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Ukraine’s Balcerowicz Moment

Ukraine’s present duress could help push forward necessary reforms.

Ukrainian President Petro Poroshenko (Credit: U.S. State Department)

Takeaways


  • Ukraine’s present duress could help push forward necessary reforms.
  • The ultimate success of the Maidan revolution will be based on how it faces Ukraine’s cancerous corruption.
  • Ukraine has a historic opportunity to institute decisive pro-market reform and set things right.
  • The courage to reform can be a winner or a loser, politically, but produces clear victors, historically.
  • The key choice lies, as it must, with the Ukrainian leadership. Ukraine’s time to reform has come.
  • Poroshenko should make bold reforms and call on Ukraine to make sacrifices, as Balcerowicz did with Poland.
  • Due to intense duress, Ukraine’s new government is poised to reform key institutions across the country.

There can be a brief window after a revolution when the population is willing to absorb more pain than normal in order to set things right.

Such was the case in Poland in 1989 when Leszek Balcerowicz’s “Shock Therapy” plan was introduced — and such may be the case in Ukraine today with the inauguration of President Petro Poroshenko.

This is not to say that Ukraine should blindly copy the Balcerowicz plan. It does mean that Ukraine in 2014 – as Poland in 1989 – needs painful, fundamental restructuring.

Under normal circumstances, moving to cut government subsidies for such things as home heating or unprofitable state enterprises means touching a political third rail. But these are not normal times. And the previously undoable may now be doable.

The collective memory of the gunning down of protesters in central Kiev, combined with the abhorrence of the majority of Ukrainians at Russian intervention, has changed the equation.

The need to ensure that the sacrifices Ukraine has endured will result in real change — not a mere changing of the guard — can provide a reservoir of resolve to support “third rail” reforms.

Prime Minister Arseniy Yatsenyuk has talked of heading a Kamikaze government. Fundamental reforms may or may not amount to political suicide. But Petro Poroshenko’s victory gives the Ukrainian leadership the mandate they need to move forward with reform — if they have the will to do so.

Decisive action against corruption

Dealing with unrest in the East is, of course, the first order of business. But the ultimate success of the Maidan revolution will be based on whether or not it attacks the endemic corruption that is a cancer on the Ukrainian economy and government.

Key institutions must be reformed: the courts, police, tax authorities. The list goes on. The important thing is to seize the moment and act.

The moment will not last. Poroshenko, in all likelihood, will never have the mandate he has today. He would do well to take a page out of FDR’s first hundred days and lay out a clear plan of action to address the toughest problems immediately.

Mikheil Saakashvili’s program of reform in Georgia — notably his decisive purge of corrupt police — stands as an illustrative case.

It is critical that all Ukrainians bear the burden of putting Ukraine right, not least the oligarchs. As Nixon made his breakthrough with China, so it may take an oligarch — the Chocolate King — to reform Ukraine’s corrupt, oligarchic system.

For things to truly change, the oligarchs must accept an end to the era of insider deals greased by political connections.

Ukraine has a major advantage over Balcerowicz in 1989: a quarter century of experience.

However unpopular the EU may be among some of its own membership, it offers Ukraine a tested playbook — the Association Agreement — on rule of law, free trade and transparency measures that constitutes Ukraine’s best hope.

In a land ravaged by corruption, conforming to the array of EU norms, bureaucratic though they are, would be a relative blessing.

Profiles in courage

John F. Kennedy’s 1957 book “Profiles in Courage” recounts the stories of senators who were willing to do what was right regardless of the cost to their popularity.

Balcerowicz implemented Shock Therapy, and his government fell out of power a few years later. FDR, by contrast, was re-elected three times. The courage to reform can thus be a winner or a loser politically.

But both Balcerowicz and Roosevelt were, in a historic sense, clearly winners — and Balcerowicz did eventually bounce back.

Poland’s success after 1989 depended in no small measure on two key elements: first, basic unity among elites — Solidarity veterans as well as the post-communists — about the essential democratic, free-market direction of reform.

And second, a focus on institution building and the rule of law which ensured that the reforms, once launched, would endure. Ukraine has, tragically, lacked these elements since independence and needs them today to succeed.

The Balcerowicz plan belongs to its place and time. Perhaps its shocks were more severe than required. Perhaps they weren’t.

But the essential point of seizing the historic opportunity to institute decisive pro-market reform and to set things right while the population is willing to take the hit remains. Ukraine’s partners — the EU, the United States, the IMF and others — stand ready to help. And massive help is clearly in order.

But the key choice lies, as it must, with the Ukrainian leadership. Ukraine’s Balcerowicz moment has come.

Editor’s note: The views expressed in this article are those of the author and do not necessarily reflect the views of the U.S. Department of State or the U.S. Government.

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About Colin Cleary

Colin Cleary is a Foreign Service officer with the U.S. Department of State.

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