Ukraine, E.U, sign agreement for EUR 1.2 bln loan, requires structural resets

Ukraine and the E.U. signed on July 23 an agreement
for a EUR 1.2 bln macrofinancial loan, the eurointegration.com.ua news site
reported that day. The first EUR 600 mln loan was granted immediately, while
the second tranche will depend on fulfilling requirements in the spheres of
judicial, tax and customs structural reform. In particular, the government is
required to reset fully the High Qualifications Commission of Judges, whose
members are supposed to be selected based on a special competitive commission
with international involvement. It must also launch an integrity and ethics
commission, also to include foreigners, that is responsible for resetting the
High Council of Justice.

Other judicial reforms are concluding the
certification of prosecutors at the regional level and beginning the process of
certification at the local level. An independent registry of cases – being
investigated by the National Anti-Corruption Bureau and Specialized
Anti-Corruption Prosecutor’s Office – must be completed and launched.

During his first visit to Brussels, Prime Minister
Denys Shmyhal announced on July 24 his cabinet will liquidate the State Fiscal
Service by the year end to meet the macrofinancial loan’s fiscal requirements.
The service was created as the Revenues and Fees Ministry in December 2012,
uniting the State Tax Service and State Customs Service into one body. The new
bodies “will have access to databases and resources, and will intellectually
search for financial violations, expose them and transfer them to the
respective body,” Shmyhal said, as reported by the rbc.ua news site.

One of the replacing bodies is expected to be the
Bureau of Financial Investigations, which will investigate serious economic and
financial crimes, with clear distinctions from other law enforcement bodies.
The legislation creating it has yet to be approved by parliament. Other
requirements are a full selective process for the new directors of the reset
customs and tax services, the improvement of the value-added tax monitoring
system and the introduction of electronic cash registers.

Ukraine’s cabinet decided on July 22 to create a Strategic
Industries Ministry to form and fulfill a state industrial policy in the
spheres of strategic industrial development. The ministry’s creation will help
spur job creation, tax revenue, regional development and the nation’s markets,
said Oleh Uruskiy, the deputy prime minister for strategic industrial
development, who was appointed on July 16 by parliament.

Zenon Zawada: All the
E.U.’s required reforms for the second tranche are positive for Ukraine’s rule
of law and economic development. We expect the Zelensky administration/Shmyhal
cabinet will work to fulfill them, though there will always be some interests
trying to undermine the reforms.

In theory, the creation of a Strategic Industries
Ministry is positive and has enormous potential to promote economic
development. The last such structure, the Industrial Policy Ministry, was
liquidated in 2014. It will be interesting to observe its first priorities in
its functioning. Without a minister, Uruskiy will be in charge, having
previously led the State Aerospace Agency of Ukraine.