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Posted on Sustainabilitank.info on June 13th, 2014
by Pincas Jawetz (pj@sustainabilitank.info)

Ukraine: four crises, one country.

    • The Ukraine Neighbourhood

      by Nicu Popescu –  senior analyst at the EU Institute for Security Studies in Paris, where he deals with the EU’s eastern neighbourhood and Russia.

    For most of the last two decades virtually every Ukrainian election or opinion poll has displayed two Ukraines – one Western-leaning and another looking to Moscow; one voting Timoshenko or Yushchenko and another pro Yanukovich; one against Putin and another in favour of him. Unsurprisingly, many feared that the ousting of Yanukovich, the Russian annexation of Crimea, and the infiltration of eastern Ukraine by Russian military intelligence would lead Ukraine to split in two or collapse altogether like a house of cards.

    Ukraine still faces four interconnected existential crises: economic, political, territorial and diplomatic (with Russia). It is also clear that even if the country manages to overcome these challenges, it will not be left unscathed. The past three months, however, have shown that Ukraine was not a powder keg waiting to explode, despite several matches having been thrown at it.

    The country’s resilience has proven stronger than many assumed (both in Russia and the rest of Europe) and while its blend of problems might be poisonous, they are not insurmountable. Petro Poroshenko’s unexpectedly smooth popular election – with support drawn evenly across Ukraine – represents a potential turning point in the spiral of overlapping crises that have characterised its recent past.

     

    One Ukraine, not two

    Both Sunday’s elections results and the localised nature of the armed insurgency in east suggest there is neither two Ukraines nor a distinct ‘southeastern’ Ukraine. Although electoral preferences in Ukraine may have differed in the past, there is overwhelming popular and elite support for maintaining Ukraine as one state in the majority of its regions.

    For all the worrying images of what looks like a descent into civil war, the armed insurgency is affecting just parts of two Ukrainian regions, or oblasts – Donetsk and Luhansk. The other regions of the ‘southeast’ – Dnipropetrovsk, Zaporizhia, Mykolaiv, Odessa, Kharkiv and Kherson – have more or less remained stable. None of these regions witnessed the overnight implosion of the state apparatus that occurred in Crimea or parts of Donetsk and Luhansk, although it is not impossible that further Russian inroads could destabilise the situation further.

    This relative stability is partly due to attempts by Ukrainian elites – in Kiev and in the east – to find a new post-Yanukovich modus vivendi. But the wider public also seems to be on a similar path: an opinion poll conducted last month by the Kyiv International Institute of Sociology revealed that over 70% of people in the south and east of the country no longer consider Yanukovich their legitimate president; 79% do not support secession from Kiev (and only 25% support federalisation); and 45% would be happy with decentralisation. Although in the regions of Donetsk and Luhansk there are greater levels of support for Yanukovich, the armed insurgency, and for joining Russia, even there such support hovers around 20%-30% (in the other regions it is under 10%). In short, there is no broad-based support for either armed separatists or a Russian intervention.

    Finally, the recent election results are indicative of a country that has significant regional variations but is, nonetheless, one country. Poroshenko, who was born in south Ukraine not far from Odessa, came first in the presidential race in every single region of Ukraine.

    Localizing the armed insurgency

    In response to the takeover of public buildings in parts of eastern Ukraine, the government deployed military and police units in an attempt to fight the armed challenge to state authority. The start of the operation was, however, a disaster. Local police and intelligence in the Donetsk and Luhansk area refused to obey orders or simply disbanded: in one instance, a group of soldiers surrendered several armed personnel carriers to a protesting crowd. In Mariupol, the army, not trained in the ways of managing large, mostly unarmed crowds in urban settings, opened fire on civilians. Now several weeks into the operation, several towns in the two regions remain outside governmental control.

    Yet in another sense, the operation has been a qualified success. Although its maximalist goal of quickly defeating the separatists was not achieved, its minimalist goal – containing the insurgency, preventing its geographic spread, and holding the 25 May presidential elections in most parts of Ukraine – has been achieved. Elections were properly organised and carried out in 22 out of 25 regions (people were denied the opportunity to vote in Donbas and Luhansk, as well as in annexed Crimea). Despite the intensified fighting and additional bloodshed since the elections, the chances that Kiev can prevent the contamination of other parts of Ukrainian territory look reasonable.

    A key player in containing and even rolling back the insurgency is one of Ukraine’s most prominent oligarchs and leader of the United Jewish Community of Ukraine: Igor Kolomoisky. Upon being appointed governor of the Dnipropetrovsk region in March, he quickly stabilised the situation by asserting control over the law enforcement agencies. Parts of the Donetsk region, unhappy with the descent into separatist chaos, are now seeking protection from the Kolomoisky-led Dnipropetrovsk administration. And when around 40 people died after clashes in Odessa between pro-Russian and pro-Ukrainian activists, a Kolomoisky protégé was quickly appointed local governor.

    Avoiding an economic crash

    Thanks to Western assistance, a total economic collapse seems to have been averted, and the self-styled ‘Kamikaze government’ led by Yatseniuk has already begun to undertake certain reforms. An all-out assault on vested interests is unlikely, but a lower-key war of attrition against some of the more corrupt elements of the state is underway.

    Partly thanks to strong IMF and Western conditionality, some progress is being made. A new, World Bank approved public procurement law was adopted in parliament (albeit on the second attempt and with a one vote majority). An anti-discrimination law, paving the way to EU visa liberalisation, has also been passed. The government has increased the cost of the hitherto subsidised energy prices, which should help redress some of Ukraine’s gas debt. Pavlo Sheremeta, the economy and trade minister (a graduate from Harvard Business School and former advisor to the Malaysian government), boldly aims to bring Ukraine closer to the top 10 countries with the best business environment – according to the Cost of Doing Business report, where Ukraine held the 145th place in 2013. Admittedly this is no small task, but setting ambitious goals is having the positive effect of focusing minds in Kiev.

