Sir Suma Chakrabarti, EBRD President
University of Toronto, Canada
We see the country’s enormous unrealised potential, says EBRD President
Ladies and Gentlemen! And, for the Ukrainian speakers among you, пані та панове!
It gives me enormous pleasure to be here with you today. Thank you for the invitation.
If you were looking for a snapshot of globalisation in action, perhaps this would do the trick. I am the president of a Bank with 64 different nations for shareholders, active on three continents, from Morocco in the west to Mongolia in the east, himself a British citizen, born in India, delivering a speech in Toronto about a country more than four and a half thousand miles away.
That country is Ukraine. It is, I know, a country close to the hearts of many of you in the audience today. And it is a country that the Bank I have the privilege to serve as President, the European Bank for Reconstruction and Development, is doing its utmost to help at this momentous period in its history.
We do so not out of charity. Although all of us feel a sense of compassion when we witness the hardships its people have currently to undergo.
We do so, instead, in the knowledge that we are well qualified to support the Ukrainian transition. Ukraine’s story is at a turning point. Helping Ukraine achieve the long overdue economic transition is in the best tradition of what we as a Bank were established for 25 years ago.
And there is another very important reason why we are now doing all we can to support Ukraine. We see the country’s enormous unrealised potential. At independence, Ukraine was economically ahead of Poland, its citizens as well off or even better. Ukraine frittered away that promise. It failed to make systemic change. It stagnated. And now, as many of you will be only too aware, Ukraine is in the grip of a severe and profound crisis.
Every few months we at the EBRD issue economic forecasts for the countries where we invest. The latest for Ukraine, released last month, made alarming reading.
It cited “massive pressures on the economy this year”. The national currency has lost two thirds of its value since the beginning of 2014. The external funding gap is huge. The banking sector is particularly vulnerable to the macroeconomic turbulence.
The military conflict in the east of the country is, we all know, a political and humanitarian tragedy. In the economic context, the fact that the conflict has been raging in a region which previously accounted for a major share of industrial production and exports is also a disaster.
No wonder then that the EBRD is predicting that Ukraine’s GDP will contract by 7.5 percent this year. An even grimmer forecast that that we made in January.
Together, the fighting in the east, the economic crisis and the legacy of years of mismanagement of resources, to put it bluntly, of corruption, have in them the makings of a tragedy with few parallels in a country of Ukraine’s size.
And yet, in the midst of all this, something impressive, something extraordinary even, is starting to take shape.
We need to give credit where credit is due. And today I want to speak up and speak out. About some of the considerable achievements that Ukraine’s beleaguered government has to its name – even in the most adverse of circumstances.
A crisis of the order Ukraine currently faces is, of course, a threat to its security and stability. It is, naturally, a challenge which a nation can rise to. Or one it can flunk. It is also an opportunity, one to be grasped. Or wasted.
Ladies and gentlemen, the good news is that Ukraine is not squandering this chance to build a better tomorrow.
Who would have thought, only a few months ago, that an administration engaged in a military conflict of the magnitude we have seen in the east would at the same time pursue the reforms required to undo years of half measures, missteps and neglect of its economy, governance and business climate?
Many of us were, I admit now, sceptical about the prospects for such change. How had governments elsewhere fared in similar situations? The precedents were not encouraging.
But it turns out that on this occasion we were wrong to have such doubts. This is the most reform-minded government that Ukraine has known. Indeed, it is one of the most professional administrations that we in the EBRD have ever worked with.
That is my impression based on numerous meetings with the President, the Prime Minister, the Finance Minister, the Economy Minister and with other members of the cabinet in Kiev. It is also shared by EBRD staff on the ground in Ukraine itself, in our offices in Kiev, in Lviv and out in the field.
We have seen real progress on many, many fronts: energy security, gas tariffs, fiscal reform. There is more. Strengthening the rule of law, reforming the judiciary and public procurement, improving the governance of state-owned enterprises and the cleaning up of the financial system.
Finance Minister Jaresko likes to joke that the radical changes underway in Ukraine’s civil service prove that the term ‘bureaucratic revolution’ is not necessarily an oxymoron. She has a point. A bureaucratic revolution is needed in Ukraine. To move from talking about reform, to passing laws, to actual delivery.
A big test – political, social, economic – is reform of Ukraine’s system of subsidies. Larry Summers argued recently that Ukraine has done more in the past 12 months to reform its subsidies than most nations do in 12 years. We in EBRD agree.
In fact, the Ukrainian authorities have moved swiftly and decisively to tick off the items on the reform wish list that we and others have presented to their predecessors – and to counterparts in other countries.
And all of this in the most hostile of environments.
We do not expect to see eye to eye with the Ukrainian government about everything as it tries to cope with the multiple challenges it faces.
At the same time, we note – and feel we should point out to the wider world – the huge contrast in attitude and results between the current Kiev administration and those that went before.
Put simply, 18 months ago the EBRD was partially disengaging from Ukraine. Such was our frustration and despair at the lack of progress we were making and the way our advice was being stonewalled that we stopped investing in its public sector. We talked tough publicly. We walked tough in our investment approach. We made clear we would work only with the private sector. And even this was proving difficult.
Now, in the middle of 2015, we work more closely with the Ukrainian government than with almost any other in our regions. Our recommendations are listened to and acted on.
There was one excellent example of what we can do together only the other week. The EBRD championed the creation of Ukraine’s Business Ombudsperson. This post has a key role to play in the country’s efforts to improve its investment and business climate and stamp out corruption. Algirdas Semeta, former Minister of Finance of Lithuania and EU Commissioner, was appointed as the Ombudsperson earlier this year. His office became operational at the end of last month. The private sector now has a channel that it can trust for registering complaints about unjust treatment at the hands of state or municipal authorities.
