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Democracy and Governance in Ukraine
The Development Challenge:
One of the most pivotal elections in Eastern Europe since the fall of the Soviet Union, the Ukrainian presidential election showed a civil society constitutionally and peacefully insisting that its voices be heard. Civil society support, effective advocacy, development of independent media, democratic institutions, and legal frameworks to protect voters' rights and civil liberties, combined to empower local citizens to speak out against violations of democratic norms. Prior to the election of its new government, Ukraine had still made little progress in realizing second-stage economic reforms, which focus on building stable, market-based institutions. This is particularly true, for example, in the case of building a financial sector critical to the long-term sustainability and growth of a free-market economy. Despite major progress associated with the introduction of risk-based bank supervision, the financial sector regulatory bodies remain inexperienced and weak with an inadequate legal and regulatory framework. As a consequence, the financial sector and its institutions are still woefully inadequate to support broad economic growth.
Promising signs of political reform and empowerment among elected local governments were becoming evident at the end of the calendar year, but weak political accountability, unequal law enforcement and tightly controlled media have continued to restrain Ukraine's democratic development. In 2004, the Government of Ukraine's (GOU) economic policies became increasingly nontransparent and focused on short-term fixes, which contributed to the growing budget deficit, inflation (up to 12%), and price instability in food, gasoline, and financial markets. Benefiting from accelerated economic growth, resumed large privatization, and an improved international credit rating, the GOU continued to provide huge subsidies to loss-making enterprises, invest in nuclear stations and transport infrastructure, and increase pensions and public sector salaries. At the same time, the GOU made little progress in removing impediments to sustainable economic growth, such as eliminating tax privileges, strengthening budget discipline, improving intergovernmental transfers, and reducing value added tax arrears. Not surprisingly, the International Monetary Fund (IMF) and the World Bank (WB) have not resumed cooperation with Ukraine as planned.
In the education, basic services, and health sectors, weak government policies, corruption, and outdated management practices continue to hinder the state's ability to provide adequate services and protect vulnerable populations. While the GOU began to implement pension reforms, which expanded pension investment opportunities for current employees, it did little to advance modern practices in health, education, and social security. Almost 30% of Ukraine's population still lives below the poverty line. Economic hardships contribute to low birth and life expectancy rates. HIV/AIDS, tuberculosis (TB), and other infectious diseases have been increasing at an alarming rate. High rates of alcoholism and substance abuse, domestic violence, suicides, prostitution and human trafficking are serious concerns, as are the vulnerabilities of children and youth who live on the streets, in institutions, or in dysfunctional families. The social care system continues to be characterized by low staff morale, obsolete equipment, and ineffective practices.
In 2004, the Ukrainian economy recuperated and attracted new investments. By the end of September, the gross domestic product (GDP) growth rate exceeded 13%; foreign direct investments (FDI) increased by 15% and positive trade balance reached 15%. However, private sector development is still characterized by onerous business barriers, including: heavy dependence on several basic industries (transport, metals, utilities, coal production), and an agricultural sector still heavily dependent on government subsidies; sizeable arrears (up to 25% of accounts payable); and disproportionate investments in real estate. Huge capital outflows and accumulation of the most expensive industrial, commercial and financial assets in the hands of several politically powerful Ukrainian and Russian clans crowd out many small and medium enterprises (SMEs) and strangle the competitiveness of Ukraine's economy. Without structural reforms, improved transparency, rule of law and governance, the Ukrainian economy will remain unattractive to international investors.
Coverage by the Directly Observed Treatment Short Course (DOTS) strategy for TB control in the pilot region of Donetsk increased from 80 to 100%, reaching a population of 5 million, or 10% of the country. USAID trained more than 3,300 Ukrainian specialists nationwide in laboratory diagnosis, treatment, surveillance, and monitoring practices. Despite improved TB case management and a continuous supply of TB drugs in Donetsk, the TB treatment success rate decreased from 70% of patients in FY 2003 to 68% currently. This decrease was due to continued high levels of multi-drug resistant TB, difficulty in treating HIV/TB co-infected patients, and lack of follow-up care. While the global goal of curing 85% of new TB patients has been acknowledged, Ukraine must lay the foundation for the National DOTS program in ensure cure rates of at least 70% of new patients.
USAID helped the GOU to launch a new three-tier pension system in January 2004 for some 14 million pensioners, which amounted to 30% of the population, or nearly 40% of all voters. The large and growing population of pensioners is supported by only 16 million workers. The average old-age benefit increased by 30% in FY04, from 146 to 190 hryvnya, and for the first time reached two-thirds of the poverty level for the elderly.
(Excerpted from the 2006 Congressional Budget Justification for Ukraine)
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