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Ukraine Turns Away From Democracy and the EU 10-2010

Ukraine Turns Away From Democracy and the EU 10-2010

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Published by: Daniel Temoteo Martins Coelho on Oct 30, 2010
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Centre for European ReformT: 00 44 20 7233 119914 Great College StreetF: 00 44 20 7233 1117London SW1P 3RX UKinfo@cer.org.uk / www.cer.org.uk
Ukraine turns awayfrom democracy and the EU
By Tomas Valasek
In February 2010, Ukrainians elected ViktorYanukovich as the country’s new president. In his firstmonth in office, Yanukovich declared that his countryno longer wanted to join NATO. Then, in April, hesigned a deal with Moscow to allow Russia’s Black SeaFleet to stay in the Crimean port of Sevastopol until2042. The president’s first steps alarmed those whowish to see Ukraine move closer to the EU. They seemedto suggest that Kyiv was returning to Moscow’s sphereof influence, or at least acquiescing in Russia’s attemptsto draw it in. Ukraine is very important to the EU’seastern policy; with a population of 46 million it is thesecond-largest country in Eastern Europe. Is it nowbecoming a Russian satellite?This policy brief argues that the new government inKyiv is less beholden to Russia than its early decisionsindicate. While Ukraine will be friendly to Moscow, itwill also struggle with the Kremlin over control of keyindustries in Ukraine. Kyiv’s co-operation with the EUwill stagnate but for reasons that have little to do withRussia: key EU capitals have lost appetite for furtherEU enlargement while European integration is not apriority for Yanukovich.The president is far more focused on reviving Ukraine’seconomy and consolidating power. His early steps alsosuggest that he may be building a one-party state. This,rather than Ukraine’s Russia policy, should be the focusof EU capitals and institutions. They should use theirinfluence to preserve democracy in Ukraine whilesupporting Yanukovich’s economic reforms.
Deficits, disagreements and dysfunction
Viktor Yanukovich has sound reasons to focus ondomestic challenges rather than international ones. Hehas inherited a country with deep-seated problems.Ukraine’s economy remains highly dependent onexports of steel. In 2009, the country’s GDP shrank by15 per cent, chiefly because steel prices collapsed. Thegovernment came close to defaulting, partly because of the economic contraction but also because of thecountry’s ruinous gas subsidies. Ukraine’s gasmonopoly, Naftogaz, buys from Russia at close toWest European average prices but, until recently,resold to companies and households at a heavydiscount. The government, in turn, spends nearly 2 percent of GDP annually subsidising Naftogaz.
Many in Europe worry that the new government in Kyiv is taking Ukraine into Russia’s orbit.Others fear that the president, Viktor Yanukovich, will play Russia off against the West. Bothgroups miss the main change in Ukraine: the country is turning inwards and becoming increasinglyauthoritarian.
The president has taken steps to muzzle independent media, harass critics and sideline theopposition, ostensibly to improve governance. The EU should discourage Yanukovich frombuilding a one-party system, while supporting the economic and energy reforms he launched in thesummer of 2010.
Ukraine’s progress towards EU membership will continue to be very slow. Yanukovich is focusedon consolidating domestic power and rebuilding the economy. His diplomacy will be focused onshort-term objectives that are inconsistent and often contradictory.
Former President Viktor Yushchenko and former PrimeMinister Yulia Tymoshenko made things worse bypublicly disagreeing on how to respond to the globaleconomic crisis; feuding between them prevented thegovernment from agreeing a budget in 2009. Thisunnerved investors and prompted the InternationalMonetary Fund (IMF) to suspend lending. Despite theslump in economic activity and tax revenue, Ukraineincreased social benefits in 2009. The combination of lower receipts and higher outlays nearly broke thetreasury. Budget deficit ballooned to nearly 9 per cent of GDP in 2009, and Ukraine only met its debt obligationsthanks to the $11 billion of loans disbursed by the IMFbefore it suspended aid later in the year.The country’s domestic woes extend beyond theeconomy. The judiciary is weak and discredited.Ukraine’s highest court, the constitutional court, hasbeen known to reverse its judgements depending onthe direction of the political winds; some of its judgeshave in the past resigned rather than take a stance ona controversial issue. The 2004 constitution is amuddle; it fails to divide clearly the powers of theprime minister and the president. When they disagree,chaos can easily ensue.Petty corruption at the lower echelons of governmentirritates ordinary Ukrainians. The administrationexcels at creating arbitrary administrative problemswhich magically disappear once cash changes hands.Ukrainians steer clear of state authorities, including thetax office: Yanukovich’s economic czar, IrynaAkimova, estimates the size of theinformal economy at 50 per centof Ukraine’s GDP.
