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Where there is no law, but every man does what is right in his own eyes, there is the least of real liberty
Henry M. Robert

Challenges of time: expert opinion

MIM-Kyiv forum tried to work out a common crisis settlement algorithm
1 April, 2014 - 11:30
MIM EXPERTS OFFERED DOZENS OF REFORM IDEAS TO THE MINISTRY OF ECONOMIC DEVELOPMENT AND TRADE

The ordeal that has befallen Ukraine today is such that we have only one choice: either we become a normal country or we will never survive. This is the key conclusion of a forum, “Challenges of Time: Expert Opinion,” organized by the MIM-Kyiv business school.

I will immediately note that the forum, held last weekend, drew packed audiences. Businesspeople and managers of different caliber – mostly MIM-Kyiv graduates – were actively engaged in debate. What is more, the debaters seemed to be discussing the question “What next?” on the level of not a narrow-minded consumer of information but a responsible citizen who wants to be useful to their state at a critical moment and is ready to share their knowledge, expertise, and time.

Besides, as mingling with participants after the forum shows, most of us – no matter where and in what positions we work and what our income is – need to learn to be citizens. The crisis, which has affected all the foundations of our statehood, exposed a low level of political and geopolitical knowledge of not only Ukraine’s ordinary people, but also its elites. This was noted, particularly, in the speech of diplomat Oleksandr CHALY. “On March 18 Ukraine was in fact on the point of losing its statehood in the broad sense of this word. We are in a crisis that has affected all the foundations of our state. And the main problem is that neither the ruling and business elite nor the grassroots are aware of this,” he said. Political consultant Serhii HAIDAI also emphasized this, sharing his views on the upcoming presidential elections in Ukraine. Asked by The Day what kind of a president the Ukrainians should elect in the context of a Russian aggression, Haidai said: “Ukraine needs a ‘military dictator’ of sorts who will temporarily reign supreme in this country. He must order a real, not ostentatious, mobilization. This is the language Putin understands. This is what will stop Putin. Putin can send a challenge to anyone – be it the US or other countries. But he always takes into account the risk factor. Ukraine is today a risk-free territory for him. So this risk must be created for Putin. Then he will not dare commit aggression.” Yet the political consultant admits that there are too few people like this in Ukraine and, besides, they have made no presidential bids and the public has in turn voiced no support for them.

THE STATE HEEDS BUSINESS

Yet, although our diagnose sounds rather tragic today, there is a way out and there are people who know how to find it.

“Intellectual reserve of the nation” – this is what a MIM faculty member called the list of forum lecturers.

A full text of statesman Yevhen Marchuk’s speech was published a few days ago. Today, we are quoting the most interesting, in our view, points in the three other speeches and exclusive commentaries to The Day. Incidentally, the forum’s full video coverage is available on MIM-Kyiv’s YouTube channel.

Following the welcome address by MIM-Kyiv President Iryna Tykhomyrova, Pavlo SHEREMETA, Minister for Economic Development and Trade, took the floor. He briefly outlined the current economic situation in Ukraine and suggested that MIM people ponder, together with his ministry, over what we want from the Ukrainian economy and how to achieve this.

“There is Point A – it is where we are now, and there is Point B, where Ukraine has a 10,000-dollar per capita GDP. It would be good to reach the latter point in five-seven years’ time,” the minister noted.

VITALII HAIDUK: “MAKE THINGS CLEAR IN SUBSIDIZING, MONETIZE SUBSIDIES, I’VE BEEN ASKING THE STATE FOR FIVE YEARS: WHY DO YOU SUBSIDIZE ME FOR ELECTRICITY?”

“Given a tremendous fiscal deficit, we critically need to bring in resources,” Sheremeta says. The government has already done something to this end. In particular, the Ministry of Finance – instrumental in this field – has already drawn up a plan of budget revenues. But, as Sheremeta rightly noted, the vast majority of these measures are of a fiscal nature. Raising taxes may be a justified, but in no way the best, option. The minister pointed out that he had come to the forum to discuss together with businesspeople what other steps should be taken to fill the Ukrainian budget. “It seems to me there still are a lot of other ways to get serious resources. Levying taxes on deposit incomes is a normal European practice, but you can see the current attitude to it in Ukraine. I am convinced there should be some more ‘blue ocean’ strategies, some more creative approaches. And I would like us to work them out,” Sheremeta said.

Now, according to Sheremeta, his ministry’s experts have identified three key priorities in their everyday work. The first is to eradicate corruption in the field of public purchases. A new law on public purchases has already been drawn up and is available on the ministry’s website. The No.2 priority is business deregulation. The ministry is drawing up 12 laws to ease doing business in Ukraine. In Sheremeta’s words, the ministry is planning to make Ukraine one of the 10 best countries for doing business within two or three years. The No.3 priority is “human capital.” “Again, the pivotal question is how we can switch from raw-material-based to more intellectual industries,” Sheremeta said. The minister in fact invited MIM people to find, together with others, the answer to this question.

