Ukraine Is Too Corrupt for (Shaky) Debt Deal to Work

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The IMF's growth forecast is probably overoptimistic. The fund expects the economy to shrink by 5.5 percent this year and then start growing, hitting a 4 percent plateau in 2018. The Bloomberg consensus forecast of bank economists puts this year's expected decline at 8.7 percent. Actual data for the first two quarters suggest even that may be hopeful. On a non-seasonally-adjusted basis, GDP was down 14.7 percent year-on-year in the second quarter of 2015. Hardly any business is growing in Ukraine. In July, industrial production was down 13.4 percent year-on-year. Exports in January through June reached just $18.5 billion, compared with $28.62 billion in the same period of 2014.

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The Ukrainian government is making a visible effort to combat graft -- many official agencies have switched to transparent electronic procurement systems, and the newly formed National Anti-Corruption Bureau promises to send its first cases to court by the end of this year. Even so, businesses still complain of bureaucrats' depredations, the national prosecutor's office is locked up in a struggle between reformers and veterans used to the old ways, and the country's notorious judicial system remains unreformed. Changes to the tax code are in the works, but these are insufficient to induce businesses to start paying payroll taxes instead of offering employees unofficial cash salaries.