiative.

Tymofiy Mylovanov (U.of Pittsburgh),
Yuriy Gorodnichenko (UC Berkeley),
Ilona Sologub (KSE),
Olexander Talavera (U. Of Sheffield),
Oleksandr Zholud (International Center of Policy Studies)

Oleg Korenok (Virginia Commonwealth University)
Viktor Tsyrennikov (Visiting Scholar at the IMF)
Natalia Shapoval (KSE)
Svetlana Rusakova (Dragon Capital)
Oleg Ivanov (NISS)
Maryna Nazarenko
Invaluable contribution was made by other members of the Editorial Board VoxUkraine:

Olena Bilan (Dragon Capital)
Volodymyr Bilotkach (Newcastle U.)
Tom Coupé (KSE)
Veronika Movchan (IER)

Organizations participating in the initiative:

VoxUkraine
Kyiv School of Economics
Index of Monitoring Reforms
Reanimation Package of Reforms
Reform Support Center

Special thanks

to Liga.Business and personally to the head of the business edition, Boris Davidenko, for the conducting of the public survey, and for the advice. We are also grateful to the Open Society Foundation for the materials

Special thanks to everyone who have contributed to promotion of the public opinion survey in Facebook, and invited their colleagues, friends and acquaintances to participate.