COMMENT: Ukraine needs to “do a Romania”

COMMENT: Ukraine needs to “do a Romania”
By Ben Aris in Moscow December 14, 2015

Ukraine should stop talking about “adopting European values” as the way to rescue itself from its plight and do something about it. So far the Ukrainian government has paid lip service to these values, but failed to act on them. What Ukraine needs to do is recalibrate and “do a Romania” instead, where there is less talk of values and a lot more action.

Since the Euromaidan revolution in 2014, the EU has gone from “expressing grave concerns” during the showdown with former president Viktor Yanukovych, to “expressing its support” for the new guard that is tasked with the transformation. Yet there has been little in the way of money compared to promises, and the introduction of the EU’s free trade and association deal could be delayed past January because of Russian pressure.

By contrast, Romania is one of the success stories of Central and Eastern Europe (CEE) over the last decade. In Soviet Russia there was a popular joke that ran: “I thought we had it bad here between the shortages and the queues. Then I met some Romanians and felt better.” Stymied by rabid corruption and incompetent leaders, Romania was amongst the poorest of the Soviet vassals.

However, it is now one of the fastest growing economies in the region; the European Commission forecasts its economy will expand by 3.5% this year – on a par with Poland and slightly behind the Czech Republic. Next year Romania’s predicted growth of 4.1% would be second only to Ireland’s in the entire EU.

How did it manage that? It wasn't EU structural funds. The country, which joined the bloc in 2007, has received relatively little in terms of EU grants and only spent 60% of the €19bn allotment for 2007-2013 due to bureaucratic incompetence. And it wasn't because it had a visionary new political leader either. The government fell in November after a fire at Bucharest’s Collectiv nightclub that killed 60, which highlighted the endemic corruption and lack of enforcement of the rule of law.

So what was it? The biggest contributing factor has been the dramatic changes at the prosecutor’s office. Officers from the National Anticorruption Directorate (DNA), headed by Laura Kovesi, have been extremely active in targeting top government officials and businesspeople, and bringing them to book.

Corruption has been a big problem in all the old Communist Bloc, but was especially bad in Romania, even after it joined the EU. But now there are no sacred cows. Romania’s DNA had started investigating Prime Minister Victor Ponta months before his resignation on November 4, as well as launching cases against Finance Minister Darius Valcov, former presidential candidate Elena Udrea and Bucharest mayor Sorin Oprescu, to name just a few of the more prominent.

Yet Ukrainian President Petro Poroshenko, elected on a wave of euphoria after the Euromaidan protests, has totally bilked the people out of this reform, standing steadfastly by Prosecutor General Viktor Shokin despite his obvious reluctance to prosecute anyone for past misdeeds.

The condemnation of Poroshenko’s failure to tackle corruption is growing louder by the day. A senior advisor to Finance Minister Natalie Jaresko wrote a scathing attack on the failures entitled “How to (not) reform Ukraine”, which laid the blame at the government’s door. And US Vice President Joe Biden made the same point in Kyiv on December 8, telling the Rada in a speech, “don't waste your chance for reform”.

There is perhaps some cause for optimism with the recent appointment of Nazar Kholodnytsky as Ukraine's new anti-corruption prosecutor, but the proof of the pudding will be in the eating – and Romania’s Kovesi has set a very high standard.


The fight against corruption is not the end of reform, but it has had a dramatic and immediate effect on the ability of Romania to transform itself. It is the simplest and most effective thing the Ukraine government can do. Corruption is often called a cancer for literary effect, but the analogy runs deep and cutting it out of Ukraine’s body politic really does noticeably improve the health of an economy.

And in Romania’s case the DNA’s effort is supported by pressure from ordinary Romanians, who are becoming increasingly intolerant of corruption. Quick to take to the street in the more egregious cases, the government is more accountable than ever and has already been toppled once this year by protests. PM Ponta was already under pressure from DNA corruption investigators, but was finally forced to resign over the nightclub fire. It turned out the club’s owners had no permit for the firework display that caused the fire. 25,000 people joined a demonstration on November 3 calling for the resignation of the local authorities and Ponta’s government.

That is not to say that Romania is exactly flourishing. The government is still riddled with corruption, investment is too low and poverty too high, and red tape continues to be major hurdle for future development. Economic growth is decent but not outstanding.

Indeed, Romania’s parliamentarians are actively trying to block the DNA’s work and investigations into its members.

But the changes have started to bear fruit. Romania is an upper middle-income economy, and in recent years domestic consumption and foreign direct investment have been stimulating GDP growth.

From its improving base, the country has been developing its main industries: electric machinery and equipment, textiles and footwear, light machinery and auto assembly, software, mining, timber, construction materials, metallurgy, chemicals, food processing and petroleum refining.

On the expenditure side, household consumption at 63% is the main component of GDP, followed by gross fixed capital formation (22%) and government expenditure (14%). Exports of goods and services account for 41% of GDP and imports account for 41%. This is the picture of an increasingly well-balanced economy and a solid base for development.

Ukraine’s economy is similar to Romania’s and could copy most of what it has done. Ukraine has the added advantage of an outstanding agricultural sector and, if anything, its industrial capacity is more developed than that of Romania, thanks to its leading role in both the Soviet aviation and space sectors.

But Ukraine’s economy remains plagued by the evils of massive energy-inefficiency caused by government subsidies, which is the root cause of its decade-long row with Russia over gas imports, and under-developed infrastructure, corruption, stifling bureaucracy and political turmoil.

Corruption undermines everything. On the production side, services are the biggest sector of the Ukrainian economy and account for nearly 68% of total GDP, of which domestic trade accounts for 14% of GDP, accommodation and food service for 13%; industry accounts for 22% of GDP, of which manufacturing accounts for 11%; and agriculture contributes with the remaining 10%. This is the structure of a bazaar economy where trading is the main activity, little is produced and less is exported.

That needs to change and cracking down graft is the place to start.