Independent Expert on the effects of foreign debt and other related international financial obligations of States on the full enjoyment of all human rights, particularly economic, social and cultural rights
Mr. Juan Pablo Bohoslavsky
Kyiv, 23 May 2018
I would like to thank the Government of Ukraine for its invitation to visit, and for its cooperation with me and my team before and during this mission. I have had the opportunity to meet with several government officials and have found openness and interest in engaging in frank discussions and exchange of information. I also wish to express my gratitude to civil society advocates, experts and researchers, as well as to members of the international community in the country, who devoted time to discuss with me and to grapple with the importance of a human rights dimension to economic policies.
On the onset, I wish to recognize the very complex situation and multi-layered challenges that Ukraine faces. I am mindful that this is an exceptionally difficult context, and that any assessment would be incomplete and unfair without a clear recognition of the difficulties. The impact of the ongoing conflict in Eastern Ukraine, both creating new limitations and exacerbating pre-existing problems, should not be underestimated, nor its implication for the whole country. Over four years of conflict inevitably have short and long- term consequences in human, social, financial and economic terms. The Maidan events, in November 2013, were sadly followed by a series of harsh situations including the temporary occupation of part of the territory of Ukraine – the Autonomous Republic of Crimea and the city of Sevastopol by the Russian Federation – and the military conflict in the Eastern Ukraine. These four years and two ‘fronts’ have led to over 1.5 million of internally displaced persons (IDPs) with 3.4 million of people requiring humanitarian assistance in the country. The conflict has led to over 2.540 persons killed and between 7.000 and 9.000 more injured, while over 600.000 people (of which 100.000 are children) live within 5 kms of the 457 kms-long ‘contact line’.
The conflict has also led to the loss of economic activity of an important and traditionally industrial region in the country. The economic losses for Ukraine as a result of the temporary occupation of Crimea by the Russian Federation, and the conflict in Eastern Ukraine are very difficult to estimate and quantify. This is notably because they involve assets and territory temporarily occupied, losses in economic and fiscal revenue, damaged public infrastructure and assets, as well as private assets (individual and corporate property and housing, for instance). However, some estimates go as far as around USD 100 billion.
Ukraine faced recession and devaluation of its currency in 2008-09, and after a short period of recovery, felt back into high inflation, depreciation of the country’s currency –hryvnia (UAH)- and a drop in real GDP in 2014 (6.6 per cent) and 2015 (9.8 per cent) which compound an already dire situation for the majority of people. People in Ukraine are, hence, at the same time, grappling with economic constraints, increasing wealth inequalities, and conflict, and with a number of reforms carried out by the Government in many spheres of life.
My statement today is preliminary in nature. It is offered as a first step in what I hope will be a constructive and ongoing dialogue with the Government while I am preparing my final report, and afterwards in the implementation of my recommendations. I offer today some views and recommendations to the Government in Ukraine, and to other stakeholders, and will develop them further in the final report to be presented to the UN Human Rights Council in March 2019.
Economy and human rights
During my visit, I have been asked a few times if and to what extend international human rights law plays a role in economic issues. As one of my interlocutors pointed out, linking corruption or wealth inequality with human rights is unusual. Rarely, it seems, discussions with economic experts and analysts focus on the human and social dimension of the current and future economic and financial challenges.
This question is not new to me. Let me start by underlining that, above all, my role as an independent human rights expert is to clarify the links between economy, finance, illicit financial flows and human rights.
To put it simply: all human rights, from food, housing or health to access to justice, right to vote and freedom of expression are closely linked to public finances. The human rights standard of ‘taking steps to making use of the maximum of available resources’ recognizes that human rights cannot be effectively protected or realized without a clear allocation of financial resources for the common good. Sustainable public finances must be ensured, not exclusively for access to international financing or servicing of debt, but crucially to guarantee social justice for all, and to comply with human rights obligations. A healthy economy must prioritize the well-being of the most vulnerable and marginalized members of society, not disregard them. And effectively combatting state-capture should be a central goal also for the human rights community.
