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Home , Arseniy Yatsenyuk

Transcript: Q&A

Transforming : Successes and Obstacles on the Way to Reform

Arseniy Yatsenyuk

Prime Minister, Ukraine

Chair: Robert Brinkley CMG

Chairman, BEARR Trust; British Ambassador to Ukraine (2002-06)

15 July 2015

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2 Transforming Ukraine: Q&A

Question 1

I'd like to push you a little bit more on the Saakashvili appointment, if I may. I realize that you're not personally behind the appointment of former Georgian President Saakashvili as governor of Odessa, but perhaps you could give us some insight on the thinking that was behind the appointment, and also how you see the short to medium-term outlook for Odessa within Ukraine.

Arseniy Yatsenyuk

My thinking is that the cabinet asked the president, and the president signed an executive order, and Saakashvili became the governor. It's just as simple as it is. We expect that Mr Saakashvili is to deliver real changes in Odessa. I am at his disposal. And not only at his, at everyone who wants reform in this country.

Question 1

What special qualities does he bring?

Arseniy Yatsenyuk

He's the former president. It's great to have the former president as a governor of one of the biggest Ukrainian regions.

Question 2

When you were in Washington, you described some of the populist members of the Rada as lunatics. I think some of them actually come from your own party. But it does seem that some of the laws that they're passing risk interfering with the IMF programme and so on. So can you tell us what you're planning to do to get them back into line and to ensure that the Rada doesn't block some of the necessary reforms?

Arseniy Yatsenyuk

Sometimes it happens with the politicians – they go crazy before the elections. So we are to have municipal elections on the 25 of October this year. I have a very good example for lunatics, not only in Ukraine but in different countries, including some EU member states. To pass austerity is definitely unpopular. If you go to your people saying: my fellow citizens, we are decided to freeze all social expenditures, wages and salaries – that's what I did. We have to increase by six times the communal tariff bill. We need to impose new taxes. We need to close tax loopholes. You have to work more in order to get more. This is very unpopular, but in the short term.

Look at what Prime Minister Cameron did a few years ago. You in the UK passed austerity. He was under severe attacks by his political opponents. And he hit the home run – he won the elections. This is the best example. So if you think about the future, if you do everything to build up the prosperous country and you don't care about your own political dividends, for the statesman it's important to pay the political price, to spend the political currency, but for the future of the country. This is the message I always deliver to my friends in the parliament. I admire the parliament. 3 Transforming Ukraine: Q&A

Yes, it's true that some political forces want to roll back on the reform agenda. But we are united with the president. Even in case any populistic bill will be on the floor and the government will pass this bill, the president will definitely veto it. No chances to stop reforms. We've entirely changed the record of our relations with the IMF – well, it's better for you to ask the IMF, because I can't say on the side of the IMF. For example, the G7 ministers. Everything we promised, we delivered. Ukrainian people have suffered too much, and they are suffering. Living standards dropped severely, very high inflation, huge depreciation.

So it's a huge challenge but from day to day we are talking to the Ukrainian people. We ask them to be patient and to do everything for the brighter future of this country. People are much more, I would even say, mature. They have the wisdom, contrary to some Ukrainian politicians. But we will change these politicians.

Question 3

When you took the job, you said it was a suicide task, so I'm glad to see you're still alive and kicking. But what I was hoping you would do was give us a sense of how the war is going, because it's difficult, as you know, and sometimes a bit dangerous to get onto the front lines. What do you think the separatists' goals really are? Is this frozen or is it unfreezing? Has it ever stopped? Where is it going? Are you concerned – there have been lots of reports of a Russian military build-up of supplies and aid to the separatists. So if you could just give us your sense of where things are now, that would be great, thank you.

Arseniy Yatsenyuk

This is one of the most complicated questions. There is no easy answer. One can say that even there is no answer at all. If I may ask you, let's just avoid the language of separatists. There are no separatists. There are just Russians and Russian-led terrorists. This is the right legal definition. is personally engaged. Russia masterminded and orchestrated illegal annexation of – this is a fact. This is an international crime. There is word that Russia is to 'pay the price'. Usually we pay the price in the supermarket. Russia is to be punished by the international law for the illegal annexation of Crimea. For me, this is both a political and personal issue. I was minister for economy in Crimea. All these rumours that there were entirely pro-Russian sentiments in Crimea, that's not true.

