Kyiv People’s Republic: A threat to Ukraine

It has been six months since the Maidan movements toppled President Yanukovych. Yet, there has been little progress in reforming the country.

In this post, we summarize our observations and discuss how Ukraine should move forward.

Observation 1. There is a lack of sense of urgency among players in Kyiv.

Ukraine is in danger. There have been no radical reforms since the departure of Yanukovich and after a brief pause the corrupt reactionaries are back and “business as usual” is at full swing. High expectations of local businesses for positive changes are waning quickly. The government, the president, and the new and old political forces are talking a lot about reforms, but instead are reading themselves for the new elections and have put serious reforms on hold until the new distribution of power becomes clear. There is a profound lack of sense of urgency among the players in Kyiv. This can prove to be a death sentence for the sovereignty of Ukraine.

The situation is very dramatic. The economy has entered recession and the projected GDP growth is negative, systemic corruption has not been touched, the risk of gas shortage in the winter is growing, foreign exchange market remains turbulent endangering already heavily hit banking, and there is no feasible lasting solution in sight for the war in the East. The capacity of the executive power continues to be extremely limited, with incompetent bureaucrats populating most of the offices, and their incentives have not been aligned with that of the public. The public is increasingly disillusioned with the political will of new government and the president to reform the country, as well as with some of the new wave activists.

Observation 2. The parliamentary elections will be used by the reactionary forces inside and outside of Ukraine to plunge the country into an even deeper crisis.

The looming elections will provide a fertile ground for the conflicts among political forces. Unless the fragmented political groups and organizations that brought about the fall of Yanukovich find a way to overcome their ambitions and organize a joint frontal assault on the existing political and oligarchic elites, the reforms will not happen and the risk of further political and economic disarray will continue to rise. There is strong evidence that old political elites continue to heavily use the all kind of dirty tricks to boost the ratings, such as designing electoral system in their favor, pushing forward populist initiatives, selling the positions in the party lists to the businessmen, and offering popular civil society activists huge sums of money to use their names in the election campaign.

Naturally, the public sees through this pity scheming and will look for an outlet to express their discontent. Coupled with dismal economic situation and the unresolved military and humanitarian crisis, the demand for populist leaders will be high. The tensions will be aggravated by the presence of many armed men in the country. Those fighting in Donbass will come back to Kyiv with legitimate questions – why their friends continued to die and why the new government did little to resolve the issue of its political and executive incompetence.

More importantly, incapable of winning in Ukraine using military, economic, and political force, Russia will resort to stirring up frustration among the public and the Ukrainian military forces with the lack of change in Ukraine, hoping to create another political crisis or even a coup. If Russia succeeds and the radical forces within Ukraine openly confront the new government, we see the increasing risk of territorial disintegration of Ukraine.

Observation 3. The government’s and the president’s strategy of waiting until after the elections will not work.

The new government’s and the president’s strategy to avoid this scenario appears to be involving the frustrated political forces, which are at risk of radicalization, into the political process, , elections, and ensuring that they get some political power in the new parliament. This is a wise approach. Nevertheless, it is not enough to win over and pacify the key political players. The public will continue to be frustrated by the lack of real change and by the deteriorating economic situati and will keep the president and, to lesser extent, the government responsible for the failure of the revolution. The president and the government can try to shift the blame to the parliament, which in fat sabotaged many initiatives, but the public is unlikely to be swayed by these “detail.” The president has received the vote of confidence during the presidential election and the people of Ukraine expect him to deliver reforms and resolve the conflict in the East. To survive in the office, the president has no choice, but to unite with the government, and conduct radical reforms now, before the elections.

What can be done?

Designing and implementing reforms is not easy. The capacity of the executive power is extremely limited not only by populist parliament serving vested interests of large- and medium-sized businesses but also by incompetence. Many good reforms are sabotaged by the current bureaucracy. This is natural in the country governed by the phone calls from the top. During the times of crisis, the chains of command become unclear, while the downside risk is high. The understandable reaction of bureaucracy is to do nothing and wait until it understands who will be the next ruler of the country. So, nothing gets done, while tolerance of the society is waning threatening to trigger internal explosion. We offer five suggestions on how to get the reforms going.