In other words, the economic trends, conditions and challenges of a country are also determining factors in the protection and realization of human rights. In recent years, Ukraine has required severe realignment of its budget to ensure higher defence expenditures to strengthen its military capabilities while at the same time it has faced fiscal deficit. International and bilateral lenders have aided to cover these financial needs and also to embark in economic reforms. As a result, since 2014, extensive fiscal consolidation measures have been applied, and dependency from international lenders has increased. These lenders impose stringent conditionalities.
Who are the poor and marginalized in Ukraine? How many, what percentage of the population? How is the poverty line defined and what percentage, with disaggregation, fall under it? What are their conditions of living? What is the pay gap women face in the country, and how many women are affected? I have received preliminary information and comments on these central questions, but many interlocutors stop short of answering and note that all this information is neither clear nor updated.
Effective public policy design and its implementation – and adequate allocation of resources- require robust data on the population, systematically updated and disaggregated. This is also essential for adequate monitoring and reporting on the country’s commitment with the Agenda 2030 for sustainable development. I have been discouraged to learn that Ukraine has not had a census since 2001, and I have not been reassured about the realization of a census in 2020. I strongly advice the Government to ensure that a census takes place and that the process of preparing for it, ensuring all individuals living in Ukraine are included, is started without further delays.
I wish to note my special concern for the situation of IDPs in the country. According to the 2018 Law on State Budget, adopted in December 2017, there continues to be limited funding for the payment of pensions to individuals residing in territory controlled by armed groups and of specific-recipient assistance to IDPs. The Government must take into account that elderly people are disproportionately impacted by the crisis in eastern Ukraine, and that administrative requirements force them to travel through five checkpoints every 60-90 days to avoid suspension of their pensions. Often they do so with great difficulties and facing a number of risks to their lives or spending as much as 50 to 80 per cent of their monthly pension in the travel, in order to access their pensions. It is of concern to me that, in this context, over 600,000 older persons have been cut off from their pensions. Still, the reinstatement of the pension of the majority of these people has not been processed.
In this context, I also wish to underline the need for measures to guarantee the rights of minorities. Social cohesion should be regarded as a crucial goal for the country, in light of increasing divisiveness. I recall the pertinent and relevant recommendations that were offered by my fellow colleagues after their official visits in 2014, the Special Rapporteur on IDPs and Special Rapporteur on minority issues.
I have also been deeply concerned to learn that the situation of women and overall equality between men and women has deteriorated in recent years. In 2016 the wage gap was the highest in a decade, at allegedly 25.3 per cent, and while it has slightly decreased, it continues to be extremely high. In addition, several policy measures directly or indirectly impact on the economic situation of women. For instance, the amounts and duration of subsidies for child bearing used to depend on the number of children, and they have now been unified. Very limited public care facilities for children under 3 years old are available,
de facto squeezing women of reproductive age into poverty. Between 2014 and 2017, the decision to reduce from the public budget 100.000 public servant posts, 55.000 in education, 12.000 in other medical services, and 12.000 social workers around the country, mainly affects women who have traditionally been the work force in these sectors. Moreover, it negatively impacts on the provision of essential services to the entire population.
With respect to revenues and budgeting to juggle these various requirements, it is understandable that the Government has identified the need to increase efficiency in tax administration, such as the automatization of the VAT payments and refunds, effectively increasing the net VAT payments in relation to GDP, and effectiveness in fiscal spending. Additional taxes have also been directed at investment income at the rate of 15-25 per cent, and taxation on deposit interest, while at the same time “single social contribution” of the employers was reduced since 2016. With regard to these reforms, in my view, progressive taxation reforms are a more rational alternative than the reduction of budget allocations for social services and public investment.
International human rights standards provide for the progressive realisation of economic, social and cultural rights and prohibit States from adopting impermissible retrogressive measure, unless strictly justifiable. Retrogressive measures, in other words, taking steps that would reduce the enjoyment of economic, social and cultural rights, are only permissible under certain strict circumstances , and the State is obliged to justify its compliance with clear criteria about the measures adopted, such as, inter alia, that the measures are a) temporary; b) proportionate; c) reasonable and d) non-discriminatory. These (and other) human rights standards also apply to international partners, including the International Monetary Fund (IMF), the World Bank, the European Union (EU) and donor States, as they have to ensure that the terms of their transactions and, when this is the case, their economic reform policies and conditionalities for financial support, respect, protect and fulfil human rights.
