You're reading: Corruption Plague

Ukrainians believe corruption is on the rise and blame public servants, politicians and government, according to recent studies, including one survey that found as many as 6 in 10 Ukrainians were exposed to corruption in the last year.

The high level of corruption is costing Ukrainians plenty, not only in battered image internationally but also in the pocketbook at home.

Transparency International’s 2009 Global Barometer survey estimated that 7 to 10 percent of household disposable incomes go towards paying someone off. Compared to the rest of the ex-Soviet republics known as the Commonwealth of Independent States, the Berlin-based corruption watchdog said that Ukraine is at the bottom of the barrel.

“Bribes are essentially extra taxes on firms and individuals, which reduce profits and disposable income and thus demand,” said Vladimir Nesterenko, head of research for Galt & Taggart Securities. “They increase the income of the corrupted elite.”

Besides Transparency International, at least two other groups recently painted unflattering portraits. Those include the UPAC (Support to Good Governance: Project Against Corruption in Ukraine) anti-corruption project, which was done for the Council of Europe and European Commission, and the ACTION project (Promoting Active Citizen Engagement in Combating Corruption in Ukraine), which is funded by the United States Agency for International Development.

The U.S. AID-assisted project found that Ukrainians pay roughly Hr 3.5 billion, or more than $400 million, in bribes annually, said Juhani Grossman of the ACTION project.

That’s money that Ukrainians can ill afford to lose.

According to official government statistics, the average disposable income of Ukrainians is $229 monthly, next-to-last in Europe, or 9 percent of what Germans have available to spend. But this figure grossly understates Ukrainians’ real spending power.

It does not, for instance, include off-the-books income made in the country’s robust shadow economy, where much of the nation’s commercial activity may be taking place. Researchers say a more realistic average monthly figure for Ukrainians may be $975, just below Poland’s disposable income.

Whatever the figure, bribes and an even more common variant – outright extortion – are forcing Ukrainians to part with their hard-earned money. No one knows better than Ukrainians themselves.

The European Commission/Council of Europe’s anti-corruption project found that 79 percent of the public and 66 percent of Ukraine’s entrepreneurs view corruption as high in the nation.

Quantifying corruption, including bribes and extortion, is always difficult because of its very nature – money changing hands in furtive and hidden ways.

The U.S. AID-funded study suggested that corruption has inched down a bit in 2009, while the same study indicates that citizens perceive that corruption has doubled.

Nevertheless, bribes are so widespread and common that many Ukrainians know exactly how the system works. Disturbingly, the USAID-funded study found that nearly half of Ukrainians see corruption as more than an every-day part of life: as a “justified market mechanism” that exists to get things done fast or counter-balance low salaries. Ukrainians face corruption at nearly each step they take, be it in business dealings, education or when they go to the doctor.

Oleksandr Ovcharyenko, an IT specialist at a prominent Kyiv company, said he paid a total of $1,000 to the doctor who was responsible for caring for his wife during her pregnancy all the way through delivery of their son. He was more concerned about securing quality medical care than demanding free service. The extra payments Ukrainians routinely make to underpaid doctors dispel the myth about the country’s “free” healthcare system.

Foreigners residing in Ukraine are not spared by Ukraine’s widespread and institutionalized corruption. Uliana Paliukh hails from North America and is of Ukrainian lineage. She paid a lawyer $2,400 to obtain a residence permit without an expiration date in order to avoid the massive bureaucracy and common demands for bribes from state officials.

The money given in bribes to doctors, university professors and traffic police – three common recipients – is money that doesn’t go into state coffers. Consequently, that’s less public money for improving infrastructure, increasing public-employee salaries or other social uses.

“A bribe is often spent or saved outside the country, instead of being spent on the purchase of locally-produced goods, or saved in a local bank, which would fuel the country’s economy,” said Galt & Taggart’s Nesterenko.

Government would seem to be the biggest victim, because of loss of potential tax and other revenue.

But, in reality, government officials – from bureaucrats to lawmakers – find lots of benefit in not changing the way that Ukraine operates. After all, they inherited a stiff Soviet bureaucratic system and have done little to change it. What remains is a maze of regulations that effectively enhance the powers of lawmakers and government bureaucrats over the economy, businesses and citizens.

Consequently, bribes are commonplace for avoiding the time-consuming processes of government regulations, including requirements for countless permits, licenses and signatures. Government officials who took part in the UPAC study admitted that 300-600 signatures are required for certain administrative issues related to land and permits.

Long lines, lack of public information and mandatory face-to-face visits with civil servants – who remain stubbornly resistant to doing business online – all enhance opportunities for shaking down citizens.

People are “simply intimidated by the experiences related to administrative procedures,” said Roman Chlapak, UPAC’s project leader.

The perpetuation of the status quo continues to erode public trust in their institutions. Transparency International’s study found that 28 percent of Ukrainians see civil servants as most corrupt, followed by lawmakers (21 percent), the judiciary branch (21 percent) and political parties (12 percent).

Business and media are seen as far less corrupt, respectively 11 percent and 2 percent.

“The problem with fighting corruption is that this fight is often not in the best interest of the political elite, those who actually have the means and levers to fight it,” Nesterenko said.

With recent improvements in freedom of speech in Ukraine, “People hear, see and read about corruption much more frequently than they did two years ago,” Grossman said of his survey’s comparative analysis. “When they hear about it more often, they get the impression that there is more of it.”

Lately, government is trying to show the public that it is getting serious about combating corruption.

A package of anti-corruption bills is working its way through the Verkhovna Rada. The measures are viewed as a significant leap forward and designed to comply with a series of recommendations provided by the Council of Europe’s Group of States Against Corruption.

Parliament also recently gave initial approval to a revised law to increase public access to information on government activities and public officials. It will: allow citizens, non-governmental organizations and journalists to receive requested information in 5 instead of 30 days; allow those requesting information to do so via fax or e-mail; require local government officials to be responsive; force government officials to explain their actions and activities on their respective websites; and hold government officials responsible for not releasing open information.

UPAC also recommends that Ukraine separate administrative and political functions, increase public-sector salaries, develop a universal ethics code, develop one-stop centers for doing business with the government and expand points of contacts to include postal and e-mail requests, among other recommendations.