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Economic Growth of Ukraine Depends on Completing Pending Reforms Quickly

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Ukraine’s economy grew by 2.5 percent in 2017, the second year of modest growth, according to the World Bank’s latest Ukraine Economic Update.  Growth in manufacturing, services, and construction was robust, but weaknesses in the agriculture and mining sectors, together with delays in key reforms to further strengthen investor confidence contributed to the modest overall growth performance.

“Faster growth is needed to improve living standards for the people of Ukraine who continue to hurt from the economic crisis of 2014-2015,” said Satu Kahkonen, World Bank Country Director for Belarus, Moldova and Ukraine. “This will require decisive measures in the next few months to complete pending reforms to bolster investor confidence and safeguard macroeconomic stability.”

Economic growth is projected at 3.5 percent in 2018 if pending reforms in anticorruption, land markets, state-owned banks, and privatization can be advanced in the next few months. This would provide an important signal to investors. If reforms are delayed, growth could drop below current levels in an uncertain macroeconomic environment as financing risks rapidly increase.

Ukraine faces major financing needs to repay public debt and fiscal pressures from higher public sector wages and social benefits in 2018 and 2019. Mobilizing adequate international financing by completing pending reforms in the months ahead will be important to maintain macroeconomic stability.

Meeting the fiscal deficit target of 2.5 percent of GDP in 2018 will require improving targeting of housing utility subsidies, making further wage increases contingent on measures to optimize the school and hospital network and public-sector staffing, and identifying affordable options to update public sector pensions.

Fiscal Pressures and Reform Options …

According to the World Bank’s Special Focus Note on fiscal pressures and reform options, Ukraine has made progress in reducing its large public spending since 2014. However, sustaining these gains while also improving the effectiveness of public services will require implementation of reforms in education, health, public administration, pensions, and social assistance in a fiscally affordable manner.

Public expenditures increased significantly in 2017, by 11.7 percent in real terms, reaching 41.5 percent of GDP, due to the doubling of the minimum wage and over 40 percent increase in wages of teachers and doctors. Spending on social programs also increased.

The recently adopted reforms in education, health, and public administration seek to improve compensation for teachers, doctors, and public servants to strengthen incentives and attract quality personnel. Achieving this in a fiscally affordable manner will require coordinating further increases in salaries with time-bound measures to optimize staffing and the school and hospital network.

The social assistance package in Ukraine is not only fiscally costly—costing 5 percent of GDP in 2017, but is also poorly targeted—with only 30 percent of assistance going to the bottom 20 percent of the population. Fixing this will require improved targeting of the large HUS program.

The recently adopted pension reform helped improve adequacy of benefits and stabilize fiscal costs. Additional initiatives going forward should avoid undermining these core objectives of the pension system. The timeline to create a funded pillar system by January 2019 needs to be reconsidered since this will undermine contributions to the pay-as-you-go system, create contingent fiscal liabilities, and face inadequate availability financial instruments.

Background

Since May 2014, the World Bank Group has provided a total of more than US$5 billion to Ukraine (including 4 development policy loans, 7 investment operations and 1 guarantee) from the International Bank for Reconstruction and Development (IBRD).

The World Bank’s current investment project portfolio in Ukraine amounts to US$2.5 billion.  Investments support improving basic public services that directly benefit ordinary people in areas such as water supply, sanitation, heating, power, roads, social protection and healthcare, as well as private sector development. Since Ukraine joined the World Bank in 1992, the Bank’s commitments to the country have totaled over US$12 billion in about 70 projects and programs.

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Eastern Europe

An Impending Revolution

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Large crowds have demonstrated their anger at the results of the presidential election in Belarus. Photo: Kseniya Halubovich

Even on the end note, the year contains surprises enough to deem it as a year of instability and chaos given every nook and cranny around the globe is riddled with a new crisis every day. Latest down in the tally is the country of Belarus that has hardly streamlined over at least half a decade but now is hosting up as a venue to rippling protests in almost all the districts of its capital, Minsk. The outrage has resulted from the massive rigging imputed on the communist party in ruling for almost three decades since the split of Soviet Union in 1994. With Europe and Russia divided on the front as the protests and violence continue to rage: a revolution is emerging as a possibility.

