“ukraine: what went wrong and how to fix it” anders aslund

What Went Wrong No sharp break with

the Soviet system As a consequence

pervasive corruption evolved

GDP per capita, PPP, 1990 and 2013

Ukraine Poland Russia Turkey0

5,000

10,000

15,000

20,000

25,000

1990 2013

(constant 2011 international $

Source: World Bank, World Development Indica-tors

What Needs to Be Done?

Political reformReform of the stateFinancial stabilizationEnergy Reform Social ReformEU – reform anchor

Europe: Reform Anchor

Political & legal standards: Outstanding

Market access: Too limited - 36 quotas for agriculture

Financial assistance: Tiny €5bn 2014-5

Technical assistance: Twinning has not taken off

Fix Politics FirstPresidential elections, May 25

Parliamentary elections, Oct 26

New government of young, well-educated outsiders, Dec 2

Reform program, Dec 9Decentralize power, no doneImpressive achievements!

Next Comes the StateClose unnecessary state

agencies: A dozen or so – some but too little

Lustration & judicial reform: Very limited progress

Deregulation: Substantial progress

Reform public administration: Minimal

Achieve Financial StabilityFloating exchange rate, late

2013IMF program, March 11Fiscal Adjustment: Reduce public expenditures long term from 53% of GDP to 35% of GDP – much done

Get large foreign financing to replenish reserve, $5bn to $20bn, now $12.4bnImpressive progress!

Clean up Energy Sector!

Unify energy prices: Much doneAbolish all energy subsidies:

70% doneProvide social cash

compensation: DoneCreate markets for all energy:

LegislatedStimulate private energy

production: Not doneStop buying gas from Russia:

Great progress

Social Policy Cannot Wait

Pension reformHealth care reformEducation reform

3 Big RisksAggravated Russian aggression

Underfunding: EU & US should step up financing: $8bn more!

Politics - severe economic hardship:

GDP fell 17.2% Q1, 14.2% in Q2, Inflation 53%