Let me consider only two of the main economic conditionalities set by the 2014 cooperation agreement with the IMF. First, the IMF has advised the development of a market for agricultural land (i.e. land privatization). Ukraine’s agricultural land is vast, and it has been protected from sale for decades. The average plot of 3.7 hectares has been mainly available for lease, at very low rates. The inability to purchase land is considered a deterrent for investment, hence a limitation on productivity. In my view, a vigorous debate is needed on the consequences of a large scale privatization of land on a number of human rights, notably the right to food and food security for small scale farmers and rural inhabitants in the country, the right to a healthy environment regarding large-scale agro-business and their practices, and also in terms of employment opportunities in a country that has a 9.5 percent unemployment rate with a high percentage of the population working in the informal sector. Some of my interlocutors have also showed lack of consideration for the well documented negative impacts of large processes of privatization of land in other countries. Needed reforms should be designed with an
ex-ante human rights assessment and with strong regulation put in place.
Secondly, the 2014 cooperation agreement with the IMF requires a series of reforms, including levelling the price of residential gas to market prices. Residential gas had been subsidized in the past for a large group of people without any specific targeting of those most in need. There were also instances where –given that the distributors were not subject to strict accountability and oversight- that they were selling subsidized residential gas to enterprises and companies, allowing for corruption in the sector. However, it is essential to note that a rapid increase in residential gas prices disproportionally impacts on the persons who are living in poverty, who according to some estimates represent approximately 50 per cent of the population in general income terms and is especially burdensome on women, older persons, rural households, single-mothers, IDPs and people living close to the contact zone.
While the Government has refrained for a total equalization of the gas tariff to the market prices, it has also decided to address concerns expressed by the IMF about the cost of the subsidies. In order to do so, it has decided to target some beneficiaries, with criteria such as the size of house (200 mt2 or more) or apartments (120 mt2) to limit the entitlements. It should be noted that the increase in the cost of gas has rendered Naftogas, a state-owned enterprise, more efficient and profitable.. It remains to be seen how Naftogas will balance its commercial and social obligations.
A few months before the Maidan events took place. the Government of the former President Viktor Yanukovych borrowed from the Russian Federation 3 billion USD Eurobonds. As the Russian Federation did not accept to participate in the 2015 debt restructuring, and it is currently litigating against Ukraine before the English Court of Appeals to get this debt fully repaid, I would like to call the attention of all parties involved to the “Basic Principles on Sovereign Debt Restructuring Processes” adopted by the UN General Assembly in 2015 with votes by both states. .Amongst these principles, there are two: good faith by both the sovereign debtor and all its creditors and debt sustainability as a goal of any debt workout mechanism.
Corruption and human rights
Corruption is a serious human rights concern precisely because it drains a sizable part of the public budget away from its social function. Studies highlight the strong correlation between illicit financial flows and lower levels of economic development. State capture matters in human rights terms because it erodes the public trust in institutions, and weakens a sense of long-term responsibility and accountability essential to achieve sustainable human development and peace, and to strengthen democracy.
Corruption also hampers the promotion of human rights because it deepens already existing wealth inequalities, often leading the poor and marginalized to the worsening of their living conditions and the diminishing of their already weak participation in public life. In addition, the Government has committed to achieving the Sustainable Development Goals in general, and should specifically aim at addressing SDG 16.4 which calls on States to significantly reduce illicit financial flows by 2030, and SDG 16.6 aiming at the reduction of corruption.
In the realm of preventing and combatting corruption, I commend various efforts made in recent years, in particular the creation of an institutional architecture that takes into consideration some critical areas. This includes the Law on Prevention of Corruption as well as the creation of the National Agency for the Prevention of Corruption (NAPC), the National Anti-Corruption Bureau (NABU) the Specialized Anti-Corruption Prosecutors’ Office (SAPO) and the Asset Recovery and Management Agency (ARMA). Yet, rooting out endemic corruption cannot be achieved without a holistic approach that includes a) investigation, prosecution and effective sanctions for which a judiciary reform that ensures independent and competent judges is needed; and b) more emphasis on prevention in order to minimize incentives for corruption. The robustness and effectiveness of economic regulation is crucial and needs to be advanced in a coordinated manner with agencies fighting against corruption as well as with law enforcement.