The historical map of Belarus is nearly as complex as the geographical landscape which might only stand next to Afghanistan in terms of the intricacies faced by a landlocked country as such. Belarus is located in the Eastern European region bordered by Russia to the north-eastern perimeter. Poland borderlines the country to the West while Ukraine shares a border in the South. The NATO members, Lithuania and Latvia, outskirt the borders of Belarus in the Northwest, making the region as a prime buffer between the Russian regime and the western world. As Belarus stands as a junction between the European Union (EU) and Russia, the proximal nature brings about interests of either parties in the internal affairs of Minsk. However, the nature of the bond shared between the trio is by no means a triangle unlike other former soviet nations since Belarus has casted its absolute loyalty to Russia since the split of Soviet Union and ultimate accession to power of president, Alexander Lukashenko, the leader of the Communist Party of Belarus. Along with the alliance, however, came the unwanted dependency since over the 26-year rule of Lukashenko, he crippled the economy and the political writ of Belarus, using every last ounce of authority to subdue the opposition and the democratic mechanism of the country, earning him the nefarious title ‘Europe’s last dictator’.

The outburst of protests today stems from this very problem that is more deep-rooted than what comes across as apparent. The excessive and draconian use of power and autonomy has invalidated the independence of Belarusians and turned them haplessly at the mercy of Russian aid and support while blocking out any western support in the name of guarding national sovereignty. The ongoing surge of dissent was triggered earlier in August when the elections turned about to be absurdly rigged in favour of Alexander Lukashenko, granting him an indelible majority of 80% of the total vote count along with a lifetime of rule over the country despite his blatant unpopularity across the country. The accusations were further solidified when one of the popular opposing candidates, Svetlana Tikhanovskaya, casted a complaint with the authorities regarding the falsification of election results. Instead of being appeased, she was detained for 7 straight hours and was even forced to exile to the neighbouring country of Lithuania. This resulted in major tide of riots and protests erupting all across Minsk, preceding over 3000 arrests over the election night.

On the official front, however, an aggressive stance was upheld along with a constant refusal of Lukashenko from stepping down from the long-held office or even considering a review of the polls counted despite exorbitant reports of unfair results. Heavy use of rubber bullets and tear gas was an eccentric protocol adopted by the local police force which instead of placating the rioters, further ignited the protests in more districts of the capital city. The anti-government relies also entitled ‘March of Neighbours’ transitioned into a high scale protest with many of the state employees resigning from their positions to stand upright against the long overdue corrupt regime. With the protests raging over months and the Lukashenko government getting more and more aggressive with their policies, the fear that once sparkled in the eyes of the natives is dwindling exceedingly and is turning into a cry for an outright revolution, which would be a ground-breaking one ever since the revolution of Iran back in 1979.

European counties have taken their conventional passive position in the crisis sinceEU is well aware of the Russian influence in Belarus and does not want to interfere with a probability of a direct conflict with Russia. However, they did call out their protest over the rigged elections, slapping sanctions over Belarus yet have not accused Lukashenko directly but instead have proposed a thorough international dialogue. Russia, on the other hand, faces a complex position since the dependence of Belarus bought Moscow a base against the West along with other regional rogues like Ukraine. However, high scale protests and rising chances of a full-blown revolution is hardly the choice Russian intends to opt. As the situation continues to unfold, economic reforms, as promised by Lukashenko, appears to be the only option that both EU and Russia could encourage as a bipartisan plan. Despite that, with six months of protests erupting as an outrage over a tyranny of 26 years, the reform-offering might be a bit late an offer since its no more about the country anymore, it’s about a struggle between a liberal or a communist Belarus.

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Eastern Europe

The 44-Day War: Democracy Has Been Defeated by Autocracy in Nagorno-Karabakh

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The people of Artsakh are seen as pro-Russian. Is this Pro-Moscow assessment of people of Artsakh accurate, and why Russian peacekeepers are welcomed in Nagorno-Karabakh?

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The Republic of Artsakh and its people developed the nation’s democracy for approximately three decades. Back in 1991, Artsakh held a referendum on its independence, as well as democratic elections under a barrage of Azerbaijani rockets. The people of Artsakh accomplished this step by themselves, being convinced that without freedom of the individual, there is no freedom for the country. The Artsakh National Liberation Movement was nothing but a struggle for freedom and the right to decide one’s own destiny.

