Interview with Peter Obukhov on reforms, the armed conflict and geopolitics

Peter Obukhov, MP Odessa Oblast (Petro Poroshenko Bloc) talks about reforms, the armed conflict and geopolitics. Odessa, July 15.

Q. Mr. Saakashvili, Odessa’s new Governor raises high expectations. It seems optimistic to assume that he can deliver half of what he promises. He is now 50 days in office and needs to deliver soon.

A. Of course he has risen expectations and there can be disappointments but I think he will do most of what he promised. For example yesterday there was a football championship in Odessa. There were no football games in Odessa since May 2 of the last year when there were clashes. He said that he will return football to Odessa and football is now in Odessa. Of course he makes a lot of PR actions, like traveling in the bus with the citizens, when he goes to football games and sitting in the regular seats and not in the VIP lounges like previous governors. But he does a lot of things which have a positive influence on Odessa’s regional economy.

For example, several days ago I met a member of ‘Norwegian-Ukrainian Chamber of Commerce’ in Riga. When he asked where I am from and I told him that I am from Odessa, he said: ‘Oh Odessa, you have your new governor, he will make something good.’ Everybody believes in it and these beliefs bring a kind of truth, a self-fulfilling prophecy.

Everybody knows what he has done in Georgia. I read a book, called ‘Why Georgia succeeded.’ It tells about their reforms. On every page you can see the results of Georgian reforms. In Ukraine it’s the opposite.

Maybe you heard about our state aviation agency. This agency gives permission to airlines to fly in Ukraine or from Ukraine. This agency was controlled by Kolomoyskyi, an oligarch. He [Kolomoyskyi] has an airline, the Ukrainian International Airlines. The head of the aviation agency worked for Kolomoyskyi and he didn’t give flight permission to other airlines. The same situation previously existed in Georgia, there Saakashvili put an end to this situation and liberalized the market. Now every company has the possibility to fly in Georgia. After this the air traffic has risen five times. Now we are waiting for the same in Ukraine.

Q. How long will it take?

A. Firstly, we need to look at what the differences are? Saakashvili is not the president. In Georgia, Saakashvili’s party had the majority in parliament. In Ukraine the situation is different. There is a coalition of five parties, each controlled by different people, including oligarchs and party leaders. Therefore it’s more difficult to make changes and changes will take place more slowly in Ukraine than it did in Georgia. But it will work.

I think there is help from European Union. We want to sign an agreement of common aerospace with European Union. This agreement will open our market. I think this agreement will be signed this year, then this situation [privileges of UIA, Kolomoyskyi’s airline] will be broken. And of course the head of this aviation agency is now fired.

Q. It’s a first step?

A. Yes, but it’s not the only step. The main problem now is not only the aviation agency, it’s the economy. Of course there is a lot of corruption in the beach area of Odessa. Everybody wants to make his private beach. Some want to sell the place on the beach. This is illegal by Ukrainian law but nobody cares. Saakashwili made a walk along the coastline and he has seen fences. His method of work is very interesting. He cannot order to destroy the fences. But he said: ‘These fences are illegal, so nobody will go to the court if some activists destroy them.’ The next day, fifteen fences were replaced by their owners. He doesn’t live in the laws, he changes them.

There was a meeting of our governors with our President in Odessa. The governor of Dnipropetrovsk Oblast was very jealous. He said: ‘Saakashvili makes illegal things. We cannot do this. I would like to do this too, but I can’t’. So Poroshenko told him: ‘O.K., but you can speak to me and I can change laws if you want. Why don’t you do this?!’

Two days ago there was a conference for investors to invest in the Odessa region. I think this PR will work. All said, a lot of work was done, not by Saakashvili but by the government in Kiev and by parliament.

For example, when Yanukowych was president, there was a law that every ship that arrives in Ukraine has to conduct ecological tests on the water in the tanks. There is no such procedure in any country, but this procedure meant a cost for every ship.

Q. So it was just an opportunity to take bribes?

A. Of course and this is now removed, there are no such payments now. A lot of such things that are not seen are made. This will have a good influence on the economy in maybe a half or in one year. Of course these things can’t work after one second.

The government promised to make a new tax codex which will reduce the amount of taxes and the number of taxes. This will start from next year on. And I also think that it will have a positive effect.

Q. If there are less taxes, there are less possibilities to use the law for taking bribes?

A. Yes of course, but not only. One of the goals is to make progress in Worldbank indicators. For example there is a parameter on how many hours businessmen must spend through the year to pay taxes. This parameter needs to be optimized too.

