Ukraine Wishes It Was a Bit More like Poland ; Kiev's Antiquated Laws and Rules Need Updating If Western Aid Is to Help

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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 beyond Russia.

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 West.

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 added.

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. …