Ukraine has also put in place a series of initiatives to increase transparency, including the electronic asset disclosure, e-procurement, opening up public registries and making a number of datasets publicly available. However, and notwithstanding the fact that these institutions are still relatively young, there are several gaps in their functioning, including the urgent requirement to effectively regulate various areas. These areas are: a) conflict of interest, b) lobbying of various sectors, c) robust protection of whistle-blowers, and most importantly d) set up a truly independent and effective High Anti-Corruption Court to address high-level corruption cases in line with the well-reasoned arguments presented by the Venice Commission in October 2017.
With regard to NABU, I was positively impressed by the extensive activities carried out in only three years. As of December 2017, this Bureau has managed to arrest funds and assets totaling 26.9 milliard UAH as well as property, real estate, and corporate rights. I have been informed that the law establishes a clear procedure to appoint auditors in charge of monitoring NABU. The concern, however, seems to be about politicization of the actual appointments. I encourage the various parts of the State involved to preserve the independence and competence of the auditors, and to ensure that a transparent audit is conducted according to the spirit of the law.
I highlight the creation of the public depository and database with declarations of assets and the income declaration verification by public servants at all levels, in the context of the work of the National Agency for Prevention of Corruption. Yet, I wish to recommend further efforts to ensure the independence and integrity of the NAPC. The use and effectiveness of the database should be enhanced and NAPC must establish an automatic verification mechanism for asset declarations as a logical use of this electronic database. Monitoring and accountability can only derive from this. It should also endeavour to provide to the public aggregated information on assets declarations, duly and effectively follow up on its reports to the bureau and police, in particular using criteria that would highlight the most egregious cases. In relation to NABU, the appointment of independent and competent auditors is of paramount importance.
There is a need to increase efficiency of military spending by enhancing transparency through a narrower interpretation of “classified contract,” and a more systematic civil oversight. Greater efforts are needed in order to ensure that those companies that participate in the supply chain actually add value to the goods and services provided.
In relation to the recovery of assets stolen during the presidency of Viktor Yanukovych is as important to ensure fast, high-quality and impartial investigation as it is to make all information available to the public. On the one hand, accountability and access to information are at stake. Who looted what, when, how and what happened to these recovered assets are fundamental questions that require complete and transparent responses. On the other hand, the international network that facilitated the misappropriation of public funds for years needs to be publicly exposed (and held accountable) in order to be fully dismantled.
I have also been informed of the process of decentralization of competences and the ongoing process of ‘consolidation’ of municipalities and communities. Experience often indicates that there are benefits as well as challenges with respect to decentralization in the social sectors, and that its effective implementation depends extensively on the equilibrium between decentralization of competences and the correlative allocation of financial and human resources, as well as the oversight and monitoring required to make it work. In this context, I have received testimonies of the risks involved in ‘regionalizing’ patterns and practices of corruption, such as abuse of authority, embezzlement and tax evasion, which might go hand in hand with new responsibilities in areas such as education, health and pensions. Subnational and local governments are also bound by international human rights obligations.
In this context, I have also learnt about the ongoing structural reforms in relation to public procurement in a number of areas, with the creation of the electronic public procurement system Prozorro as well as specific procurement for the health system nation-wide. The right to health under international human rights law includes access to goods, such as medicines and medical equipment. In this area, a number of measures deserve mentioning, notably the passing of legislation that allows for payment based on patient counts directly to the hospitals and not to regional authorities. One specific intervention to address high level of corruption in the procurement for the health sector has been the establishment of an international group of partners –UNDP, UNICEF and the Crown Agency- temporarily in charge of procuring since 2015. To my knowledge this is an exceptional and transitional measure to ensure that access to medicines, vaccines and essential medical goods is guaranteed. This intervention has meant a saving of approximately 40 per cent of public funds, and ensured a more effective system of provision of medicines by national and international manufactures without intermediaries.