Governors in Ukrainian Oblasts cannot make new laws and cannot reduce taxes. For example in Georgia Saakashvili has reduced the number of taxes down to seven. But he cannot reduce taxes only in Odessa, that’s impossible.

Q. Saakashvili’s power is based first of all on the ‘carte blanche’ Poroshenko gave him and secondly on the part of the civil society which support him. Another impression is that the mood in Odessa is more optimistic or less pessimistic than months ago.

A. Yes, of course. For example what made me depressed back then was the war in the East, which is now kind of frozen. There are no reports that we are losing ten soldiers every day. The second is the exchange rate to the USD. The exchange rate now is stabilized since months.

Q. But the stabilization of the exchange rate is expensive!

A. We have only one way.

 

Q. The [Saakashvili] administration intends to replace and rebuild institutions rather than to reform them. What will be left of the old system if the job is finished successfully?

A. I told you about the tax code. In Georgia they had two codes, the tax code and the custom code. They united them in one document and shrinked it to 24 pages. Now in Ukraine the tax code alone is one thousand pages. It cannot be nothing, but it has to be small.

Q. I was told that traders on 7 KM Market have no idea about sales taxes.

A. It’s not a very good situation. They don’t pay taxes. But if they will pay all taxes they have to pay by laws, they cannot work. There would be no profit. So the taxes need to be lowered and the taxes need to be easier to pay. Maybe by paying it over the Internet and not counting on tax offices.

Q. Leading figures of the administration are foreigners and people who have worked abroad. The strategy as such is comprehensible, no need to talk about that. I am skeptical that those new people are able to realize how deep corruption in Odessa Oblast is. I understand that you don’t need to understand the old system since you intend to replace it. But you face the risk of failing because of not understanding the obstacles that hinder reforms. Are you aware of this dilemma?

A. I think they know. Georgia had the same level of corruption like Ukraine when they started ten years ago. So this will be no surprise. For example our minister of economy…

[mobile is ringing, Peter talks shortly on the phone] … Ha, my friend is now at the beach… by law our beaches are free to enter. But he was asked to pay for visiting the beach for services. So what services? The services for cleaning the sand. So we will make a publication about it…

Em.. what was the question? Ah, Abromavicius! He is from Lithuania, but he lived in Ukraine for ten years, so he knows everything.

Q. The last question on reforms is related to this: If the majority of the personnel is replaced instead of changing their behavior, that works for the top. But you can not really change the whole bureaucracy, I think it’s too much or am I wrong? Isn’t there a lack of qualified personnel?

A. I don’t think there is a lack of personnel, especially not in the this economic situation. A lot of people are looking for work. Sometimes you cannot teach people to be honest if they are not honest. I think the system must be changed. For example when you get some services from government you don’t need to speak directly to the men who provide it. You can send the documents by email then you don’t have the opportunity to pay him. And he has no opportunity not to provide the services.

A lot corruption is created by laws. For example you can pay the road police a bribe if you have broken some rules. Or you can take half an hour to sign the protocol, go to court and to pay and lose some days. Or you can pay bribes on the same price to the police. Of course you will choose the last. But if you change this procedure, when you can pay the fine by card, there will be less corruption.

Q. Anything to add about reforms?

A. Procedures will become transparent. For example there is a very good law that was signed some months ago. This law orders to make a website where every transaction from government accounts will be online. So every person will see how, for example regional government, the government in Kiev or villages spend the money. And we will see where it goes, this will deter corruption.

One more example. Two years ago, if you wanted to build a building, you had to have 200 permits from different agencies in Ukraine. If there are, let’s say only 20 or 40 permits needed, it will lower corruption.

There is a phrase in Russian language: the country will be saved by mass executions. I think this is not the right way.

Q. Let’s talk about the armed conflict. As soon as the armed conflict in Eastern Ukraine comes to an end, the disarmament of volunteer battalions will become an issue. Groups like Right Sector will oppose this. One scenario is that they seek to transform military power to political or economic privileges. The other scenario is that their disarmament by force will lead to another armed conflict including a high strain of the political system. Both outcomes are no improvement compared to the present. Therefore the best is if the conflict in the East goes on with low intensity in order to keep them busy. At least in the short run. Is this wrong?

A. I know there are a lot of arms going from war zone to peace zone. Of course this is a problem. I don’t know how to solve it. But I think, now there is no revolutionary situation in our country. Maybe everybody understands what is going on. The only solution is to make reforms. If the reforms are done, there will be no such armed conflict. If not, it’s maybe time to leave Ukraine. This war will be ended only by reforms, only by optimizing taxes, fighting corruption and so on.

