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Ukraine Under Yanukovich.

Posted by democratist on May 14, 2011

May 14th 2011,

Over recent weeks, Democratist’s attention has started to shift towards Ukraine. Here are some of our initial thoughts on the current domestic situation;

The two key trends that have dominated Ukrainian politics in the period since Viktor Yanukovich became president last February have been a marked expansion of authoritarianism, and an increase in high-level corruption. As Anders Aslund recently commented in the Kiev Post, reforms introduced as part of a $15 billion IMF loan arrangement have not boosted Ukraine’s competitiveness or market freedom, but have instead benefitted a few businessmen close to the President. Officially the economy appears to be bouncing back from the global financial crisis, with growth projected at 4.5% this year and 6.5% for 2012, but this does not yet appear to be filtering down to the popular level. While the opposition leadership remains weak and unpopular (a result of Orange-era bickering and stagnation), social tension and resentment of the government is increasing, and a number of protests are planned in Kiev over the coming days.

Last year saw a return to the 1996 constitution, which has in turn meant a far greater concentration of power in the Presidency than had been the case under the constitution agreed in 2004 (and followed by former President Yushenko). The Rada has become a compromised and unpopular rubber stamp, with parliamentarians regularly and illegally voting for others who have not bothered to turn up to work, or passing laws at the first reading – sometimes apparently without knowing what they contain. Some MPs switched sides shortly after Yanukovich came to power (perhaps as a result of financial or other inducements) and are therefore very unlikely to be re-elected. There were also a number of credible allegations of electoral fraud in relation to last October’s local elections from the respected non-partisan OPORA NGO, and Freedom House downgraded Ukraine from “Free” to “Partly Free” in its annual Freedom in the World Index for 2011. It currently seems unlikely that Parliamentary elections set for next September will pass smoothly, considering the increasing unpopularity of the current government, even in its Eastern strongholds.

The media (TV and most papers) are owned by oligarchs with close connections to the President, and have very quickly fallen into self-censorship. The IMI Press Freedom NGO reported a drastic decline of freedom of expression in Ukraine last year. Only a couple of smaller independent titles remain, such as Dzerkalo Tyzhnya and Ukrainska Pravda (both owned by the journalists who write for them). Pressure has also been applied to the English-language press, including the Kiev Post, although both the Post and Ukrainian Week magazine are still independent, and both critical of the government.

The judiciary has also become a tool of the regime; the high court and prosecutors office have come under Presidential control, and last year saw a number of selective and politicised criminal cases launched against at least eight Tymoshenko allies, including former interior Minister Yuriy Lutsenko (arrested on 26th December, and still in jail). Meanwhile only one, very junior cabinet minister from the current government, plus a couple of PoR officials, have been charged with corruption. The SBU (Security Service) was reported to have been attempting to place pressure on Ukrainian Catholic University rector Borys Gudziak in May 2010. It’s role since that time remains unclear.

In terms of corruption, while independent Ukraine has always been corrupt (part of the Soviet inheritance) quite a few of the current ministers appear to be trying to steal as much as possible, in as short a time as possible – and regardless of the damage they might be inflicting on the wider economy, to Ukraine’s international reputation, or even whether they are discovered (indicative of how tightly the media and judiciary are controlled by the government, and of a lack of desire to control this problem at the highest level). Ukraine has been slammed on this count by both Transparency International and the World bank.  A well placed source has suggested to Democratist that up to 30% of the state budget is siphoned off by various scams.

Perhaps the most instructive case in this regard relates to the grain export quotas that were set after an apparently disastrous harvest last summer (in fact only 13% down on 2009). In August 2010, Deputy PM Andrei Klyuev announced that state control of the grain market needed to be strengthened and a previously unknown company called Khilb Investbud was appointed as the state trading agent in the grain market with exclusive rights to effect all operations connected with grain on behalf of the state. Then in October the government decided to introduce grain export quotas, and who should get a big chunk of the much-prized licenses required in order to export Ukrainian grain, other than the very same Khlib Investbud. It later transpired that, while 49% of Khlib Investbud belonged to the Ukrainian state, the other 51% belongs to a company called Kolossar. Kolossar is partly owned by a man called Mykola Prysazhniuk, who just happens to be…the Minister of Agriculture (and an old friend of President Yanukovich). The other major owner of Kolossar is Russian bank Vneshekonombank. No action has been taken against  Prysazhniuk, and there are no plans to withdraw the quota system, despite the fact that Ukraine is a member of the WTO, and grain quotas restrict an important source of export earnings and tax revenue.

