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Democracy Watch, 2011 - Issue 4

02-23-2011 02:50 PM CET | Politics, Law & Society

Press release from: People First Foundation

Ukrainian government makes claims about its obligations to the European Union whilst pulling tightly on Tymoshenko’s leash. With fight against corruption losing its strength the shadow economy is in boom.

The government comes under fire over restriction of opposition mobility

Ex-Prime Minister Yulia Tymoshenko was recently denied permission to take a political trip to Brussels by the General Prosecutor's Office of Ukraine, who stated that they considered her to be a flight risk and scheduled fresh investigation procedures during her proposed visit. Whilst the validity of case against the Ex-Prime Minister, involving accusations of misappropriation of public funds gained through the Kyoto Protocol, remains the subject of fervent legal debate, the sudden appearance and crippling effect of this batch of investigations has led critics to cry foul play.

Although the decision of the General Prosecutor's Office may be technically legal, the ramifications in the international political arena could prove severe. The President of the European Parliament Jerzy Buzek has already condemned the manipulation of the Criminal Code to oppress opposition in Ukraine. Carl Bildt, Minister of Foreign Affairs of Sweden, termed the prohibition of Tymoshenko's visit to Brussels as totally unacceptable. If this bout of investigations were to be postponed in order to permit Tymoshenko’s European excursion the damage to the authorities credibility would at least be limited. The authorities might hope that Tymoshenko follows the footsteps of former Prime Minister Pavlo Lazarenko, seeking European refuge and slipping out of Ukrainian politics entirely.

People First Comment:

Clearly both sides in this dispute are out to use the situation to maximum advantage. Mrs Tymoshenko is an expert at using her femininity and charm to great effect in securing national and international sympathy for what she says is political persecution. Let us not be fooled this lady is, by all accounts, a very wealthy woman who expertly and ruthlessly used the law at the time to amass a fortune. As Prime Minister she ruled her cabinet with a rod of iron and manipulated the media at every opportunity. Yulia is no Joan of Arc and the European elite should be very wary of supporting her so publicly as it could well come back to haunt them.

On the other side it is in Party of Regions interests to bring her down by all means possible and there may well be pressure on the prosecutors office and strong political motivation to the charges. The Japanese auditors have reported that the Kyoto protocol funds are still in the government account agreed for the purpose and have not been spent which blows a huge hole in the prosecutors argument. The second investigation regarding ambulance purchases may well also be a trumped up charge as it would appear to be normal for Prime Ministers, on the advice of their experts to sign off purchases. Of the 73 cases in the current anti-corruption drive do they really expect the public to accept that only one relates to a member of their party?

In the middle are the prosecutors who have a public duty to view all cases strictly from the legal perspective. They should follow the law and the timings set down in the statutes to the letter as if they deviate in any way the public will have the fundamental democratic right to call for their dismissal. All three parties should note that the law is not a toy; it is the foundation of the Ukrainian culture and civilisation. They are playing with the very future of the nation.

Ukrainian economic growth prefers the shade

The new Taxation Code for 2011 has delivered irrefutable growth; unfortunately it is localised solely in the non-taxable and unregulated shadow sector. Experts profess that close to 50% of Ukrainian salaries are now distributed under the table, saving enterprises up to 20% in wage expenses by way of pilfering billions from the state budget coffers. According to the estimates of the Ukrainian tax administration, 2011 will see a million individual tax payers in Ukraine; 800 thousand less than three years ago. The vast majority of these businesses are not dissolving but merely slipping below the tax administration radar – evasion is survival under a tax code that directly persecutes the SME sector, heralding bankruptcy for the many.

The Donestka region and other areas in the eastern regions of Ukraine have suffered the heaviest losses, where anticipation of the new Tax Code caused entrepreneurs to give up their enterprises en masse, two months prior to the enactment of the Code.

The Ukrainian banking system lost $6.1 billion in withdrawals during the last four months of 2010 - accounting for approximately 80% of the total volume of transactions for the year. When considering this rush of withdrawals alongside the disappearance of 44% of the SME sector it is not unreasonable to assume that the shadow economy is soon to receive a boost of activity. With such a weight of financial clout resting in the shadows we can only wonder as to the viability of governmental economic policy.

People First Comment:

There are two schools of thought on this issue. The first is that the Prime Minister and his team are so schooled in the economics of the past and so blind to current world and in particular modern European macro economics that they cannot see that their policies can only lead to the destruction of the SME sector and to what has become a vital source of tax revenue. Destroying the SME sector is about as clever as cooking the goose that lays golden eggs

The other school of thought is that the policy is deliberate and it is the government’s intention to undermine the emerging middle class and to destroy what is rapidly becoming a major source of opposition. Some may consider this to be classic conspiracy theory but by all accounts there are worrying moves by criminal ideologists, to take over businesses using threats and violence. Their main priority would appear to be the destruction of the Ukrainian middle class – the people who secure our freedoms irrespective of the government in power. What is strange is that the authorities are making considerably more effort in their own heartland in the East of Ukraine to drive potential oppositionists to the wall.

