Hopeful Words on Ukrainian Economy from Ousted Finance Minister (4/21)     Print

By Ben Antenore, European Affairs

Only hours before speaking publicly in Washington D.C. about the progress made in reforming Ukraine’s economy since she took office as Minister of Finance two and a half years ago, Natalie Jaresko learned she was out of a job. For many in the West, Natalie Jaresko’s departure from government is troubling. She was one of the last reformers standing in President Poroshenko’s cabinet after the well-publicized resignations of Economics Minister Aivaras Abromavičius and Deputy Prosecutor General Vitaliy Kasko earlier in the year. Her replacement is former McKinsey consultant Oleksandr Danilyuk who, according to Anders Aslund of the Atlantic Council, has a history of blocking Jaresko’s reforms.

Highly respected and popular with Ukraine’s western creditors, Jaresko has been praised as a hero by many for her impressive, non-partisan work. The American born Jaresko was sworn in as Ukraine’s Minister of Finance in December of 2014, only several months after the EuroMaidan revolution. Jaresko had been in private banking in the Ukraine. She was quick to label herself a technocrat minister, dedicated only to pulling Ukraine from the fiscal abyss and without any ambition of holding higher office. The difficulty of her position and her steadfastness to reeling in government spending earned her the moniker “Minister No” amongst her colleagues.

In a wide-ranging speech at The Atlantic Council, she focused on three big-picture topics: Macroeconomic stability, the Ukrainian business climate, and the fight against corruption.

On the subject of macroeconomic stability, many of the difficult reforms Jaresko had implemented were beginning to bear fruit. “Ukraine has successfully stabilized its economic situation. It’s the first time we’ve had deflation and the currency is stable,” the ex-Minister of Finance noted. After Gross Domestic Product contractions of 6.8% in 2014 and 10% in 2015, Ukraine’s GDP was growing. She was confident that Ukraine’s economy was now on the mend, declaring, “The economy has bottomed out and we have turned the corner.” Jaresko added that the Ukrainian state had improved its method of tax collection, strictly followed the program assigned to them by the International Monetary Fund, and had successfully restructured its financial debt.

Jaresko had some caveats, however, listing out five challenges Ukraine faces as it continues to develop its economy. Even though the economy is growing, it began from a low tax base. Another challenge highlighted the link between the health of Ukraine’s economy and the security situation in the Donbass region. A 3rd difficulty comes from the state of the global economy, where metallurgy and agriculture, two of Ukraine’s staple industries, have taken hits in production and demand. The final challenges related to broadening Ukraine’s tax base and shrinking the shadow economy and the country’s dependence on the IMF program. As long as the Ukrainian government is on the IMF’s bill, the risk of populism remains.

Speaking about the business climate, she had nothing but progress to report. It has improved dramatically since the overthrow of President Viktor Yanukovych in 2014 and foreign firms are beginning to dip their feet into the Ukrainian economy. The American international food conglomerate Cargill has set up shop in Odessa and a Japanese automotive parts plant has been constructed in Lviv. In addition to these corporations, the Swedish technology company Ericsson had opened a research and development facility in Lviv, contributing to Ukraine’s burgeoning knowledge economy. Because of the Association Agreement between the European Union and Ukraine, these foreign firms enjoy direct access to the EU market.

For the average Ukrainian, opening a business can be done online in 24 hours and far fewer permits are now required to conduct business. In addition to these things, the social payroll tax has been halved.

On improving the business climate, Jaresko recommended that the new government focus on continuing deregulation and conducting repeated privatizations in an open, fair, and transparent way. The new government must also continue the process of reducing the tax and customs burden and demilitarizing the tax police.

Jaresko’s final major talking point was the ongoing fight against corruption. Her initial words were blunt and concise: “Corruption is the poison of Ukrainian society.” While anti-corruption efforts can sometimes be a difficult thing to measure, the ex-Minister of Finance cited the oligarch-funded media smear campaigns against government as proof that they were chipping away at the country’s long-existing culture of corruption. A major triumph for the government was putting an end to many of the privileges and schemes which had blighted the country’s economy since its independence in 1991, like abolishing Ukraine’s gas intermediaries. Linked to this, the government has also increased domestic gas tariffs by 450%. In addition, the government had introduced an electronic Value-Added Tax (VAT) system that put an end to fraudulent claims and has begun to empower Ukrainian civil society through an online e-governance program. In Jaresko’s words, “Empowering civil society is the best check to corruption.” One example of e-governance was that all government spending is now available right now on the Ukrainian government’s website.

Jaresko saved her biggest emphasis for the end of her speech, when she declared that reform of the judiciary should be the number one focus for all Ukrainians. According to her, “there is no prosperity without reform of the judiciary.”

Concluding, the former Minister of Finance believed that it is only a matter of time until Ukraine’s progressive forces finally prevail over its corrupt and criminal interests. For the United States, she recommended that it continue to engage with Ukraine, reward progress through conditionality, and exercise patience with the young government. Her final words were directed at the audience and asked for cool heads during this turbulent period for her country: “There is no quick fix. I ask you to be patient, engaged, and fully committed to Ukraine.”