Overview of Ukrainian Reforms during the First Year of Presidency of Volodymyr Zelenskyy

By ECEAP Senior Research Fellow Aap Neljas

ABSTRACT The analysis presents an overview of Ukraine’s reform process during the first year of Presidency of President Volodymyr Zelenskyy and two Ukrainian Governments (Honcharuk and Shmyhal cabinets). Overwhelming victory in presidential elections and the victory of his party in parliamentary elections placed Zelenskyy originally in the unprecedented position of controlling both the executive and legislative branches. Due to the control of President’s Servant of People party of Parliament and activity of Honcharuk Government (that was composed mostly from young apolitical specialists) at the beginning of this period some important reforms were effected (law regarding the lifting of immunity of the members of the parliament; law on the procedure for impeaching the president; new electoral law; Naftogaz unbundling; land reform law and banking law; progress with digitalisation of government services using ProZorro and Trembita platforms etc.). However, soon this initial reform drive subsided due to the fractioning of the ruling Servant of People Party decision to replace pro-reform Honcharuk Government and some pro-reform key officials who led independent institutions with more managerial type politicians and officials has created questions how reforms will proceed. Besides that, the analysis points out that some key reforms, especially anti-corruption reforms, were passed also because of pressure from international donors (IMF, EU and USA). The New Shmyhal Government has promised to continue with conducting of reforms, although in practice the speed of reforms has subsided at least for a moment. In general, however, it’s expected that Ukraine continues with reforms in the same speed as earlier governments – moving forward, even if at a pace slower than

1 Western expectations. In the foreign policy Ukraine’s course will be to continue its policy of integration with NATO and the EU (although some recent protectionist legislative initiatives in parliament could complicate the situation). Regarding the relations with Russia and ending the war in the east there has been no breakthrough either, although Zelenskyy could claim some successes (exchange of prisoners, gas transit agreement). However, Ukraine has not achieved the agreement to end the Russian occupation of Crimea and eastern Donbas regions yet notwithstanding the Ukrainian agreement to adopt the Steinmeier formula that regulates the parameters of the future local elections in the occupied areas.

INTRODUCTION 2019 was an important election year for Ukraine, whose citizens elected a new President Volodymyr Zelenskyy in April and a new Verkhovna Rada (the Parliament) in July 2019. A significant international election observation presence in the country assessed these elections as competitive and that they were held with respect for fundamental freedoms. As result of those elections an unique situation in modern Ukrainian history occurred where President with strong electoral support (Zelenskyy won the election with 73.22% of the vote in the second round) had also his party dominating the Parliament (the election result was the one-party majority for President Zelenskyy's Servant of the People Party won with 254 seats from 450, and 226 seats were needed for majority). As result of this election two months after taking up the presidency, Zelenskyy’s Servant of the People party became the first party in Ukraine’s history to secure a parliamentary majority without forming a coalition. This placed Zelenskyy in the unprecedented position of controlling both the executive and legislative branches. The Rada became a “voting machine”. Legislation passed through at breakneck speed. However, this is no longer the case since spring 2020. Today, Zelenskyy often has trouble getting sufficient support from his own party to pass bills. They are often sent back to be amended, resulting in long delays.1 Originally situation of complete control over Parliament created better preconditions for pushing through reforms promised by Zelenskyy during electoral campaign than never before in Ukraine’s modern history. The first Government, led by Oleksiy Honcharuk (Prime Minister of Ukraine from 29 August 2019 to 4 March 2020) started with an ambitious reform programme that stated that the strategic goal is for Ukraine is to meet the criteria for membership of the European Union. However, soon differences emerged between President and Prime Minister. Ukrainian media outlets reported during the beginning of the 2020, that Zelenskyy had lost confidence in Honcharuk due to the slow speed at which his government was carrying out reforms. This led to dismissal of Honcharuk cabinet in March 2020 and appointment of the current Prime Minister Denys Shmyhal Government who was sworn in on 4 March 2020 and new Governmental Programme were

1 – Amanda Paul. One year of President Zelenskiy: Did “Ze” bite off. – EPC Commentary. 19.05.2020. http://www.epc.eu/en/Publications/One-year-of-President-Zelenskiy-Did-Ze-bite-off-more-than-he-could~333948

2 adopted 12 April 2020 2. Shmyhal’s government on 15 June 2020 also published Action Programme in response to a number of problems facing Ukraine, namely: Russian aggression; Pandemic Covid-19; and economic crisis. The document also provides that the government will continue to digitalize public services. Plans are to introduce 200 public services available online. The programme also includes activities aimed at the reintegration of temporarily occupied territories. The document declared the continuation of European integration by strengthening the course of cooperation within the framework of the Eastern Partnership and ensuring Ukraine meets the criteria for EU membership.3

POLITICAL REFORMS Thanks to the clear victory of his Servant of the People Party in the snap parliamentary election held in July 2019 and the establishment of the government of Honcharuk the following month, Zelenskyy swiftly gained full power. The plan for the declared repair of the country and an end to the war in the Donbas involved the appointment of apolitical specialists for key positions in the government to immediately process legislation in the parliament and to conduct informal diplomacy. This strategy brought certain successes. Partial organisational changes were introduced in the prosecutor’s office and courts; the constitution was amended in the area of the rights of the members of the Verkhovna Rada and the president, and a summit – the first in three years – in the Normandy Format was held in Paris in December 2019.4 When taking power, Zelenskyy declared that he would remain in office for one term only and that his goal was to carry out fast and thorough reforms. In the beginning, his modus operandi consisted in transferring draft laws from the Presidential Office (as the former Presidential Administration had now been renamed) to the parliament. The draft laws were immediately passed, often without appropriate assessment from the members of the parliament and in breach of the parliamentary regulations. The author of this mode, described as the ‘turbo-regime’, was Andriy Bohdan, the head of the Presidential Office and one of Zelenskyy’s aides who had experience in politics and administration. Due to the model of governing with the Office of the President as the decision hub and the principle of basing the government on professionals from outside the realm of politics, the government

2 – Програма діяльності Кабінету Міністрів України. 12.04.2020. https://www.kmu.gov.ua/npas/pro-zatverdzhennya-programi-diyalnosti-kabinetu-ministriv-t120620

3 – Ukrainian Cabinet published draft updated action programme. 15.06.2020. – 112 International https://112.international/politics/cabinet-of-ministers-has-published-draft-updated-program-of-its-activities-52220.html

4 – Tadeusz Iwański, Sławomir Matuszak, Krzysztof Nieczypor, Piotr Żochowski. Neither a miracle nor a disaster – President Zelensky’s first year in Office. – OSW Commentary nr. 334. 20.05.2020. https://www.osw.waw.pl/sites/default/files/Commentary_334.pdf

3 has been reduced to the role of a contractor enacting the will of the president.5 This was the idea behind the appointment of Oleksiy Honcharuk as prime minister. He was a specialist in deregulation but did not have much experience in administration or any political independent support base. Most foreign observers regarded the Honcharuk cabinet as honest and pro-reform, albeit young and relatively inexperienced. The new cabinet set ambitious reform goals. During the first few weeks of the work of the new Verkhovna Rada, a series of new laws was successfully passed, among them the laws which had traction in society but which were in fact difficult to implement. One example is the law regarding the lifting of immunity of the members of the Verkhovna Rada and the law on the procedure for impeaching the president. The new election law, which entered into force at the beginning of 2020, can also be counted as one of the greatest achievements of the Zelenskyy administration. Due to the new election law, the parliamentary and local elections will be held in a proportional system (many electoral districts were introduced to replace the nationwide district). The former mixed system, allowed for half of the members of parliament to be elected in single- member constituencies. This was, in the context of Ukraine, a source of abuse and political corruption for years.6 However, increasing conflicts of interests inside the parliamentary group of the Servant of the People limited the effectiveness of reform process, exposing the most important weaknesses of Zelenskyy’s bloc: its lack of ideological cohesion, the lack of a clear action plan and, above all, the lack of a professional and independent staff base. The remaining powerful influence of the oligarchs on the state has impeded the work on important laws and Ukraine’s cooperation with the International Monetary Fund. As a result, Zelenskyy’s first year in office can be considered besides a number of important reforms to be a time of tough learning about how politics, both domestic and international, functions in practice. In future he will also have to face a much more difficult economic situation due to the COVID-19 pandemic.7 An interventionist governing of the parliament caused a negative reaction from a section of Servant of the People members who expressed their opposition to their lack of agency. Former internal divisions and different groups of influence within the pro-presidential faction also resurfaced, in particular with members of the parliament affiliated to the oligarch Ihor Kolomoysky. His supporters in parliament blocked the work on laws essential