However this policy may well have exactly the opposite effect of that planned. The SME sector has already withdrawn $6.1 billion in cash from the banking system going back to the former policy of keeping money at home. The impact of this on the banking system should not be underestimated. A move into a more cash driven economy will mean that Ukrainians will once again use their creativity to undermine oppressive authorities. The tax revenue base will be severely damaged just as it was in the past and no amount of pressure will rectify this. What is worrying is that now their oppressors are not Czarists or Communists but the elected government.

Government professes its intentions to meet European obligations

According to the Ukrainian media, the government has approved a decree that will tailor Ukraine's policy to meet the conditional requirements set by Europe to facilitate financial aid during the recent economic crisis. On the 12th of January, Viktor Yanukovych issued a Decree to the Council of Europe stipulating intentions to meet Ukraine's obligations. The document echoed many of the policies promised, but never executed, by former President Yuschenko in 2006. Key features include: assurances of a newly independent judiciary, restructuring of the security services and the ratification of international conventions on human rights.

The Decree also sets the scene for major legislative reform: bringing election law up to the requirements of the Venice Commission, reforming state controlled press and setting the parameters for the conducting of protest events; although opposition members claim this is a smokescreen for restrictions on freedom of assembly.

Yanukovych may yet demonstrate the political will, which Ex- President Yuschenko lacked, to bring Ukraine up to the norms of its European neighbours, however, with such major reform programmes the focus should be on the quality of the delivered legislation, not on the quantity promised.

People First Comment:

Anybody can sign a piece of paper and promise the earth. The real test is whether the signatories have the political and moral will to follow their words with real and concrete action. For any government to be taken seriously they must honour their word. Mind games, word games and interpretations, no matter how diplomatic the language, just don’t cut it.

Unfortunately to date honesty does not seem to be the policy. Take for example the media situation. Neither the president nor the government have issued any published instructions to the security services or the media on what can and cannot be published and flatly deny any interference. To all intent the press is free and open. But, since the election journalists have reported a marked rise in editorial control in favour of the government to the almost total exclusion of the opposition. The tone of comment on the Presidency has gone from highly critical in the Yushchenko years to mildly supportive yet not all of the media are owned by the PoR faithful. This is a classic case of saying one thing and doing the opposite.

If the President follows up the signing of this decree with concrete action then we will be the first to salute the achievements.

The fight against corruption slows to a halt

The lacklustre efforts to combat endemic corruption in Ukraine are slowing to an even more meager pace, contrary to recent promises to the EU. In December 2010 the Ukrainian Parliament vetoed an anti-bribery law that would have provided the requirement for the relatives of state officials to declare their income and expenses. The alternative law suggested by the President "On the Prevention of Corruption" ignores requirements for family members of ministers and deputies. Around the time that the law was submitted to Parliament, Yanukovych terminated the position of Anti-corruption Officer and closed down the Anti-Corruption Bureau of Ukraine; at this time the national anti-corruption strategy remains stalled at the development stage.

Drago Kosa, President of GRECO (Group of States against Corruption), recently pointed out that Ukraine’s commitment to fulfil its international obligations is undermined by the fact that the new anti-corruption law does not regulate the responsibilities of legal entities. The President of GRECO went on to mention that if Ukraine fails to achieve significant progress against corruption its position in negotiations over visa-free travel will be weakened further. It is unlikely that Ukraine’s corruption will be brought down to a manageable level whilst the penalties for corrupt practice remain so light and so few. In reaction to this Yanukovych stated that prosecution of corrupt officials regardless of their rank and political affiliation is an essential condition of modernisation in Ukraine; Let us hope that the European Union will do their utmost to hold the President to his word.

People First Comment:

It does not matter how much they twist and turn, how much they try to avoid the issue or how many promises they make, eventually the authorities are going to either agree both in law and in spirit to the collective understanding of the 27 nations of the European Union or accept that Ukraine will not be invited to join their club. Europe’s patience is not endless. These naive and frankly childish games do little for Ukrainian credibility.

Quote of the week:

The middle classes could become a revolutionary class, taking the role envisaged for the proletariat by Marx. The globalization of labour markets and reducing levels of national welfare provision and employment could reduce peoples’ attachment to particular states. The growing gap between themselves and a small number of highly visible super-rich individuals might fuel disillusion with meritocracy, while the growing urban under-classes are likely to pose an increasing threat to social order and stability, as the burden of acquired debt and the failure of pension provision begins to bite. Faced by these twin challenges, the world’s middle-classes might unite, using access to knowledge, resources and skills to shape transnational processes in their own class interest.

Unnamed contributor
Ministry of Defence (UK) DCDC Global Strategic Trends Programme

Democracy Watch is the weekly monitor of the People First Foundation and serves to raise public awareness of how government and parliamentary action is impacting upon Ukrainian democracy and democratic due process. The information is copyright free and may be reproduced but we ask that any comments are reproduced in full and with reference to the People First Foundation.

People First Foundation

1 Skovorody Street, Kyiv 04070, Ukraine
Telephone: +38044 536 1508 / Fax +38044 536 1509

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