Time to invest in democracy

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May 17, 2010, 12:46 p.m. | Op-ed — by Viktor Pynzenyk

Viktor Pynzenyk

This week, at the 6th Annual Ukrainian Investment Summit in London, business leaders and financiers will no doubt urge sweeping reforms to give the country a better investment prospect. There will be calls for macro-economic controls, deregulation of enterprises, the sale of agricultural land, recommencement of privatization, gas reform, etc. But can any of these reforms take root if Ukraine’s underlying structure is broken?

However you look at it, Ukraine’s economy underperforms badly when compared to its neighbours, which gained independence at the same time. At $2,542 its gross domestic product per capita is 84.4 percent lower than its neighbour Slovakia, barely 50 percent of Belarus and only 4 percent more than tiny war torn Georgia. When it comes to Foreign Direct Investment (FDI) it is a similar depressing picture. FDI in Poland, Hungary and the Czech Republic is 3.5, 6.5 and 7.8 times higher, respectively. The World Bank’s ‘Doing Business’ index ranks Ukraine 142 out of 183 countries. Similarly, Transparency International ranks Ukraine 146 out of 180 countries in its 2009 corruption perception index.

We start to get to the nub of the issue when we talk to potential investors. The Bleyzer Foundation’s first quarter 2010 ‘Investor Sentiment Survey’ reveals some consistent trends. Two of the top four most important concerns of investors planning to invest in Ukraine in the next six months are worries about the ‘legal environment’ and ‘corruption.’ These are also the first and second concerns for those who do not plan to invest or are undecided.

Unless these fundamental principles are addressed, policy reforms, which are badly needed, will be as useful as sticking plasters on a gaping wound. It is therefore heartening to see that the premier sponsor for this year’s conference is not a bank or a major multi-national, but a new non-political democracy initiative, the ‘People First’ foundation, which aims to empower democracy in Ukraine by giving the people a voice through a 'People’s Charter,' enabled by a series of national internet-based referenda. Such initiatives are badly needed.

It is no coincidence that nine out of the top 10 destinations for FDI are considered true democracies. The stability and predictably they offer represent a far safer bet than the alternative. In Ukraine it is time to invest in democracy.

Viktor Pynzenyk is a former finance minister of Ukraine.
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Anonymous May 17, 2010, 5:52 p.m.    

If Ukrainians are not going to implement good, democratic government because it's the right thing to do, then they ought to do it for the reasons stated by Mr. Pynzenyk.

As long as Ukraine does not implement true democracy, as long as oligarchs rule the roost and foster corruption and abuse of government for the benefit of a few oligarchs, Ukraine will continue to look like a third world country, when it ought to properly be a G8 country.

"Anti-corruption," democracy, etc., has been discussed for more than 10 years in Ukraine.

It's high time that Ukrainians actually implemented true democracy, instead of just talking about it.

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Anonymous May 17, 2010, 6:01 p.m.    

It would have been even better if Pynzenyk and his mistress had done something while they were in office and in a position to actually do something. It is now greatly disingenuous of him to write about this issue. He could have and should have actually helped to implement democracy during his term in office rather than doing the same old thing politicians in Ukraine do day-in day-out, namely enrich themselves.

He is just another failed hypocrite.

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Anonymous May 17, 2010, 6:37 p.m.    

Pynzenyk left his &quot;mistress&quot; last year when his scathing private memo regarding Ukraine's fiscal woes became public and he resigned when his &quot;mistress&quot; would not implement reforms he advocated for. I have no respect for his &quot;mistress&quot; as she tried to sell out to the current gang now in control last June with the broad coalition farce. Pynzenyk still has his honor intact and I am glad he is raising these issues regarding Ukraine.

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Anonymous May 17, 2010, 6:47 p.m.    

A truly honest and honourable former finance minister the best Ukraine ever had.The current guy is a joke just like the rest of the Dons from Donetsk...line their pockets ,send their money into swiss bank accounts and rob the country blind.

Has anyone seen the economic devsatation in Donetsk...horrendous-soon all of Ukraina will look like the land that the Dons destroyed.

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Anonymous May 17, 2010, 6:49 p.m.    

Talk, talk, talk, talk and more talk. Preaching democracy as a new form of religion, without actually proving that there is a semblance of link between the democracy (whatever he comprises under the term) and foreign investment. What is 100% sure is that the foreign investment responds to the rule of law. And it is not enough to have a clarity of the law to help foreign investors, it is critical that the rule of law is crystal clear about the responsibilities of the foreign owners to the state by paying taxes, to the environment by obeying laws of pollutants, and to the workers by paying their salaries and concomittant co-payments into state funds that fund the workers health care and retirement obligations.

And this is for start. The rule of law must be paramount reform, not vague democracy think-tank. There are plenty of talkers --- enough already.

The legal reform need not take forever to get started with basics. After all, there are oodles of good examples in EU countries, or looking broader, in other strongly developing countries around the world.

One of the worst problems hitting many poorer European nations is the bad habit of foreign investors to fail to pay salaries. People then work without pay, fearing that if they quit, they will not get the arrears paid. Such companies basically wait until they turn a profit before they pay their workers, and are really not risking their own capital. Such practice must be stopped firmly. After first offence, such companies must be locked up, with stop-work order until salaries are paid. After reapeated offences, they should be asked to keep in escrow with the state an amount equal to three months payroll, plus benefits. This will prevent the habitual scammers getting into Ukraine after they have scammed other countries before.

So, before wasting more money on talk-shop democracy seminars, how about demanding legal reform, based on priority legal issues aiming at attracting good investors seeking legal safeguards.

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Anonymous May 17, 2010, 10:31 p.m.    

When will the &quot;honest&quot; former Ukraine financial minister and his orange cronies return the billions of $$ that vanished during the orange reign of thievery?

During the dark orange times the Ukraine debt DOUBLED, Ukraine economy slumped by whooping 14.5%, Ukraine people life standard HALVED and the Ukraine population shrunk the most as hungry destitute Ukraine people run away from the orange shithole to seek jobs abroad and mostly in Russia.

The orange robbers call this dark times of orange daylight robbery a &quot;democracy&quot; and of corse want this kind of orange DERMOcrapy to continue so they can steal Ukraine people wealth and line their pockets.

Ukraine people got feed up by orange crime, so the majority Ukraine people give the orange thieves a boot LOL :D

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