So what we have on the table, the only deal which is still viable, is the so-called Minsk deal. Is it time to elaborate on this? If you want to get the answer on what's going to happen in the future in terms of Russian-led invasion. We do understand that Russia is not willing to implement the Minsk deal, but the policy of the and of the Ukrainian government is as follows: we are whiter than white in implementing Minsk. What the president promised, we did. The president promised to sign an executive order, a ceasefire order – he did it. We passed an amnesty bill – he signed it. We passed a bill on the special status of and Lugansk – it is enacted. We promised to start constitutional amendments and the president is to address the house tomorrow with his constitutional amendments, which are in line with the Minsk deal.

I do understand that what Russia wants – the Russian play is to blame Ukraine for not implementing the deal and saying, look, that's Ukraine who failed. That's the reason why we dropped off this deal. No chances, to no avail. We will be the last one who is to say that Minsk is dead. No. There are fingerprints of President Putin on the Minsk deal, so he is obliged to implement the deal. Chancellor Merkel and President Hollande, they contributed a lot of their political capital into this deal. They did a lot to make this deal happen. We are to stay united and to act in concert to make Russia implement and fulfil the deal. 4 Transforming Ukraine: Q&A

What is the aim of Putin? Definitely not to make Ukraine happy. His aim is to resume something that resembles the . His aim is to take over Ukraine. His aim is to dismantle Ukraine as a nation and as a country.

What's happening in Ukraine is not just related to us. This is the global challenge. It relates to everyone sitting in this room. Russia is the threat to global stability and security. This is not the way a P-5 member can act. They have to change their policy, or we have to change their policy, and to get one united, strong policy towards Russia. The only language Putin understands is strength. So let's be strong.

Robert Brinkley

Prime Minister, as a follow-up to that, we've had a question on Twitter asking: do you think a formal takeover of the occupied areas of Ukraine by Russian forces is likely? A formal takeover.

Arseniy Yatsenyuk

It's complicated for me to distinguish what does it mean, formal and informal. What we know is that Russia has stationed about 40,000 military boots on the ground, 10,000 of which are Russian regular army military boots. The only person who denies Russian presence in Ukraine is President Putin. So if they have free internet, they can provide him with the footage from the internet when they deliver tanks, artillery, howitzers, and even SA-11 and SA-22. I've seen in reports in the UK press, British generals discovered stationed SA-11s near Lugansk. There was a picture on the internet.

So Russia violated international law, illegally annexing Crimea. Russia invaded Donetsk and Lugansk. These are Russian regular troops and Russian-led terrorists. Russia is responsible for all this mess and international crime that it committed.

Robert Brinkley

Yes, but in the case of Crimea, Russia has annexed it. In the case of Donbas, the occupied areas, it has not. It has not formally absorbed it, has it?

Arseniy Yatsenyuk

I will tell you why. They don't want to donate or actually to pay the real value price. Donetsk and Lugansk were heavily subsidized by the central government. We paid billions of dollars to these areas. I will tell you, for example, the number. Last winter, we spent $1 billion to supply gas and electricity to these areas. This $1 billion is in arrears. So this is a depressed region. Putin doesn't want to take it because he does understand that this will be his to bear the financial brunt. He needs another billions of dollars to support these Russian-led terrorists. Due to the huge slide in oil prices, the Russian economy is definitely not in the best shape in the world.

Question 4

First of all, Prime Minister, I must congratulate you on your efforts. You certainly have a thankless task and a very challenging role. It's about the economy I must ask you. First of all, are you suggesting that a lack of transparency in the in relation to financial matters is actually aiding corruption in Ukraine? You said you're waiting three months from a particular EU country, and I'm sure I'm not the only one in the audience who would love to know the name of that country, in terms of your efforts in 5 Transforming Ukraine: Q&A

countering corruption. But the second point I must ask you is in relation to the austerity programme you're necessarily being forced to run. Given the demographic crisis, the fall in population between 2014 and 2015 – which some even speculate could be way over 250,000 people, which is a huge drag on your economy, which is a challenge to any conventional austerity programme – and obviously you made the point about the fall in demand as a result of losing Crimea and the general lack of confidence. The other point which your president is very worried about on the record is the spread of arms from the east to the west and the rising terrorism across the country, which again has a huge effect on your economy. I just want to put it to you: against that background, surely it's very important to maintain the Ukrainian economy, and is a conventional austerity programme the right approach? It's not just for you obviously, but it's for Ukraine's friends to address, because it doesn't seem to make sense to me. Thank you very much.

Arseniy Yatsenyuk

I'm not sure I can address the first question on corruption in the EU. We strongly believe that the EU is entirely uncorrupted. We have to rely on EU support to eradicate and tackle corruption in Ukraine.

