WASHINGTON – In the aftermath of President Volodymyr Zelenskyy’s government shake-up on March 4 that brought to power a number of ministers with questionable reform credentials, observers were concerned that Ukraine would be backtracking on the progress that had been made by the previous Cabinet of Ministers.
Unexpectedly, the coronavirus pandemic and the ensuing global economic crisis have forced Ukraine to demonstrably recommit to reform efforts in order to access major loans from the International Monetary Fund (IMF), which have again become critical to the country’s stability. That funding comes with strings attached – conditionalities requiring that Ukraine stay on track with reforms, particularly through the passage of a banking legislation banning the return of nationalized banks to previous owners and a land market law that allows for the sale of farmland. The appointment of new, respected finance and health ministers also bolstered what had been waning confidence in Ukraine’s trajectory. Still, Ukraine’s reform path remains fragile as the crisis deepens.
During an April 2 webinar linking experts in Washington, Kyiv and Brussels, as well as an international audience online, the Transatlantic Task Force on Ukraine (TTFU) sought to examine the way forward for ongoing Ukrainian reform efforts, including good governance, judicial reforms, the rule of law, combatting corruption and promoting economic development.
In opening remarks, moderator Jonathan Katz (Senior Fellow, German Marshall Fund) noted that the task force was set up in October 2018 to directly connect U.S. policymakers and European policymakers with their counterparts in Kyiv, and also with Ukrainian civil society and other experts. He also emphasized that it’s very important for Ukraine and other countries to realize “that in the fog of coronavirus, backsliding on democracy is not something that will be overlooked.”
He said there is a lot of bipartisan support for Ukraine in Washington and a focus on reform efforts, and that it would be a mistake to think that “nobody is watching.” That interest is not only in the U.S., but also in the European Union and Brussels, because “the health, safety, security, economics of countries like Ukraine have a direct impact” on Europe and the United States. “There is still a strong expectation – even in the most difficult of circumstances – that President Zelenskyy, the [Verkhovna] Rada and others will do the right things.”
In his remarks, Orest Deychakiwsky (board vice-chair, U.S.-Ukraine Foundation), said: “Ukraine still has a strong reservoir of support in the U.S. The impeachment scandal, as damaging as it was, did not erode longstanding bipartisan support for Ukraine in the U.S. Congress and among the national security and foreign policy establishment – especially regarding Ukraine’s struggle against ongoing Russian aggression.” Washington’s focus and massive expenditures on the coronavirus pandemic could negatively impact future foreign assistance and this “unfortunately could very well affect Ukraine notwithstanding that Ukraine is a relatively high priority with respect to U.S. foreign policy.”
He added: “Ukraine needs to continue along the path of reforms, especially rule of law and the anti-corruption area. There should be no rollback of reforms and COVID should not be used as an excuse to unnecessarily curtail civil liberties and democracy.” Finally, “serious concerns here in the U.S. with last month’s government shake-up as well as other signs of stalling reforms may now be somewhat alleviated by the Rada’s passage of two historic laws earlier this week. But it is vital for Ukraine to keep moving in the right direction.”
Speaking from Brussels, Bruno Lete (German Marshall Fund) noted that EU-Ukraine cooperation has been moving forward since President Zelenskyy’s election a year ago. “The EU lost no time in trying to work with the government in pursuit of a broad and ambitious reform agenda including, of course, the implementation of the EU-Ukraine Association Agreement,” but last month’s dismissal of reformist Prosecutor General Ruslan Ryaboshapka and other ministerial changes had sown some doubts about Kyiv’s intentions. Ukraine securing a deal with the IMF after adoption of the banking and farmland laws is a key pillar of the EU-Ukraine relationship and would pave the way for another 1 billion euros of assistance from Brussels to Kyiv, he explained.
Oleksandr Sushko (executive director, Renaissance Foundation), participating from Kyiv, said this is an “extraordinary time” with “extraordinary challenges” – and that the coronavirus pandemic is affecting not only economic stability but also, potentially, political stability, keeping in mind the ongoing war waged by Russia. Despite the majority that was assembled in Ukraine’s Parliament in support of the banking and farmland market legislation, there is a “strengthening… of those who are trying to derail the Ukrainian reforms path as well as Ukraine’s European and Western path.”
On a positive note, he said: “There are centers of initiatives in civil society who are trying now to revive the energy of Maidan, the energy of volunteerism, especially when it comes to the assistance and aid to medical staff, to doctors. There is a big rise of initiative on the grassroots level to help Ukrainian society to survive under this pandemic. I hope that civil society will be able, as it happened in 2014-2015, to mobilize itself in order to really contribute to the countering of the pandemic,” especially since the government and medical system are not well prepared.
Dr. Volodymyr Kurpita (former director general, Public Health Center, Ministry of Health of Ukraine) discussed the numerous challenges that Ukraine’s political leaders and health-care system are facing in trying to respond to the coronavirus crisis. Among the problems he described were shortages of ventilators and protective equipment for medical personnel, as well as a lack of response coordination, with a number of competing task forces sending mixed signals to the population.
Although media coverage has been extensive, there has been a dominance of “political messages rather than real advice” for people about dealing with COVID-19 health concerns. He said the country is waiting for a strategy from Maksym Stepanov, the new minister of health. Mr. Stepanov replaced Ilya Yemets, who had served for only a couple of weeks. Current projections indicate that the peak of coronavirus cases in Ukraine is expected around April 24-27. However, additional foreign technical assistance for modeling the spread of the epidemic in Ukraine would be helpful, he added.
Oleksandra Ustinova (member of Parliament, Holos party) noted that, amidst the coronavirus crisis and despite opposition from pro-Russian national deputies in the Verkhovna Rada, the second phase of health-care reforms was implemented on April 1 and expressed hope that “these changes are irreversible now.”
