Anders Aslund: While Ukraines economic situation is desperate, it is not hopeless. The first thing to do is to have new presidential and parliamentary elections to get political leaders who want to save the country rather than themselves and their families. That is what Ukraine has just done. The next step is to throw out the old officials. In September Ukraines parliament adopted a law on lustration, which is now leading to the sacking of old top officials throughout the administration. It needs to be accompanied by a constitutional reform leading to more decentralization and an abolition of superfluous or even harmful state agencies and a far-reaching deregulation. Then comes the hard step: to cut public expenditures from their current level of 53 percent of GDP by one-tenth of GDP in 2015 to rein them in to a reasonable level. The excessive payroll tax must be slashed and the flat personal income tax should be restored. The lawless tax police should be abolished. The main cut in public expenditures should be the elimination of the energy subsidies, which currently amount to 10 percent of GDP. Domestic energy prices should finally be unified, while social cash compensation should be given to the poorest half of the population. As a consequence, Ukraine could cut its energy consumption by half and boost domestic energy production to become self-sufficient in energy. The most important effect would be that the corrupt arbitrage between low state-controlled gas prices and free market prices finally could come to an end. Needless to say, Ukraine will need substantial international financial assistance to carry out these major reforms. It is likely to come primarily from the International Monetary Fund and the European Union. Ukraines financial crisis forces the country to change its ways for the better. Democracy has already been established. The public budget deficit must be cut and the rest financed with international support. The power of the old Soviet establishment and its endemic corruption should be broken. Finally, Ukraine can pursue a deregulation that allows its economy to grow.
Posted on: Sat, 08 Nov 2014 14:38:53 +0000
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