Much of the attention in recent days has been on the immediate crisis facing Ukraine. Away from the television pictures of events on the ground in Crimea, there is a much less visually dramatic but equally serious challenge. Amongst the first calls that the new leadership in Ukraine made was for financial support from the international community.
The European Commission has proposed a response which will be discussed at the European Council in Brussels today. Apart from any EU activity, other members of the international community are also considering what they can do.
The European Bank for Reconstruction and Development, already one of the biggest foreign investors in Ukraine, is currently assessing the economic needs there and how we might be able to respond. As part of the international community’s help and assuming the right macroeconomic policies and conditions, including an IMF macro-economic stabilisation programme, we have the capacity to invest around €800 million to a billion annually in Ukraine over the next few years.
Given the background and the time constraints, action is needed. The success of our funding will have to be measured against the following goals that we are pursuing:
- Fiscal and external financial consolidation: Ukraine has suffered a rapid reduction of its foreign currency reserves, a significant decline of bank deposits and an uncontrolled surge of its budget deficit (+ 21.2 per cent up from 2012 to 2013). The country’s debt is mounting and has risen to $75 billion under the previous regime. The country’s currency, the hryvnia, has lost more than 20 per cent of its value this year. All this illustrates that the country is in urgent need of shift of economic policies. Any support package can help the country meet its most pressing obligations, but it will only be able to make a lasting impact if it comes with the right economic policy mix, that ensures sustainable development.
- In this context political stabilisation is the conditio sine qua non for any progress. This cannot wait until the country has held presidential elections scheduled for 25 May. Instead, the authorities must take decisive measures to set the country on the right path now. The financial backing of the international community is supposed to provide the needed shot in the arm to strengthen the authorities’ muscle.
- Chief among the priorities for reform must be a focus on developing the private sector further and a commitment to it beyond any doubt. For far too long, Ukraine has not used its resources efficiently and for a very narrow circle of beneficiaries only. This must change for good. In a radical break with the past Ukraine needs to enlarge the sector of small and medium-sized enterprises. This may sound a challenge, but it can be done as Ukraine’s western neighbours have demonstrated over the past 25 years. They did it with international support and that’s why we are focussing our initiative on the private sector.
- However, what the private sector needs more than anything to flourish is the right institutional framework and a level playing field. A major, and all too often overlooked aspect, is good governance. Recognising the hugely damaging impact corruption has on the economy, the EBRD has taken the lead here. Last year already we took a clear position vis-à-vis the former government and told them that we would reduce our investment unless decisive measures to fight corruption were implemented. Concretely, we developed a comprehensive Anti-Corruption Initiative with the clout of an independent watchdog. We are encouraged by the new government’s announcement that a purge of corruption will be a priority and the EBRD stands ready to contribute and wants to make progress with the Initiative.
- This will also be an important element in the effort to make Ukraine a country governed by the rule of law. This, however, is not only critical to restore order and make the country attractive as a business destination again. It is also what it essentially means to be a part of Europe, a variety of nations with complex histories, shared values and a bright future. Ukraine has embarked on a new path. It is our duty to stand by this important country’s side and we are ready to do so. Our help would be significant and we, together with the international community, are ready to deploy it, because we are all united in the determination that we want Ukraine to succeed.
Sir Suma Chakrabarti is President of the European Bank for Reconstruction and Development.