Table of Contents
Preface xi
Acknowledgments xv
Map xix
I A Strategy of Radical and Comprehensive Reform
1 Introduction: Ukraine on the Precipice 3
What Went Wrong 4
Something Happened on the Road to Vilnius 9
A Strategy for Economic Reform 10
A Vision for Ukraine in 2020 16
2 Why Ukraine Can and Should Opt for Radical Reforms Now 17
What Are Putin's Intentions? 18
Why This Time Is Different in Ukraine 22
Most Relevant Reform Prototypes 25
The Power of the Oligarchs Has Declined 26
The Threat of Populism Is Also on the Wane 32
The Alternative: Financial Meltdown 35
3 Ukraine Needs Europe as a Model and International Anchor 37
Europe as an Anchor for Modernization 37
The Dream of Europe 40
European Neighborhood Policy and Eastern Partnership 42
European Association Agreement 43
Growth through Integration into the European Supply Chain 46
Will Ukraine's European Integration Proceed? 51
Ukraine Needs a Marshall Plan 53
II What Went Wrong
4 Nation Building But Little Reform, 1991-2010 59
Leonid Kravchuk: Preoccupation with Nation Building, bur Political Chaos, 1991-94 60
Hyperinflation and Output Collapse, Breeding Rent Seeking and Oligarchs, 1992-94 61
Complicated Relationship with Russia 67
The Orange Revolution: Political Chaos Again, 2004-10 68
Stalemate over Reprivatization, 2005 72
Resolution of a Severe Financial Crisis, 2008-09 73
Conflicts with Russia over Gas and NATO 75
5 The Yanukovych Regime: The Ultimate Predation, 2010-14 79
Oligarchy Restored 80
Brief Economic Reform in 2010 82
Ever Worse Economic Policies Leading to Stagnation 83
Capitalism in One Family 88
Corruption at the Top Level Reaches a New Apogee 91
The Battle over the European Association Agreement 94
III How to Fix It
6 Euromaidan and the Demise of the Yanukovych Regime, November 2013 to February 2014 101
Violence Erupts on the Maidan 102
Yanukovych's Deal with Putin 104
Ouster of Yanukovych and Restoration of the 2004 Constitution 107
The New Government and Its Program 109
Avoiding the Mistakes of the Orange Revolution 111
7 Political Reform Must Come First 113
Early Presidential and Parliamentary Elections Were Key 114
Successful Parliamentary Elections: The Foundation for Reform 116
Formation of a New Reform Government 118
Increase Transparency and Control Campaign Funding 121
Move to Fully Proportional Elections 124
Decentralize Power 126
A Parliamentary System Is Preferable 128
Recommendations 131
8 Next Comes Reform of Ukraine's State 133
Selecting State Agencies to Close or Merge 134
The Need for Lustration 138
Anticorruption Policy 143
Reform of Prosecution and the Judicial System 144
Reforming Public Administration 146
Deregulate: Use the World Bank's Ease of Doing Business Index 150
Legalize Private Sales of Agricultural Land 152
Recommendations 155
9 Achieving Financial Stability and Sustainability 157
Rampant Financial Crisis 158
Cut Public Expenditures 159
Lower Taxes and Close Loopholes 165
Simplify and Decriminalize Tax Administration 172
Decentralize the Fiscal System 173
Improve the Budget Process 174
Keep Banking Clean and Simple 176
Can and Should Ukraine Avoid Default? 178
Recommendations 183
10 Cleaning Up the Energy Sector 185
What Is Wrong with the Ukrainian Energy Sector? 186
The Coal Sector Is Also Bad 192
The Energy Sector Can and Must Be Reformed 193
End Gas Trade with Russia? 203
Recommendations 206
11 Social Policy Cannot Wait 207
Ukraine Needs a Radical Pension Reform 208
Reforming the Healthcare System 212
Modernizing tire Education System 215
Reform of Higher Education 217
Putting the School System in Order 219
Recommendations 221
12 Conclusion 223
References 227
Notable Politicians and Businessmen 241
Chronology of Events 247
Abbreviations 259
Index 261
Tables
2.1 Main oligarchs in Ukraine, 2014 30
3.1 Ukraine's exports and imports, 2000 and 2013 47
3.2 Exports of Moldova and Georgia, 2005-13 49
3.3 Composition of Ukraine's exports to the European Union and Russia, 2013 49
3.4 Structural composition of Ukraine's GDP, 1989, 2000, and 2013 51
7.1 Results of the parliamentary elections, October 26, 2014 117
9.1 General government expenditure in Ukraine, 2010-14 161
9.2 Outlays by function of Ukraine's government, 2010-12 162
9.3 Ukraine's general government revenue, 2010-14 166
9.4 Ukraine's public debt structure, 2010-13 180
11.1 Life expectancy at birth in Ukraine, Poland, Russia, and Turkey, 2013 208
11.2 Public pensions as a percent of GDP, selected countries and Ukraine, 2000, 2005, and 2010 209
11.3 Total expenditure on health in Ukraine and Poland 213
11.4 Public expenditure on education in Ukraine and Poland 215
11.5 Education in Ukraine 221
Figures
1.1 GDP per capita (PPP), Ukraine, Poland, Russia, and Turkey, 1990 and 2012 6
1.2 GDP growth in Ukraine, Poland, and Russia, 1989-2013 6
1.3 Democracy and corruption, 2013 8
4.1 Annual inflation in Ukraine, 1992-2004 63
4.2 Consolidated state budget deficit in Ukraine, 1992-2004 64
4.3 EBRD Transition Index, Ukraine versus Poland and Russia, 1994-2007 66
5.1 Ukraine's budget balance, 2000-2014 85
5.2 Public expenditures in Ukraine, 2000-2014 86
5.3 Public debt in Ukraine, 2000-2013 86
5.4 Ukraine's current account balance, 2000-2013 87
