The government talks about establishing stability and tackling corruption. But there is a yawning gap between its words and reality. The gap is indicative of either a deliberate attempt to mislead the international community or of a wider Ukrainian misunderstanding of the moral and ethical basis of democracy.

Citizens will tell you about worsening levels of corruption – a fact confirmed by a drop in Ukraine’s ranking to 164 out of 183 countries in The Heritage Foundation and Wall Street Journal’s 2011 Index of Economic Freedom. The report says “Corruption pervades all levels of society and government and all spheres of economic activity and is a major obstacle to foreign investment.”

Sadly, the law enforcement agencies are complicit in the problem. According to a recent loose comment by a very senior official, every day all 22,000 traffic policeman are required to deliver cash to the authorities that doesn’t go back to the exchequer.

Money is siphoned out of the country. The 2010 report by financial watchdog ‘Global Financial Integrity’ lists Ukraine as the 3rd worst in Europe and 17th worst in the world for illegal international money transfers. It hemorrhages on average $10.75 billion a year through the deliberate under pricing of exports, overpricing of imports and the purchase of non-existent international services, that’s $41.35 million a working day in a country where the gross domestic product per capita is only $2,800. This creates an annual state loss on value-added tax exceeding $2.5 billion, let alone the losses on corporate and payroll taxes and pensions. Prior to July 2010, National Bank and tax office approval were required for all international transfers over $50,000 but this restriction was recently lifted by the parliament for no apparent reason. It comes at a time when the economy is still dependent on a $15.5 billion stand-by credit with the IMF.

The government talks of austerity and fiscal responsibility, cutting millions from healthcare and education budgets. Yet the presidential administration is spending $17 million on a new long range helicopter (double the price of U.S. President Barack Obama’s new helicopter) plus $7 million on a city landing pad for the president to fly a 6-minute commute to and from his office every day. This is after spending $8 million upgrading the road to his palace.

The government’s much vaunted “stability” comes at a price of curbing media freedoms and civil liberties. Criticism of the government and virtually all comment by the opposition is conspicuous by its absence from television and limited in the printed media. This was reflected by Ukraine’s dramatic 42 place drop in the watchdog Reporters Without Borders’ Press Freedom Index 2010.

Freedom of assembly has been curtailed with unofficial public meetings restricted to a maximum of three people. Local elections held last October were condemned internationally as neither free nor fair while Washington and Brussels have criticized the selective application of the criminal justice system to target opposition leaders. All this culminated in Freedom House downgrading Ukraine from “free” to “partly free” in January.

The government talks of supporting enterprise and business but does little to reimburse the billions owed to companies in VAT repayments, preferring to issue long-term state bonds. International companies like IKEA have simply abandoned their investment plans and moved to more friendly environments. Foreign direct investment has fallen from $10.9 billion in 2008 to an estimated $4.5 billion in 2010 as investors vote with their feet.

A draconian new tax law caused almost a million middle class protesters to take to the streets. Promised tax holidays they now face crippling tax rises. Today Ukraine’s small and medium enterprises are an endangered species. Whereas in Europe this sector contributes 57 percent of GDP, in Ukraine it is barely 17 percent and, according to the State Tax Authority, some 44 percent of small and medium enterprises (800,000 companies) have disappeared since the last survey three years ago.

Of course, the government paints an alternative picture. Knowing that western journalists have cottoned on to what is happening, it has bought column centimeters and air time through sponsored features and paid-for opinion pieces. Around $150,000 was spent on an eight-page supplement in the U.K.’s Daily Telegraph. Even more was spent on sponsored features on CNN in January. The CNN features attracted huge flak for not telling the true story.

While the international media should be wary of taking this ‘devil’s shilling’ lest they damage their own credibility, European policy makers should reflect upon the contempt with which they are held. The belief is that those in Brussels are gullible and easily duped by “smoke and mirrors PR.” Concerned EU officials are not powerless. They should attach conditions to the free trade and visa free travel agreements currently being negotiated, for the current Ukrainian administration appears to have little moral or ethical concern in saying what they think the west wants to hear whilst doing exactly the opposite. The EU needs to realize that unless it teaches Ukraine European values, Ukraine will export its corruption to the EU.

Viktor Tkachuk is chief executive of the People First Foundation, a politically independent democracy foundation. He is a former deputy secretary of Ukraine’s National Security and Defense Council, a former senior adviser to three presidents and a former member of the Ukrainian parliament.