5 – Tadeusz Iwański, Sławomir Matuszak, Krzysztof Nieczypor, Piotr Żochowski. Neither a miracle nor a disaster – President Zelensky’s first year in Office. – OSW Commentary nr. 334. 20.05.2020. https://www.osw.waw.pl/sites/default/files/Commentary_334.pdf

6 – Tadeusz Iwański, Sławomir Matuszak, Krzysztof Nieczypor, Piotr Żochowski. Neither a miracle nor a disaster – President Zelensky’s first year in Office. – OSW Commentary nr. 334. 20.05.2020. https://www.osw.waw.pl/sites/default/files/Commentary_334.pdf

7 – Tadeusz Iwański, Sławomir Matuszak, Krzysztof Nieczypor, Piotr Żochowski. Neither a miracle nor a disaster – President Zelensky’s first year in Office. – OSW Commentary nr. 334. 20.05.2020. https://www.osw.waw.pl/sites/default/files/Commentary_334.pdf

4 to the government: regarding the lifting of the moratorium on the sale of agricultural land and the ban on returning banks to their former owners. In both cases the members of parliament from governing party faction affiliated to Kolomoysky proposed several thousand amendments. The aim of these actions was to obstruct the legislative process.8 Tadeusz Iwański, Sławomir Matuszak, Krzysztof Nieczypor, Piotr Żochowski of OSW have argued that the problems in the parliament also stemmed from the fact that in February 2020 Andriy Bohdan, who effectively put together the president’s diverse team inthe government and in the parliament to form one functional mechanism, lost his position. They argued that his successor, Andriy Yermak, seems to have a not as good grasp of the situation in the Servant of the People party and in internal politics. It became more difficult to secure a majority of the vote for important laws and an increasing portion of them was passed thanks to members from opposition or independent factions.9 Zelenskyy’s actions in spring 2020 have raised questions how he intends to move forward with reform process. He reshuffled much of the Government (including exchanging Prime Minister) cabinet in early March, just six months after the initial appointment of the government. Next he appointed a new cabinet of Denys Shmyhal in March 2020. The new prime minister is a seasoned manager with experience in the local and national administration and his government combines the ‘old’ with the ‘new’10. However, the Shmyhal cabinet has yet to make clear whether and how hard it will press for continuing of reforms.11

ADMINISTRATIVE AND JUDICIAL REFORMS After a temporary slow-down around the elections and formation of the Government, Public Administration Reform accelerated in the 2nd quarter of 2019. In September 2019, amendments to the Law on Civil Service were adopted, allowing more flexibility in renewal of staff through flexibility in hiring and firing senior civil servants and introducing short-term contracts for 7% of civil servants working on Government priorities. The recruitment of new civil servants has continued.12 Notable steps have been taken in the area of e-governance and service delivery. A dedicated agency for the design and implementation of e-Governance policies has been

8 – Tadeusz Iwański, Sławomir Matuszak, Krzysztof Nieczypor, Piotr Żochowski. Neither a miracle nor a disaster – President Zelensky’s first year in Office. – OSW Commentary nr. 334. 20.05.2020. https://www.osw.waw.pl/sites/default/files/Commentary_334.pdf

9 – Tadeusz Iwański, Sławomir Matuszak, Krzysztof Nieczypor, Piotr Żochowski. Neither a miracle nor a disaster – President Zelensky’s first year in Office. – OSW Commentary nr. 334 . 20.05.2020. https://www.osw.waw.pl/sites/default/files/Commentary_334.pdf

10 – Tadeusz Iwański, Sławomir Matuszak, Krzysztof Nieczypor, Piotr Żochowski. Neither a miracle nor a disaster – President Zelensky’s first year in Office. – OSW Commentary nr. 334 . 20.05.2020. https://www.osw.waw.pl/sites/default/files/Commentary_334.pdf

11 – Steven Pifer. Zelenskyy’s first year: New beginning or false dawn? – Atlantic Council Ukraine Alert. 18.05.2020. https://www.atlanticcouncil.org/blogs/ukrainealert/zelenskyys-first-year-new-beginning-or-false-dawn

12 – Joint Staff Working Document: Association Implementation Report on Ukraine. Brussels, 12.12.2019. SWD(2019) 433 final. https://eeas.europa.eu/headquarters/headquarters-homepage/72011/association-implementation-report- ukraine-2019_en 5 created and a strategic framework for e-Governance has been adopted.13 Local self-government was further strengthened by progress in the decentralisation reform launched in 2015, with around 1000 new amalgamated hromadas (municipalities) being created since then, including 100 since November 2018. First local elections with participation of Servant of People take place in Autumn 2020. At the same time, the new legislation on the status of the city of Kyiv creates uncertain prospects for the future of the decentralisation reform. The authorities are planning a comprehensive reform of the territorial-administrative setup, which will require amendments to the Constitution.14 The renewal of the judiciary continued in 2019, but experienced significant delays mainly due to court decisions suspending the leadership of the High Qualification Commission of Judges (HQCJ). In August 2019, the President launched a new reform concerning the Supreme Court and judicial governance bodies and the Law on Reforming the Judicial Self- Governance Bodies was adopted in October 2019, despite strong criticism from the EU and other international partners. The Venice Commission adopted a negative opinion on the amendments on 6 December 2019. As of 30 October 2019, more than 3,000 judges underwent the qualification evaluation while the assessment of about 2,000 judges is still pending. Since the launch of the re-evaluation process, about 2,500 judges (about 30% of their total number) voluntarily resigned without waiting for the re-evaluation. Out of the assessed judges, about 2,500 (80.4%) were found fit for their jobs, while about 600 judges were recommended for dismissal or resigned.15 Some foreign observers however point out that not so much has changed in practice.16

SECURITY SECTOR REFORMS The reform of the Security Service of Ukraine (SBU) remains unfinished. Security sector reform, which has long been called for by both Ukrainian reformers and the country’s friends in the West, has not progressed well. The leadership of the Security Service of Ukraine appointed by Zelenskyy sees no reason for substantive change.17 Since 2014 the planned changes to the institution have been delayed due to internal resistance from its staff and the reluctance of successive Ukrainian presidents towards an excessively radical limitation of the competences of this service which is subordinate to them. The EU continues to advocate for adoption of new legislation on the Security Service of Ukraine and on parliamentary oversight over the entire security sector, to transform the SBU into a modern agency with

13 – Joint Staff Working Document: Association Implementation Report on Ukraine. Brussels, 12.12.2019. SWD(2019) 433 final. https://eeas.europa.eu/headquarters/headquarters-homepage/72011/association-implementation-report- ukraine-2019_en

14 – Joint Staff Working Document: Association Implementation Report on Ukraine. Brussels, 12.12.2019. SWD(2019) 433 final. https://eeas.europa.eu/headquarters/headquarters-homepage/72011/association-implementation-report- ukraine-2019_en

15 – Joint Staff Working Document: Association Implementation Report on Ukraine. Brussels, 12.12.2019. SWD(2019) 433 final. https://eeas.europa.eu/headquarters/headquarters-homepage/72011/association-implementation-report- ukraine-2019_en

16 – Steven Pifer. Zelenskyy’s first year: New beginning or false dawn? – Atlantic Council Ukraine Alert. 18.05.2020. https://www.atlanticcouncil.org/blogs/ukrainealert/zelenskyys-first-year-new-beginning-or-false-dawn

17 – Steven Pifer. Zelenskyy’s first year: New beginning or false dawn? – Atlantic Council Ukraine Alert. 18.05.2020. https://www.atlanticcouncil.org/blogs/ukrainealert/zelenskyys-first-year-new-beginning-or-false-dawn 6 clearly defined functions limited to counter-intelligence, counter-terrorism and protection of state secrets. On 15 October 2019, the head of SBU submitted a revised draft law on SBU to the Office of the President for consideration.18 According to the premises of the reform, the SBU is set to become a counterintelligence service deprived of the functions to investigate economic crimes. This type of crime would be entirely transferred to a new body whose establishment is being planned – the Financial Investigation Service. On the other hand, the intensified activity against the Russian intelligence services should be deemed a positive manifestation of the SBU’s work. Over the last year the SBU has become clearly more active in this area. The condition of the Ukrainian intelligence services remains an open question. A high rate of turnover in managerial positions proves that the Foreign Intelligence Service and the military Main Directorate of Intelligence have sustained difficulties in adjusting to new operational challenges.19 It should be noted that Ukraine has in this period substantially improved its cybersecurity, including the legislative basis underpinning this and its operational resilience, thanks to EU and international support. The key actors responsible for cybersecurity were able to detect and isolate all major cyber-attacks during presidential and parliamentary elections. Further alignment with the EU acquis is needed on the information systems protecting Ukraine's critical infrastructure.20