In my view, some government officials and international partners seem to share the perspective that in Ukraine, moving from an over-regulated economic system to a de-regulated one will undoubtedly foster economic development and firmly assist in the prevention of corruption. I disagree. One thing is to create a business climate that would encourage investment while reducing the incentives for corruption, addressing pervasive practices still in place and closing loopholes by minimizing the space for arbitrariness and impunity. Another thing is to do so without effective institutional safeguards and consideration for the human rights of people in the face of corporate and private actors. Comparative experiences show that private actors require effective regulation also, in particular to ensure human rights compliance. But this is achievable only with robust legislation and public institutions that prevent market abuses, ensure the rule of law and tackle economic and social (including prominently gender) inequality in order to promote sustainable growth.
Experience shows that there are high risks when the fundamentals of an economy and the development of a society are captured by a small elite whose sole interest is its own profit in detriment of the well-being of the population as a whole. This is as true of a small group of oligarchs benefiting from high-end corruption and state capture, and this can be equally true of a small group of private enterprises functioning without any regulation. Both systems, at the end, benefit a very small group of individuals at the expense of the majority of the population, effectively ignoring human rights obligations. In the long run both systems cannot be combatted without profound and robust mechanisms to ensure a balanced combination of safeguards, regulation and independent oversight. Other countries that have succeeded in these balancing challenges should share these experiences and make sure their recommendations to Ukraine reflect these lessons.
Regardless of the macroeconomic choices to be made, human rights should be at the centre. Economic inequality and the reduction of income of the poor segments of the population hamper domestic demand, sustainable development and growth.
A model that accumulatively imposes economic sacrifices on the shoulders of the most vulnerable groups is as unacceptable as one in which state agencies are captured by the private interests of a small elite or the population being plainly subject to corporations’ abuses without restriction. I strongly advice the Government to consider a balanced approach that guarantees the centrality of human rights protections from abuses and that,in the name of modernity, does not destroy advances made. Such a balanced approach would entail to move ahead with many needed reforms for sustainable growth, while ensuring a social safety net and regulation of national and international actors, guaranteeing the State’s obligation to respect, protect and fulfil human rights.
Information about the visit
At the invitation of the Government of Ukraine, the Independent Expert on foreign debt and other related international financial obligations of States on the full enjoyment of all human rights, particularly economic, social and cultural rights, visited Kyiv from 14 to 23 May 2018. He is grateful for the cooperation he has received from the Government and the Parliament.
During his visit, he met with authorities from various Departments in the Ministry of Foreign Affairs, the Ministry of Economic Development and Trade, the Ministry of Finance, the Ministry of Justice, the Ministry of Temporarily Occupied Territories and IDPs and the Ministry of Social Policy, as well as with the State Migration Service, the National Commission on Securities and Stock Market, the National Agency in Prevention of Corruption (NAPC), the National Anti-Corruption Bureau (NABU), the National Bank of Ukraine and the Permanent Representative Office of the President of Ukraine in the Autonomous Republic of Crimea. In Parliament, he met with representatives of the Committees focused on taxation and customs policy, on budgets and on social policy.
He also met with the and the Ukrainian Parliament Commissioner for Human Rights, the Business Ombudsman, the International Monetary Fund, the Delegation of the European Union to Ukraine, USAID and with various agencies and entities of the United Nations Country Team.
The Independent expert is most grateful for the engagement of civil society organisations, academics, researchers, activists and experts with whom he has met and discussed.
Finally, he thanks the Office of the High Commissioner for Human Rights and Human Rights Monitoring Mission in Ukraine for their support in planning, preparing and conducting this visit.
1/ UN General Assembly resolutions 71/205 of 19 December 2016 and 72/190 of 19 December 2017.
2/ UNOCHA, Humanitarian Snapshot, 7 May 2018; and Humanitarian Response Plan, December 2017.
3/ International Covenant on Economic, Social and Cultural Rights, article 2.1. Ratified by Ukraine 12 November 1973.
4/ A/HRC/28/64/Add.1 (2014) and A/HRC/29/34/Add.3 (2014).
8/ National Anti-Corruption Bureau of Ukraine, report July –December 2017, page 19.