Why a Human Rights Approach to Deal with Economic Affairs in Ukraine?

In my capacity as United Nations Independent Expert on Foreign Debt and Human Rights, I conducted an official visit to Ukraine from 14 to 23 May 2018 at the invitation of the government. The full mission report, available in Ukrainian and English, was presented to and discussed by the United Nations Human Rights Council on 28 February 2019.

During the visit, I had the opportunity to meet and hold discussions with a number of high-level governmental officials, researchers, academics and representatives of civil society organizations and international institutions. The purpose of the visit was to examine the implementation of relevant international human rights law in Ukraine in the sphere of finance and the economy through legislation, policies and programmes. The visit focused in particular on issues related to the following areas:

1. structural adjustment, fiscal consolidation and economic reform policies;
2. debt sustainability, debt restructuring and odious debts;
3. international development assistance and lending to Ukraine by international financial and multilateral institutions;
4. illicit financial flows, in particular measures taken to tackle them, such as those to combat tax evasion and avoidance by individuals and business enterprises, corruption and other criminal activities, such as money laundering.

In this article I would like to share the main findings of the aforementioned report as well as the recommendations made to the government of Ukraine and to international partners.

At the outset, it has to be acknowledged the serious situation that Ukraine faces and the need to address security concerns and the armed conflict in eastern Ukraine as well as the temporary occupation of the Autonomous Republic of Crimea and the city of Sevastopol by the Russian Federation.

One of the greatest challenges seems to be the need to find a right balance between fostering economic development, despite the difficult circumstances and serious constraints, ensuring the realization of all human rights and implementing effective measures to combat deep-seated corruption. It needs to be recalled that sustainable development, respect for all human rights and peace go hand in hand. The need to ensure an adequate response to all pensioners from areas not controlled by the government is a good example of those interconnections.

In that regard, Ukraine seems to be moving from an overregulated economic system to a deregulated one, with the aim of fostering economic development and preventing corruption, but without adequate safeguards. It is one thing to create a business climate that would encourage investment, while reducing the incentives for corruption, addressing pervasive practices still in place and closing loopholes by minimizing the space for arbitrariness and impunity. It is quite another thing to do so without effective institutional safeguards and consideration for the human rights of people in the face of corporate and private actors’ interests. Comparative experiences show that private actors also require effective regulation, in particular to ensure human rights compliance. However, that is achievable only with robust legislation and public institutions that prevent abuses by both public officials and the market, ensure the rule of law and tackle economic and social inequality, including gender inequality, in order to promote sustainable growth. 

Experience shows that there are high risks when the fundamentals of an economy and the development of a society are captured by a small elite whose sole interest is in its own profit to the detriment of the well-being of the population as a whole.

That is true of a small group of oligarchs benefiting from high-end corruption and state capture and can be equally true of a small group of private enterprises functioning without any regulation. In the end, both systems benefit a very small group of individuals at the expense of the majority of the population, effectively ignoring human rights obligations. In the long run, both systems cannot be combated without robust mechanisms to ensure a balanced combination of safeguards, regulation and independent oversight. Other countries that have succeeded in overcoming such challenges should share these experiences and make sure their recommendations to Ukraine reflect those lessons. 

Regardless of the macroeconomic choices to be made, human rights should be at the centre of public policy. Economic inequality and the reduction in income of the poorer segments of the population hamper sustainable development and growth in addition to impacting domestic demand.

A model that cumulatively imposes economic sacrifices on the most vulnerable groups in society is as unacceptable as one in which State agencies are captured by the private interests of a small elite or the population being plainly subject to abuse by corporations, without restriction.

The government of Ukraine needs to consider a balanced approach that guarantees the centrality of the protection of human rights from abuse and that build on the progress made without further damaging existing advances. Such a balanced approach would entail many reforms needed for sustainable growth, while ensuring a social protection floor and the regulation of national and international actors, guaranteeing the obligation of the State to respect, protect and fulfil human rights.

Rooting out endemic corruption cannot be achieved without a holistic approach that includes (a) investigation, prosecution and effective sanctions, as well as a judicial reform that ensures the independence and competence of the judiciary; and (b) more emphasis on prevention in order to minimize the incentives for corruption. The robustness and effectiveness of economic regulation are crucial and need to be advanced in a coordinated manner between the agencies fighting against corruption and with those in charge of law enforcement.

Ukraine has put in place a series of initiatives to increase transparency, including electronic asset disclosure, e-procurement, opening up public registries and making a number of datasets publicly available. However, the institutions set up to implement those initiatives are still relatively new and much better coordination between them is needed. There are gaps in their functioning and they urgently require effective regulation in a number of areas. They are: (a) conflict of interest, ensuring that legislation is shaped by all relevant principles applicable in the field, such as separation of powers, legality, publicity of administrative acts, fairness and efficiency, (b) lobbying of various sectors and (c) more robust protection of whistle-blowers in line with international human rights standards.

In light of the conclusions, I would like to present for discussion a number of recommendations targeting a wide range of national and international stakeholders.

In first place, I recommend that the government of Ukraine, international financial institutions, supranational institutions and States that support the economic policies of Ukraine:

• Carry out a human rights impact assessment of current and planned economic reform policies in line with the guiding principles on the subject that will be presented to the Human Rights Council at its fortieth session.
• Consider lessons learned by other States which have rapidly deregulated key sectors of the economy without putting in place effective safeguards and guarantees to protect national policy space and the human rights of those most at risk of bearing the brunt of the impact of reform, including in relation to income and gender gaps.
• Carefully assess the process of privatization of State-owned enterprises from a human rights perspective and put in place effective mechanisms to ensure that the economic results of those processes benefit the population that is most disenfranchised or at risk of falling into poverty, rather than exclusively addressing fiscal consolidation.
• Undertake a debt sustainability analysis based on a comprehensive understanding of debt sustainability, incorporating human rights and social and environmental dimensions. Based on that evaluation, if debt restructuring is needed it should follow the standards set by the Basic Principles on Sovereign Debt Restructuring Processes.

And I also recommend that specifically the government of Ukraine:

1. Ensure that the process of monitoring the national human rights strategy and action plan integrates the action plan activities into its budgetary processes.
2. Take steps to ensure that social security payments cover the minimum costs of living, including by increasing the legal minimum wage and the legal subsistence minimum.
3. Create a system of guaranteed paid parental leave, in order to address the imbalances in paid care work and family responsibilities affecting mostly women.
4. Take effective steps to carry out a national census without delay, in order to collect the data necessary to ensure that effective and updated mechanisms are put in place to monitor and report on the country’s commitment to the 2030 Agenda for Sustainable Development.
5. Ensure the enforcement and effective application of the decision of the Supreme Court on 4 September 2018 on pensions for areas not controlled by the government and further ensure that judgments concerning pension arrears that have affected the welfare of internally displaced persons be effectively and speedily implemented.
6. Take further effective and structural steps to prevent illicit financial flows and ensure that the various mechanisms in place to combat corruption act with independence and integrity and in a coordinated manner.
7. Put in place robust regulations in the areas of conflict of interest, the lobbying of various sectors and protection of whistle-blowers.
8. Ensure that the stolen assets derived from corruption, misappropriation of public funds and other criminal conduct can be seized by the authorities through fast, high-quality and impartial investigations, while making all information available to the public.
9. Enhance protection for the human rights and anti-corruption civil society activists that are under ongoing pressure in Ukraine.
10. Increase the efficiency of military spending by enhancing transparency through a narrower interpretation of a “classified contract” and more systematic civil oversight, and put in place mechanisms to ensure that those companies that participate in the supply chain for military expenditure add value to the goods and services provided.