That is real progress and we welcome the launch of the office’s work wholeheartedly. We lobbied for the creation of such a post for a long time. But the previous administration put obstacle after obstacle in its way. Or, possibly, in the past, certain officials realised only too well what an Ombudsperson was capable of. So they actively sabotaged attempts to set one up.
I have dwelt on some of the achievements the Ukrainian government has to its name. Because I believe those achievements deserve a wider and more appreciative audience than perhaps they have reached to date. There seems to be a time lag in some countries in realising what is different. A disbelief borne of past experience with Ukraine. Supporters of the new Ukraine, and the Ukraine’s reforming government, need to change global narrative. Only changed mindsets will attract more investment. And we intend helping the country to do that.
Indeed, the EBRD certainly has a role in helping Ukraine navigate its way out of the current crisis.
The EBRD was founded almost 25 years ago to further progress towards ‘market-oriented economies and the promotion of private and entrepreneurial initiative’ in Central and Eastern Europe. Our shareholders, as mentioned before, include 64 different countries and two organisations. One of those countries is Canada, which has been playing an active role as a shareholder right from the beginning.
Yes, we were set up in the immediate aftermath of the Cold War. But I strongly believe that that core mission is as vital today as it was a quarter of a century ago. And, of course, over that time we have gained much insight into what works and what doesn’t in situations such as the one Ukraine finds itself in now.
At the end of the day, we are an enabling institution. One that helps the countries where we invest identify and realise their potential as productive and prosperous members of the global economy.
We do not seek to take credit for the achievements of others. But we do take huge pride in their successes when we have contributed to them.
So it is with Ukraine. That is why I am proud that last year - just at a time when many others were rushing for the exit - we invested €1.2 billion in the country. More than we have done in a single year since we started working there. As ever, our watchwords have been “helping Ukraine to help itself.”
We provided financing of up to €150 million to upgrade, modernise and repair a key section of its gas transmission system. In return Ukraine has committed to boosting the transparency of its energy sector. A basic precondition to be met if the country is to be the European energy hub we believe it can one day become. Utilising what is currently the largest gas storage capacity in Europe and its geographical advantage as a transit point.
We agreed a loan of $US 60 million to a private stevedoring company to develop a grain transhipment terminal for the port of Odessa. And this was only one example of our long-term engagement in Ukrainian agribusiness, one of the sectors of the economy with the most potential. And indeed the only one to register growth last year.
Let me also mention EBRD’s pivotal role in the international efforts to assist Ukraine in the clean-up at the site of the nuclear accident at Chernobyl. The consequences of that calamity will haunt Ukraine and the region long after all of us are no longer around. On behalf of the international community we manage the Chernobyl Shelter Fund which makes the clean-up possible - and have provided €675 million from the EBRD’s own income to support the operation.
Our commitment to Ukraine is, thus, not one that is here today, gone tomorrow. We are in this for the long haul.
But the historical perspective that comes with our core mission, one whose results are measured over decades rather than any shorter timeframe, also suggests the following.
Concealed amidst all the hardship, the uncertainty and the financial turmoil of the present is Ukraine’s best chance of guaranteeing the future its people deserve.
Yes, there have been false starts aplenty since independence. But look at the progress the Ukrainian government has made in its short life so far in laying the foundations for lasting change.
We cannot fail to be impressed by the way the Ukrainian people have rallied behind a vision of their future that will deliver long-term growth and prosperity.
We urge the Ukrainian government to be yet bolder. To grasp the nettle of difficult reforms still more firmly. There is still much that urgently needs to be done in the banking and energy sectors. The fight against corruption and oligarchs has only just begun. That many-headed hydra will take a lot of slaying!
Over the next six months, that further reform of the banking and energy sectors are crucial. There are so many banks in Ukraine that it would be possible to visit a different one almost every day between now and the end of the year without going to the same banking chain twice. For the first time in its post-Soviet history, Ukraine now has a law to prosecute bank owners who use their lenders as nothing more than personal piggy banks. The law must be used and the system cleaned up. Governance structures need to be improved and regulatory and supervisory powers strengthened. This will mean taking on vested interests. But there is no alternative if the banking system is to fulfil its role of efficient and effective financial intermediation to support the real economy.
By the end of the year, too, change needs to become irreversible in the energy sector. Amongst the work required is that corporate governance must be strengthened in state-owned energy enterprises to prevent direct or indirect capture of them by economic or politically interested groups. The system needs to be opened up to real competition.
Ukraine needs to move quickly and deliver results in these areas and restore fiscal discipline. And investors will respond. The EBRD is the largest single investor in Ukraine. We will be leading the way, I can assure you.
What we are witnessing now in Ukraine is a huge test of its will and its courage. A test that the country has confronted with impressive determination of late.
But it is also a major test for its creditors and the international community as a whole. All of the key international financial institutions, including EBRD, and key bilateral donors like Canada must put our shoulders to the wheel. And so, frankly, must the private bondholders put their shoulders to the wheel, in the restructuring of Ukraine’s debt.
As EBRD’s President, I see current events as an important challenge for the Bank and what it stands for.
We will not shirk this challenge. In fact, we relish it. Rising to such a challenge is what the EBRD was set up to do. As I said earlier, I believe we are as well placed as any other entity to help Ukraine through these difficult times. And help Ukraine re-energise transition to a more advanced economy. And to more modern form of politics.
Ladies and gentlemen, Ukraine's glory has not yet died, nor her freedom, as the opening line of its national anthem argues, rather gloomily.
I would prefer to conclude my remarks today on a more upbeat note. I firmly believe that, as the anthem goes on to say, ‘fate shall smile once more’ on a modern, prosperous Ukrainian nation. Ukraine is doing its bit. So must all of those, like EBRD, who believe in the cause of transition.