UKRAINE'S ORANGE BLUES - DECENTRALIZING GOVERNMENT POWER IS KEY TO REFORMING UKRAINE

04.03.16


WORLD AFFAIRS.  It’s not surprising that Kyiv’s convoluted politics color what we think about Ukraine and its future prospects. But don’t let the turmoil in Kyiv obscure the hopeful developments taking place in Ukraine’s provinces. Take agricultural reform. As Kyiv’s policymakers squawk and squabble, real Ukrainians have to live real lives. And they do, frequently developing innovative new schemes that qualify as no less important reforms than those contemplated and adopted in the capital.

Lviv Province, 39 percent of whose population lives in the countryside, has just adopted an ambitious five-year Complex Plan of Supporting and Developing Agro-industrial Production, developed by the Province State Administration’s Agro-industrial Department, which is headed by the dynamic Nataliya Khmyz, described by her coworkers as a “fount of ideas.” The State Administration is allocating 11 million hryvnia (about $425,000) toward agriculture in 2016. According to Taras Verveha, the head of the Lviv Provincial Council’s Agro-industrial Commission, 1.5 million will pay the interest farmers owe on existing loans; 1 million is earmarked for replenishing the soil; and 8.5 million will serve as low-interest loans for agricultural improvements. Verveha expects agricultural production to increase by 10 percent in five years.  

In addition to the 11 million coming from the province in 2016, Khmyz and her colleagues expect Kyiv to provide 16 million, international donors to come up with 6 million, and co-financing partnerships (involving local budgetary allocations and farms) to account for 42 million—for a total of 75 million hryvnia. Since the State Administration intends to spend 86 million hryvnia during the next five years (or about $3.3 million at the current exchange rate), the actual total will likely be seven times as much, or 602 million hryvnia ($23 million).

The Lviv Province Fund for Supporting Individual Housing Construction in Villages, which has been providing villagers with cheap loans for fixing their homesteads since 2000 on a transparent and competitive basis, will administer most of the monies involved (8.5 million in 2016 and 68 million in 2016-2020). The Fund expects to provide 1-to-3-year loans at 5 percent interest (compared to the 30-percent interest offered by banks) to 104 small farmers, individual homesteads, and village cooperatives in 2016 and to a total of 605 in 2016-2020. The interest is earmarked for promoting the program, providing training and instruction, and covering direct administrative costs. 

According to Zenoviy Drevnyak, the head of the Fund, the loans will be awarded on the same kind of transparent and competitive basis that has characterized the Fund’s loan-making activity hitherto. Farmers will be obliged to submit detailed business plans to the State Administration’s Agro-industrial Department, which will select those proposals that promise to contribute most to increasing production of milk, fruits, vegetables, and meat and to creating jobs. The Fund will sign contracts with the farmers, provide the financing, and monitor the projects. The Agro-industrial Department’s outside experts will then evaluate the projects on an ongoing basis. The financing will pay for up to 50 percent of the proposed project’s total budget ensuring that the individual farmers share the risks. When farmers eventually pay off their loans, the monies will be ploughed back into the program and go toward financing future agro-industrial projects.

The program’s process, says Drevnyak, has been carefully designed to minimize opportunities for corruption by stipulating that each part of the process—competition, financing, and evaluation—be performed by different individuals or entities. Information about the entire process will be available on a special website; the Fund will also train farmers to develop their business plans. In time, the authorities hope to have a list of the “500 Most Successful Farms” that would serve as models for other farmers and cooperatives.

Perhaps the most promising aspect of the Plan is that it is a local initiative entailing negligible involvement of Kyiv’s heavy-handed, inept, and corrupt bureaucracy. Small wonder that other provinces are expressing great interest in Lviv’s initiative. On March 1, several hundred farmers and entrepreneurs from throughout Ukraine met in the Lviv Arena conference center for an extensive discussion about how to improve agriculture production. The name of the event reflected the hopeful enthusiasm of its participants: “A Million from Each Hectare.”

 

The road to effective administration is long, and it remains to be seen whether Lviv’s provincial government is up to the task. However, the Agro-industrial Department’s effort to revitalize agriculture has exhibited a degree of professionalism that has eluded Kyiv. The Lviv experiment needs to be monitored, as well supported from within and without. And the clear lesson for Ukraine’s reformers is obvious: cut the central bureaucracy and its intrusiveness—radically. 

Alexander J. Motyl's blog


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