FIGHTING CORRUPTION Fighting corruption in Ukraine has not only been a priority in the domestic political agenda, including election campaigns, but is also matter of concern for the international community. There were significant new laws adopted to fight corruption under Zelenskyy’s presidency. In October 2019 the Parliament adopted a new Law on Protection of whistle-blowers — whistle-blowers who are involved in a corrupt practice and report it will be exempted from legal liability and those who report corruption will receive 10% of the financial resources retrieved by the state21. Importantly, a law re-criminalising illicit enrichment was adopted also on October 2019. The law does however not allow prosecuting cases closed after the earlier illicit enrichment provision was repealed. Progress was made on the verification of electronic asset declarations for public officials. In October 2019, a law was adopted enabling a full reboot of NAPC, in particular changing its management structure from a collegiate body to a single head and the participation of international experts in the selection of the new head. The automatic verification system

18 – Joint Staff Working Document: Association Implementation Report on Ukraine. Brussels, 12.12.2019. SWD(2019) 433 final. https://eeas.europa.eu/headquarters/headquarters-homepage/72011/association-implementation-report- ukraine-2019_en

19 – Tadeusz Iwański, Sławomir Matuszak, Krzysztof Nieczypor, Piotr Żochowski. Neither a miracle nor a disaster – President Zelensky’s first year in Office. – OSW Commentary nr. 334. 20.05.2020. https://www.osw.waw.pl/sites/default/files/Commentary_334.pdf

20 – Joint Staff Working Document: Association Implementation Report on Ukraine. Brussels, 12.12.2019. SWD(2019) 433 final. https://eeas.europa.eu/headquarters/headquarters-homepage/72011/association-implementation-report- ukraine-2019_en

21 – Tadeusz Iwański, Sławomir Matuszak, Krzysztof Nieczypor, Piotr Żochowski. Neither a miracle nor a disaster – President Zelensky’s first year in Office. – OSW Commentary nr. 334. 20.05.2020. https://www.osw.waw.pl/sites/default/files/Commentary_334.pdf 7 for electronic asset declarations has been connected to all relevant state registers. Until November 2019, the NAPC has approved 1006 verification decisions.22 The Parliament amended corruption prevention legislation in October 2019 to limit public funding for political parties, an instrument conceived to increase their independence, to only those parties that obtained more than 5% of the vote, thus excluding parties with 2-5% support23. Institutional steps to fight corruption have become an important part of the conditionality attached to the assistance offered by the IMF, World Bank, EU, EBRD, USAID and other donors. As a result of this external pressure, four anti-corruption institutions were established between 2014 and 2018: the National Anti-Corruption Bureau (NABU/NACB), the National Agency for Prevention of Corruption, the Special Anti-Corruption Prosecutor’s Office (SAPO) and the High Anti-Corruption Court (HACC). But it seems that too much of the focus of both the Ukrainian authorities and the donor community has been devoted to fighting the symptoms of corruption and too little to eradicating the deep systemic roots of corruption, including continued subsidies to enterprises, administrative overregulation, excessive state ownership, limited domestic competition, predatory behaviour in security and law-enforcement agencies, and lack of effective limits on financing political parties and election campaigns from private sources.24 In September 2019, the Verkhovna Rada adopted a law initiating a thorough reform of the Prosecutor General’s office, on the initiative of the president. It was replaced by the Office of the Prosecutor General of Ukraine. The law allowed for a substantial change in staff (according to the information of December 2019, 610 out of 1,083 prosecutors were vetted positively) and the establishment of a transparent system of recruitment of new staff. Organisational changes were also successfully implemented. The Prosecutor General oversees two separate bodies – the Specialised Anti-Corruption Prosecutor’s Office and the Military Prosecutor’s Office. From August 2019 to March 2020 Prosecutor General was Ruslan Riaboshapka. In March he was replaced with the present Prosecutor General Iryna Venediktova. It remains to be seen how reforms will progress under new Prosecutor General.25 Regarding the State Bureau of Investigations, by unblocking its additional budget funding, Zelenskyy’s team made it possible for to function after its activity had been hamstrung by President Poroshenko. The institution was set up in autumn 2018 and investigates crimes committed by high-ranking state officials and law enforcement officials (with the

22 – Joint Staff Working Document: Association Implementation Report on Ukraine. Brussels, 12.12.2019. SWD(2019) 433 final. https://eeas.europa.eu/headquarters/headquarters-homepage/72011/association-implementation-report- ukraine-2019_en

23 – Joint Staff Working Document: Association Implementation Report on Ukraine. Brussels, 12.12.2019. SWD(2019) 433 final. https://eeas.europa.eu/headquarters/headquarters-homepage/72011/association-implementation-report- ukraine-2019_en

24 – Marek Dabrowski, Marta Domínguez-Jiménez, Georg Zachmann. Six years after Ukraine’s Euromaidan: reforms and challenges ahead. – Bruegel, Policy Contribution. Issue nr. 14, June 2020. https://www.bruegel.org/2020/06/six-years-after-ukraines-euromaidan-reforms-and-challenges-ahead

25 – Tadeusz Iwański, Sławomir Matuszak, Krzysztof Nieczypor, Piotr Żochowski. Neither a miracle nor a disaster – President Zelensky’s first year in Office. – OSW Commentary nr. 334. 20.05.2020. https://www.osw.waw.pl/sites/default/files/Commentary_334.pdf

8 exclusion of corruption cases). However, as is the case in other institutions responsible for implementing the rule of law, the staff policy has been affecting the effectiveness of the State Bureau of Investigations since it makes appointments of officials contingent on their political connections.26 The legal regulation of the functioning of the High Anti-Corruption Court (HACC) was another important step. The new High Anti-Corruption Court (HACC) began functioning on 5 September 2019. Since this court was established in June 2018, its work has been paralysed because all corruption-related cases were submitted to it, regardless of their importance, and this made it impossible to effectively conduct proceedings. At present, the HACC deals exclusively with the cases brought before it by the National Anti-Corruption Bureau (NABU) and the Specialised Anti-Corruption Prosecutor’s Office, and the cases must concern corruption among high-ranking state officials. The remaining corruption cases are handled by the general prosecutor’s bodies.27 The National Anti-Corruption Bureau (NABU) was granted the right to independently use operational technologies (wiretapping, observation) without having to obtain assistance in these matters from the Security Service of Ukraine (SBU), which had been effectively blocked by former president Poroshenko’s team. In autumn 2019, necessary legal changes were adopted in order to increase the effectiveness of anti-corruption measures. On Autumn 2019, a draft law regarding the amendment to the law on the NABU was submitted to the Verkhovna Rada; it would make it easier to dismiss its director (the regulations in force rule out the dismissal of the director on the grounds of administrative wrongdoings). The matter sparked controversy in the international arena. In May 2020, the International Monetary Fund and the G-7 warned Kyiv that the amendments to the law on the NABU might trigger a revision of the fund’s financial policy towards Ukraine.28 Some other recent populistic moves made by Ukrainian government might actually serve to stimulate corruption. One new rule, for example, limits state salaries for civil servants and top management of state-owned companies to just $1,700 per month for the duration of the COVID-19 pandemic. The move has generated widespread criticism in Ukraine for alienating professionals who would like to help clean up the system.29

ECONOMIC REFORMS According to the Ukrainian Constitution, the President of Ukraine does not have direct power for economic policymaking and implementation (this is the prerogative of the

26 – Tadeusz Iwański, Sławomir Matuszak, Krzysztof Nieczypor, Piotr Żochowski. Neither a miracle nor a disaster – President Zelensky’s first year in Office. – OSW Commentary nr. 334. 20.05.2020. https://www.osw.waw.pl/sites/default/files/Commentary_334.pdf

27 – Tadeusz Iwański, Sławomir Matuszak, Krzysztof Nieczypor, Piotr Żochowski. Neither a miracle nor a disaster – President Zelensky’s first year in Office. – OSW Commentary nr. 334. 20.05.2020. https://www.osw.waw.pl/sites/default/files/Commentary_334.pdf