    For a government that is three months old, and has spent most of its time managing an armed challenge to its statehood, localising separatism, organising presidential elections and taking steps to deal with the country’s economic mess, this is a decent start. Yet success is far from assured, since the remedy for one type of crisis often aggravates another. In this respect, the central question for Ukraine in the following months will be how to maintain internal unity while reforming the oligarchic economy that triggered the revolution in the first place.

     

    Disempowering the oligarchs?

    The system whereby oligarchs made their fortunes by looting the state through corrupt public procurement, various subsidies (including gas), and the privatisation of law enforcement agencies – which allowed the most powerful business sharks to take over assets of their competitors through administrative pressure, in what is called ‘reiderstvo’– had long undermined the Ukrainian state. Reform means conflict – with vested interests, a bloated public sector, and the subsidised sectors of the economy which are driving the whole country to bankruptcy. The system survived for so long precisely because it has so many stakeholders, with a handful of oligarchs being only the most visible beneficiaries.

    Though tackling corruption was supposed to be a key priority for the post-Yanukovich government, the focus on internal reform shifted to territorial defence following the armed intervention on its eastern borders. Confronted with an military conflict, Kiev took steps to co-opt (rather than squeeze) the oligarchs – not least because most of them have their power bases in eastern Ukraine – and to offer them a stake in the new political system as a way of maintaining the country’s unity. Declaring war on the oligarchs could have led to even greater destabilisation of eastern Ukraine. Igor Kolomoisky was appointed as governor of Dnipropetrovsk, and Serhiy Taruta as governor of Donetsk, while other oligarchs such as Dmitri Firtash, or regional ‘barons’ like Genady Kernes in Kharkiv, positioned themselves as relatively constructive players in order to retain as much (and as many) of their fiefdoms as possible. Petro Poroshenko, the new president of Ukraine, is one of the country’s richest individuals and has served in various governments under both presidents Yushchenko and Yanukovich.

    Co-opting the oligarchs has yielded success in the short term, helping to confine the armed insurgency in the east to just two regions. Yet this short-term success could turn into a mid-term failure if the oligarchic system remains the same. Since the government is not in a position to launch an all-out Saakashvili-style assault on corruption and vested interests, the best-case scenario would be to embark on a series of ‘salami’ reforms conducted by technocrats in the government with as much external support as possible and strong conditionality from international donors in order to strengthen the hand of the reformists. While such a piecemeal approach could be an arduous task and could easily fail, it appears to be the only real possibility given the current environment.

     

    Federation or separation?

    Ukraine’s territorial crisis will not be resolved soon. Short of a Chechnya-style, large-scale military assault on urban areas – which would risk the mass indiscriminate killing of civilians – Ukraine is not in a position to defeat the armed insurgents as long as they receive (tacit) Russian support.

    For the time being, two possible models of a ‘non-solution’ have been floated. One is labelled ‘Finlandisation’, i.e. the creation of a neutral state which – as the theory goes – would offer credible guarantees that NATO will not grant membership to Ukraine and thus assuage Russia. The other is labelled ‘Bosnia-isation’, i.e. the creation of a federalised entity with large veto powers for its constituent regions. The two models do not appear incompatible, and could even be combined.

    On paper, both options have their merits. Finland has done well since the end of the Second World War, is prosperous and secure and joined the EU in 1995. For its part, while Bosnia might appear a rather dysfunctional federation but its constituent parts have at least prevented further bloodshed. Unfortunately, neither option is likely for Ukraine.

    Should Ukraine become either neutral or federal – or both – it would end up nothing like either Bosnia or Finland. Bosnia might be still divided internally, but it sits in the middle of the single most benign international environment on earth. Finland’s neutrality throughout the Cold War was agreed upon and respected: none of these two conditions are likely in Ukraine. It suffices to look at Moldova, which adopted neutrality in 1994 in the hope that this would persuade Russia to cease their support for secessionist Transnistria. Not only this has not happened, but Moldova has been under constant and growing Russian pressure not to move closer to the EU. Even Ukraine under President Yanukovich – who gave up trying to move closer to NATO – was placed under constant pressure not to sign the Association Agreement with the EU. Similarly, a neutral Ukraine would be unlikely to bring about a new era of Russian-Ukrainian-Western cooperation, for now Russia perceives it to be in direct competition with not just NATO but also the EU.

    Another scenario, almost by default, would be the transformation of the Donetsk and Luhansk regions into a bigger ‘Transnistria’ – a secessionist territory that is not recognised by anyone, but which creates de facto state structures with Russian support. Moscow’s logic would be that, at a later stage, this could be used as a bargaining chip with the government in Kiev to push for federalisation and/or neutrality.

    These tactics has been employed several times before – in Abkhazia, South Ossetia, and Transnistria itself – but without much success for Russia. The presence of these frozen conflicts made Georgian and Moldovan moves away from Russia more, rather than less, likely. Both countries have now learned to live without their former regions and are on the verge of signing Association Agreements with the EU despite Russian threats and at the risk of complicating relations with their secessionist regions further. While Georgia and Moldova might lag far behind the EU in political and economic terms, they nevertheless have score reasonably well for resource-poor countries manoeuvring in a very difficult geopolitical environment.

    There is already a growing sentiment among Kiev elites that, if it comes to it, losing the Donbass would not be catastrophic and might actually lead to a more cohesive and reform-oriented Ukraine. Against all odds, Ukraine is managing to survive as a country: it now needs to build a state.

    EUISS Brief, May 2014

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