Washington should encourage Ukraine to opt for greater economic freedom

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Ukraine is one of the largest countries in Europe, rich in human capital and other resources, and its strategic importance extends to the Middle East and Central Eurasia. In many ways, Ukraine is the face of the region’s continued struggle against Russian aggression. The country’s continued path to sovereignty and prosperity, complicated by massive political and security challenges, may well define the future of the entire neighborhood as well.

In his 2014 speech to the Foundation for the Defense of Democracies, Jake Sullivan, National Security Advisor to Vice President Joe Biden, said: “Ukraine will only succeed in forging its own course if it can get rid of the yoke of corruption and push back the anti-democratic forces that have held it back for so long ”, which requires“ a long-term commitment in all areas, from the Ukrainians themselves first and foremost, but also from the from American or European partners ”.REF

The United States is, indeed, a vital partner for Ukraine, and its continued support will be essential in encouraging Ukraine to put in place the necessary economic reforms that will allow the country to defend itself with more resilience. Washington simply cannot afford to disengage from Ukraine on the economic, political and security fronts.

Challenges and concerns

Modern Ukraine embodies the notion, dominant in Europe since the dissolution of the USSR, that each country has the sovereign capacity to determine its own path of development and to decide with which nations it relates to, and how and by whom it is governed.REF It is in America’s best interests that Ukraine remains independent and sovereign and retains the ability to choose its own destiny without foreign interference.

In a move rejected by the West, Russia annexed Ukraine’s Crimean Peninsula in 2014. Since then, Ukraine has been engaged in an ongoing national struggle that will determine its future geopolitical orientation. The outcome of this struggle will have major implications for the transatlantic community and the idea of ​​national sovereignty.

Responding to the challenge, the Ukrainians took a decisive step forward in their struggle to free themselves from the shadow of Vladimir Putin’s Russia in 2019, by holding orderly, free and fair presidential and parliamentary elections. On the basis that he and his party would follow a pro-Western path, fight corruption in the public sphere, and pursue much-needed economic reforms, Volodymyr Zelenskyi and the Servant of the People party won overwhelming electoral victories.

Since then, the new government has made measurable, but limited, progress in advancing structural reforms, including budget reforms and the privatization of state-owned enterprises. According to the latest edition of the annual report of the Heritage Foundation Index of economic freedom, which measures the economic governance and entrepreneurial competitiveness of countries around the world, Ukraine’s economy has registered notable improvements since 2019.REF However, Ukraine still lags behind its neighbors, with an economic freedom score lower than regional and global averages.

Continuing to implement policies that advance economic freedom must be a top priority for Ukraine. The country has powerful but not fully exploited industrial and agricultural sectors, as well as relatively well-developed infrastructure. Ukraine’s IT sector is one of the best in the world and growing rapidly.REF To effectively integrate these industries into the process of promoting the country’s economic security and prosperity, Ukraine needs to unlock its economic potential and more fully embrace the competitive free market systems that guide development in the West.

A vibrant and resilient economy is an essential engine for Ukraine’s freedom and independence. Ukraine’s economic potential has long been stifled by poor economic governance. Low rankings in Heritage Index and other international studies offer unambiguous indications of systemic gaps in the critical policy areas of transparency, efficiency and openness, which prevent the country’s economic potential from being fully utilized. Currently, Ukraine’s gross domestic product per capita based on purchasing power parity ($ 13,442) is more than two and a half times lower than that of Poland ($ 34,484), about half that of Russia ($ 28,184) and less than that of Belarus ($ 19,942).REF

What Washington should do

The current economic uncertainty induced by the pandemic is broader and more complex than past economic challenges. However, without high and deepened economic reforms backed by the decisive political will of the current government, Ukraine’s economic livelihood will remain constrained by what amounts to self-imposed economic repression, endangering economic security and standards. life of its citizens. More than ever, the current economic challenges call for decisive political corrections in Ukraine. Structural reforms focused on preparing or strengthening the foundations for market-oriented institutional improvements and greater economic freedom are necessary preconditions for a meaningful economic recovery.

Of course, the United States cannot give Ukraine the political will to transform its economy according to free market principles. However, by getting involved at critical moments in political dialogue and helping to implement reforms as much as possible, Washington can ensure that its orientations and concerns are taken into account. In this regard, the new Biden administration should:

  • Reiterate that the United States stands firmly on Ukraine’s side. Washington must take a firm stand on Russia’s aggression against Ukraine, reiterating the need for a full restoration of Ukraine’s territorial integrity. As long as Russia violates Ukraine’s sovereignty, the United States should pursue economic sanctions against Russian institutions and individuals who are responsible for annexing Crimea, and instigating and sustaining the conflict in eastern Ukraine.
  • Encourage targeted institutional and economic reforms to improve good governance in Ukraine as well as the country’s institutional competitiveness. Overall, progress has lagged behind many much-needed but controversial structural reforms. As the Index of economic freedom stressed, advancing fiscal discipline, regulatory efficiency and market opening to generate greater economic dynamism will go a long way in securing Ukraine’s future.REF
  • Focus on Ukraine’s achievements in promoting the rule of law and fighting corruption, not unrealistic expectations. The influence of vested interests has severely hampered the country’s ongoing efforts to improve its economic system towards greater transparency. Social, economic and political reforms in Ukraine will take time. Reform is a process that requires continued commitment, not a one-off event. Washington policymakers must support Ukraine on the long-term, but pragmatic, path of reform.
  • Work closely with the International Monetary Fund and the World Bank. These institutions, in which the United States has played a leading role as a member and donor, can offer practical advice on improving the entrepreneurial environment in Ukraine. Engaging with Ukraine through these two Washington-based international institutions is clearly in the interest of Washington policymakers. Effective policy guidance and development assistance should focus on promoting private sector growth which aims to remove obstacles to the facilitation of dynamic entrepreneurship in Ukraine.
  • Continue to work with the North Atlantic Treaty Organization (NATO) and reaffirm its open door policy for Ukraine. NATO must present a united front against Russia’s aggression against Ukraine, reiterating the need for a complete restoration of Ukraine’s territorial integrity as well as its open door policy regarding the possible future Ukraine’s accession to NATO.

Conclusion

By pursuing more decisive structural and institutional reforms that can boost economic freedom and long-term competitiveness, Ukraine can continue to build a brighter economic future and go beyond what the country has achieved so far. . As Ukraine continues to improve its record on economic reform, Washington should increasingly seek opportunities for practical bilateral trade and investment engagement. While Ukraine’s future success will largely rest on the shoulders of the Ukrainians themselves, continued U.S. strategic support remains essential to counter Russian aggression and support reform.

Anthony B. Kim is Research Director and Editor-in-Chief of the Index of Economic Freedom, Center for International Trade and Economics, Kathryn and Shelby Cullom Davis Institute for National Security and Foreign Policy, Heritage Foundation. Mamuka Tsereteli, PhD, is Senior Fellow at the Central-Asia Caucasus Institute of the American Foreign Policy Council.


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