How Ukraine's Elites Are Holding the Line
Three years after Ukrainians began to protest former President Viktor Yanukovych's refusal to sign an association agreement with the European Union -- protests that led to Yanukovych's overthrow in February 2014 -- Ukraine is still the battleground of a semi-declared war between Russia and the West. As such, it's doing a little too well both for Russian President Vladimir Putin and for his Western opponents -- and just well enough for its own people that they don't rebel again.
"Under normal conditions -- i.e. an absence of war -- Ukraine could probably survive as an independent state by 'muddling through,' as it has done for most of its short, post-Soviet life," Chatham House, the respected London-based international affairs think tank, writes in its latest Ukraine report. "Now, though, it will need greater political, patriotic and military resolve to stand even a chance."
The Ukrainian government, however, shows signs of lapsing into a "muddling-through" mode. The pension reform required by the International Monetary Fund to stabilize public finances has been watered down with 1,000 legislative amendments. President Petro Poroshenko and his cabinet are not pushing hard on another key element of Western aid conditionality, the introduction of a free market in land, because the immediate benefits are uncertain. The Russian market for Ukrainian agricultural goods is all but closed, the quotas for exports to the EU are tiny, and the owners of Ukrainian agricultural businesses fear that, once land can be bought and sold, foreign competitors with deep pockets will eat them alive. Privatization efforts have largely failed because of a lack of investor interest ("Corruption and war are not incentives to invest," the Chatham House report notes drily.)
The fight on corruption has always been a token enterprise. Ukraine set up an anti-corruption investigations agency and a prosecutor's office to match, but Poroshenko has resisted fleshing out this system with a special court, arguing that few European countries have such an institution.
Meanwhile, the Ukrainian political elite is strikingly unpopular. Poroshenko is still the most popular choice for president, but according to the latest poll by the Razumkov Center for Political and Economic Research, only 9.3 percent of Ukrainians would vote for him now. Just 9.6 percent would vote for Poroshenko's party, now the biggest in parliament. That's understandable: According to the World Bank's October report on Ukraine, poverty is still higher than it was before the 2014 revolution. Ukraine traditionally runs extremely long election campaigns, and it's time for Poroshenko to prepare for the 2019 election. Both he and the parliamentary parties have strong incentives to use the fruits of macroeconomic stabilization and tax reform to boost social spending. That's already happening: The World Bank expects the public deficit to exceed its 3 percent target this year after hitting 2.2 percent in 2016.
As the Chatham House report notes, "The better Ukraine does economically, the less policy leverage the West has over it." Last month, Ukraine successfully placed a $3 billion eurobond. It can afford delayed assistance tranches from the European Union and a lapsed IMF disbursement.
The analysts who wrote the Chatham House report see quite clearly why the current establishment isn't interested in further radical change. "Despite two popular uprisings with revolutionary potential, Ukraine's baleful culture of power has managed to adapt and reformat itself," the report says. "So long as this culture exists, so will opaque, non-market relations and a semi-criminalized economy." But they appear to underestimate Poroshenko, who, the report says, "is a weak monarch in a neo-feudal and oligarchic system."
Poroshenko and his team have hit a point where neither the Western donors nor Putin can apply much pain without overreaching themselves. Last week, a group of opposition parties and civil society movements -- including some of the organizers of the original 2013 protests -- tried to stage a major rally in the government quarter in Kiev to demand "a big political reform" including tougher action on corruption. The protest, however, wasn't well-attended. Unlike in 2013, Ukrainians are not ready to rise up for pro-Western or, much less, for pro-Russian causes.
The progress Ukraine has made by defusing the immediacy of financial trouble lock Russia and the West into a prolonged stand-off. Putin would like Ukraine to turn into an ungovernable mess so that his allies, now forced to the periphery of the political process, could come in and stabilize it -- but that scenario is looking less and less likely. Western donors would like Ukraine to build institutions, open up to investment and become unequivocally part of the Western order, but that contradicts Poroshenko's interest in consolidating power. That leaves both Putin and the U.S.-led supporters of the 2014 revolution essentially playing a waiting game and trying to give the Ukrainian pendulum a push here and there.
There are thus incentives for both sides waging the proxy war there to make rash moves. "The unpalatable truth, unspoken by Western politicians of course, is that only more Russian deaths on the Ukrainian battle field, combined with a greater economic squeeze through increased sanctions, will pressure Russia sufficiently to change its policy and release its grip," the Chatham House report says. But stepping up military pressure on Russia -- for example, by sending lethal weapons to the Ukrainian military or actively encouraging Poroshenko to squeeze the pro-Russian forces -- would inevitably push Russia to recognize the statelets it already supports in eastern Ukraine, as it once did with Abkhazia and South Ossetia, and officially send troops there.
Chatham House stops short of recommending military escalation. Instead, it calls for strengthening economic sanctions against Russia even if that causes some pain in the West itself -- and for digging in for the long haul: "The imperative is to win time and make it possible for reforms to go deeper, and for a new political generation to mature and come to power."
That's a hopeful recommendation that denies Poroshenko and the interests he represents an independent role. The Ukrainian elite, however, has been extremely wily and resilient throughout the nation's independence period. It has done far better than the country itself. "Winning time" means giving this elite more time to re-entrench itself and to co-opt "the new political generation." After all, muddling through is an essential skill in running a front-line nation.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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Therese Raphael at email@example.com