A similar degree of murk surrounds the privatization of the national telecommunications company UkrTelecom which, after having large sums of public money invested into it over the past decade, was sold for a minimal $1.3 billion in an auction in which only one firm, a mysterious Austrian private equity firm called EPIC, was permitted to bid, thereby excluding competitors including Deutsche Telekom. UkrTelekom is currently the only company to have a 3G license, and looks set to have a monopoly on 4G services as well.

A similar story is apparent from the introduction of a series of new tax laws passed by the Rada. These seem to have been specifically designed to favour large corporations at the expense of Small and Medium sized Enterprises (SMEs), and allow greater scope for corruption: Tax inspectors are now allowed to raid businesses as often as they want (previously this was a maximum of once per year), and they are able to seize property for up to 96 hours without a court order. One result of this is that FDI into Ukraine (once money reentering the country from Cyprus is discounted) remains negligible. More significantly, there’s a growing sense of anger among SMEs that may well soon spill over into protest.

In terms of the broader  economy, it currently looks unlikely that Ukraine will convince the IMF to part with the two remaining $1.6 billion loan tranches to be decided in July because of  lack of action on pension reform, VAT and gas prices. However, cash from the UkrTelecom sale was received by the treasury in April, and along with an unexpectedly strong trade balance, and the planned privatization of 700 state-owned companies over the coming year (due to bring in about $1.2 billion), fears that Ukraine will default on its $42.1 billion of short-term public debt due for repayment, refinancing or restructuring in over the summer have waned slightly, although they remain considerable.

Nonetheless, Ukraine is now suffering from a number of serious economic problems including soaring prices (especially food and fuel), a weak credit market, wage arrears and  unemployment. As a result, according to an article in 12th May Russian Nezavisimaya Gazeta, in a recent survey some 45% of respondents said that they might be willing to participate in antigovernment protests. While we feel that this figure may be exaggerated, a number of protests are planned in the coming days in Kiev, and the level of participation in these will give a better indication of the level of popular anger.

Posted in CIS Media, Democratization, Freedom of the Press, Ukraine, Ukrainian Corruption, Ukrainian Politics | 3 Comments »

Napolitano, Wikileaks, and the Absolute Necessity of a Free Press

Posted by democratist on February 17, 2011

17th February 2011,

Back in December we wrote that we did not agree with Wikileaks’ release of several hundred thousand classified State Department cables, on the basis that discretion is, and should remain an important element of diplomacy (but we also acknowledged that there seemed little point ignoring these cables once published).

Our initial position was based on practicality rather than principle, and we did not pay much attention to the legal implications of the case at the time, on the basis that the main focus of this blog is on the politics and international relations of Russia and the CIS, rather than Wikileaks or the US.  

In retrospect, this was a mistake: we were disturbed by calls from the more rabid sections of the American right for Wikileaks’ founder Julian Assange to be brought to trial as a “terrorist” (and presumably executed if found “guilty”), but until today did not feel we had the required legal expertise, to comment usefully on the matter.

In this regard, we have been delighted to discover this extraordinarily clear and powerful defence of Assange, Wikileaks and the fundamental necessity of freedom of the press as an essential bulwark of a free society, thanks to a rather unexpected source; Judge Andrew Napolitano of Fox News.

Napolitano’s main points are that the actions of Mr. Assange (and Wikileaks) in releasing the secret documents are absolutely protected by the first amendment to the United States constitution, and that there is a legal precedent in the form of the release of the “Pentagon Papers” by the New York Times in 1971 for the Wikileaks case. Napolitano states;

“In 1971 the NYT obtained a stolen copy of classified defence department documents; a study on US political involvement in Vietnam (the “Pentagon Papers”). When the Times published the report, the federal government wanted to censor the newspaper, and prevent it from printing more of the classified documents. The government, and president Nixon argued that the Espionage Act of 1917 trumped the first amendment, and gave the government the right and the power to censure the newspaper. Fortunately, the supreme court disagreed, and ruled six to three that the first amendment trumps the Espionage Act, and that a free press was absolutely necessary, and was the check on the government.  And so the court ruled, that wherever members of the media come upon government documents of public interest, no matter how secret, no matter how they got them, there can be no liability, civil or criminal, for publishing them. The attacks on Assange are another example of the government trying to quash dissenters. Mr. Assange did not steal these cables, he merely published them; it’s the government’s responsibility to keep their own secrets, and not that of a free, unbiased press. If we allow the governments of the world to label Assange a terrorist, and allow them to shut down Wikileaks, it will be one giant leap towards tyranny.”