On the austerity, we had two options. That's the way I try to explain it to the Ukrainian people. The first one is to get another painkiller, to buy some pills and to be happier for no more than a few months. Then we will run out of cash and we will get both pain and killed. There is another option which is much more difficult and complex: it's to pass austerity and to heal the body. To make the country strong, to make the country viable, and to make the Ukrainian economy robust. What kind of resources can we attract, going to private creditors and saying, look, the government decided to issue another billions of treasury bills? Probably this is possible but the yield and the interest rate would be skyrocketing. This is the way for real insolvency and bankruptcy. Frankly speaking, I'm not sure that private investors would be happy to lend to Ukraine. It's so complicated to attract private investors, already having attracted Russian tanks in your country.

Another source is the only one actually, the international community: the IMF, the World Bank and G7 contributors. So we decided to relaunch the programme with the IMF. As I already told you, we have a very good record with the IMF. Under this programme, Ukraine is to receive $17.5 billion in the forthcoming four years. In addition to this, $7.5 billion from G7 member states and other contributors. So this is the so-called IMF puzzle. In this IMF puzzle, we are to get $25 billion – this is the first part. Another part is that the government started a debt restructuring operation. Debt restructuring means private creditors want to get more, we want to pay less. Under this debt restructuring operation, we expect to save up to $15 billion.

Everyone knows in the world that it's not enough for Ukraine. But what kind of other options do I have? No options at all. So it means that we have to pass the austerity, to pass necessary reforms, to show progress, to ask for additional support, to have an investment conference like we had in DC. The reflection of these international investors – they don't say that we are ready to invest, to jump in the next day, but they said we are ready to contemplate and consider an idea to invest and to participate in, for example, large-scale privatization.

Then to ask for more support from the European Union, from the United States, in case we deliver real progress and tangible results. This is the roadmap. But I do understand that it's easy for me to talk, but it's so difficult for people to survive. This won't last forever. People ask, they say – I met just ordinary people at Chernobyl nuclear power plant. They said: how long is it going to be? One or two years? We are ready to wait but tell us. We see the light in the tunnel. What is the length of this tunnel? In this case, 6 Transforming Ukraine: Q&A

communication strategy, just talking to the people, convincing them that this is the only chance, this is the right way to follow and we have to stay united in the parliament, and you have to stand shoulder to shoulder as a strong Ukrainian nation and we will succeed – this is the only right strategy, which we have undertaken.

Question 5

I wanted to ask you about one of the problems that's dogged Ukraine over the last 25 years, and that is the quality of its administrative capacity. I wonder what you're doing, as head of the government, to address this. You've got armies of civil servants but the competence level is often not very high, motivation levels very low. You're talking about comprehensive reforms – where does one begin?

Arseniy Yatsenyuk

This is one of the biggest roadblocks on our way to real reforms. A lot has changed on the high-profile level, in the cabinet of ministers, in the presidential administration. But the thing is that, for example, you ask someone to do something, but he doesn't have experience, he doesn't have incentives. He just doesn't want to change himself. Change starts not just from the entire country – if everyone is to change himself, so this will change the entire country.

A number of line ministers reshuffled their staff and they reshuffled ministers. But the problem is once again wages and salaries. We asked our European friends to establish a special fund, a financial support fund for new public administration in Ukraine. We can change laws, we can change bills, we can change rules, but if we don't create incentives for the Ukrainian public servants, they won't work. So the first goal is to get financial support. Another one is to train, to train the Ukrainian public service. There are a number of support programmes established by the European Union, starting with the twinning programme and ending with the support group that was sent by the EU to Ukraine. But this will take time too.

The third issue is education. A separate educational programme for the public service in Ukraine is to be established. We need trainers, we need professors, we need those in the know who can share the experience. In these ministries and these agencies where international advisers work, a lot has changed. I'm absolutely happy with the way, for example, American and British advisers worked. Americans are working on GDF, on the banking sector, on the fiscal service. British experts supported us in the sweeping reform of the IRS, the tax service. A number of EU-based experts are engaged in the agricultural and energy sector.

But once again, we have these three priorities: wages, education and training. We need the EU support and the support of the free world to reshuffle and to overhaul the Ukrainian public service.