“In the political sphere today, it’s a very turbulent time,” she said, but a “very strong pro-Ukrainian and pro-Western coalition” has emerged. She said the passage of the banking legislation (first reading) and land-market law “clearly showed that pro-Ukrainian and pro-Western forces have a majority in the Parliament.” There had been a lot of talk about how pro-Russian forces were turning Ukraine away from Western countries back to Russia. And the dismissal of reformist Prosecutor General Ryaboshapka and the previous government were seen as a sign of the first steps in that direction. But the latest votes showed that oligarch Ihor Kolomoisky’s influence may be “overestimated.” If the banking law is passed in the second reading “that would show Ukrainian dedication and Ukrainian Parliament’s willingness to cooperate further with… Western partners.”
However, Ms. Ustinova also noted a rise in rhetoric against pro-Western national deputies and activists, with pro-Russian forces labeling them “Sorosiata” – a pejorative term suggesting they are lackeys of philanthropist George Soros and the U.S. State Department. She called this and efforts to increase the power of law enforcement agencies “a very scary thing,” akin to trends in Russia that began a decade ago. She warned that the banking bill could still be derailed by a “flood of amendments.”
Talking about the role of civil society, she also said that “just as people tried to help soldiers [in the war effort], people are trying to save the lives of health-care workers, providing them with everything needed… masks, gloves.”
Yurii Kamelchuk (national deputy, Servant of the People party) called the banking legislation that was passed a “good bill” that upon final passage will ensure that banks will be properly monitored and help avoid the harm caused in the past by insolvent banks that were a “fiction.” The risk of Ukraine not cooperating with the IMF is now gone, he said, and thanked all international and Ukrainian partners that provided advice and that support Ukrainian reforms.
Still, for reforms to succeed, ordinary people, he said, “must believe that working and living in Ukraine can be done without bribes and schemes.” He underscored that an extraordinary plan is needed to deal with the job losses and high unemployment that are expected due to the COVID-19 crisis. Along with new investment programs, ideas must be allowed to “bubble up from the regions,” he said. Mr. Kamelchuk acknowledged that there are rifts within Servant of the People, the ruling majority party. And he suggested that, although the pandemic and immediate need for IMF assistance speeded up the passage of the legislation, the majority in Parliament understood that its adoption was inevitable, even without a crisis situation.
Daria Kaleniuk (executive director, Anti-Corruption Action Center) welcomed the passage of the banking and land reform legislation and the likely upcoming deal with the International Monetary Fund. “IMF cooperation opens up some leverage for pushing for good governance reforms in Ukraine,” she said. Ms. Kaleniuk drew attention to the fact that President Zelenskyy publicly pushed for this legislation but, due to defections within his party, he could not have gotten it passed without the support of Svyatoslav Vakarchuk’s Holos party and Petro Poroshenko’s European Solidarity party. She sees it as a sign that a truly pro-European coalition is being formed in Parliament on which Mr. Zelenskyy will need to rely to adopt more reforms.
She expressed dismay about the head of the Presidential Office Andriy Yermak’s overtures to representatives of the Donetsk and Luhansk “people’s republics” in the Russian-occupied Donbas, the Constitutional Court’s rejection of Mr. Zelenskyy’s efforts at judicial reform, the dismissal of reformist Prosecutor General Ryaboshapka, rollbacks of investigations (including the case of murdered activist Kateryna Handziuk) and the increasing power of Minister of Internal Affairs Arsen Avakov.
Ms. Kaleniuk predicted that oligarch Mr. Kolomoisky’s national deputies in the Verkhovna Rada will likely step up attacks on the president, as will Kolomoisky-owned media like TV Channel 1+1. Mr. Zelenskyy’s popularity will likely decrease significantly by October, when local elections are to take place in Ukraine. Therefore, civil society must continue to monitor every single draft law, and there has to be a strong push from the president, Parliament, civil society and the international community to reboot judicial and other reforms.
And it shouldn’t be forgotten that while we are pushing reforms and fighting the pandemic, Russia will increase “hybrid attacks against Ukraine and pro-Western Ukrainians,” she added.
Hlib Vyshlinsky (executive director, Center for Economic Strategy) discussed the economic impact of the coronavirus crisis on Ukraine. Even if the banking law is passed in the second reading and Ukraine is able to secure IMF funding, the decline in GDP is projected to be about 4-5 percent. Without IMF support, Ukraine would face a “full financial catastrophe,” he said. This is why the Ukrainian government had to signal that it would move away from some “oligarch-influenced policies,” and that it would return to implementing reforms and fulfilling IMF conditionalities that were put on hold prior to the outbreak of the COVID-19 pandemic and its disruption of funding sources for emerging markets. Ukraine’s situation is further complicated by major external debt repayments coming due this year.
Although the land reform legislation is welcome, its modest pace and scope will not bring about the massive infusion of investment that Ukraine needs to fuel rapid economic growth. There is other disappointing news, he continued. During the crisis other reforms will not be a priority, there will be a curtailment of privatizations of state-owned companies and there will be more talk of employing old “industrial policies” and “hands-on approaches” that, in the case of Ukraine, “just stand for corruption.” After the crisis subsides, in the absence of a major change in strategy, Ukraine will be on a slow-growth trajectory of 3-5 percent annually, “which is not enough for Ukraine,” he concluded.
The Transatlantic Task Force on Ukraine includes The German Marshall Fund of the United States, the U.S.-Ukraine Foundation’s Friends of Ukraine Network Democracy and Civil Society Task Force, the Reanimation Package of Reforms and other NGOs. The TTFU virtual conference titled “Ukraine’s Democratic Reforms Hang in the Balance: What is the Way Forward?” can be viewed at https://youtu.be/GQ4aw3Ghryc.