 The Transparency Trap By Scott LEWIS |
With near-unanimity, the international community has decreed that a key to Ukraine's acceptance as a respected, progressive nation is its ability to become more transparent. Yet Ukraine's government and business communities alike tend to look upon transparency as a large spoonful of foul-tasting medicine: perhaps ultimately beneficial, but hard to swallow.
The nation's lack of transparency has been documented in almost every sector: election outcomes are suspect; rules of privatization tenders are written to exclude all but pre-selected bidders; professors demand cash for grades; landlords evade taxes due on rental income; doctors demand cash to deliver "free" health care; businesses pay to receive awards and contracts; and some legislators are said to been paid for votes. Few escape participation in a system in which unfettered corruption is endemic.
Most Ukrainians would likely opt to have a nation that is transparent and corruption-free, but few seem willing to take steps toward eliminating the practices that have subjected the nation to international scrutiny.
Progress
What progress has been made has come after pressure from the United States, the International Monetary Fund and other organizations that can link compliance to the continued ability to receive foreign aid or obtain loans.
As a result, the government has made some changes.
An IMF report released last March lauded the government for having improved key aspects of its fiscal transparency, though it acknowledged that much remained to be done. Similarly, the international Financial Action Task Force, which coordinates efforts to combat money laundering, removed Ukraine from its list of non-cooperating countries in February, citing substantial implementation of anti-money laundering reforms.
Even so, corrupt practices continue largely unabated. Last year, the Interior Ministry estimated that the cost of bribing a government official had tripled in five years, to an average $750. The ministry also reported that prosecutions were up 50 percent over 2001. Even so, a ministry spokesman singled out teachers, some of the lowest-paid government workers, as one of the most problematic groups.
Bribery can range from a few hryvnia paid to a traffic policeman to thousands of dollars for legislation. The online newspaper Ukrainska Pravda estimated the biggest bribes regularly passed in the country to be payments to a parliament deputy in exchange for his vote - $100,000 in some cases.
Some five million Ukrainians, or roughly ten percent of the population, are state employees. Most news reports estimate some four million have taken bribes at least once, and around half are regular bribe-takers, according to a Deutche Presse news report.
From the cafeteria cook who takes food home to the government official who solicits cash for administrative favors, the rationale for corruption is usually blamed on low government salaries. Though mid-level government employees with no outside business activity often own homes and cars far beyond their apparent means, prosecutions are relatively rare.
Privatization
Thousands of privatization sales have occurred since independence, with everything from small grocery stores and cafes to major factories moving from the government into private hands. The State Property Fund, charged with exchanging government assets into cash, has been criticized for moving too slowly by the administration, and for bowing to political pressure by western observers. The SPF has on occasion established tender conditions that appear to exclude all but specific Ukrainian bidders, as occurred with the tender for Dnipropetrovsk's Pavlohradvuhilia coal company in May. That sale was sidetracked after potential Russian and Indian bidders objected.
The fund has also fought foreign investors in court in attempts to reassert control over share packages and essentially threatening to re-nationalize assets that have been sold.
Elections
Elections also present a continuing problem. Even those candidates with capital face restricted access to the media, which is largely controlled by political parties business clans. Even candidates with plenty of cash find it hard to compete when opponents are extended the use of so-called "administrative resources" - special treatment by local administrations, state-owned media, and managers of state-owned enterprises and state-funded organizations. Favored parties and candidate use public employees and facilities at public expense.
Business
The nation's shadow economy is estimated to be nearly equal in size to its official figures, analysts say. That's a nice way to say that half the income generated in the country each year is involved in a massive tax fraud. Despite recent changes in the tax code and adoption of a flat income tax, which are expected to slow the shadow economy's growth, businesses continue to keep separate sets of books, bribe tax police and pay for goods and services under the counter. The 'envelope system," whereby employees are paid a miniscule official salary and receive additional, unaccounted - for compensation in cash, continues to be prevalent. Although the flat tax is an incentive to legalize salaries, related social payment remain high enough to negate the incentive posed by the flat tax.
Businesses also have been criticized for regularly engaging in unfair competitive practices such as providing kickbacks in return for contracts. Successful bidders are selected not so much for the quality of their products or price as for the compensation they are willing to pay to purchasing managers and other decision-makers.
Even competitions have repartedly been corrupted, with potential entrants being told that their product can win - on payment of a fee.
Public perception
Since most persons in the nation either pay or solicit bribes and kickbacks at some level, it's no surprise that the public doesn't have high regard for the integrity of either business or government institutions. What progress the country has made toward becoming more transparent has had little effect on its public image over the past several years. Transparency International, the international non-governmental organization that publishes an annual Corruption Perceptions Index, still ranks the country toward the bottom of the list. In 2003, the index had Ukraine tied for 106th place, along with Bolivia, Honduras, Macedonia, Serbia & Montenegro, Sudan and Zimbabwe. These nations each received a score of 2.3 on a scale where 10 is considered to be corruption-free.
Despite slow progress, Ukraine's efforts to increase transparency in government and business have failed to have had either deep or sustained impact. The Ukrainian people know that it would ultimately be a benefit to all to live in a nation of laws, where ethical conduct is expected. But few seem willing to embrace reform. The few businesses - foreign and Ukrainian - that are operating transparently and succeeding despite the odds are setting the example - often at the short-term expense of their shareholders. Long-term, however, they will be seen as the trailblazers.
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Read also previous issue' articles:
Tourism: Ukraine's Greatest Lost Opportunity
Cars, Cars - and More Cars
The Long Slide Into Instability
Sex, Money and the Modern Dacha
How to Stop Worrying and Love the Property Market
Separating Chornobyl
Fact and Fiction
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