28 – Tadeusz Iwański, Sławomir Matuszak, Krzysztof Nieczypor, Piotr Żochowski. Neither a miracle nor a disaster – President Zelensky’s first year in Office. – OSW Commentary nr. 334. 20.05.2020. https://www.osw.waw.pl/sites/default/files/Commentary_334.pdf

29 – Katya Gorchinskaya. A brief history of corruption in Ukraine: the dawn of the Zelensky era. – Eurasianet. 17.06.2020 https://eurasianet.org/a-brief-history-of-corruption-in-ukraine-the-dawn-of-the-zelensky-era

9 parliamentary majority and the government, responsible to it). However, Zelenskyy, is at the same time the leader of the governing parliamentary party which got the right to appoint the government on its own, which makes the President an unconditional leader in the sphere of developing and realizing the economic policy. Within the set of economic intentions of the President, a number of main directions have become notable on their own: market-oriented institutional transformations, providing for the economic growth, reforming the fiscal sphere, developing and capital repair of infrastructure, assisting innovations and digitalization of the economy.30 The Ukrainian economy continued to grow during 2019/2020 and its finances and banking sector stabilised despite a challenging internal and global environment until the COVID-19 crises hit. Thanks in part to the positive effect of the Deep and Comprehensive Free Trade Area (DCFTA, came into force 2016), which is part of the Association Agreement with the EU, Ukraine’s trade with the EU continued to increase and the EU maintains its position as Ukraine's main trade partner. The EU accounted for more than 40% of Ukraine’s trade in 2019 and total trade between EU and Ukraine reached €43,3 billion in 2019. Ukraine exports to the EU amounted to €19.1 billion in 2019. The number of Ukrainian companies exporting to the EU has increased at an impressive rate, from approximately 11,700 in 2015 to over 14,500 in 2019. The main Ukraine exports are raw materials (iron, steel, mining products, agricultural products), chemical products and machinery.31 The real Gross Domestic Product (GDP) growth reached 3.2% in the 2019, which however is predicted to follow with -7,7 % drop in 2020 as result of worsening economic situation due to COVID-19 crises. A strong fiscal adjustment effort and the return of economic growth helped bring down public debt from its peak of 81% of GDP in 2016 to 57% of GDP by the end of 201932. Unemployment dropped to 8,5 % by the end of 201933. Also the inflation dropped to historic low 1, 7% by May 2020 but it did raise again to 2,4% percent in June 2020. In June 2019, the medium-term strategy for the state debt management was approved, with a target of gradual reduction of debt-to-GDP ratio to 43% by the end of 2022. However, in absolute terms, the public debt continued to increase, reaching the equivalent of USD 82.95 billion as of end of September 2019. It is expected the COVID-19 crises will lead to significant increase of public debt34. With over USD 16 billion debt to be paid in 2020, Ukraine will continue to need significant international financing to avoid the country going

30 – Prezident Zelenskyy’s First Year: Achievements And Miscalculations. Summary of the Analytical Report. – Razumkov Center 2020. http://razumkov.org.ua/uploads/article/2020_Prezident_Zelenskyy%E2%80%99s_First_Year.pdf

31 – European Commission website Countries and regions: Ukraine https://ec.europa.eu/trade/policy/countries-and-regions/countries/ukraine/

32 – Societe Generale: Economic indicators of Ukraine : Growth https://import-export.societegenerale.fr/en/country/ukraine/growth-indicators

33 – Marek Dabrowski, Marta Domínguez-Jiménez, Georg Zachmann. Six years after Ukraine’s Euromaidan: reforms and challenges ahead. – Bruegel, Policy Contribution. Issue nr. 14, June 2020. https://www.bruegel.org/2020/06/six-years-after-ukraines-euromaidan-reforms-and-challenges-ahead

34 – Joint Staff Working Document: Association Implementation Report on Ukraine. Brussels, 12.12.2019. SWD(2019) 433 final. https://eeas.europa.eu/headquarters/headquarters-homepage/72011/association-implementation-report- ukraine-2019_en

10 into default.35 In the second half of 2019 and January 2020 hryvna appreciated to below 24 UAH/$, though this gain has been reversed since February 2020 as result of COVID-19 shock, which has caused widespread depreciation of emerging-market currencies (in July 2020 31UAH/$).36 Moreover, Ukraine’s international currency reserves have surged to USD 28 billion from a low of USD 5 billion in 2015.37 Ukraine has continued to improve its business environment. In the World Bank's Doing Business ranking, Ukraine moved from 76th place in 2018 to 71st in 201938. Nevertheless, foreign direct investment from the EU remains low, in sharp contrast to trade flows, highlighting a need to further improve the business climate and encourage investment, in particular by enforcing the rule of law and supporting the fight against corruption39. After the parliamentary election, the Verkhovna Rada swiftly adopted a series of laws which had been blocked in the term of the previous parliament, among them: the deregulation law (including the revoking of many regulations which had been in force since the USSR, the law increasing transparency of public finance (e.g. the establishment of an online platform ‘E-Contact’ which makes it possible to monitor ongoing budget spending), and the law regarding concessions which makes it easier for foreign companies to lease state- owned facilities40. In general during 2019 economic and sectoral reforms continued. There were some notable achievements in relation to budget law, customs, market deregulation and procurement. Reforms have stalled in some other areas, for example in statistics and intellectual property rights41. Regarding legislation in the field of financial services, Ukraine has made some progress on current payment and movement of capital, information disclosure requirements for securities issuers and capital requirements in the banking sector. Adoption of numerous

35 – Amanda Paul. One year of President Zelenskiy: Did “Ze” bite off. – EPC Commentary. 19.05.2020. http://www.epc.eu/en/Publications/One-year-of-President-Zelenskiy-Did-Ze-bite-off-more-than-he-could~333948

36 – Marek Dabrowski, Marta Domínguez-Jiménez, Georg Zachmann. Six years after Ukraine’s Euromaidan: reforms and challenges ahead. – Bruegel, Policy Contribution. Issue nr. 14, June 2020. https://www.bruegel.org/2020/06/six-years-after-ukraines-euromaidan-reforms-and-challenges-ahead

37 – Anders Åslund. Ukraine’s central bank chief resigns leaving Zelenskyy’s reform credentials in tatters. – Atlantic Council Ukraine Alert. 01.07.2020. https://www.atlanticcouncil.org/blogs/ukrainealert/ukraines-central-bank-chief-resigns-leaving- zelenskyys-reform-credentials-in-tatters

38 – The World Bank. Ease of Doing Businesss. Ukraine http://www.doingbusiness.org/en/data/exploreeconomies/ukraine

39 – Joint Staff Working Document: Association Implementation Report on Ukraine. Brussels, 12.12.2019. SWD(2019) 433 final. https://eeas.europa.eu/headquarters/headquarters-homepage/72011/association-implementation-report- ukraine-2019_en

40 – Tadeusz Iwański, Sławomir Matuszak, Krzysztof Nieczypor, Piotr Żochowski. Neither a miracle nor a disaster – President Zelensky’s first year in Office. – OSW Commentary nr. 334. 20.05.2020 https://www.osw.waw.pl/sites/default/files/Commentary_334.pdf

41 – Joint Staff Working Document: Association Implementation Report on Ukraine. Brussels, 12.12.2019. SWD(2019) 433 final. https://eeas.europa.eu/headquarters/headquarters-homepage/72011/association-implementation-report- ukraine-2019_en

11 draft laws relating to postal services and electronic communications has been delayed.42 The 2019/2020 did not see any significant advances intax and fiscal policies. Despite some positive elements, according to Ukrainian observer Valerii Pekar, amendments to the tax code provided more pressure on micro and small businesses by decreasing transparency and increasing discretion.43 Small privatisation was activated and concessions launched. The implementation of the new Privatisation Law passed already in early 2018, has resulted in the successful privatisation of hundreds of small objects largely thanks to the platform ProZorro Sales. The public e-procurement system "ProZorro" got new functionalities, such as framework agreements. Integration of this system with the unified state register of legal entities and individual entrepreneurs allows for an automatic verification of a tenderer's data. A professional standard for the public procurement specialists has been developed. The pilot Centralised Procurement Body at national level has been implemented.44 One of the key issues in Ukrainian economics is state property management. Since Euromaidan, the privatisation of some bigger 3,500 state-owned enterprises (SOEs) had not progressed, despite several legislative changes to support the process. Subsequent annual privatisation plans have been unambitious and in any case not delivered. The situation started to improve in the second half of 2019. In October 2019, the Parliament adopted a law abolishing the list of state-owned enterprises. The new list will be much shorter.45 The Honcharuk government also took significant steps to improve management of state property. Most SOEs have been moved under the control of the State Property Fund, and a new law on lease of state and municipal property (exclusively via the ProZorro procurement platform) entered into force in February 202046. In fall 2019, the Government appointed independent Supervisory Boards in a few more large SOEs.47 Preparations for privatising a number of big companies, including some state-owned banks, have been started. But so far no progress has yet happened as regards large

