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Saturday, 27 January 2018 10:37

REFORMING UKRAINE: FIRST OF ALL — RULE OF LAW

Artem Shevalev, Facebook, 24.01.2018 

 

Well, flying to Zurich, let's use this time wisely - here's my #Davos2018 'manifesto' for Ukraine. 

 

Of course, Davos is about global issues and this year more than ever about the future. Still, I believe that today Ukraine is the epitome of issues and challenges that emerging economies and early transition nations around the world are and will be facing as the technological and, hence, wealth gap with the developed world expands further. 

 

So, in Ukraine we've been trying, with varied degree of success, to reform Ukraine since 2014. I would argue that none of us, who were and still are part of these efforts realised the complexity of the task at hand. What had to be done was to totally dismantle the system of perverse incentives and pervasive corruption (both political and financial) created by vested interests over 20+ years before the Maidan in 2014.

 

Unfortunately, this system became so deeply embedded in the fabric of the Ukrainian society, economy and politics, that in many instances it replaced the normal statehood institutions. And, of course, the war that Russian Federation wages against Ukraine became a critical factor as well - in any war, and in a modern hybrid war of today even more so, Kremlin fights us inside our country just as much as they do from the outside. 

 

The reform efforts proved painful and very often incomplete, the push back from the vested interests unprecedented, the new reform teams not always consistent, support from the international community sporadic and shaped by our friends' domestic agendas. The reformers were very often undermined by their own 'allies', rather than by their enemies. 

 

Why is it taking so long? Why is the progress so slow? Why can't we break away from the old ways? 

 

When the second Arseniy Yatseniuk's Government resigned in April 2016, we had a small 'lessons learned' chat with my boss at the time Natalie Jaresko (then Minister of Finance). We spoke a lot about all the changes that we couldn't deliver and all the initiatives that got killed or stalled at various levels of the executive. The session gravitated to the set of issues, which were not under MinFin control, but which still were the subject of our conversations repeatedly in 2015-2016 - judiciary reform, rule of law, delivery of justice. In the end we agreed - that's where it all should have started. 

 

Exactly how critical is it? As I said above, Ukraine suffered heavily for the previous 20+ years through the loss or deterioration and perversion of most state institutions. The disastrous outcome of that was the fact that people have lost their trust in these institutions. People distrust not only the politicians (nothing new in most countries of the world) - people distrust the institutions which they should themselves control and use to defend their rights (various level councils, courts and law enforcement). Restoring this trust has proven to be the hardest fight to win. And the lack of this trust was abused by the vested interests, oligarch groups to resist the change and try and maintain the status quo. 

 

I would argue that should we have started in 2014 by completely replacing the judiciary and introducing a temporary system of 'outsourced justice' - we would have seen a much faster pace of changes. Most recently we saw a form of such 'outsourcing' being implemented in Kazakhstan (of all the places!) in the shape of Astana International Financial Centre (AIFC) Court. 

 

Ukraine should follow suit - but to a much bigger degree. I am sure, there are enough Ukrainian speaking judges and lawyers around the world with outstanding professional track records, who could be brought together to form a 'Judicial Oversight Board' that will monitor the rulings of the Ukrainian courts. Any decision by the authorities in any aspect of the reforms will be distrusted by the people until people will know that there is judicial protection that ensures a fair ruling. We can discuss the limitations of their oversight, but such a mechanism is required to make sure that we finally have a level playing field and rule of law in Ukraine. 

 

So many politicians and so many 'experts' in Ukraine lambasted all of us, who wanted to bring in the best international practices to Ukraine.  


They say - "we don't need the IMF/USA/EBRD/EU/'West' to dictate us what to do, we are unique and we have our own unique ways; if you think otherwise - you are the agents of Department of State/Brussels/Berlin/multinational companies who want to destroy our economy and sell our country to the foreigners". What these critics miss is the point that any country's key asset is its people. And if people don't trust their state - there's no country. Can we form such a 'Judicial Oversight Board' from Ukrainian legal professionals? Probably. But than why the selection process to the Supreme Court of Ukraine lasted many months and still yielded a rather mixed result, when smart new faces, whose integrity is beyond any doubt, share the court halls with less than scrupulous characters?!

 

You want fair privatisation - you need to trust that the court will rule fairly in case of any investor dispute.

 

You want to sell banks' NPLs successfully and transparently - you need to know that the courts will not be used to overturn the results of such sales, if it goes 'not to the necessary guy'.

 

You want the banks to start lending to support the economic growth - you need to know, that the court will protect the creditor's rights and will allow the bank to get its collateral.

 

You want to punish the bank owners for stealing from such failed banks - you need to know that the courts rulings cannot be bought.

 

You want to have a system of preferences and tools to support Ukrainian economic recovery - as with any preferences, it is prone to corruption, so you need to know that there an independent and trustworthy judiciary to punish corruption.

 

You want to have a proper Anti-Corruption Court and not to be afraid that it will be used for political purposes - you need to know that there's a truly independent oversight over it.

 

You want the oligarchs to be penalised for abusing the markets - you need to know that the court is not afraid to rule according to the law.

 

And you know why all these British, US, Canadian, EU judges and lawyers would work? Because their domestic judiciaries work. Which means they know - if they are to break a law in Ukraine and take a bribe, the long arm of the American or British or European justice will get them.

 

We can discuss all kinds of auxiliary solutions that will allow for quick transition to the new system - first of all, 'zero declaration', maybe exempt sectors for such oversight (for example, war crimes and state security allegations), but the tide will only truly turn when the people will learn to trust the judge.

 

Yes, there are specific reforms in the financial and banking sector, as well as in the wider economy. And you may argue that "you need to reform the State Fiscal Service first" or "you need to have the corporate governance at the SOEs first", but in reality - until you can abuse the judiciary to overturn any (!!!) action either by the state or the private sector no reform is irreversible and, hence, trusted.

So, that's what I want to discuss in Davos - how changing Ukraine depends on making the rule of law really work. How the rule of law will return trust. And how this trust will allow reforms to finally take hold.

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