5th Europe-Ukraine Forum (2011)
Kiev 23-25th February, 2011



Successes, Failures and Potential. Ukraine after 20 Years of Independence

Plenary session, from the left: Adrian Severin, Vice-President of the Alliance of Socialists Group, European Parliament, Romania; Stjepan Mesic, President of the Republic of Croatia (2000-2010); Leonid Kuchma, President of Ukraine (1994-2005); Andriy Goncharuk, Deputy of chief of Administration of President of Ukraine; Günter Verheugen, Honorary Professor, Institute for Conflict Management, European University Viadrina, Germany

Over 400 guests, discussing the successes and defeats of Ukraine within the 20-year period of its independence, took part in the Fifth Europe-Ukraine Forum, held in Kiev and organised by the United World Foundation and the Institute for Eastern Studies. "The 20-year period of independence has been successful for Ukraine, no matter how many difficulties, problems and failures there have been. No doubt this is a success story," said Adrian Severin, a member of the European Parliament.

The most prominent guests of the meeting were Leonid Kuchma, the former President of Ukraine (1994-2005) and Gunter Verheugen, the former Vice-President of the European Commission. The former Ukrainian leader warned that Ukraine can play the role of buffer country between Russia and the West. "Nowadays geopolitical factors are of great influence on the integration of Ukraine and the European Union," he stated. Lenid Kuchma, referring to the '90s, spoke about the difficulties that Ukraine faced in the early years of its independence. "We had no development strategy and we made lots of decisions by trial and error," he said. Guenter Verheugen, making reference to the European integration of Ukraine, said that the EU should develop a clear strategy related to Ukraine and offer Ukraine more than it has offered so far. The former commissioner criticised the today's EU elite for having no political will or courage in the context of EU expansion policy. The forum was started with the presentation of a report on transformation titled Ukraine – 20 Years of Independence, confirming that Ukraine succeeded in reaching political stability after Viktor Yanukovych won the presidential elections, however with a side effect – a problem related to observance of the rules of democracy occurred. "Last year Ukraine lost its position as the most democratic country in the Commonwealth of Independent States," said Oleksandr Sushko, Research Director of the Institute of Euro-Atlantic Cooperation.

Much of the participants' attention at the Kiev forum was focused on the Ukrainian economy. The macroeconomic data for the year 2010 (GDP growth by approximately 4%, low inflation, increased exports) prove that the post-crisis recovery has started. The problems and weaknesses of the economic policy of the government of Prime Minister Mykola Azarov and President Viktor Yanukovych were described by Nataliya Korolevska, an economist of the opposition Yulia Tymoshenko Bloc. In her opinion the reform implementation process is chaotic, unsystematic and the government's fight against corruption is only illusive. Moreover, the government still manages the market manually. Ukraine lacks proper protection of the ownership rights and stable law. "The correct reforms should be based on modernisation, innovation, and deregulation, and they should stimulate small and medium entrepreneurs, change the structure of the economy, and improve the business environment," stated Ms Korolevska.

Stjepan Mesic, President of the Republic of Croatia (2000-2010) and Leonid Kuchma, President of Ukraine (1994-2005)

The experts stressed the importance of foreign investments to the Ukrainian economy. They agreed that in order to attract foreign investors the proper business environment must be created and the proper macroeconomic components, such as a stable monetary policy, resistant to fluctuations currency and independent central bank, ensured.

In the context of the pending negotiations with the European Union on the Association Agreement and expanded Free Trade Area, the European integration issue was crucial to the Forum's discussions. "Probably, Ukraine will not be able to end negotiations regarding the Free Trade Area by summer 2011, but if we sign the Association Agreement, relationships between the European Union and Ukraine will improve in quality," stated Andriej Gonczaruk, the Deputy Head of Administration of the President of Ukraine. Oleksandr Chalyi, Ambassador Extraordinary and Plenipotentiary and former Deputy Head of Administration, is willing to end the negotiations on the Association Agreement even with no clear European perspective.

Hanna Herman summarising the Fifth Europe-Ukraine Forum concluded that such open discussions gathering experts, politicians in charge, and opposition politicians relieve the stress and direct attention to the crucial problems of today's Ukraine and its relationships with its neighbours.

Presentation of the ‘Ukraine – 20 years of independence’ report and discussion entitled ‘The political and economic situation in Ukraine in 2010’.

Ukraine 2010: Report on transformation

The fifth Europe-Ukraine Forum was opened with the presentation of a report entitled ‘Ukraine – 20 years of independence’. While presenting the results of the report experts from leading Ukrainian analysis centres pointed to the key political and economic events in Ukraine in 2010.