42 – Joint Staff Working Document: Association Implementation Report on Ukraine. Brussels, 12.12.2019. SWD(2019) 433 final. https://eeas.europa.eu/headquarters/headquarters-homepage/72011/association-implementation-report- ukraine-2019_en

43 – Valerii Pekar. One year of President Zelenskyy: a summary of policies. – New Eastern Europe. 03.07.2020. https://neweasterneurope.eu/2020/07/03/one-year-of-president-zelenskyy-a-summary-of-policies/

44 – Joint Staff Working Document: Association Implementation Report on Ukraine. Brussels, 12.12.2019. SWD(2019) 433 final. https://eeas.europa.eu/headquarters/headquarters-homepage/72011/association-implementation-report- ukraine-2019_en

45 – Joint Staff Working Document: Association Implementation Report on Ukraine. Brussels, 12.12.2019. SWD(2019) 433 final. https://eeas.europa.eu/headquarters/headquarters-homepage/72011/association-implementation-report- ukraine-2019_en

46 – Marek Dabrowski, Marta Domínguez-Jiménez, Georg Zachmann. Six years after Ukraine’s Euromaidan: reforms and challenges ahead. – Bruegel, Policy Contribution. Issue nr. 14, June 2020. https://www.bruegel.org/2020/06/six-years-after-ukraines-euromaidan-reforms-and-challenges-ahead

47 – Joint Staff Working Document: Association Implementation Report on Ukraine. Brussels, 12.12.2019. SWD(2019) 433 final. https://eeas.europa.eu/headquarters/headquarters-homepage/72011/association-implementation-report- ukraine-2019_en

12 privatisations, nothing came up for sale in 2019 nor 202048. Partial privatisation of Naftogas and Ukrzaliznytsya (Ukrainian Railways) is also under consideration. The big question is whether the COVID related shock and sudden change of government in March 2020 will postpone again these plans.49 However, some observers point out, that state property lease reform was suspended. And the biggest disappointment for civil society is the roll back in corporate governance: independent supervisory boards of state-own enterprises are under threat, foreign board members are under pressure, and more oligarchic influence is being witnessed in state- owned enterprises. CenterEnergo, UkrNafta, and the Ukrzaliznytsia state railroads are just a few well-known examples.50 Marek Dabrowski, Marta Domínguez-Jiménez, Georg Zachmann from Bruegel think tank have argued that in Ukraine, the companies that are fully or partly state-owned have become a convenient object for rent-seeking and profit-stripping in favour of Ukrainian oligarchs, who either co-own them or exercise management control via political and administrative organs that depend on them. This is according to them the best explanation of why larger privatisation plans have been so far blocked in practice.51 Ukraine’s parliament adopted in March 2020 two pieces of key legislation demanded by the International Monetary Fund (IMF) in exchange for a potential USD 5 billion loan package. The Ukrainian state – in the midst of an economic and social crisis caused by the ongoing civil war in eastern Ukraine and a rapidly growing coronavirus epidemic – faced certain default in the absence of the IMF’s backing. The first law wasland reform bill. The basic problem for Ukraine has been moratorium on sale of agricultural land to private owners. This changed on 31 March 2020, when Ukrainian Parliament adopted law allowing privatisation of most types of farmland to Ukrainian citizens and companies. The law should come into effect on 1 July 2021. Until 2024 private interests can now own up to 100 hectares of land and after 2024, this limit will be increased to 10 000 hectares. Ban for sales of agricultural land for foreign citizens and companies remains in force52. The state land registry shall also be updated to include data on all agricultural land plots in the country by 2021. State land will be sold through electronic auctions and land

48 – Valerii Pekar. One year of President Zelenskyy: a summary of policies. – New Eastern Europe. 03.07. 2020. https://neweasterneurope.eu/2020/07/03/one-year-of-president-zelenskyy-a-summary-of-policies/

49 – Marek Dabrowski, Marta Domínguez-Jiménez, Georg Zachmann. Six years after Ukraine’s Euromaidan: reforms and challenges ahead. – Bruegel, Policy Contribution. Issue nr. 14, June 2020. https://www.bruegel.org/2020/06/six-years-after-ukraines-euromaidan-reforms-and-challenges-ahead

50 – Valerii Pekar. One year of President Zelenskyy: a summary of policies. – New Eastern Europe. 03.07.2020. https://neweasterneurope.eu/2020/07/03/one-year-of-president-zelenskyy-a-summary-of-policies/

51 – Marek Dabrowski, Marta Domínguez-Jiménez, Georg Zachmann. Six years after Ukraine’s Euromaidan: reforms and challenges ahead. – Bruegel, Policy Contribution. Issue nr 14, June 2020. https://www.bruegel.org/2020/06/six-years-after-ukraines-euromaidan-reforms-and-challenges-ahead

52 – Contact Ukraine blog: Ukraine Adopts Land Reform: New Law Opens Farmland Market. 11.05. 2020. https://www.contactukraine.com/blog/ukraine-farmland-ownership-reform-2020

13 registries will be all digitalised.53 The other important piece of legislation was the banking resolution law. The law on banking resolution finally adopted on 13 May 2020 after fierce opposition by supporters of PrivatBank former owners supporters in Parliament. The law is designed to prevent the previous owners of nearly 100 banks, which were liquidated or nationalised under the banking sector clean- up, from reclaiming ownership or obtaining compensation through Ukrainian courts, which have a reputation for corruption. This was important show of independence from oligarchs for Zelenskyy’s administration, because though the legislation also has other implications for Ukraine's banks, observers say its main purpose is to prevent one of Ukraine's most powerful oligarch, Ihor Kolomoyskyi, the former co-owner of PrivatBank, from regaining ownership rights to the bank.54 Foreign observers had doubts about advancing Ukraine’s economic reform agenda when on July 1 2020 when Yakiv Smolii, governor of the National Bank of Ukraine (NBU), resigned due to what he called “systematic political pressure.” The NBU has so far been the driving force behind significant macroeconomic progress in recent years. Ukraine has long suffered from high inflation and an unstable or unsustainable exchange rate, problems that were fixed under his leadership55. The new Governor of National Bank Kyrylo Shevchenko was appointed 16 of July 2020. He is considered to be one of the most experienced financiers in the country (he has been working in the banking system since 1994). In particular, for the last 5 years he was the chairman of the board of state owned Ukrgasbank.56 Negative setback was submission in the beginning of July 2020 of a draft Law “Buy Ukrainian, pay to Ukrainians” to Parliament by Servant of People and Batkivschnyna according to which Ukrainian production would be preferred when purchasing certain machines by the state or local governments, a proposal that contradicts directly Ukraine’s Association Agreement with EU57. The experts of Razumkov Center in Ukraine have argued that although direction of economic reforms has been correct, the results of the first year of the new authorities’ activity were most often far from the expected or desired ones.58

53 – Joint Staff Working Document: Association Implementation Report on Ukraine. Brussels, 12.12.2019. SWD(2019) 433 final. https://eeas.europa.eu/headquarters/headquarters-homepage/72011/association-implementation-report- ukraine-2019_en

54 – Roman Olearchyk. Ukraine approves law to safeguard banking clean-up. – Financial Times 13.05.2020. https://www.ft.com/content/fe773676-f176-49db-b90d-65e931d1eedd

55 – Anders Åslund. Ukraine’s central bank chief resigns leaving Zelenskyy’s reform credentials in tatters. – Atlantic Council Ukraine Alert. 01.07.2020. https://www.atlanticcouncil.org/blogs/ukrainealert/ukraines-central-bank-chief-resigns-leaving- zelenskyys-reform-credentials-in-tatters

56 – Parliament appoints Kyrylo Shevchenko as National Bank Governor Ukrinform 16 July 2020 https://www.ukrinform.net/rubric-polytics/3064039-parliament-appoints-kyrylo-shevchenko-as-national-bank-governor.html

