Archive for August 18th, 2011

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Corruption, government assistance or market preparation? The CIS, Ukraine and policy

August 18, 2011

Now when I first arrived in Ukraine, the thought of trade wars with Russia and turning the Ukrainian market orientation firmly in the direction of the EU wasn’t really something anybody seriously considered would happen. Even with the gas disputes with Russia after my arrival, they were seen as separate from having any other trade implications.

However, the DCFTA negotiation juggernaut continues on its course to completion by the year end, despite people trying to flag it down over selective prosecutions. Both EU and Ukraine are very much aware that matters need to be agreed before a bullish new President (or should I say returning old President) in Russia emerges in March 2012.

There have already been issues with Russia and the Customs Union which Ukraine refused to join in favour of the DCFTA with the EU. The first casualty was dairy products but it is not alone. This matters will only escalate the closer to both the DCFTA being agreed and the return of Putin as Russian President. It doesn’t take a political scientist to work these things out.

In preparation, the Economic and Trade Ministry of Ukraine has been ordered to prepare what are in effect state subsidies for those businesses likely to suffer from Russian retaliation until the end of 2011, by which time the DCFTA negotiations will be complete.

Now some will argue, with some justification, that a political move towards the EU resulting in antagonistic Russian relations manifesting themselves in trade should indeed lead to State compensation to those business owners suffering as a result of a political decision by Ukraine.

Others will argue that those who will suffer the most are run and owned by the current government’s most ardent supporters and they are in fact getting aid to keep their support until they work their way into the EU markets or Russia accepts the inevitable.

Yet more will state that there will be very little difference in the trade volumes despite the rhetoric between Gov Russia and Gov Ukraine and this is simply a way for the Ukrainian Gov to take money from the State for their supporters and get backhanders in return now or at a later date under such a premise when public attention is diverted elsewhere.

Others will ask why only until 2011? If there is really any substance to the reasoning, the issue is likely to get worse in 2012 and not better. Is it only until the end of 2011 because the budget for 2012 has not been agreed yet? If so what is the cost to the State for 2012 expected to be? How long will these subsidies last for?

There will be some who say these businesses should have been prepared for this and found alternative markets already, but that argument must surely be tempered by the realistic chance of alternative markets and the products themselves.

The question is therefore, a good policy or not? (It is not a policy unknown by other governments in the EU over various issues after decisions such as sanctions or juridical change).

Normally you would judge policy within the boundaries of effectiveness, ineffectiveness or being counterproductive.

Some scholars would argue that policy implementation should be judged that way rather than the policy itself, however for those of us in the real world that can translate to the effective implementation of an ineffective or counterproductive policy therefore being deemed a success purely due to its effective implementation? Ahem, no scholarly thought towards the causal effects then?

The issue in Ukraine is not the policy being effective, or the effective implementation of the policy alone. It is the transparency with which it is done regardless of who is in government at the time. Anything that has the possibility as being viewed as corrupt by the public will be viewed that way until proven otherwise.

It makes the framing of policy and the selling of it to the public as having any legitimacy something particularly difficult and thus what could be an effective policy would become counterproductive to even try.

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