The development of democracy was not easy for a war-torn country with ade-facto status, limited resources, lack of institutions, combined with the threat of resumption of hostilities and the temptation of using elements of authoritarianism in governance as well as in the public mood. 

Nevertheless, during the last three decades, the people of Artsakh have managed to develop working democratic institutions, ensure political pluralism, and form effective human rights institutions. The vivid examples thereof are the 2020presidential elections held on a competitive basis, a 5-party Parliament, and the constitutional mechanisms for the separation of powers.

It is noteworthy that the full spectrum of democratization in Artsakh has been carried out by the country alone, without the direct support of international governmental and non-governmental organizations, and despite the numerous appeals by the civil society of Artsakh made to them.

However, Artsakh’s democracy has been highly regarded not only by parliamentarians, politicians and experts who have visited Artsakh, but also by the international organizations, such as Freedom House in its Freedom in the World annual reports. In these reports Artsakh is on the list of partly free countries, making progress in ensuring political and civil liberties each year, while Azerbaijan holds on to a not free status all the while making regressive steps in every aspect.

The people of Artsakh believed that the development of democracy would inevitably strengthen the position on unimaginability of any vertical relationship with dictatorial Azerbaijan. The people of Artsakh believed that they were keeping the eastern gate of the European civilization and its set of values. The people of Artsakh believed that those in West involved in the conflict settlement process, particularly France and the United States would view the Artsakh struggle with an understanding that it was created by their examples and ideals of freedom.

And what did the people of Artsakh receive as a result of believing in the West? They faced a new war and a new bloodshed unleashed by the same Azerbaijan. They also faced a harsh reality in the form of gross violations of human rights, war crimes and destruction of their cultural heritage. The principle of equality and self-determination of peoples in general, and the notions of freedom and human rights in particular completely collapsed before the eyes of the people of Artsakh.

One doesn’t have to be a military expert to understand that Artsakh, a small country with limited resources and capabilities, could not on its own resist Turkey-backed Azerbaijan for long, especially given the direct involvement of Turkish command staff and thousands of mercenaries from the Middle East terrorist organizations in the conflict, and the use of advanced military technology likethe banned weapons and unmanned aerial vehicles (UAVs).

What did the people of Artsakh need to prevent this war? The answer would have been the de jure recognition of Artsakh that at least would have dampened the possibility of a new war, put an end to the century-old conflict, and establish long lasting peace and security in the region.

Instead of recognizing their unalienable right to self-determination, a new war was imposed on the people of Artsakh. As a result of this war, the people of Artsakh were left with a devastated country, thousands of dead and wounded compatriots, a new generation of refugees and IDPs, dependence on the peacekeeping mission for physical security, a “neither peace nor war” situation, as well as an uncertain future.

Russia wanted to come to Karabakh and so it did. Russia is in Artsakh not because the people of Artsakh were dreaming of weakened sovereignty while they continued to think of what West would do, but Russia came to Artsakh because Russia, unlike the West, acts rather than speaks. When on the one hand there are European and American concerns expressed in empty statements and on the other hand there are Russian peacekeepers and tanks, there is no room left for thinking long.

Let’s look at the values in which European Union, United States, Canada, and the rest of the so called “civilized world” believe in: the ideas of human rights and freedoms which they been advocating for years across the world. Now let’s try to see what is left from them all. Maybe once can find an inspiration for writing new books and sharing ideas about the future of humanity vis-à-vis the civilized world. Perhaps, in the European Union, in the United States, in Canada, and in the rest of the so called “civilized” world, their population may enjoy the ideals of human rights, but the people living in small and unimportant countries are often deprived of such rights. Perhaps the Western intellectuals and authors will write books on how the West left the faith of the people of Artsakh to the hands of the terrorists while empowering the Turkish-Azerbaijani dictators with their indifference and inaction. Indeed, for the West, the lives of the people of Artsakh are not valuable just because they are from a ‘gray’ zone, because they live in a country that doesn’t officially ‘exist’. These discriminatory phrases are definitions time and again used by the Western officials. It is what it is. The West, however, should not forget to celebrate Zero Discrimination Day and quote articles from the Universal Declaration of Human Rights.