57 – Дмитро Горюнов. Тільки для своїх: як нова ініціатива "Слуги народу" загрожує відносинам з ЄС. – Європейськa правдa. 06.07. 2020. https://www.eurointegration.com.ua/articles/2020/07/6/7111804/

58 – Prezident Zelenskyy’s First Year: Achievements And Miscalculations. Summary of the Analytical Report Razumkov Center 2020 http://razumkov.org.ua/uploads/article/2020_Prezident_Zelenskyy%E2%80%99s_First_Year.pdf

14 ENERGY SECTOR REFORMS Starting in 2014, Ukraine began to import gas from the EU at prices below the excessive prices for Russian gas agreed during the 2008/2009 winter negotiations. This bold move, which was enabled by certain EU companies and governments, defused the threat of a Russian gas supply cut during the escalating aggression in Eastern Ukraine and Crimea. Ukraine ensured that gas transit to the EU continued to be reliable and smooth during the winter of 2018-19. Another success was the winter 2019-2020 unbundling of the gas transit system from other activities of Naftogas, which should lead to the establishment of an independent transmission system operator. This paved the way for a new gas transit contract with Russia, which ensures that substantial volumes (40 bcm per year) of Russian gas can be transited via Ukraine until at least 2024 (with a minimum total revenue of €7.2 billion That will allow Ukraine to receive about $2.5 billion annually as a transit fee. In addition, Russia agreed to pay Ukraine $2.9 billion owed by Gazprom to Naftogas, that had been ordered by a Stockholm arbitration ruling. However, Ukraine has not managed to invest in its gas sector in the past decade. Consequently, gas production has not substantially increased and the gas distribution infrastructure is in a dismal state. Substantial regulatory changes are still needed to unlock investment in this area.59 Ukraine also started a major reform of its electricity market. The stated purpose was to move from a single buyer that purchases electricity at regulated prices from individual power plants to a market where consumers can choose their supplier. The new market was opened in a rush in July 2019 and is still not working properly. A number of technical and administrative issues persist, such as lack of certification for ancillary service providers. But the core problem is that there is a structural lack of competition in the sector. Nuclear, hydropower and a few coal plants are state-owned. The majority of coal plants – that typically set the price in Ukraine – are owned by one business group (controlled by oligarch Rinat Akhmetov). To limit the exercise of market power, price caps were immediately introduced in the market. Meanwhile, protected consumers still obtain electricity at regulated (low) prices. This is engineered through an overly complicated system. In simple terms, power plants must sell a share of their production at low prices to the so-called ‘guaranteed buyer’, which passes this electricity on to protected consumers. This system has substantial implications for liquidity in different market segments and the financial viability of state- owned generators. It also distorts market prices. Unless increasing competition allows price caps to be abolished and subsidies to protected consumers are monetised (not distributed through subsidised electricity) the new market design will not result in more efficient investment or operational decisions.60

59 – Marek Dabrowski, Marta Domínguez-Jiménez, Georg Zachmann. Six years after Ukraine’s Euromaidan: reforms and challenges ahead. – Bruegel, Policy Contribution. Issue nr. 14, June 2020. https://www.bruegel.org/2020/06/six-years-after-ukraines-euromaidan-reforms-and-challenges-ahead

60 – Marek Dabrowski, Marta Domínguez-Jiménez, Georg Zachmann. Six years after Ukraine’s Euromaidan: reforms and challenges ahead. – Bruegel, Policy Contribution. Issue nr. 14, June 2020. https://www.bruegel.org/2020/06/six-years-after-ukraines-euromaidan-reforms-and-challenges-ahead

15 TELECOMMUNICATIONS AND E-SERVICES While key legislation regulating the telecommunications market remains to be adopted, significant steps have been taken in the area of e-governance and digital transformation in general. Ukraine has set up a new Ministry of Digital Transformation and a new Committee of Digital Transformation was created in the Parliament. A new interoperability framework called Trembita was introduced and the number of electronic services, including services accessible through mobiles, was increased to 129. This framework was built up with the help of EU ULEAD project which was financed by EU, Sweden, Germany and Estonia and was implemented by Estonian company Cybernetica. Ukraine has signed an administrative arrangement with the EU (the 'ISA2'programme) that further supports the development of digital solutions and enables the public administrations, businesses and individuals to benefit from interoperable cross-border and cross-sector public services.61

SOCIAL AND HEALTH SECTOR The average income in Ukraine has been rising steadily in recent years. The average nominal salary of a full-time employee of enterprises, institutions and organizations made in Ukraine increased to 10542 UAH/Month in May 2020, which is 2.2 times higher than the minimum wage (UAH 4,723). And is 1.6% higher compared with April 201962. Since April the effects of the mounting oil price and coronavirus (COVID-19) crises were already starting to make themselves felt. Ukraine continued to reform the health care system, firstly through the successful roll- out of healthcare financing reform at primary care level. The system's digital modernisation ("eHealth") has also reached some significant deliverables (e.g. the introduction of electronic receipt). A national medicines procurement agency was created and has already shown itself to be effective in small-scale operations by delivering resource savings results. Reforms to the public health system have been slower than anticipated.63 Ukraine’s response to the COVID-19 epidemic has coincided with a government reshuffle and the launch of its second phase of healthcare reforms (which began on 1 April 2020). Amid concerns that the reform in its current form could lead to the dismissal of 50,000 doctors and the closure of 332 hospitals in Ukraine, President Zelenskyy has called Government to improve its design and address these issues64. 18 March 2020 President of Ukraine Volodymyr Zelenskyy signed the law "On Amending Certain Legislative Acts of Ukraine aimed at Preventing the Occurrence and Spread of Coronavirus Disease (COVID-

61 – Joint Staff Working Document: Association Implementation Report on Ukraine. Brussels, 12.12.2019. SWD(2019) 433 final. https://eeas.europa.eu/headquarters/headquarters-homepage/72011/association-implementation-report- ukraine-2019_en

62 – Trading Economies Ukraine Average Monthly Wages https://tradingeconomics.com/ukraine/wages

63 – Joint Staff Working Document: Association Implementation Report on Ukraine. Brussels, 12.12.2019. SWD(2019) 433 final. https://eeas.europa.eu/headquarters/headquarters-homepage/72011/association-implementation-report- ukraine-2019_en

64 – The COVID-19 Crisis In Ukraine. – OECD. 12.06.2020. https://www.oecd.org/eurasia/competitiveness-programme/eastern-partners/COVID-19-CRISIS-IN-UKRAINE.pdf

16 19).65EU has given Ukraine over €190 million to support immediate and short-term COVID-19 related needs66. As of July 2020 15 827 157 total of tests were conducted, 55 607 laboratory confirmed cases of the disease were detected and 28 131 recovered from the coronavirus, while 1 427 deaths of people infected with coronavirus had occurred67. The Ministry of Health has also developed a set of new rules and standards on the hospitalisation of COVID-19 patients, their emergency treatment as well as deployment of temporary hospitals.68

FOREIGN POLICY The foreign policy of Ukraine during the presidency of Volodymyr Zelenskyy is characterised by the continuation of integration with NATO and the EU and the aim to end the conflict in Donbas and occupation of Crimea. Compared to his predecessor, Petro Poroshenko, Zelenskyy has taken a more pragmatic stance, confirmed by greater flexibility during talks with Russia. However, Ukraine’s concessions to Russia have not resulted in progress in resolving the conflict. Sectoral integration with the EU may, in turn, be delayed by the economic crisis caused by the COVID 19 pandemic. As promised during his election campaign, Zelenskyy in his first year as president has prioritised resolving the situation in Donbas.69 Putting an end to the war in the Donbas was one of Zelenskyy’s most important electoral promises. Zelenskyy has intensified negotiations withRussia , including at the bilateral level. After he took office, he successfully revived international negotiations to end the conflict. The appointment of Andriy Yermak, first as an aide and then the head of the Presidential Office (he is also responsible for the peace talks) has led to Ukraine resuming official and non-official consultations with Russia. Ukraine’s stance has remained unchanged regarding the restoration of full control over the border with Russia and the withdrawal of Russian forces as conditions for holding local elections in Donbas. On the other hand, by way of concessions, Ukraine agreed to the so- called Steinmeier formula, which assumes that a special status for Donbas would begin to function on the day of local elections. Although the Ukrainian compromises opened the way for the reactivation of talks at the highest level in the Normandy Format (France, Germany, Russia, Ukraine) in Paris in December 2019, the negotiations did not result in a breakthrough due to the lack of political will among the Russian authorities. There was no lasting ceasefire or exchange of prisoners of war in an “all for all” formula70. The organisation of the summit was facilitated by the positions held by several states of Western Europe

