Will donors pay for reforms?

There's no time to be dancing around anti-corruption reforms. High time to choose: either Ukraine has the law and money, or cold radiators and frustrated constituents.

Oleksii Khmara — Thursday, 28 August 2014

One week ago Arseniy Yatsenyuk announced the date when international loan-givers would meet on allocation of next tranche to Ukraine. The day is 29 August.
"If IMF decides in favor of allocation of the next tranche netting $1.4 billion – he emphasized – this would mean that we are moving in the right direction. I am not satisfied with the pace and depth of these reforms. However, the progress we demonstrate nowadays lets one hope for economic stabilization after peace is restored in the country. Yet, one has to fight for peace in the modern world. Thus we expect the decision of the Board of Governors of the International Monetary Fund and it will mean that overall, along with the World Bank's funds, Ukraine will receive about $ 2 billion".
The statement of the Prime Minister can be interpreted as follows: the zero hour for loan allocation decision is 29 August; funds are provided with reforms as conditionality, and the Government itself is unsatisfied with the pace of reforms. Ukraine intends to receive about $ 2 billion, and $ 0.5 billion of these funds are the World Bank funds.
What do the donors want?
Transparency International Ukraine has a copy of a policy brief produced by the World Bank experts upon their visit to Ukraine in July 2014.
The World Bank aimed to assess the readiness of Ukraine to receive the second tranche from the bulk of $ 3.5 billion planned to support reforms.
One of systemic reforms that Mr. Yatsenyuk's government committed to implement was effective corruption prevention and response. The parties to the agreement had agreed a list of strategic and institutional reforms, which contained a new requirement for Ukraine. This dealt with independent verification of asset declarations of top officials.
What did the Western experts see? Ukraine pledged "by 2015 – approve legislation aimed at strengthening external monitoring and verification of integrity of financial reports of elected state officials and top officials. This legislation would have to introduce administrative and disciplinary liability for violation of the rules of declaring financial information or providing inadequate information".
It means that the country has to commence regular independent verifications of asset declarations of the officials and introduce severe sanctions for fraud. In this case, the World Bank would be ready to provide the government with financial support.
The important question pending is whether anyone has seen such an independent system of declaration verification, which is due by the end of 2014.
Experts note that although delegating the respective powers to tax authorities was a good step, the controlling powers still rest with the executive. The next step is to ensure that declarations are verified independently from executive authorities.
Therefore, this intervention is aimed at establishment of an independent facility on verification of declarations. It should be tasked with ensuring the adequacy of information provided in the declarations and identifying the discrepancies.
What the World Bank wants to see is an independent institution capable of verifying the contents of declarations of officials and – in case of need – of punishing cheaters.
Where is the bottleneck?
Experts note that the Government has arrived at a broad consensus on the necessity to establish a centralized and independent service unit to verify declarations. The Cabinet of Ministers, the Parliament and Presidential Administration all understand that removing internal disagreements and playing as one coherent team on this reform are a priority task.
What the World Bank is able to see instead are constant disputes of authorities regarding who would be the Main Anticorruptionist rather than a cohesive position of authorities. The disputes undermine results of the anticorruption fight: exactly something that Tetyana Chornovol, former Government Commissioner for anti-corruption policy, noted in her farewell blog.
The apple of discord lies in the list of functions, which are supposed to be vested with the preventive anticorruption body or with the investigative anticorruption bureau.
The discussion, if summarized, revolves around reasonability of setting up a unified anti-corruption agency entrusted with a wide range of investigative and procedural powers that would also be responsible for verification of property declarations or to establish two anti-corruption agencies: one for prevention of corruption and the other for prosecution and sanctioning.
There is no simple answer. Moreover, both modalities have their advantages.
Advantages of setting up a unified anti-corruption body Advantages of dividing preventive and investigative functions
It is easier to open proceedings if a corruption offence is identified upon the results of verification of declarations Better integrated protection from abuse (for instance against politically-motivated verification of property declarations)
The focus is on repressive and penal work The focus is on prevention of corruption
Controlled limitation of the number of state bodies Optimization of the number of state bodies
This is why one should look into international experience, the one that WB experts are focusing on: "in Eastern Europe and Baltic states, the property declarations are commonly verified outside anti-corruption investigative bodies – it is the case of Romania, Serbia, Lithuania, Croatia, Moldova and Slovenia".
Several countries set up institutions tasked exclusively with verification of property declarations (for example, Moldova and Romania). This helped to draw attention to the importance of this mechanism. Countries from other regions managed to combine the functions of verification of declarations and anti-corruption investigations under one roof (for example, Costa-Rica, Peru and Mongolia).
Accordingly, the expert group emphasizes importance of compromise and account of the country or regional context. While both modalities are fully implementable, post-communist countries of the regions usually see a division in prevention and investigation functions.
In addition, such division is more reasonable in cases of systemic corruption – in particular, according to evidence of Group of States against corruption (GRECO).
Ukraine would, in turn, need a full-fledged system for addressing the conflict of interest in addition to verification of property declarations, and this would make such work complicated within the walls of an anticorruption investigative body.
Outside OECD Member countries, the systems of addressing the conflict of interest are focused mainly on the issues related to application of sanctions, a lot of times to the detriment of consulting or managing conflict of interest.
It will be difficult for the institution focused on investigation to strike a balance between these two issue-tracks. One more argument for separation of preventive and investigative anticorruption functions and establishment of two bodies.
What does the World Bank propose?
  • Firstly, to set up a specially authorized body to verify the adequacy of asset declarations of Ukrainian officials.
  • Secondly, to avoid uniting the functions of investigation of corruption offences and financial property control under one roof.
  • Thirdly, to provide a body responsible for monitoring of declarations with sufficient resources and powers to perform this task.
What shall we do?
Interestingly enough, World Bank experts deem pre-term Parliamentary elections to the main problem with successful reform.
They note a possible slowdown in legislative activity due to pre-term elections, whereas for the independent declaration verification system to function, respective need to be adopted and signed by October 2014.
Therefore, an urgent search for consensus on the institutional structure is necessary.
The respective draft law has been already developed in Ukraine produced jointly by the Ministry of Justice and civic experts of the "Reanimation Package of Reforms" initiative. In June they prepared and discussed the draft law "On Combatting Corruption".
The draft law has not been submitted to the Parliament yet, although the government had supported it on 22 August. The Cabinet of Ministers endorsed the text and passed the initiative over to the President. The latter is allegedly about to submit the entire package of anti-corruption instruments to the Parliamentary floor.
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It is expected that the World Bank Board of Executive Directors will meet on 11 December 2014 to consider the loan to Ukraine. It means that the Government of Ukraine should fulfill all commitments – including the commitments on organization of independent control of declarations – by 27 October 2014 – the day when the WB is expected to assess the efforts of Ukraine. The very negotiations on the loan are planned for early November 2014. We don't have time for dancing around anti-corruption reforms. It is high time to choose: either Ukraine has the law and money, or cold radiators and constituents ready to sack politicians who are neither able to combat corruption, nor to have houses well heated.
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This is a column with materials representing solely a personal point of view. It does not position itself as impartial and comprehensive in covering the issue under review. The positions expressed herewith do not necessarily coincide with the editorial board of "Ekonomichna Pravda" and "Ukrayinska Pravda". The editorial board is not liable for accuracy and interpretation of the information provided herein and only plays the role of a medium. The English version of the article was produced with assistance from the UNDP Democratization and Human Rights programme.