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| A Blueprint for Ukraine | |
| (about 7 hours later) | |
| LVIV, Ukraine — Every kind of business in this restless pro-European stronghold near the border with Poland has an idea about how to make Ukraine like its more prosperous neighbor. | LVIV, Ukraine — Every kind of business in this restless pro-European stronghold near the border with Poland has an idea about how to make Ukraine like its more 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. | 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. | 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 one-time 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. | Since the breakup of the Soviet Union, Ukraine’s growth has badly lagged other one-time 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. | 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 where 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. | 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 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. | 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 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. | 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. | “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. | 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.” | “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. | 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. |
| More immediately, there is the threat of war with Russia. | More immediately, there is the threat of war with Russia. |
| Ms. Smutok, whose antibribery campaign has local business leaders confronting customs officials, said the turmoil was “so close to my home I’m not really afraid of small things like corruption and fighting the government.” | Ms. Smutok, whose antibribery campaign has local business leaders confronting customs officials, said the turmoil was “so close to my home I’m not really afraid of small things like corruption and fighting the government.” |
| Negotiations with global authorities are focused on Ukraine’s liquidity problems. The finance minister of the previous government said Ukraine needed $35 billion to right itself, but the new government suggests it is not that high. About $12 billion in debt comes due by the end of next year, a top official said, and currency reserves are dwindling. | Negotiations with global authorities are focused on Ukraine’s liquidity problems. The finance minister of the previous government said Ukraine needed $35 billion to right itself, but the new government suggests it is not that high. About $12 billion in debt comes due by the end of next year, a top official said, and currency reserves are dwindling. |
| With Russia suspending its loan package to Ukraine, European authorities have promised $15 billion; the United States has pledged $1 billion in loan guarantees. The Ukrainian government is also hoping to tap the I.M.F.’s deep pockets. | |
| An I.M.F. team is assessing the country’s needs and contemplating what strings to attach to any money. Analysts expect the fund will call for budget cuts, including reductions in energy subsidies. European authorities are pushing for trade initiatives, to help bolster Ukraine’s exports. | |
| Executives here welcome a potential association agreement with the European Union to open up flows of Western capital and markets, though they are not universally eager to actually join the European Union. Some fear open borders could be jarring, draining skilled workers and allowing more established foreign competitors to take business. | Executives here welcome a potential association agreement with the European Union to open up flows of Western capital and markets, though they are not universally eager to actually join the European Union. Some fear open borders could be jarring, draining skilled workers and allowing more established foreign competitors to take business. |
| Pavlo Sheremeta, the country’s new minister of economic development and a native of Lviv, said, “The first problem is over-regulation, the second problem is the Ukrainian markets are monopolized by politically influential people and groups, and that’s one of the reasons that foreign investors are basically not welcome.” | Pavlo Sheremeta, the country’s new minister of economic development and a native of Lviv, said, “The first problem is over-regulation, the second problem is the Ukrainian markets are monopolized by politically influential people and groups, and that’s one of the reasons that foreign investors are basically not welcome.” |
| The third problem, he said, was Ukraine’s court system, which “were making political decisions, not judicial decisions, and any investor would be frightened by that.” | The third problem, he said, was Ukraine’s court system, which “were making political decisions, not judicial decisions, and any investor would be frightened by that.” |
| Lviv has learned to adjust to changing rule, from the Austro-Hungarian Empire to the Nazis to the Soviets. Today its cobblestone streets and grand churches reflect a blending of styles. While it is considered Ukraine’s most European city, the nationalist message of the far right Svoboda Party has appeal here, brushing aside a history of anti-Semitism. The city itself was the scene of tensions before the Yanukovych government fell, but its mayor, an independent, has been credited with keeping order. | Lviv has learned to adjust to changing rule, from the Austro-Hungarian Empire to the Nazis to the Soviets. Today its cobblestone streets and grand churches reflect a blending of styles. While it is considered Ukraine’s most European city, the nationalist message of the far right Svoboda Party has appeal here, brushing aside a history of anti-Semitism. The city itself was the scene of tensions before the Yanukovych government fell, but its mayor, an independent, has been credited with keeping order. |
| There is a craving for more stable times. | There is a craving for more stable times. |
| Mr. Pavliv, 36, wants to help turn Lviv into a little Ukrainian Silicon Valley. Someday, at least. | Mr. Pavliv, 36, wants to help turn Lviv into a little Ukrainian Silicon Valley. Someday, at least. |
| He runs an I.T. outsourcing company, N-iX, housed in an old Soviet television warehouse revamped with Google-like touches. There are beanbag chairs and table tennis. Office doors have pictures of American cartoons like SpongeBob and South Park. | He runs an I.T. outsourcing company, N-iX, housed in an old Soviet television warehouse revamped with Google-like touches. There are beanbag chairs and table tennis. Office doors have pictures of American cartoons like SpongeBob and South Park. |
| He has long had an entrepreneurial spirit, once getting in trouble for selling paper cars used in Soviet schoolyard races. His recent ventures include a start-up called ThickButtons, an app that fattens keypad buttons after guessing which ones will be typed next. | He has long had an entrepreneurial spirit, once getting in trouble for selling paper cars used in Soviet schoolyard races. His recent ventures include a start-up called ThickButtons, an app that fattens keypad buttons after guessing which ones will be typed next. |
| Foreign clients of N-iX, which employs 150 people here, recently became nervous. | Foreign clients of N-iX, which employs 150 people here, recently became nervous. |
| “Our customers were worried about what kind of business contingency plans we had,” he said. “We created a plan where we could move key people to Poland.” | “Our customers were worried about what kind of business contingency plans we had,” he said. “We created a plan where we could move key people to Poland.” |
| Under the previous government, the company faced significant regulatory challenges. In recent years, the government threatened to enforce laws effectively barring technology companies from employing contract workers, common among foreign competitors. A solution floated by the government was even more worrisome: creating a special I.T. association affiliated with a son of Mr. Yanukovych. | Under the previous government, the company faced significant regulatory challenges. In recent years, the government threatened to enforce laws effectively barring technology companies from employing contract workers, common among foreign competitors. A solution floated by the government was even more worrisome: creating a special I.T. association affiliated with a son of Mr. Yanukovych. |
| “It was a little bit scary for us,” Mr. Pavliv said. | “It was a little bit scary for us,” Mr. Pavliv said. |
| Mr. Rushchyshyn, who runs nine garment factories, cited one rule that required commercial enterprises to turn a profit, which is not always possible in the real world. | Mr. Rushchyshyn, who runs nine garment factories, cited one rule that required commercial enterprises to turn a profit, which is not always possible in the real world. |
| “There was two years of crisis, and my costs used to be much higher than my income, you see?” he said. “So they can come and make me a penalty of a few millions.” | “There was two years of crisis, and my costs used to be much higher than my income, you see?” he said. “So they can come and make me a penalty of a few millions.” |
| “We didn’t have enough radical reforms yet. We took Soviet law and just improve, improve, improve, but it’s not enough,” he said. | “We didn’t have enough radical reforms yet. We took Soviet law and just improve, improve, improve, but it’s not enough,” he said. |
| He said Ukraine still had an uneasy relationship with capitalism. | He said Ukraine still had an uneasy relationship with capitalism. |
| “Businessman, this is a bad word,” he said, adding, “I don’t call myself a businessman. I’m a work giver. People don’t understand this is the same thing.” | “Businessman, this is a bad word,” he said, adding, “I don’t call myself a businessman. I’m a work giver. People don’t understand this is the same thing.” |