“I do not believe that we have a GDP like this. How can we increase the ‘denominator’? You know the holes, pits, niches, and centers. Tell us, write us where they are. You don’t need to write too much – let it be four or five ideas. We will gather all this and, believe me, study it carefully and discuss it with specialists,” the ministry said to MIM people.

There were a lot of ideas. About a dozen MIM groups had submitted their projects. Among the key ideas are simplified taxation, elimination of the “Soviet” legacy in governmental control bodies, such as public hygiene stations, fire-prevention inspections, improvements in the customs service, monetization of privileges and subsidies, and legalization of capitals in Ukraine. According to MIM experts, the state should mull over a mechanism to painlessly withdraw business from the gray zone.

Speaking off the record, forum participants admitted: although the current minister of economics noticeably differs from his predecessors and has a colossal fervor and desire to change something, his impulse is most likely to be extinguished by the corrupt bureaucratic state machine which has stiffened so much in the 23 years of independence that it will chew up everything that threatens it. The only one that can help the minister is Europe – of course, if Ukraine signs the EU Association Agreement. The self-preservation instinct The Day, the minister for economic development and trade said he was sure Ukraine would sign the EU agreement well before November 1. Moreover, its text will not be edited. “Our government is radically different. Society did not accept the previous government’s fear of the EU,” Sheremeta said, commenting on ex-premier Mykola Azarov’s criticisms of the association agreement’s text. “It is the same as to say: let us withdraw from the Champions League because we don’t know how to play there. Let us introduce visas for soccer players, ban matches, and play, at best, with Russia. This is wrong. Let us train and win. We can and know how to do this.”

Incidentally, the minister also brought a team of his own to the MIM-Kyiv forum: Yulia Kocherhan, head of a group of the minister’s advisors (The Day’s readers know her as founder of Maidan Free University) and his newly-appointed deputy Pavlo KACHUR. After the MIM people had presented their ideas, The Day asked the latter to comment on what he found the most interesting in the speeches of businesspeople.

“We are going to further look into the idea of monetizing privileges and subsidies. The amounts of cross-subsidizing are staggering. Undoubtedly, we must assess what one privilege or another really costs the state. Naturally, we should say honestly whether the people eligible for a certain privilege really need it.

“Another point is deregulation initiatives. We are overregulated. All ratings of doing business mirror this. But it is impossible to carry out deregulation at one fell swoop. We must protect the domestic market and our consumer. Also interesting is the idea to change the system of tax administration operation and introduce a new variety of tax agents, something like customs brokers or auditors. We should study whether this can be done and what effect this will produce.”

In a commentary to The Day, your boss Pavlo Sheremeta said that Ukraine would sign the economic part of the EU Association Agreement before November 1 – most likely, in the wording in which it was initialed. The minister says there may only be some inessential corrections. Do you think the agreement’s text fully meets the interests of the Ukrainian economy? Should we ask the EU to revise it?

“The agreement’s text is still to be analyzed in detail, as are the consequences for every sector of the economy. But, in my opinion, signing this agreement is undoubtedly a positive step. We are sure to benefit from this agreement.”

Do you think GDP will fall after the agreement is signed?

“We go by the IMF’s and rating agencies’ forecasts of what will happen to the Ukrainian economy when we sign the EU Association Agreement in its present wording before November 1. There are several scenarios. The first, basic, one suggests that there are no force majeure circumstances and things go smoothly, as they do now. Under this scenario, we will have, unfortunately, either a zero growth of GDP this year or – at the most pessimistic estimate – a 4-percent fall.

“But I am convinced that we can lay a good groundwork this year for achieving a growth next year.

“We should focus now on the points of growth. In other words, we must identify the sectors which allow us to hold strong positions not only on the domestic market, but also in a global dimension and concentrate on them. We should carry out development projects in these sectors, support them, etc.”

As for withdrawing the economy from the gray and black zone, do you have any ideas to legalize capitals in Ukraine? Can the underground economy in Ukraine be reduced to zero and, if so, in what way?

“The underground economy in Ukraine accounts for an estimated 50 percent of GDP. But we are setting no specific targets for legalizing capitals.

“As, in line with one of our priorities – deregulation – we are going to simplify the business mechanism, the question of the underground economy will gradually vanish. The businessman does not want to risk – going underground, he has just calculated that profits will outweigh the risk. And if we gradually remove the reasons why business goes underground and, at the same time, increase liability for this, everybody will be willing to follow a normal line – to pay white wages, show the goods’ real value in the customs declaration, and so on. It is deregulation that will legalize the underground economy.”

By Alla DUBROVYK, photos by Mykola TYMCHENKO, The Day
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