Oleksandr Sushko, Research Director at the Institute of Euro-Atlantic Cooperation and Marcin Święcicki, Director, UNDP Blue Ribbon Analytical and Advisory Centre in Kiev

Starting the discussion, Alexander Sushko, Research Director at the Institute of Euro-Atlantic Cooperation, concluded that in the political sphere the report is based on two key theses. On the one hand, in 2010 the political elite in Ukraine consolidated around President Viktor Yanukovych, which led to the creation of a stable majority in the Supreme Council of Ukraine, which, in turn, could form the foundations for legislative parliamentary work. Moreover, a homogenous, effective government was established, which was able to make consequent decisions in a defined strategic direction. On the other hand, such consolidation has its price – fundamental indices reading citizens’ freedoms, democratic freedoms and lawfulness are falling. 

Making reference to self-government elections, the Ukrainian expert reminded attendees that they were criticised by Ukrainian and international organisations monitoring the election process. In his opinion, through its administrative activities the Party of the Regions was able to considerably change the political map of Ukraine. As a result of all those processes Ukraine lost its status as the most democratic country in the Commonwealth of Independent States (CIS) – Sushko asserted. 
Sushko considers the ever-growing importance of extreme-right parties in the western part of Ukraine as a threat to the country’s political situation. 
Speaking about the economy, Sushko pointed out that post-crisis growth has begun (in 2010 GDP grew from 4% to 5%) but, at the same time, he emphasised the fact that we have to remember the very low point of reference from the year 2009.

According to the report Ukraine has become the largest borrower from the International Monetary Fund. The report highlights an enlivenment in exports and imports but, as Sushko noted, the negative trade balance is a reason to worry. “Ukraine is regaining its status of a country which imports much more than it exports, whereas in 2007 we were all close to a zero trade balance.” The analyst emphasised the lowering of the share of iron and steel industry products in the structure of exports. 

A few years ago such products accounted for 40% of export whereas in 2010 this figure was 33%. According to the report Cyprus is the largest investor in Ukraine. The report draws attention to the low share of Russian investment but, according to experts, this is due to inaccurate methodology used in preparing the statistics. 

Nico Lange, Country Director – Ukraine, Konrad Adenauer Foundation, pointed out that consolidation has sent the division of power off kilter – at present different branches of power depend on executive power. In order to build a “power division” a fundamental role was played by the creation of a parliamentary majority, a return to the constitutional regime from 1996, and also local elections. Lange pointed out that the negative assessment of the governmental system in Ukraine by international organisations was a result of the policy towards the media, the operations of the army, and also a plethora of scandals connected with the Security Service of Ukraine.
According to the German expert the reforms conducted in 2010 may permanently change the structure of the Ukrainian economy.

Jock Mendoza–Wilson, Director of International and Investor Relations, System Capital Management, focused on conditions for business operations in Ukraine. He concluded that last year entrepreneurs had certain doubts connected with the lack of stability in the country. “Many businessmen said that it did not matter who would win the presidential election, what mattered was his ability to form a strong government,” an analyst said. According to the expert the most important event of 2010 for Ukrainian business was an understanding reached with the International Monetary Fund. In his opinion, during the negotiations with the IMF, foundations for economic reforms were laid down (pension reform, increasing the price of gas) but they also had a favourable influence upon the economic fluidity of Ukraine. 

“Many investors are worried by business circles in Ukraine, which should be friendly towards large investment. Moreover, certain facilitations are needed, such as VAT return, effective customs offices and free flow of goods across borders,” Mendoza said. The vices of Ukraine are a lack of transparency and the existence of too many regulations. In his opinion the government started making decisions in the right direction but it cannot be seen yet when looking at indices, for instance, relating to corruption levels.

Vitaliy Kulyk, Director, Centre for Civil Society Problems Research, pointed out that in 2010, after the October verdict of the Constitutional Court, there was an end to dysfunctional democracy and Ukraine made the transition from a parliamentary-presidential system to a presidential system. According to him this decision is the beginning of a new constitutional process, as a result of which Ukraine may even return to a parliamentary-presidential system but with better organised state institutions. According to Kulik the safeguards of democracy in Ukraine are its civic society, which has been expressed by demonstrations organised by students and entrepreneurs, which exerted strong pressure on the ruling elite and also international policy as Ukraine has external obligations which it cannot fail to meet.

Marcin Święcicki, Director, UNDP Blue Ribbon Analytical and Advisory Centre in Kiev, stated that macroeconomic data, the record low inflation rate, and GDP growth prove that the condition of the Ukrainian economy is improving. However, the situation of public finances is worrying and therefore the International Monetary Fund is exerting pressure on Ukraine to consolidate its financial situation. This process is to be facilitated by increasing the prices of gas for households (they pay only 25% of the current market price), a pension reform and the pulling of the economy out of the grey zone. Święcicki also spoke about the opportunity which Ukraine has thanks to the EFTA Agreement. The expert also criticised the European Union for protecting its own agricultural market during negotiations with Ukraine. “On the one hand chernozems are not fully taken advantage of and, on the other hand, the European Union subsidises its agriculture, which is completely unjustified from an economic point of view.”


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