Top-levelcorruption and red tape deterforeign investors. Ukraine haspromising gas reserves under the Black Sea and underland (in shale, a type of organic rock) but foreign oilexecutives think the government too corrupt andunpredictable to invest in their exploration. Thecountry has recently failed the ‘IKEA test’: thefurniture company, famous for its willingness to investin newly emerging and risky markets, has stoppedbuilding new shops in Ukraine and sold its localfactories. Officially, IKEA says this is because thedownturn made economicprospects too bleak. ButUkrainian observers say that thecompany found the businessenvironment too unfriendly.
Ukrainians have come to abhor this mess, and theyhave elected Viktor Yanukovich to sort it out. While heis partly responsible for the state of affairs – he twiceserved as prime minister in the 2000s, and asopposition leader he proposed the disastrouslegislation in 2009 that increased social benefits –Yanukovich won the presidential election by promisingvoters to pay more attention to the daily business of running the government than Yushchenko did. He hasalso vowed to spend less time on lofty and seeminglyunattainable goals like EU membership, which hasresonated with the population.
The spring clean-up
In keeping with his electoral promise, Yanukovichdevoted the early months of his administration almostentirely to domestic policy. He browbeat law-makersinto ousting the prime minister, Yulia Tymoshenko,and replacing her with Mykola Azarov, one of hislongstanding allies. For the first time since the headydays of the Orange Revolution, Ukraine has apresident and prime minister of the same party andsimilar political philosophy, and the governmentenjoys a large majority in the parliament.Yanukovich moved quickly to reform the economy.The government increased taxes on gasoline, tobaccoand alcohol. It has raised the retirement age forwomen (male life expectancy is only a little higherthan the official retirement age) and promised furthergradual increases. Yanukovich has even trodden wherethe previous ‘Orange’ government never dared to: ithiked gas prices in order to reduce the country’sbudget deficit. Yulia Tymoshenko promised the EU todo so in 2009 but did not, fearingvoter backlash. In July 2010, theRada (parliament) also passed alaw that would gradually breakup Naftogaz, which the EU hadbeen urging Ukraine to do. Eventhough the break-up remains inthe planning stage, the EU hasaccepted Ukraine into its ‘energycommunity’.
There have been missteps: the proposal for a new taxcode won so little support in parliament that thegovernment had to rewrite it. Yanukovich postponedmany of the most difficult reforms, such as theintroduction of a new pension system and measures toslim down the government, until 2011. There is a riskthat they may never come to pass: Ukraine holdsregional elections in late October 2010 and if votersreject the austerity measures implemented so far,Yanukovich may rethink future ones. But to date,though much remains to be done, the president hasdelivered important economic reforms that Ukrainebadly needs. And the Ukrainians seem inclined to accepthis bitter medicine: the new president’s support hasstrengthened since the election whereas the popularity of the previous leadership continues to plunge.
1Svitlana Tuchynska,‘Akimova: ‘We’re seriousabout reform’’, Kyiv Post, June 16
2010.2Yuliya Popova, ‘Theadventures of IKEA inRussia’, Kyiv Post, May28
2010.3The EU set up theenergy community in orderto encourage countries of South-East Europe tobuild a unified energymarket. Countries that want to join need to aligntheir energy laws withthose of the EU and  pledge to uphold securityof supply.
