Ukraine Market Report — Q4 2020
A constitutional court decision in October struck down parts of the asset declaration system, producing a dispute over institutional authority that took months to resolve and cost the country programme financing.
Overview
In October the constitutional court struck down provisions of the electronic asset declaration system for public officials, one of the more effective anti-corruption measures of the post-2014 period.
The decision produced a dispute over the authority of the court itself, and legislation restoring the system in modified form followed over the subsequent months.
The commercial consequence
External programme financing was interrupted while the matter was unresolved, because the declaration system was a programme condition.
That is the direct cost. The indirect cost was larger and is the one worth recording.
The episode demonstrated that a reform embedded in ordinary legislation can be removed by a constitutional decision, and that Ukraine's institutional framework contained an unresolved question about which body has the final word.
For an investor, the relevant conclusion is about durability rather than about this specific measure. A legal framework you are relying on has a reversal mechanism, and knowing what that mechanism is — legislative, judicial or constitutional — tells you how securely the framework is fixed.
In Ukraine's case the answer through this period was: most reforms sit in ordinary legislation, some are protected by international agreement, and the constitutional layer is itself contested.
Macro position
The year closed with output down for the year on the pandemic contraction. Inflation rising toward the end of the year on global commodity and energy prices. Currency stable. Reserves adequate.
Sectors
Agriculture — a normal year.
IT services — grew through the pandemic year.
Retail and hospitality — the year's losses.
Metals — recovering with global prices.
What the quarter settled
That the anti-corruption architecture built after 2014 was not yet constitutionally secure, and that this was a live risk rather than a theoretical one.
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