Question 6

My question is partly based on Dr Lo's comments about the future developments in Odessa, and takes account of article of early June – very thought-provoking – on the Moldovan embezzlement case, which I think raises a lot of opportunities for Ukraine in recovering monies. What advice could you give to Western institutions, particularly but not exclusively the media, in countering the Russian propaganda that will come out (let's be blunt about it – lies) when the Netherlands report into the loss of the airliner comes out? Because, in line with an earlier comment, there will be a lot of black propaganda, not all of it from the Russian Federation. 7 Transforming Ukraine: Q&A

Arseniy Yatsenyuk

What we are facing – we are facing a new type of hybrid war. The ammunition and munition of this war is not just heavy artillery and tanks but Goebbels-style propaganda, orchestrated by Russia, disseminated by the media. As far as I know, the EU already established a task force on how to withstand this Russian propaganda, what to do with this. A lot has changed in the world. What is white, presented in the media, is black. What is square is presented as an oval. Russians, they are the best ones in making this.

So it seems that the key problem today is to find an appropriate response, how to withstand this propaganda. The only chance is just to deliver the truth, to have meetings like this, to tell the truth and to show that Russia and their anchors and their huge propaganda machine is just lying. When I was in the States – you know they have this channel, RT, Russia Today. The majority of Americans don't know that this is the Russian TV channel. They hire perfect anchors, native speakers. Someone switches on the TV set, sitting in any hotel in DC or in Europe, they think this is the truth. They speak like we speak. No difference between CNN, BBC and Russia Today. I've got the report that Russia Today is the biggest world channel, with the biggest coverage. So let's do it together. I know you have a debate in the United Kingdom over the future of the BBC. Just do it, make it bigger, make it stronger and deliver the right messages.

Robert Brinkley

Prime Minister, you'll make some people here in the BBC very happy.

Question 7

My question is about Ukrainian society. If we go back to Georgia's experience, society has to have a huge input in order to balance the reforming government, to keep checks on it. What I would like to ask is how is the social integration and how they participate in this? As we remember from the elections when Yanukovych became president, it was pretty much divided into two parts of Russia-oriented and Europe- oriented Ukraine. So how is it now? What are your perspectives about it?

Arseniy Yatsenyuk

A lot has changed in my country. Before the revolution, we were just the people. After the revolution, we became the real nation. Before the revolution, one can say it was the territory. After the revolution, it became the country, the real, strong, one united country and one united nation. Society and the Ukrainian people, this is like the safeguard – not the safeguard. This is like a clearance point for Ukrainian politicians. If you do something wrong, the media erupts, people are unhappy. Politicians are under constant pressure and they have to change, for example, their decisions.

I would even say that before the revolution, we had a conventional division of powers – the executive, legislative and judiciary. For today, we can add the society, which is very strong, which is very committed, which asks for real deliverables and tangible results. Which is unhappy with the government – this is normal in every country. But these people deserve more, much more. To make the Ukrainian future prosperous and bright, it's not enough just our endeavours and our efforts. I cannot name any country in the world who is confronting the challenges Ukraine has. We are fighting on the military front with Russia, we are fighting against corruption and red tape, against insolvency. So too much on the table. This is the case when the worst – and the free world has to realize – if we build up a success story in Ukraine, this will be the right response to President Putin and to the Russian regime. 8 Transforming Ukraine: Q&A

Question 8

I applaud what you mention about fighting corruption. It's definitely the main priority. You've mentioned a lot of landmark successes over corruption. However, the sad fact is that corruption, despite really trickling down fast in any society, reversing it doesn't. Even if you fix it at the top, there is usually mass corruption at the bottom that needs to be addressed in a very different way. I would love to hear your thoughts on how you are actually addressing that right now.

Arseniy Yatsenyuk

I already provided the facts how we eradicate corruption on the highest levels. But frankly speaking, I am entirely unhappy with the way we eradicate and tackle corruption. We are dragging our feet. There are enormous problems in the judiciary and prosecutors office, the homeland security department. Let's not talk about the problems, let's talk about the way to fix the problems.

We have a large-scale petty corruption on the level of the tax administration, customs office, public servants, public officials. So we have launched a sweeping reform in the IRS, to make it two times less, to increase wages, to deregulate, to make the way to administer taxes and to pay customs duties much easier. We even have an idea to ask – what is the name of this company, Crown Agent? Right. This is the UK company? Right, to ask Crown Agent to operate a number of Ukrainian customs, just to eradicate corruption. They did it well in Hungary. I'm not sure about the record but they have quite a good record. Right, in the Balkans.

So to eradicate petty corruption in the customs office, in the IRS, the first issue is to pass the reform in the IRS. Another one is just to ask some companies to operate Ukrainian customs. This will be the best sign saying: look, look at this customs office, for example, in Odessa, that is operated by Crown Agent. Revenues increased by five times. Look at another customs, it dropped.