65 – Ukraine: Government and institution measures in response to COVID-19. – KPMG. 11.05.2020. https://home.kpmg/xx/en/home/insights/2020/04/ukraine-government-and-institution-measures-in-response-to-covid.html

66 – The EU’s response to the coronavirus pandemic in the Eastern Partnership European COmmission June 2020 https://ec.europa.eu/neighbourhood-enlargement/sites/near/files/coronavirus_support_eap.pdf

67 – Situation in Ukraine https://covid19.gov.ua/en

68 – The COVID-19 Crisis In Ukraine. – OECD. 12.06.2020. https://www.oecd.org/eurasia/competitiveness-programme/eastern-partners/COVID-19-CRISIS-IN-UKRAINE.pdf

69 – Maciej Zaniewicz. Ukraine’s Foreign Policy in President Zelensky’s First Year. – PISM Bulletin, nr. 130. 18.06.2020. https://pism.pl/publications/Ukraines_Foreign_Policy_in_President_Zelenskys_First_Year

70 – Maciej Zaniewicz. Ukraine’s Foreign Policy in President Zelensky’s First Year. – PISM Bulletin, nr. 130. 18.06.2020. https://pism.pl/publications/Ukraines_Foreign_Policy_in_President_Zelenskys_First_Year

17 which had been calling for a revision of the EU policy on Russia and Zelenskyy’s agreement to the Russian demand to adopt the Steinmeier formula that regulates the parameters of the future local elections in the occupied areas.71 Despite the lack of significant progress in negotiations with Russia on the situation in Donbas, resolving the conflict will remain a priority of Ukrainian foreign policy. Ukraine will continue bilateral talks with Russia, as well as those under the Normandy Format and the Trilateral Contact Group in Minsk. If these formats prove to be ineffective, Ukrainian authorities will seek new ones, possibly with the participation of the United States. Zelenskyy will continue try to achieve further short-term successes (e.g., exchange of prisoners), but it is unlikely that he will agree to the Russian conditions for the Donbas elections, insisting on the withdrawal of Russian troops and full control of the Ukrainian border with Russia. For this reason, it is probable that the Russian authorities try to halt the negotiations while shifting the blame for “sabotaging” the Minsk agreements to the Ukrainian authorities.72 Some critical Ukrainian observers point out that "the main thing" is not what Zelenskyy managed to do on the war issue but what he did not do: - he did not attempt to achieve peace on Russian terms, which would have been unacceptable for most Ukrainians. Zelenskyy’s achievement was successful conclusion of negotiations with Moscow at the end of 2019 on the transit of Russian gas across Ukraine to the European Union. Also three major prisoner exchanges, troop withdrawals in three locations on the line between government-controlled and separatist-held territory, and the completion of a vital civilian bridge in the front-line town of Stanytsya Luhanska73. Voting in local elections was made possible for people who had been temporarily displaced; and a TV channel ‘Dom’ (Home) was set up to broadcast in areas not under Kyiv’s control.74 Zelenskyy is seen as seeking new initiatives which would allow him to break the ongoing impasse in the process of regulating the conflict in the Donbas. Some of them (such as the proposal to establish a Consultative Council, (so called Kozak-Yermak Plan on Donbas) which would in fact legitimised representatives of the separatist republics75) have caused controversy not only in a part of Ukrainian society but also among a large group of the members of the Servant of the People party and were withdrawn later. Such initiatives however point to the fact that the president has not abandoned the hope that a breakthrough in the negotiations is possible without far-reaching concessions to Russia and without a

71 – Tadeusz Iwański, Sławomir Matuszak, Krzysztof Nieczypor, Piotr Żochowski. Neither a miracle nor a disaster – President Zelensky’s first year in Office. – OSW Commentary nr. 334. 20.05.2020 https://www.osw.waw.pl/sites/default/files/Commentary_334.pdf

72 – Maciej Zaniewicz. Ukraine’s Foreign Policy in President Zelensky’s First Year. – PISM Bulletin, nr. 130. 18.06.2020. https://pism.pl/publications/Ukraines_Foreign_Policy_in_President_Zelenskys_First_Year

73 – Christopher Miller. Zelenskiy's First Year: He Promised Sweeping Changes. How's He Doing? – RFE/RL. 25.04.2020. https://www.rferl.org/a/zelenskiys-first-year-he-promised-sweeping-changes-how-s-he-doing-/30576329.html

74 – Tadeusz Iwański, Sławomir Matuszak, Krzysztof Nieczypor, Piotr Żochowski. Neither a miracle nor a disaster – President Zelensky’s first year in Office. – OSW Commentary nr. 334. 20.05.2020. https://www.osw.waw.pl/sites/default/files/Commentary_334.pdf

75 – Vladimir Socor. Kozak-Yermak Plan on Donbas: The Fine Print. – Eurasia Daily Monitor. Volume 17, Issue 40. 26.03.2020. https://jamestown.org/program/kozak-yermak-plan-on-donbas-the-fine-print/

18 crisis in political circles76. But Ukrainian authorities’ growing frustration with achieving results in Normandy framework was shown in opinion piece of Oleksii Reznikov, Deputy Prime Minister of Ukraine, who stated in in July 2020, that it is apparent that the Minsk Agreements in their current form are insufficient to end the war. And that in a number of ways, the terms of the Minsk Agreements no longer reflect the realities on the ground in eastern Ukraine. This is most immediately apparent in relation to the line of contact, which was meticulously recorded in the official Minsk Agreements.77 Integration with NATO and the EU remains one of the main objectives of Ukrainian foreign policy. Symbolic confirmation of Zelenskyy’s pro-western course was his first visit as president to Brussels, during which he met with the leaders of both organisations. In June 2020, Ukraine was approved for NATO’s Enhanced Opportunities Partnership (EOP) programme, which President Poroshenko had also applied for. Membership in the EOP enables Ukraine to deepen cooperation with NATO in terms of planning, exercises, and information exchange. However, it does not open the way to membership in the Alliance. Zelenskyy, like his predecessor, puts great emphasis on strengthening the country’s defence capabilities in the Black Sea Basin (e.g., through exercises with troops from NATO countries). Ultimately, Ukraine’s intention remains to achieve membership in the Alliance.78 Zelenskyy has remained committed to deepening ties with the EU. However, unlike Poroshenko, he rarely speaks about EU membership79. Officially Ukraine’s goal continues to be to meet the conditions for EU membership by 2024 by, among other things, implementing the provisions of the Association Agreement. Until then, Ukraine’s EU policy is to focus on sectoral integration, especially in the energy and digital markets. The Ukrainian authorities see the Eastern Partnership as an initiative to facilitate the country’s integration into the EU internal market, although they prefer bilateral cooperation with EU and its member states. In 2021, Ukraine intends to renegotiate the conditions for trade cooperation with the Union—it would like to increase import quotas and reduce duties on Ukrainian goods entering the EU. Ukraine is also continuing its efforts to sign the Agreement on Conformity Assessment and Acceptance of Industrial Products (ACAA) with the EU, which would allow Ukrainian industrial goods to enter the EU market under intra-EU conditions80. Zelenskyy has also concentrated on strengthening bilateral ties with key EU member states (France, Germany and Italy) as a way of boosting support for

76 – Tadeusz Iwański, Sławomir Matuszak, Krzysztof Nieczypor, Piotr Żochowski. Neither a miracle nor a disaster – President Zelensky’s first year in Office. – OSW Commentary nr. 334. 20.05.2020. https://www.osw.waw.pl/sites/default/files/Commentary_334.pdf

77 – Oleksii Reznikov. Containing the Kremlin: Why the West must rethink policy towards a revisionist Russia. – Atlantic Council Ukraine Alert. 08.07.2020. https://www.atlanticcouncil.org/blogs/ukrainealert/containing-the-kremlin-why-the-west-must- rethink-policy-towards-a-revisionist-russia/

78 – Maciej Zaniewicz. Ukraine’s Foreign Policy in President Zelensky’s First Year. – PISM Bulletin, nr. 130. 18.06.2020. https://pism.pl/publications/Ukraines_Foreign_Policy_in_President_Zelenskys_First_Year

79 – Amanda Paul. One year of President Zelenskiy: Did “Ze” bite off. – EPC Commentary. 19.05.2020. http://www.epc.eu/en/Publications/One-year-of-President-Zelenskiy-Did-Ze-bite-off-more-than-he-could~333948