However, in other important respects, Yanukovich hasdisappointed: in his first few months in power, thenew president has shown a worrying authoritarianstreak, which has alarmed many of his liberal-mindedcompatriots. He has begun suppressing alternativeviews: journalists at TV stations in Ukraine complainthat stories critical of the government are beingwithdrawn. Two outspoken TV stations have had theirallocated frequencies revoked on a technicality.Yanukovich’s Party of Regions forced key legislation –such as the 2010 budget or the deal extending theRussian fleet’s lease – through the parliament withoutallowing for a debate. The country’s secret police hasharassed foreign foundations (which it suspects of supporting the opposition) and universities (becausemost students do support the opposition). Theauthorities have opened criminal proceedings againstseven senior figures from the previous administrationincluding Yulia Tymoshenko. Yanukovich is right tosuspect corruption in the highest circles of government– but corrupt figures close to the president appear toenjoy protection. The president seems to be using theanti-corruption drive as cover for a political witch hunt.Even more worryingly, in July 2010 the parliamentpassed a new law on local elections, which effectivelyprevents Bloc Yulia Tymoshenko (BYuT), Ukraine’slargest opposition entity, from fielding candidatesunder the BYuT label. And in October 2010 theConstitutional Court, which Yanukovich has stackedwith allies since coming to power, ruled to changeUkraine’s constitution towards a presidential-stylesystem; this means that the current president and hissuccessors, rather than the Rada, will have sole right toappoint the government in the future. Yanukovichargues that the change is needed to bring politicalstability to Ukraine. But sceptics rightly point out thatthe concentration of power in the president’s office,along with the disenfranchisement of BYuT, attacks onindependent media, universities and Tymoshenko andher associates, look suspiciously like a concertedcampaign to turn Ukraine into a one-party state.Ukraine’s polarised nature – with many oligarchs andpolitical parties competing for power – used to serve asa barrier to authoritarianism: no single clique hadenough influence to usurp power. That is now changing.Virtually all major Ukrainian oligarchs have lined upbehind Viktor Yanukovich. And their influence onpolitics is as strong as ever: one person, ValeriyKhoroshkovsky, chairs the country’s spy service, ownsone of the largest media groups and sits on the councilthat nominates judges to Ukraine’s courts. The presidentfaces no substantive opposition, formal or informal.He also seems determined to make sure that it remainsthat way. People familiar with Yanukovich’s thinkingsay that he talks about “power” fondly and frequently.Other senior government officials such as ForeignMinister Kostyantyn Gryshchenko speak admiringly of “China’s ability to think and actstrategically”.
The overallimpression is that the Kyivgovernment seems to equate‘order’, of which, it rightly believes, Ukraine needsmore, with ‘power’, in its political, total and almostSoviet sense. While Yanukovich says he believes indemocracy, the president’s understanding of it “isshallow and commitment to itquestionable”, James Sherr of theLondon-based Chatham Houseobserves.
Foreign policy as an afterthought
Foreign policy has been a second-order priority toYanukovich in his first half year in power. TheUkrainians in general, including the elites, spend littletime contemplating their country’s place in the world. Asone country expert, Anders Aslund, notes, Ukrainianseven have a saying – “moia khata z kraju” (“my cottageis to the side”) – meaning they prefer to stay out of world affairs.
Those few whothink about foreign policy disagreeon what it should be. Ukrainiansfrom the Russophone east andsouth, like Yanukovich, generallywant to stay on good terms withRussia, while those from the west of the country prefera close relationship with the West.This makes it difficult for Ukrainian leaders to buildbroad support for anything but the most minimalistforeign policy. Most governments since independencehave had limited diplomatic ambitions. With a fewexceptions, they focused on getting along withneighbours and opening new markets for Ukrainiansteel or cereals. Yanukovich’s predecessor, VictorYushchenko, went against the grain when he called forUkraine to join NATO and sided with Georgia in itswar against Russia in 2008. The east of the countrydisagreed strongly, and even those in the centre andwest, who are not particularly pro-Russian, feltuncomfortable with the abrasiveness of Yushchenko’sRussia policy.Yanukovich capitalised on this anxiety: his decision toabandon the pursuit of NATO accession and to cosyup to Russia was popular. But he is not bidding to turnUkraine into a satellite of Russia – he is seeking torestore Ukraine’s long-standing policy of quasi-neutrality. There is no doubt that he has a specialrelationship with Russia: Yanukovich is a nativeRussian speaker and, like Vladimir Putin, theUkrainian president seems to recall fondly the
4Presentation at ChathamHouse, London,September 6
2010.5 James Sherr, ‘Themortgaging of Ukraine’sindependence’, ChathamHouse, August 2010.6Anders Aslund, ‘HowUkraine became a market economy and democracy’,Petersen Institute forInternational Economics,February 2009.

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