Suggestion 1. Take responsibility

The president and the government should publicly undertake joint responsibility for reforms and push them forward before parliamentary elections. The united team needs to find a way to introduce necessary changes bypassing de-facto dysfunctional parliament that effectively blocks many positive initiatives, for instance, by issuing special “reforms in war” decree. Such step will likely be strongly opposed by parliament and called “illegitimate”. However, given Ukraine’s imperfect legal system and the on-going war in the east, plausible solution is not impossible to find.

Suggestion 2. Downsize the bureaucracy and bring in a critical mass of new people.

The problem of the country is the bureaucrats that populate the system of power, not the lack of good ideas about what to do. New people in big numbers should come in the government, while the government should be downsized drastically. New positions should be open to everyone (post position publicly), the selection criteria and the process should be transparent, the focus should be on merit, competence, and not on connections or loyalty to the new government. The salaries should be increased. We need high human capital to flow into the government. Enough good people will figure out what needs to be done anyway and learn the institutional memory from those in the civil service who survive the downsizing.

Suggestion 3. Do “low hanging fruit” reforms as soon as possible, including deregulation and cutting down waste.

Given the level of bureaucracy, distortions and corruption, it should be easy to bring tangible improvement to the everyday life of ordinary Ukrainians.  For example, reformers in Georgia fought very hard with everyday instances of corruption (e.g., bribes to traffic police) and, as a result, they got mandate to do more serious reforms.

Everything which can be deregulated should be deregulated immediately. The country will not burn if the firemen won’t be allowed to take bribes for violation of the fire code. There will be no cockroaches in cafes and restaurants, if their owners are no longer worn-out by sanitary inspections. Procedures for starting, doing and ending small business should be simplified radically, so that any person, including those fired from the government due to the downsizing, could become a private entrepreneur within several days. This will help to cushion negative impact of economic decline and government downsizing on unemployment and reduce discontent and tensions in the society. Great and detailed plan on deregulation has been already developed (see propositions to the National Reform Council). The government just needs to implement it.

Suggestion 4. Communicate reforms as often as possible.

President Poroshenko has not had an open press conference since he’s been elected (President Obama has a press conference on average every two weeks). Other public officials offer equally rare or sporadic appearance in public. Some of them write blogs and/or Facebook posts, which is clearly a positive development, but is not enough to inform the broad public. This staggering lack of communication creates an informational vacuum where the public is unaware of plans for reforms and progress in reforms. Maybe, the government is doing something but the public does not know it and, as a result, is consumed by wild theories of treason, incompetence and corruption. For example, the public learned about the new policy regime of the National Bank of Ukraine (inflation targeting) from the IMF memo! Nobody bothered to explain why inflation targeting is a great idea (it is a great idea) and how it will deliver macroeconomic stability. Instead, the public apparently panicked when the NBU did not keep a fixed exchange rate and interpreted it as a sign of incompetence and corruption. Obviously, such secrecy can be convenient in the sense that one can mask/justify failures, but this approach can backfire and it also undermines the whole idea of Maidan demanding more transparency and accountability. Managing expectations by improved communication is a key tool to push reforms through. In fact, Georgia reformers recognized that lack of communication was one of their rare mistakes.

It is crucially important that such communication is done by the owners of the reforms, the president and the government.  The President and/or the Prime-Minister should do regular weekly briefings devoted exclusively to reforms. They should explain to the public what has been done in terms of reforms over the past week, what it means for an average Ukrainian and what/when results are expected. The NBU Head should do the same, probably, not as often, but regularly sending necessary signals to the markets and the public.

The authorities need to create a web-portal gathering all reforms-related materials in one place, including transcripts of  their speeches, reposts of blogs and Facebook posts, related legislation and explanatory notes to people what to do and where to apply if introduced changes are sabotaged by low-level bureaucrats. There is no need to spend budget money on this. Local news agencies, think tanks and volunteers will be happy to help.

Suggestion 5. Look for multilayered, non-standard solutions.

The public should press the government and private institutions to put enormous pressure on (if necessary, fire) all the “reformers,” officials, etc., who lack the sense of urgency or reality. One should encourage experimentation and unorthodox ideas such as employing foreign nationals with established reputation in key areas (financial regulation, courts, police, etc.), running pilot projects in selected districts and oblasts (e.g., creating sheriffs and electing judges in Donbass), developing and publishing rankings of experts and government officials (e.g., the most corrupt/incompetent member of the Cabinet of Ministers), luring back Ukrainian professionals working abroad, etc.