Democratist (who is no lawyer) thinks Napolitano makes a strong and logical argument. From our own perspective the most important of the points he makes are on the absolute necessity of a free press as a check on government, and that it is the responsibility of government, and not the press to keep their own secrets. It seems to us that this is a central principle to protect political freedom in the face of oppression, and one which the United States must respect is it wishes to be taken seriously as an exponent of democratic governance.

Posted in Freedom of the Press, wikileaks | 4 Comments »

Springtime for Dima?

Posted by democratist on May 22, 2010

22nd May 2010

Rumours abound that a new, pro-western foreign policy shift is underway in Moscow. But if Russia really wants to attract European investment and American technology for the long-term it will need to implement root and branch political and economic reforms. Are the Russians really ready to play ball?

A report on two supposedly “leaked” internal foreign ministry documents which appeared in Russkiy Newsweek on May 10th has sparked off a wave of speculation about the possible future orientation of Russian foreign policy in the local press and diplomatic circles.

These documents: “A List of Criteria for the Effectiveness of Foreign Policy” and “A Program for the Effective Exploitation of Foreign Policy Factors for the Purposes of Long-term Development” – both written over the past six months, together imply a rethinking and potential realignment of Russia’s external relations.

In line with the much-discussed (but so far largely rhetorical) trend evident since Medvedev took on Presidency in 2008, the focus of both papers is the need to modernize the Russian economy, and the use of foreign policy to achieve this goal. As such, both underline the need to attract external financial investment, as well as the technological and scientific resources required for Russia’s modernization – especially from the United States and European Union.

This renewed concern with foreign relations as a path to domestic modernisation, while clearly still a matter of internal dispute within the ruling elite (indeed the “leaking” of these documents are almost certainly a symptom of these internal discussions) nonetheless reflects two serious problems that Russia needs to address with some urgency; firstly the impact of the ongoing global financial crisis on the Russian economy, especially through the effect that this has had on global hydrocarbon and raw materials prices; and secondly, a recognition that Russia is falling behind in terms of technological innovation.

With regard to raw materials, oil, gas and mineral exports currently account for 70% of Russia’s exports, making the economy hostage to price fluctuations. Finance Minister Alexei Kudrin stated on May 14th that Russia’s 2010 federal budget, including reserve fund spending, will only be balanced if oil reaches $95 per barrel (considerably above the current price of about $71). Given recent market developments, oil prices seem likely to stall or decline over at least the short-term, and perhaps for longer. As a result, The Russian government expects its budget deficit to rise to 5% of GDP by the end of the year and external sources of funds will therefore be required. Given that overall debt stands at only 50-60% of GDP (compared with 115% for Greece), Russia had little difficulty raising $5.5 Bn from its sovereign debt sale in April (the first since 1998). Nonetheless, this pattern of borrowing looks set to grow significantly as reserve funds are drawn down.

As for technological innovation, as Dimitry Trenin, director of the Carnegie Moscow Centre noted in an article in the Moscow times on 14th May, in addition to diminishing the hubris that Russia displayed in the years of high energy prices, the current crisis has awakened the leadership to the reality that Russia is losing ground in the global pecking order by falling behind in terms of its industrial, technological and scientific capabilities.

As Trenin observes “…Russia is sorely lacking what it takes to be a major global economic and political force in the 21st century. Relative energy abundance and nuclear arsenals are simply not enough. The Kremlin …[has been]… forced to come to terms with the fact that Russia cannot modernize on its own and that it needs Western investment and strong business partnerships with the West.”

But how will this need for investment and scientific know-how be translated into policy? Is Russia really willing to make the deep domestic political and economic changes necessary to make itself an attractive place for sceptical Western companies to invest, as Trenin suggests? Western markets cannot be bargained with or cajoled in the same way that Russia strong-arms other States – they will have to want to come.

However, there are a number of compelling reasons why serious reform is unlikely:

The main argument against the probability of anything more than superficial political an economic reform in Russia over the next few years is the nature of the current regime. This is essentially a reconfigured Soviet nomeklatura – more homo Sovieticus than homo economicus. The nomenklatura sees itself as having a quasi-divine right to rule and shape the country, and sought in the early 2000’s to move precisely away the “Western” template of market economics and political freedom introduced in the 1990’s – because it considered that these reforms had failed (culminating in the national humiliation of 1998) and that additionally, as many siloviki believed, that these reforms had in any case been little more than an elaborate Western “conspiracy” aimed at weakening Russia right from the start.

This nomeklatura is distinguished by its strong nationalism and desire for Russian national resurgence (as a regional power, if no longer perhaps a “superpower”) but also additionally by three significant traits [1] inherited from the late Soviet period that make economic liberalization and diversification extremely difficult.

