Ukraine Launches Administrative Reform, Cuts Central Government

Ukrainian President, Viktor Yanukovych, has launched a reform of public administration. This is the second major reform related to the economy undertaken by his government after the tax reform, which was rubberstamped by parliament in early December. Next will be pension, housing and customs service reforms. It is debatable whether Yanukovych’s reform drive is due to his determination to modernize Ukraine, one of Europe’s poorest economies, and how much it may be driven by his team’s desire to perpetuate their rule, or the requirements of international creditors like the International Monetary Fund (IMF) from which Ukraine expects a $2.8-billion loan tranche in late December. In any case, the fact remains that Yanukovych has started such reforms after about a decade of mere talk about reform.

On December 9, Yanukovych signed a decree on streamlining the executive branch, cutting the number of central executive bodies from 112 to 63. In particular, the number of ministries was cut by four to 16, and another four ministers lost their jobs as their ministries will now be headed by existing deputy prime ministers. Also, the exotic post of minister for liaison between government agencies and for personnel matters (“Minister of the Cabinet of Ministers”) was abolished.

First Deputy Prime Minister, Andry Klyuyev, will head the Economic Development and Trade Ministry which is to replace the Economy Ministry and the Industry Ministry. The deputy prime minister in charge of the Euro-2012 football tournament, Borys Kolesnikov, will head the Infrastructure Ministry, which replaces the Transport and Communications Ministry. Deputy Prime Minister, Serhy Tyhypko, as the new head of the Social Policy Ministry will be in charge of the much needed pension reform. Finally, the fourth Deputy Prime Minister, Viktor Tikhonov, will head a new Ministry of Regional Development and Construction, merging the Construction Ministry and the Utilities Ministry. The Coal Ministry and the Family and Youth Ministry will also be disbanded. Dozens of government agencies, committees and inspectorates, many of which duplicated each other’s functions, will be axed. The number of deputy ministers in each ministry will be cut to three, whereas until now some ministers had as many as eight deputies. The cabinet’s secretariat will be cut by half to 600 (www.president.gov.ua, December 9, 10).

These cuts will have no effect on the state budget for 2011, according to Justice Minister, Oleksandr Lavrynovych, one of the reform’s authors, but the government expects that administrative spending will decline by 2012 onwards as a result of the reform. Lavrynovych said the Security Council, an advisory body chaired by Yanukovych, would also be trimmed. (Zerkalo Nedeli, December 11). Asked whether the reform would not repeat the fate of similar Russian reforms announced several years ago, Lavrynovych said the Russian public administration reform had remained incomplete (Inter TV, December 10). Yanukovych speaking in Moscow on December 10, stated that the central government cuts were only the first stage of public administration reform, as local administrations would be targeted (UNIAN, December 10). Yanukovych’s economy aide, Iryna Akimova, did not rule out reductions in the presidential administration where 400 people are employed, in addition to a 20 percent staff cut earlier this year (Ukraina TV, December 10).

In the course of the reform, Yanukovych has further strengthened his Party of Regions (PRU), granting more powers in particular to the deputy prime ministers stemming from his native Donetsk Region, Klyuyev and Kolesnikov. Meanwhile, the informal leader of the Luhansk regional group in the PRU, Tikhonov, will be tasked with launching housing reform, potentially unpopular as it may allow the authorities to evict people from their homes for failing to pay utility bills. Tyhypko, a liberal former banker (not a member of PRU), will be responsible for the highly unpopular pension reform which is expected to increase the pension age for women from the current 55 to 60 years. If the reforms collapse, Tikhonov and Tyhypko may become scapegoats. Also, the PRU’s junior coalition partner, the People’s Party which is headed by Parliament Speaker, Volodymyr Lytvyn, has lost two ministers responsible for transport and social policy.

The reform should be positively viewed in the EU as Ukraine had the largest number of government ministers, including deputy prime ministers, among all European countries: 25. European Bank for Reconstruction and Development (EBRD) regional director, Igor Podoliev, praised the government’s determination to conduct public administration reform, speaking at Ukraine Investors’ Summit in Kyiv on December 14. The EBRD is one of Ukraine’s main creditors along with the IMF and the World Bank. Podoliev, judging by the government’s determination, suggested the reform will not be reversed. However, Podoliev said large-scale corruption remains the main problem for Ukraine so the government’s achievements would be measured by its ability to curb corruption first of all. A package of anti-corruption laws which was passed by parliament last year is coming into effect from January 1, 2011.