Ambassador Herbst Remarks
Partnership for a Transparent Society National Conference
"How to Promote Transparency in Small and Medium Business Regulation"
October 17-18, Kyiv

Good morning. I am pleased to be speaking before such a distinguished and diverse audience on one of the most important issues facing Ukraine today.

The 2003 Transparency International index, which measures the extent of corruption in many of the world's countries, was released just last week. This index shows that Ukraine ranks very high in the degree of corruption as perceived by citizens, business people, and academics. Ukraine is ranked 111th out of 133 countries, with the country occupying the 133rd position in this survey considered the most corrupt. What is of even greater concern is that Ukraine's position actually worsened over the past year. Last year, Ukraine ranked 86th on the index. Corruption in Ukraine is increasing relative to other countries measured in the index, including most of the other countries of the former Soviet Union.

As you all know, corruption undermines democratic institutions and the rule of law, and it inhibits economic growth and threatens personal freedoms. It is a situation which should be of great concern to the Government of Ukraine and to the citizens of Ukraine since it could also serve to impede Ukraine's plans to join Western economic and security institutions.

At least two "ingredients" must be present if corruption is to be fought successfully. These include: 1) the presence of the political will to confront and fight corruption; 2) the inclusion of all sectors of society in this battle, with an open dialogue between the government and civil society forming the basis of this cooperation.

Non-governmental organizations have a key role in this battle. For instance, they can take the lead in conducting public awareness campaigns, organizing public hearings, advocating policies with the government and building public-private partnerships to reduce corruption. I think that this event is an excellent example of what needs to be done to focus attention on this issue.

Under The Partnership for a Transparent Society, a program financed by USAID, non-governmental organizations have been able to build coalitions in 10 communities throughout Ukraine. These coalitions, working with local authorities where possible, are demonstrating that issues of transparency and accountability can be openly addressed, discussed and solved in their communities. I believe that this program should serve as a model for other communities in the country.

One of the main themes of this conference is the impact of corruption, and lack of transparency, on small and medium-sized businesses. This sector can become a major source of jobs and income for the economy. In Central and Eastern Europe, for example, nearly 70 percent of GDP comes from small and medium businesses, but in Ukraine that number is just 10 percent. Clearly, small and medium enterprise development has a long way to go in Ukraine despite substantial improvements in recent years.

Small and medium enterprises are particularly vulnerable to corruption. World Bank surveys illustrate the difficulties in operating small businesses because of a selective and arbitrary regulatory environment and the corruption which results from this environment.

I hope that this conference will assist you as concerned players in promoting transparent and accountable relations in all sectors of the Ukrainian society. I hope it will assist you in establishing a dialogue between the public and private sectors in addressing the serious constraints facing small and medium sized businesses in Ukraine as they try to increase their contributions to Ukraine's economic health. I also hope that non-governmental organizations will play an important role, in conjunction with other sectors of the Ukrainian society, in fighting this problem by establishing strong networks and alliances on the issue. The U.S. Government will continue to support you in this effort.

Thank you very much.