Businesses say antiquated laws and regulations must be changed if
the billions in aid headed to the struggling nation are to help.
Every kind of business in this restless pro-European stronghold
near the border with Poland has an idea about how to make Ukraine
more like its relatively prosperous neighbor.
For Yaroslav Rushchyshyn, founder of a garment manufacturer, it
is abolishing bizarre regulations that have had inspectors
threatening fines for his handling of fabric remnants and for
reporting financial losses. For Andrew Pavliv, who runs a technology
company, it is modernizing a rigid education system to help nurture
entrepreneurs. For Natalia Smutok, an executive at a company that
makes color charts for paint and cosmetics, it meant starting an
antibribery campaign, even though she is 36 weeks pregnant.
With the West poised to pump billions of dollars into Ukraine,
the money may prove a Band-Aid unless the government addresses some
of the country's festering structural and regulatory challenges.
The International Monetary Fund, which is finishing its on-the-
ground review of Ukraine this week, is expected to call for reforms
as a condition of any long-term aid. Economists stress that the
problems run deep in Ukraine, a country still dealing with the
legacy of its Soviet past as it tries to embrace trade opportunities
Since the breakup of the Soviet Union, Ukraine's growth has badly
lagged other onetime communist states. And it has fared especially
poorly against Poland, its neighbor to the west, which, while by no
means perfect, has been a model of how much faster a former Soviet
bloc country can advance.
In the decades after communism's fall, Ukraine and Poland have
taken notably different tacks.
As part of the Soviet Union, Ukraine, a largely agrarian society
that was later industrialized, has been tied to an old regulatory
system under which widespread corruption and oligarchs flourished.
Russia's president, Vladimir V. Putin, has continually pressured
Ukraine, which he recently called a "brother nation," to resist the
In comparison, Poland, an Eastern bloc country without the same
influence from Russia, quickly shed its communist past, with a shock
therapy approach to privatization of state enterprise and
regulation. It has also been considered by the World Bank a model of
education reform in the region.
The results have been stark. The output of Ukraine, which counts
steel and agricultural products among its chief exports, has fallen
since the last days of the Soviet Union. Poland's output has risen
sharply and is far larger now than Ukraine's, even though it has a
smaller population. While Poland's growth has slowed of late, its
per-capita gross domestic product of $13,000 is roughly three and a
half times as large as Ukraine's.
In Lviv, an hour's drive east of the Polish border, such
differences are visible, said Ms. Smutok and her deputy, Iryna
Bulyk. "Better roads," Ms. Bulyk said. "Better houses," Ms. Smutok
Victor Halchynsky, a former journalist who is now a spokesman for
the Ukrainian unit of a Polish bank, said the divergence of the two
countries was a source of frustration. "It's painful because we know
it's only happened because of policy," he said, adding that while
both countries had started the reform process, Poland "finished it."
Ukraine has been held back by a number of policies. Steep energy
subsidies have kept consumption high and left the country dependent
on Russian gas, draining state coffers.
Mr. Pavliv said the state university system, which he called
"pure, pure Soviet," was too inflexible to set up a training program
for project managers, or to allow executives without specific
certifications to teach courses. An agriculture industry once a
Soviet breadbasket has been hurt by antiquated rules, including
restrictions on land sales. Aggressive tax police have been used to
shake down businesses. …