Wages and salaries, I already indicated. We need to have an entirely independent prosecutor's office. The president is really working on this. Last but not least, we need someone not just to be arrested but behind bars, sitting in jail. In this case, this is the best evidence and proof that things have changed. So I expect the homeland security department is to send this court case about this minister and first deputy minister as quick as possible. We expect the court verdict and this will be the first clear sign of a real quest against corruption.

Question 9

Very good words about the United Nations – I mean, the united nation of Ukraine.

Arseniy Yatsenyuk

I don't have good words for the United Nations.

Question 9

No. Do you still consider people who live in the territories of Donetsk and Lugansk region, under the control of the separatists, part of your nation? If yes, then why this separate treatment? Do you think that actually, effectively establishing economic blockade and difficulties with passing on to the rest of the 9 Transforming Ukraine: Q&A

territory of Ukraine actually makes people feel as if they're a united part of one nation? Or do you think this is actually pushing them away?

Question 10

You've already mentioned the need for qualified public servants and their skills and knowledge to do the job, to meet your reform agenda. What is your policy for the reform of, in particular, the technical and vocational institutions and the universities, in order to produce the graduates, the future employees, and indeed to train the existing employees – not only the public sector, but also the private sector.

Question 11

The United States and the United Kingdom signed the Budapest Memorandum. Would you welcome the supply of arms from those two countries?

Arseniy Yatsenyuk

Do we have another hour? I strongly consider those who live in Donetsk and Lugansk a part of the Ukrainian nation. They are . But they are hostages of Putin's regime. Once again, let's talk only about facts. The fact is that the government paid $1 billion for the energy supply to these areas. The fact is that we have 1.3 million people registered as IDPs. Just imagine the entire Birmingham removed to London. Just imagine what would happen in the UK. We are to pay social entitlement programmes for them, wages and pensions. About 1 million out of these 1.3 million already receive their pensions. The third issue is that we facilitated a green line for the humanitarian aid to the regions that are under the temporary control of Russian-led terrorists.

The fourth issue is – that's true, it's difficult to cross the touch line (we name it the touch line). But this is the national security issue. Russians – we don't have the border between Ukraine and Russia. This is part of the Minsk deal and Russia is not willing to seal the border between Ukraine and Russia. It's just open. So they send their terrorists, they commit terrorist plots in different areas and different regions of Ukraine, to destabilize the situation. So I feel sorry for these people, that it's difficult sometimes for them to cross the touch line. But we are doing our best to simplify the procedure, on the one hand, and on the other hand to have an iron grip over security issues.

I strongly believe that the time will come when we will take over Donetsk, Lugansk and Crimea. This is Ukraine.

On the university issue, the government together with the EU has subscribed to the Horizon2020 programme, which is the EU programme for billions of euros that have been promised. So the government already passed a number of bills. We made Ukrainian universities much more competitive and much more independent. We have two different types of universities. The first one is to print certificate and diploma and the other one is those who can bring knowledge. The line minister is in charge of this so we already deceased the number of these so-called universities, so things are improving. We changed the way the budget subsidized these universities. The budget pays for Ukrainian students, because 50 per cent of Ukrainian students are actually subsidized by the government. So we are doing it.

There are these distance education programmes launched by Yale, Princeton and other universities. We have to attract professors from the outside world with the new knowledge, with a new vision, with a new type of education, in order to educate Ukrainian students. This is the basement. I always say that the best 10 Transforming Ukraine: Q&A

asset this country has is Generation I, which is Intelligent, which is Independent, and which is Internet- dependent. They are so smart. They are just better than we are. We have to educate them and this is the future of this country.

On the Budapest Memorandum, let me just remind you that this memorandum was signed by the United States, the UK, Russia, Ukraine, and then China and France joined. The problem is that this is not a legally binding document. Under the Budapest Memorandum, we can hold only so-called consultations. Three times we asked Russians to start these consultations and they always refused. In this sense, we asked our partners, our friends, to support Ukraine and to make Ukraine militarily durable and strong enough. Not for offensive operations, and I want to be very clear: the aim of the government is not militarily to reclaim the territories. The aim of the government is to deter Russia, to deter Russian-led troops. We are the only country who is fighting against the Russian army in the world.

So we need support, both financial/economic and military, in supplying of defensive weapons for the Ukrainian military. Ukraine is defending not only the Ukrainian people. We protect the European borders too. So it's in our joint interest.

Robert Brinkley

Prime Minister Arseniy Yatsenyuk, thank you very much. I know that you've just flown in today from across the Atlantic and you have a very busy schedule, so it's very good you've been able to spend an hour with us this evening. Thank you very much.

Arseniy Yatsenyuk

My pleasure.