Don't waste your chance for reform, Biden tells Ukraine

Don't waste your chance for reform, Biden tells Ukraine
By bne IntelliNews December 8, 2015

In an impassioned speech delivered to Ukraine's parliament on December 8, US Vice President Joe Biden urged the country to seize the moment, fend off Russia, stamp out the rot of endemic corruption and drive home a tough programme of economic reforms that will secure further Western funding.

"This is your chance. Please - for the sake of the rest of us - don't waste it," Biden said, addressing the 450-seat Verkhovna Rada assembly in the Ukrainian capital Kyiv, news wires reported.

He also urged the country not to allow its wealth to be seized and controlled again by a handful of big business leaders, saying "We saw oligarchs ousted from power, only for them to return"

During his speech, the vice president won standing applause for saying the US will never recognise Moscow's 2014 annexation of Crimea and that Russia is standing behind the armed insurrection in Ukraine's eastern Donbas region.

Regarding the passage of a new tax bill that will not sit well with taxpayers but ensure continuing Western credits, mainly via the International Monetary Fund (IMF), Biden urged MPs to vote for the measure: "Deep in your hearts you know what is the right thing to do. You know it. So do it," he stressed.

He also urged Ukraine to make painful but crucial reforms to make governance more transparent, noting that "corruption is eating Ukraine like cancer", the Associated Press quoted him as saying. "Russia is using your corruption to undermine you," Biden added, while warning that failure to fight graft will lose Ukraine international support.

Western skepticism at Ukraine's determination to tackle the corruption issue was reflected by the fact that the US has offered Ukraine only a $190mn new loan at a time when the EU gave Turkey €3bn to help deal with its immigrant crisis.

Tax hurdle

In his speech, Biden underscored US support for Ukraine, but also the world’s frustration with the failure of its parliament to make legislative changes to the tax code and other key areas like agricultural subsidies in order to receive further IMF funding. Transfers of funds agreed in March under a $17.5bn support package from the Fund have been delayed because of this.

Ukrainian authorities are currently considering a number of tax reform plans, with some proposed populist measures causing alarm among Western backers. In particular, the parliamentary tax committee submitted to lawmakers a tax reform plan based on radical tax cuts, which could lead to losses of UAH150bn-UAH200bn ($6.5bn-$8.7bn). The IMF office in Kyiv has already warned Nina Yuzhanina, the author of the document and head of the parliament's tax and customs committee,  that the fund could not support the radical proposals.

At the same time, the Ukrainian Finance Ministry has its own reform plan. However, the government has not found compensators for budget revenue losses caused by this proposal. The reform is expected to lead to a UAH60bn ($2.6bn) decline in state revenues. The ministry is reportedly now looking at a "compromise" tax bill to balance demands of both sides in the tax issue.

Take the hard road

In his first full day of talks on December 7, Biden urged Kyiv to follow through on its IMF commitments. "We know from experience they're not easy. These commitments are hard. They require some very tough political decisions for not only you to make, Mr President [Petro Poroshenko], but for all the members of the Rada," Biden said at a joint briefing with Poroshenko, according to the US White House.

Ukraine must now bite the bullet in key areas to overcome the last 20-40 years of having no serious economic programme, the US vice president emphasised. "But it will continue to boost your economic progress, and we'll continue to be your ally with the IMF," he said.

Let there be light

Meanwhile, in an apparent reflection of US influence in Ukrainian affairs, full electricity supply was restored to the Crimea on December 8, a day after Biden is thought to have raised the issue in his talks in Kyiv with Poroshenko.

The resumption of the power flow, confirmed by Russia's energy ministry, came two weeks after saboteurs blew up pylons carrying Ukrainian electricity to Crimea.

Defiant authorities on the peninsular had earlier refused an offer by Kyiv to partially restore power. "We've already long ago refused everything Ukrainian," Crimean Prime Minister Sergei Aksyonov said in response to an offer by Tatar protesters to allow engineers to repair power lines brought down by explosions on November 22.

Aksyonov said earlier that Crimea would refuse the renewed electricity supply from Ukraine. "Electricity was the last thread that tied us to Ukraine," the Kryminform news agency quoted him as saying on December 7. "As of today, we are cut off completely and don't have intentions to renew these relations again."

As Ukrainian power flowed into Crimea again, in spite of Aksyonov's stance, Russian engineers continued work on an "energy bridge" running under the Black Sea from mainland Russia to Crimea. One of its four power cables was already activated in early December, with the remainder due to start working around December 20, months ahead of the original schedule.