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Is There Economic Reform in Ukraine?

If you listen to Ukrainians tell it, there’s been absolutely no reform within the last year. Their frustration is understandable—they want the positive effects of major change now—but their perception just doesn’t correspond to the facts.

The much awaited reform process is actually under way—though quietly and unobtrusively. The Education Ministry and the Ministry of Internal Affairs have led the way with restructuring universities and the police force, probably because they don’t deal directly with high-stakes corruption and the power of the oligarchs. Some personnel cuts have been introduced in the presidential administration and the government bureaucracy; more are forecast. A law (albeit flawed) on lustration has been adopted and has already led to some high-level resignations and prosecutions. An Anti-Corruption Bureau has been approved, and a head is currently being sought.

Perhaps most important, economic reform is a reality. According to the invaluable VoxUkraine Index for Monitoring Reforms, compiled by Tymofiy Mylovanov, an economist at the University of Pittsburgh, and a team of economists with specialized knowledge of Ukraine, the level of Ukraine’s economic reform efforts—when measured on a –5 to +5 scale, with the +2–3 range being “acceptable”—is moving in the right direction. (The index measures the quality of reform measures adopted in a two-week period, and not the overall progress of reform.) Here are Ukraine’s scores for 2015:

If you discount the February 22nd score as an outlier, then the trend is clearly upward. More important than the overall score are the individual components for these five dates and the averages of the five scores (in parentheses):

  • Governance and anticorruption: 0.9, 1.8, 2.0, 1.0, 2.9 (1.72)
  • Public finance: 1.0, 1.5, 2.0, 0.0, 2.0 (1.3)
  • Monetary policy and financial markets: 0.8, 1.0, 2.5, 0.0, 3.0 (1.46)
  • Energy independence: 2.0, 1.0, 0.8, 0.0, 3.0 (1.36)
  • Foreign trade: 0.6, 1.0, 0.0, 0.5, 0.0 (0.42)

The foreign trade sector is obviously unreformed—with an average of 0.42—but all the others have decent, though not yet acceptable, average scores. If the February 22nd scores are excluded—for the simple reason that almost no legislation was adopted in that two-week period—then the overall trend for the individual category scores is very clearly upward and the four-score averages (in parentheses) look very different:

  • Governance and anticorruption: 0.9, 1.8, 2.0, 2.9 (1.9)
  • Public finance: 1.0, 1.5, 2.0, 2.0 (1.63)
  • Monetary policy and financial markets: 0.8, 1.0, 2.5, 3.0 (1.83)
  • Energy independence: 2.0, 1.0, 0.8, 3.0 (1.7)
  • Foreign trade: 0.6, 1.0, 0.0, 0.0 (0.4)

The averages for the first four categories are almost acceptable, being just beneath 2.0, but the last two individual scores for Governance and anticorruption, public finance, and monetary policy and financial markets are already acceptable, being, respectively, 2.0/2.9, 2.0/2.0, and 2.5/3.0.

Naturally, Ukraine still has a long way to go. But reform has begun, and if Kyiv sustains its political will, the West continues to insist on change, and Vladimir Putin continues to remind Ukraine that the alternative to reform is subjugation to Russia—then 2015 may be the year of reform in Ukraine. Perhaps that’s why the IMF’s permanent representative in Ukraine, Jerome Vacher, stated on March 19th that the IMF expects economic growth to resume in late 2015 and to constitute 2 percent in 2016—nothing to write home about, but significantly better than the 5.5 percent drop expected in 2015. 

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