These are;

  • A culture of nearly all-pervading corruption and rent-seeking.
  • An authoritarian concept of the State (in which the elite maintains a decisive and guiding – albeit sometimes informal – control over key aspects of the economy).
  • An instrumental “end justifies the means” attitude towards ethics.

In terms of corruption and the authoritarian concept of the state, the “transition” as it has taken place in Russia since 2000 has clearly not been to democracy or liberal capitalism but to a repressive political system based on a “corporatist” economic model – with the state retaining decisive influence over key companies as a lever of both economic and political power. This includes, as the most prominent example, Russia’s largest company, Gazprom, which supplies about 17% of the world’s gas and on its own, and has at times accounted for 10% of Russia’s GDP. Gazprom has at least four cabinet ministers on its board of directors, and was chaired from 2002 until 2008 by none other than Dimitry Medvedev – who owed that position (much as he now owes the Presidency) to his relationship with Vladimir Putin. Any statements from the “liberal” Medvedev (or those surrounding him) regarding economic diversification or political reform need to be considered in this light. The recently “leaked” foreign policy documents also need to be considered in this context.

The “corporatist” or “petro-state” model, with its heavy reliance on hydrocarbons and raw materials, fits this authoritarian conception of the State neatly because it allows for an easy source of rents, which can be distributed on the basis of loyalty, and equally because it provides the State with the tools of the energy-based foreign policy we have seen deployed on numerous occasions in Eastern and Central Europe, especially since the Orange revolution in Ukraine in late 2004. While the need for reform is likely to be invoked in order to attempt to drum up foreign investment, any resurgence in the oil price above (say) $100 per barrel will initiate a fairly rapid return “business as usual” so long as the current nomenklatura remains in power.

And it is very likely to remain in th driving seat for many years to come, because the Putin regime is additionally the inheritor of the KGB’s “ethical instrumentalism” and is unlikely to cede power to anyone else anytime soon: Despite a sophisticated propaganda offensive of denial (suggesting such claims are little more than conspiracy theory, comparable to those surrounding the 9/11 attacks in the US), there is little doubt that the current regime achieved power through the mass-murder of hundreds of its own citizens by the FSB in September 1999, as well as through the subsequent resumption of hostilities in Chechnya as a platform to generate support for Putin in the 2000 Presidential elections. Such a regime is unlikely to encourage its own marginalization by the introduction of genuine democratic reforms.

Indeed, over the last ten years, progressive presidential, parliamentary and (most recently) local elections have been marked by a worsening tendency towards fraud. As a result, the key political institutions required for meaningful economic liberalization and the attraction of Foreign Direct Investment – free elections and a free press (to fight Russia’s truly monstrous corruption), the rule of law, and the guarantee of property rights – are largely absent in the contemporary Russian case. The Kremlin has instead assumed (despite the apparent lessons of the Soviet experience) that it is able to manage the social and economic development of the country from above without any requirement for these constraints. So far, the economic crisis has only resulted in a tightening of already severe domestic restrictions – as was evident from the extraordinary level of outright falsification in the 10th October 2009 local elections.

Instead, the instincts of the siloviki are almost always to maintain and extend power and control as far as possible in both political and economic spheres. The history of the regime since 2000 has been one of continual centralization of both polity and economy. In fact, there has been no meaningful diversification of the economy since 1998, despite repeated promises that it would take place, and the period since 2003 has seen the re-nationalization of much of the raw materials and other “strategic” sectors.

While recently the Kremlin may have appeared to be considering the possibility of a fresh round of (vaguely defined) “reform” - with a diplomatic charm offensive (purporting to show how Russia has “changed”) due to take place over the summer, allowing genuine liberalization would potentially allow the development of alternative centers of power to the corporatist state. This raises the specter of, (for example) a revival of independent-minded oligarchs operating outside of the current structures (the “Yukos” effect), or the growth of a critical mass media, or of genuinely reformist political parties gaining seats in the Duma in an un-rigged parlaimentary election in late 2011. Therefore, real reform is most unlikely. Instead, the nomenklatura, is more likely to decide that the best available current strategy is the superficial invocation of the need for change through the offices of the “liberal” President. This will hopefully drum up some additional investment from the more gullible sections of an overly eager West while they wait for a resurgence in commodity prices.


[1] This section draws on work by the late Professor Fred Halliday of the LSE http://www.opendemocracy.org/article/what-was-communism

Posted in Autocracy and Innovation, Democratization, Freedom of the Press, Human Rights, Russia - US Relations, Russia Foreign Policy, Russian Corruption, Russian Economy, Russian Espionage, Russian Liberalization, Russian Military, Russian Politics, UK Foreign Policy, US - Russia | 12 Comments »

 
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