Q. Let’s talk about corruption and economy. Before, we mentioned the 7 km market.

[phone is ringing… his friend from the beach is calling]

… I was impressed by what you said that reforms are the only solution to end the conflict…

A. … it can’t be done by arms. Because the Russian army is ten times bigger than ours. The second solution to end the war is to wait until Russia collapses. But nobody knows when or if it will happen.

Q. How about a third solution, a Maidan at Kremlin?

A. I think this is impossible. Well… the Russian collapse of course with Maidan …

Q. So you would have a friendly neighbor.

A. We want a friendly neighbor. [phone, beach issues…]

 

Q. Corruption and shadow economy cause each other. I am not aware of official figures but it seems that prostitution is a significant part of the shadow economy in Odessa. As long as prostitution is in place, it will feed corruption. Additionally to that it feeds the image of your country abroad. Pointed or not, the prejudice is that male tourists visiting Odessa are sex tourists or looking for a bride, not to mention the self-image of young Ukrainian woman growing up in such surroundings. Which priority has this issue on your to-do-list?

A. I think this image is exaggerated. I have seen prostitutes maybe two or three times in my life. It was late night, only at the place where they gather, there were maybe five women. I don’t think it is a huge sector of our economy. But I know that Odessa is known for this …

Q. Ok… well this is a picture people have in mind in Western European countries like Germany…

A. … but in Germany the prostitution is legalized, what is the problem? Why need to go to Odessa?

Q. Lower costs due to the low Hryvna?!

A. Maybe. But… especially I don’t want to have sex with prostitutes. One of the reasons is because it is not safe. We have a big percentage of AIDS. I think in Germany it’s much safer…

Q. … so, this has no high priority on your to-do-list?

A. I think in future, the prostitution must be legalized and controlled by medical profession for example. But now… you must see, our society was 70 years in Soviet Union where it was strongly against the morale. A lot of people, mostly older ones are against this. So we need to wait until the public opinion changes. And this also will lower corruption.

Q. While I prepared for our conversation, I talked to two young Ukrainians at the hostel where I stay. I asked them about the three biggest problems of their country. Both mentioned independently from each other people’s mentality. A woman said that people always blame others for their country’s problems. Personally, I cannot remember when I’ve heard the word ‘stupid’ as often as I hear it here, when people talk about each other. And look, at the same time patriotism is at an all time high…

Q. … thanks to Mr. Putin …

A. … yes, but at the same time, this is just my impression, people don’t really trust each other if they don’t know each other. Maybe this is not representative. But do you want to comment that?

Q. I was in USA, it was clean, beautiful buildings, bright streets and people were happy. Maybe everyone was happy in USA. People were smiling, they were not smiling because they need to smile, they smiled because they were in a good mood. In Ukraine there is a bad economic situation, there are traffic jams, there not so beautiful buildings. When you live in such a not very cosy environment you will not be happy. And you will not believe other people. Also, every time when the economy goes down in Ukraine, crime increases, a lot of cars are stolen or things stolen from homes. People don’t believe each other in such a situation.

 

Q. The government in Kiev and Odessa has a strong orientation to USA, EU and NATO. Two questions on that. First, will this strong orientation fade as soon as there is a political solution with the Russian Federation and with the conflict in the East? Do you think future governments in a few years will try to balance between East and West like in the years before?

A. I think this is impossible. What was the problem? The problem was that there were strong Russian media in Ukraine. Now maybe most of them are banned from Ukraine, T.V. stations, radio and so on. The support of EU and NATO integration has risen. The second reason is that most people who were against EU and NATO are living in Crimea and Donbass. Now they are not counted in opinion polls, so the support has risen. Also, the Russian state is not considered as friendly in the minds of Ukrainians, they kills our soldiers. In Odessa there were maybe 50 bomb explosions, this and last year. So I don’t understand how Russia can get our love back. I think it will be very hard and a long road.

Q. Reading Ukrainian media, one might get the impression that Ukraine will join EU and NATO soon. Maybe I am completely wrong but I don’t expect this to happen within the next eight years. Raising unrealistic expectations is normal in politics, not only in Ukraine. But this seems a little too much in my view. Aren’t you afraid it will lead to a complete deterioration of the population’s trust in the Ukrainian political system? And isn’t there the risk of a backlash against the Western orientation and a switch towards a strong orientation to the East? Especially in Odessa?