Later, when Turkish expansionism and terrorism will knock on the Western doors, the West will remember those unimportant people from an unrecognized country that absorbed the first blow. At that juncture, the West will also remember how it admired the people of Artsakh’s endurance and collective resistance, but at the same time left them alone in their fight against terrorism and modern military technology. Perhaps, for the West it is just like watching a fun action movie with popcorn and cola.

Having 193 or 194 member-countries in the United Nations (UN)as a result of recognition of Artsakh would not change the existing international legal order, however, it could serve a textbook example for rising democracies and a lesson for the dictatorships and international terrorism. By not recognizing the right of the people of Artsakh to self-determination, the West is burying the concepts of human rights, freedoms, and democracy, thereby paving a way for the next military-political adventures of dictators. The West should decide. The longer the West spends on thinking without any concrete action, the further the region will move away from it.

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Eastern Europe

NATO invented new threat in the Baltic States

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It seems as if NATO has changed its priorities in the Baltic States.

It is well known that NATO member states agreed at the 2016 Summit in Warsaw to enhance NATO’s military presence in the eastern part of the Alliance.

So, the arrival of the multinational Allied battlegroup in Latvia in June 2017 concluded the deployment of forces under NATO’s Enhanced Forward Presence in the Baltic States and Poland, thereby implementing the decisions made at the NATO’s Summits. Since than NATO has been actively enhancing its military capabilities in the Baltic States. It increased the number of troops and deployed heavy weapons including tanks, armoured vehicles and artillery. Canada is the framework nation for the battalion-size NATO battlegroup deployed to Latvia.

It was said that NATO’s enhanced forward presence is defensive, proportionate, and in line with international commitments.

Though it was absolutely evident that NATO pursues not only the stated goals, but some hidden ones. Among them are convincing of the need to increase defence budgets of Latvia, Lithuania and Estonia, political support at all levels, loyalty to all decisions made by leading NATO member states.

The more so, NATO invented new threat in the Baltic States. All of a sudden the Baltic States have been turned to the drone test site. In order to justify NATO new interests, it was said that unmanned aerial vehicles are an emerging threat to NATO soldiers deployed around the world, and especially in the Baltic region.

The leadership of the enhanced Forward Presence Battle Group in Latvia even held a symposium in Camp Adazi in November to talk about how to deal with the drone threat.

Latvia’s Battle Group Commanding Officer Lieutenant Colonel Trevor Norton said that NATO recognized this threat as they prepared to deploy to Latvia, and made it a priority to come up with solutions.

“When I was looking at our adversaries and the way in which they have conducted recent operations around the world, it was obvious that they used UAS to great effect,” he said. “I determined that if we were to continue to be successful in deterring foreign aggression, we must demonstrate the ability to counter the threat of UAS. This is what led me to the idea of running a counter-UAS symposium and exercise.” In his turn Latvian Minister of Defense Artis Pabriks acknowledged that “the Latvian Defence Department has taken into account the lessons learned from the use of drones in the Nagorno-Karabakh conflict.”

It should be said that this conclusion looks more than odd. Does Pabriks consider Armenia and Azerbadzan as adversaries?

The symposium combined presentations by experts from the United Kingdom and Canada with open discussion between members of all nine nations of the Battle Group as well as members of the Latvian National Armed Forces about the capabilities they have in Adazi, and how they could use them to minimize the UAS threat. Finally, they tested some of their weapon systems in shooting down target drones at the Camp Adazi range. And, probably, this was the main goal.

Major Matt Bentley, the organizer of the symposium, stressed that this is a complex problem that will not be solved with one symposium. He said it was an important first step in the process of developing practices and capabilities that can defend Allied soldiers from drones while defending Latvia. Following the symposium, the Battle Group drafted a service paper to send to all sending nations for each ally to consider as they develop ways to defeat this threat.

According to LCol Norton, as Allied nations develop ways and means to combat the threat posed by UAS, the Battle Group will be in a good position to test them in a multinational context. In the meantime, the Battle Group will continue to build and refine tactics, techniques and procedures using the tools at hand to mitigate the threat. So, NATO invented new threat in the Baltic States to convince these countries in need to pay more and to deploy more foreign troops on their territory. And all this against the backdrop of a pandemic and an acute shortage of funds for medicine in Latvia.

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