Saakashvili for Prime Minister of Ukraine?

(Bloomberg – bloomberg.com – Marc Champion – September 23, 2015)

After 24 years of independence and two revolutions, the promise of reforms that would turn Ukraine from a kleptocracy enabled by Soviet-era institutions into, say, Poland still hasn’t materialized. Popular patience is wearing thin.

So three months ago, President Petro Poroshenko sent his friend (and Russia’s bete noire) Mikheil Saakashvili to see if he could sort out the country’s largest and most corrupt region, Odessa. Instead, the former Georgian president and his team of young reformers here are gunning to sort out the whole country.

For the last six weeks, half of his time in Odessa, the man Saakashvili picked to run his reform program — former Microsoft executive Sasha Borovik — has been putting together a package of legislative changes designed to reproduce Georgia’s essentially libertarian formula.

In part, says Borovik, this is just what success in Odessa would demand. “Whatever we do here will run into things that need to be done at the national level,” he says, starting with changing the customs system and the privatization of Odessa’s notoriously corrupt port. With U.S. Senator John McCain (visiting in a show of support) seated next to him earlier today, Saakashvili announced Borovik’s candidacy for mayor in the Oct. 25 elections.

Borovik doesn’t hide that his reform package is designed to embarrass the Kiev authorities into action on a wider stage. And with Prime Minister Arseniy Yatsenyuk now so unpopular he has decided against fielding his party in nationwide municipal elections next month, a replacement may soon be needed. Saakashvili may be the only potential candidate whose popularity is rising, and who could afford to take the radical steps required.

Saakashvili has attacked Yatsenyuk for blocking, even sabotaging reforms. Now a petition at the president’s office to make the Georgian prime minister has gathered more than the 30,000 signatures needed to require its consideration. Whether this was always part of the plot, or Poroshenko got more than he bargained for from his friend is unclear. Saakashvili would “make a great prime minister … of Georgia,” Poroshenko said in a recent interview.

Borovik is himself something of a revolutionary in Ukraine. He came back to join the government in Kiev, only to be fired within months, apparently for speaking his mind too freely to Yatsenyuk in a meeting. When I caught up with him this week, he’d just returned from Kiev after delivering his reform package. Here are a few highlights:

• Privatize state assets in transparent electronic auctions, reducing the list of state assets protected from sale by 80 percent;
• Automate customs clearance, to be provided within one hour, 24 hours per day;
• Merge income tax and payroll tax into a single, flat 25 percent levy in 2016, falling to 20 percent in 2018;
• No new or increased taxes without a national referendum;
• Exempt businesses with fewer than 1,000 employees from labor regulations on contracts;
• Relax immigration laws, with one year visa-free stays for 115 countries

Clearly, it’s not possible to set a flat tax system just for Odessa, nor can a regional governor decide that 80 percent of Ukraine’s protected state assets should be put up for sale. So this is a national agenda.

It would also be radical and difficult to implement in any country. In Ukraine, where the state still operates on an essentially Soviet structure that enriches those able to set and maintain the rules, it asks turkeys to vote for Christmas. Worse, the very people who are supposed to be driving reform — Poroshenko and Yatsenyuk — are themselves products of the system. And Borovik wants the plan adopted in November and implemented by Jan. 1.

“The problem in Ukraine is that you have a Mexican standoff, where everyone has something on everyone else,” says Borovik. That includes Poroshenko, who became a billionaire through the same opaque privatizations as the nation’s other so-called oligarchs. “We don’t need another Maidan [revolution] or early elections. But we need to put all of the pressure in the world onto the President and say: ‘Reform. Bring in a new government and prime minister and push through the most liberal ideas you can.’ It is time for him to understand he must choose between fence-sitting and becoming the founding father of a new Ukrainian nation. Only he can do this.”

Borovik says it doesn’t matter whether the government cherry-picks the reform package and adopts the ideas as its own. But if the package is blocked, team Odessa will park their political tanks in Kiev. Poroshenko “will have a problem, and it will be bigger than the package.”

Having exiles and foreigners drive this kind of system-breaking agenda might not be as crazy or implausible as it sounds: They have no hinterland in Ukraine and nothing to lose. Implementing such radical reforms would be unpopular, involving much tighter fiscal discipline (Yatsenyuk, by contrast, just increased pensions). To make cuts palatable would require doing popular things, such as firing or retraining the entire corrupt traffic police, as Saakashvili did in Georgia and is doing now in Odessa; and putting major figures on trial so Ukrainians can see and feel their country changing.

Who else but a bunch of foreigners and exiles would take those risks, or feel immune from getting sucked into the corruption probes themselves? Saakashvili is being investigated for alleged offenses in Georgia, but that’s another country.

Ukrainians have been waiting so long for change, they probably wouldn’t care who brought it about. Still, it will be a minor miracle if team Saakashvili can succeed even in Odessa, let alone all of Ukraine. After 24 years of failed reform efforts, opposition to the very ideas of privatization, tax reform and price liberalization runs deep — the experience Ukrainians have had under that rubric before has been terrible. As Borovik explains, even naming the reform package to put it on the Odessa administration website has been a challenge: “Every name, every permutation of ‘change’ or ‘reform’ has been used in Ukraine, and all are associated with failure.”

Poland and the Baltic States took the radical road in the 1990s, and were rewarded with European Union membership. When Georgia tried in the in the mid-2000s, geography, Russian hostility and a decade of post-independence chaos made it much harder, and success more limited. For Ukraine, starting over in 2015, it would take a special kind of national heroism.

Article ©2015 Bloomberg L.P. All Rights Reserved. Article also appeared at 
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