A. There are two thoughts. The first concerns the level of living standards in Russia and the EU. The living standards are higher in EU. Russia can not make it better for years. Second, every media in Ukraine is owned by some private person. All of them don’t want to be in Russia, all of them. They like to travel in EU, their children study in EU, not in Ukraine. And if they are ill, they go to Germany and not to Moscow. So I think they will not make propaganda for Russia on their media. Of course there are state owned media and they won’t do that as well…

Q. … and the people follow the media?

A. Do you know how Euromaidan started? Yanukowych had decided that Ukraine will sign an agreement with EU in Vilnius. To prepare people in Ukraine there was maybe half a year of strong propaganda that we need to go to EU, that EU is so good. Every day we saw on the main TV channels how good it is in EU. For example ‘today there are lots of discounts in Germany’s shops’. And then he [Yanukowych] said from one day to the other: ‘no, we are going to Russia’.

Maybe we will not become member of EU in the near term, maybe in ten years, at least ten years. I have studied this question. The shortest time to become EU member was five or six years for Sweden. But how can we compare Ukraine and Sweden. So it will be at least ten years. But it is not very bad. When we enter the free trade zone with EU, it is EU integration. It’s a very important step, maybe the most important step. The other important step is a visa-free zone, so we can travel to Europe without visa. I think this will be done at the start of next year…

Q. Integration by opening the market and politics will follow?

A. … I think this process can not be reverted.

Q. I have the impression that Ukrainians live in the first place for today, the future seems to be of low importance. The reasons for this are clear. I have also the impression that Ukrainian politicians are doing the same in order to secure their political survival. Is it legitimate that tactics are prioritized over strategy? Is it possible under these circumstances, to make a long term strategy for Ukraine or elaborate a vision?

A. I think your impression is right… we had signed the biggest EU association agreement with EU. It has more pages than the agreement of any other country. It has a plan for ten years what we need to do. And also IMF, the International Monetary Fund. Before they give us money, every time they ask us first to make some reforms and then they give the money. They have worked with us the other way in the past, the money first and then we make reforms. But we haven’t made reforms, so they don’t believe us anymore… and they are doing right.

You see it’s hard to make long term plans when the situation is not very stable. It think all will be good. I have good faith…

Q. … are you a optimist?

A. Yes! Do you see, everybody asks the question ‘Where are reforms’. But people don’t understand that reforms must be prepared, then accepted in parliament, then it needs some time for the work to start. I have mentioned this website of all transactions of the budget. This website by this law must be done in six months. This law was accepted maybe three months ago. People can ask where are reforms, where is this website? But this website is now created. It’s now seven, eight months since the new government is working, as of the last parliamentary election, not from the presidential election. Now the results can be seen of this work which was started seven months ago… slowly but it is now growing from the ground. Now people can see it. In spring time there was always the question ‘where are results?’ …

Q. … but this has to do with the high expectations you give them …

A. … a lot of people understand that the war is slowing down our work and our economy …

Q. Is war an excuse for the lack of reforms?

A. A little excuse.

 

Q. In case Mr. Putin accepts my request for an interview, do you have a proposal for a question for him?

A. I have questions, but not for him. He will not answer it. I don’t understand if he is mad or pretends to be mad. I am watching him … and every time, I don’t understand. Maybe he is playing now, or maybe now he really thinks so, I don’t know …

Q. … there is a concept from Cold War … imagine I am a drunken cowboy with guns, I am really drunk. Then you don’t mess with me because you think I shoot every moment …

A. … but this strategy is not a win-win strategy. With this strategy he can not gain anything for him by this strategy…

Q. … it was applied and tested by both sides during Cold War, by USA and USSR …

A. … but now USA don’t want this war … I would like to simplify this question. USA only wants to sell as much iPhones as they can. What is the problem? Russia can’t produce its own iPhones …

Q. … Russia wants to sell its gas to European Union.

A. I think their [EU] consumption of gas will be lower and lower every year.

Q. True, they diversify their sources …

A. … different sources and different technologies which require less gas. And so on. So Russia will lose it. For example Saudi Arabia or United Arabian Emirates understand that this situation has changed, that their oil and gas will not be needed anymore in future, maybe in ten, fifteen years. They are changing their economy, for example in business and financial centers and so on. Russia isn’t doing anything [in this respect].

Q. Do you share the view that the conflict in Ukraine has its sources in geopolitics?

A. Yes. The problem is that Mr. Putin believes that Ukraine is a part of Russia, and it will return like the ‘prodigal son’ in the bible. I think there is only one realistic way to realize it, that Russia becomes member of EU. And in this way it would be integrated with Ukraine. But I think that Putin won’t accept this and we must wait for another [Russian president].

Q. Thank you very much.

A. Good luck!

[Peter hurries up on his bike towards beach to solve some issues there …]

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Conversation / interview was conducted in English. Transcript of audio recording.
(wf)