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Ukraine: Business-Watchers Cite Corruption, Red Tape, As Main Obstacles to Development

The building where the World Economic Forum was held in Kyiv The World Economic Forum is taking place in the Ukrainian capital Kyiv. The large international gathering has brought together politicians and businesspeople to discuss problems related to Ukrainian development and the economic obstacles currently facing the country. Many point to bureaucracy and corruption as the main roadblocks to the country's growth.

Kyiv, 17 June 2005 (RFE/RL) -- Ukrainian Economy Minister Serhiy Teryokhin says the administration of President Viktor Yushchenko has made progress since the Orange Revolution in eliminating red tape and corruption "at the central level." But he says that much work remains.

“Old bureaucracy [is the main problem]. Old bureaucracy is still [present] on the local level, and unfortunately we failed to overcome corruption within these four months. We still have a rather high level of corruption,” Teryokhin says.

Teryokhin says a number of reforms are needed urgently. But with parliamentary elections coming next year, he says few politicians are willing to risk their approval ratings by pushing through painful and unpopular policy changes.

”Unfortunately, we have elections next year, you know. So, we should be a little bit populist. We do not want to be, but we still cannot stop unfair privileges for some [people]. For example, our prosecutors are getting enormous privileges -- they can use transport without paying, they have a pension that is 90 percent of their salary. It is absolutely crazy,” Teryokhin says.
"Too much regulation; too much bureaucracy."

He says prosecutors are not an exception. All members of the political elite enjoy similar privileges, including members of the Ukrainian parliament and members of the cabinet. However, Teryokhin says the reforms will start in earnest if the parliamentary elections solidify Yushchenko's power base.

Teryokhin says poverty remains another major problem. The government's doubling of social benefits, while a popular step, left the country's budget situation dire.

The benefits hike and plans to revisit some privatization deals are backfiring, Teryokhin says -- something that is making it difficult to lure serious foreign investment to Ukraine.

Augusto Lopez-Claros directs the global competitiveness program at the World Economic Forum, and has been in Kyiv for this week's two-day meeting. He says Ukraine is notorious for corruption.

“Transparency International in its latest report ranks Ukraine 126th out of 144 countries [in the corruption list]. But we are not talking about a small and poor country in Africa. We are talking about a country where per capita income is fairly high, a country that has pretensions of joining the European Union. I think that in the longer term, Ukraine should belong to the European Union, but not before it addresses this issue of corruption, because the standard in the rest of the European Union is much higher,” Lopez-Claros says.

Lopez-Claros says corruption is only part of a broader problem in public management.

“Many of these challenges are in terms of the quality of public institutions in the country. Too much regulation; too much bureaucracy. There have been complaints, for instance, of inefficiency in the judicial system, which is a very, very important component in establishing a good business environment for the development of the private sector,” Lopez-Claros says.

Lopez-Carlos says the international business community expects the new government to move forcefully forward, but it will be a rough road. He notes the social benefits hike has left the country facing inflation that has reached 14 percent and continues to grow. Last year, Ukraine's inflation rate was 9 percent.

Members of the Ukrainian business community have expressed concern that the new government still resorts to old tactics, granting benefits to certain firms, particularly those in the vital oil sector.

Economy Minister Teryokhin told RFE/RL that the Ukrainian public and foreign investors should forgive the cabinet for the mistakes it makes, because “we are all youngsters here.”

But Western business leaders speaking at the World Economic Forum stressed that there is no time for such mistakes, and that the West should begin consulting with Yushchenko and his fellow reformers to remedy the situation as soon as possible.

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