80 – Maciej Zaniewicz. Ukraine’s Foreign Policy in President Zelensky’s First Year. – PISM Bulletin, nr 130. 18.06.2020. https://pism.pl/publications/Ukraines_Foreign_Policy_in_President_Zelenskys_First_Year

19 Ukraine on crucial issues, such as sanctions against Russia.81 Relations with the USA remain crucial for Ukraine because of the former’s diplomatic, financial, and military support. During Zelenskyy’s presidency, bilateral relations have been dominated by the impeachment process of Donald Trump in the US Congress. Nevertheless, cross-party consensus in the U.S. on the need to support Ukraine was maintained, as demonstrated by the Congressional approval for another tranche of military aid for Ukraine—$300 million for 2020. The U.S. has also maintained sanctions on Russian entities because of occupation of Crimea and eastern parts of Ukraine82. The USD 1.6 billion in security assistance that the US has provided since 2014 has helped Ukraine defend its territorial integrity, deter further Russian aggression, and progress toward NATO interoperability.83 Zelenskyy puts more emphasis on economic diplomacy than his predecessor, seeking an influx of foreign investment into Ukraine. During his foreign visits, the president regularly meets with business representatives. In October 2019, on his initiative, an investment forum was organised in Mariupol. In August 2019, Ukraine signed a free trade area agreement with Israel and continues negotiations on the conclusion of similar agreements with Turkey and the United Kingdom, and on the extension of the free trade agreement with Canada. The new foreign minister, Dmytro Kuleba, appointed in March 2020, announced Ukraine’s intention to strengthen trade relations with Asian countries. The emphasis on economic diplomacy has so far not brought tangible results in the form of greater interest of foreign investors in Ukraine, mainly because of the country’s internal problems (primarily to high level of corruption).84 Ukraine started to adapt its laws on education and minorities to the recommendations of the Venice Commission, especially concerning teaching languages. This has resulted in a reduction of tensions in relations with Hungary, which is reflected in the resumption of the bilateral dialogue with Ukraine (including at the ministerial level) on, among other things, the unblocking by Hungary of the works of the NATO-Ukraine Commission.85 The current Ukrainian leadership, like the previous authorities, express interest in regional cooperation with neighbouring countries, especially Poland, for example, on the construction of the Via Carpatia route, the E40 waterway (to connect the Black and Baltic seas), and in LNG imports from the U.S. through Poland. In August 2019, Ukraine signed a tripartite memorandum with Poland and the U.S. concerning energy cooperation. However, the Ukrainian authorities consider the project of a Ukraine-EU Energy Bridge, lobbied for by

81 – Amanda Paul. One year of President Zelenskiy: Did “Ze” bite off. – EPC Commentary. 19.05.2020. http://www.epc.eu/en/Publications/One-year-of-President-Zelenskiy-Did-Ze-bite-off-more-than-he-could~333948

82 – Maciej Zaniewicz. Ukraine’s Foreign Policy in President Zelensky’s First Year. – PISM Bulletin, nr. 130. 18.06.2020. https:// pism.pl/publications/Ukraines_Foreign_Policy_in_President_Zelenskys_First_Year, Ukraine and Russia Sanctions https://www.state.gov/ukraine-and-russia-sanctions/#Releases

83 – Amanda Paul. One year of President Zelenskiy: Did “Ze” bite off. – EPC Commentary. 19.05.2020. http://www.epc.eu/en/Publications/One-year-of-President-Zelenskiy-Did-Ze-bite-off-more-than-he-could~333948

84 – Maciej Zaniewicz. Ukraine’s Foreign Policy in President Zelensky’s First Year. – PISM Bulletin, nr. 130. 18.06.2020. https://pism.pl/publications/Ukraines_Foreign_Policy_in_President_Zelenskys_First_Year

85 – Maciej Zaniewicz. Ukraine’s Foreign Policy in President Zelensky’s First Year. – PISM Bulletin, nr. 130. 18.06.2020. https://pism.pl/publications/Ukraines_Foreign_Policy_in_President_Zelenskys_First_Year

20 their predecessors during Poroshenko’s presidency, to be off the table.86 In future it is expected that Ukraine will continue its policy of integration with NATO and the EU. In the short to medium term, however, due to the economic effects of the COVID-19 pandemic, the pace of Ukraine's implementation of the provisions of the Association Agreement and sectoral integration with the EU may slow down. This may result in postponing talks on the renegotiation of the terms of trade cooperation with the EU and the conclusion of the ACAA, as well as limit Ukraine’s participation in NATO and EU initiatives.87

CONCLUSIONS It could be argued, that Zelenskyy was elected on three promises: 1) to end the war in eastern Ukraine; 2) to make the large country of 42 million rich; 3) to stanch corruption. But after an initial burst of activity on the reform front from autumn 2019 to spring 2020, the thrust for reform has slowed down, at least for moment, as the result of changes in Government and leaders of key institutions. It takes time for the new officials to adapt to new situation before moving forward with reform agenda. As pointed out earlier, during 2020 the political support in Parliament for pushing through necessary reforms somewhat weakened as the Servant of the People Party fractured to smaller groups, not all controlled any more by President’s Administration. Zelenskyy’s ability to bring the rebels in his party under control now is somewhat limited and has resulted in increased infighting during the 2020 over more controversial reform laws. He will, therefore, need to reach out to other parties (both pro-European parties of Holos and Porsohenko’s European Solidarity, but also in some cases to pro-Russian Opposition Platform) to find the necessary votes to pass bills. This should however be welcomed as a positive development in Ukraine’s political culture, given that it can help strengthen cross-party cooperation.88 It could be therefore said about Zelenskyy and his Servant of People Party that lot of the political capital he received as the result of massive victory of Presidential and Parliamentary elections has been used up and to achieve further support for continuing with reforms will be challenging. In general it could be said that there has been some important successes in conducting reforms especially from autumn 2019 to spring 2020 (for example new electoral law, land reform and bank resolution laws, the deregulation law, the law increasing transparency of public finance, the law regarding concessions and several new anti-corruption measures and gas transit and prisoner exchange agreements with Russia). However, the fundamentals of Ukrainian political and economic system have not yet been fundamentally changed. Oligarchs have position in influencing Ukrainian politics and have succeeded in slowing some reforms with the help of their supporters in Parliament. And

86 – Maciej Zaniewicz. Ukraine’s Foreign Policy in President Zelensky’s First Year. – PISM Bulletin, nr. 130. 18.06.2020. https://pism.pl/publications/Ukraines_Foreign_Policy_in_President_Zelenskys_First_Year

87 – Maciej Zaniewicz. Ukraine’s Foreign Policy in President Zelensky’s First Year. – PISM Bulletin, nr. 130. 18.06.2020. https://pism.pl/publications/Ukraines_Foreign_Policy_in_President_Zelenskys_First_Year

88 – Amanda Paul. One year of President Zelenskiy: Did “Ze” bite off. – EPC Commentary. 19.05.2020. http://www.epc.eu/en/Publications/One-year-of-President-Zelenskiy-Did-Ze-bite-off-more-than-he-could~333948

21 although there has been progress in fighting corruption the factors for adopting some important, especially anti-corruption reforms seems to have been foreign pressure from EU, USA and IMF and World Bank. Also in foreign policy, the main goal of peace and regaining of control of occupied Ukrainian territories has remained unachieved, although Ukraine has achieved some positive results from Russia (exchange of prisoners, new gas transit agreement). However, it is important to stress that Ukraine is continuing its policy of integration with NATO and the EU and continues to take steps to implement Association Agreement with EU. Razumkov Center’s experts have argued that after a certain period of growth of the society’s optimism, the majority of Ukraine’s citizens have returned to the traditionally critical assessment of the authorities’ actions. They consider a majority of the President’s pre-election promises not yet fulfilled, and are sceptical about their fulfilment in the future. At the same time, the society retains a relatively higher level of trust towards the President than to the Verkhovna Rada and the Government but this level demonstrates a trend for becoming lower. Future will show what conclusions Zelenskyy and his political advisors draw from successes and failures of their first year in power and whether it leads to increased efforts to reform the system or will the reform drive weaken. However, the Ukrainian people’s desire for better living standards and for government more responsive to their needs remains as motivating force for conducting reforms in future.

The Estonian Center for Eastern Partnership (ECEAP) does not take collective positions. This analytic paper, like all publications of the ECEAP, represents only the views of its authors.

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