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Archive for the ‘Ukrainian Corruption’ Category

Ukraine: Awaiting the Protestor’s Return

Posted by democratist on May 21, 2012

May 21st 2012,

The period since the election of Viktor Yanukovich to the Ukrainian Presidency in February 2010 has been a shambles: Support for his Party of the Regions (PoR) has slumped even in its traditional heartlands in the east of the country. There has been a massive and apparently uncontrollable rise in corruption. Ukraine dropped some 18 places in Transparency International’s Index to a woeful 154th place last December, and things now appear to be getting even worse. Potential fraud in parliamentary elections in the autumn may provoke a violent backlash.

President Yanukovich is in the process of creating a highly personalized style of government. According to our sources, all revenue streams have now been put under the control of family or close friends, including the national bank, finance ministry, treasury, tax, and customs. Additionally, the main security organs have come under similarly personalized control, including the prosecutor’s office and the Security Service (now run by the President’s elder son). Even the Party of the Regions is its losing relevance as the President comes to draw more and more on direct ties.

FDI has dried up, and most M&A activity is domestic, with international firms taking a cautious back seat. The exception to this rule is oil and gas, where Shell and Chevron are being bought in because local companies lack expertise to extract recently discovered shale gas. Anecdotal evidence suggests that many ex-pats have already left, or are making plans to do so over the next few months. Additionally, there is speculation that visa requirements might be brought back in for EU nationals.

These developments have been distressing for those who voted for former Prime Minister Yulia Tymoshenko in February 2010, but even more so for those, concentrated in the south and east, who voted for Yanukovich on the basis that he might offer something better than the political and economic instability which followed the 2004 Orange Revolution. In fact corruption, and the expropriation of businesses through a captured legal system have been especially evident in these parts of the country.

But while popular resentment is running high throughout Ukraine, the opportunity for the population to make its voice heard at the elections in October may be subject to interference. The current administration does not have a good track-record when it comes to electoral fraud: Yanukovich was initially summoned to Kiev precisely because he was able to help the PoR garner a majority for Leonid Kuchma during the 1999 polls. The falsification during the 2004 presidential elections remains an exemplar of all the varied means by which manipulation can be achieved, not least the 1.1 million votes added to Yanukovich’s tally by computer hacking during the second round. It cannot be ruled out that the current government might again resort to these familiar tactics.

Ms. Tymoshenko has already been imprisoned on apparently politically motivated charges, as a way of preventing her running in October, and it seems that technical measures will be found to ensure she is unable to stand for parliament, even if she is freed in order to placate the EU. Nonetheless, her imprisonment has acted to boost her waning popularity, and if released she can be expected to campaign with her usual dynamism for the opposition. This will boost their poll ratings considerably and raise the stakes in advance of the 2015 presidential election.

However, if mass falsification does take place and is uncovered, the question of the 2015 polls may become less relevant. There is real anger on the streets at the lack of official accountability. This was demonstrated by the nationwide unrest that took place in March after local police refused to charge two politically connected youths who raped an 18 year-old girl and left her for dead in the southern town of Mykolayiv. The potential for violence on all sides is becoming clearer. The most important question to be answered in October is therefore: Will popular anger once again explode into protest as it did in 2004, or is the population, especially in the eastern Donbass, so scared that they will stay at home during the election period? The reaction of these towns is critical because, if eastern Ukraine comes out in protest, the traditionally opposition-minded west will rise for sure.

Posted in Ukraine, Ukrainian Corruption, Ukrainian Politics | 1 Comment »

Ukraine may be turning back towards the EU, but integration remains a distant prospect.

Posted by democratist on May 18, 2011

18th May 2011,

Democratist has spent the past couple of days in Odessa, where he met a new contact who seems to know everyone worth knowing there, and certainly talks a good game.

Our new friend informs us that the next 18 months are about to witness a significant and decisive shift in Ukrainian foreign policy.

Apparently, the intensified wave of high-level corruption since Yanukovich came to power last year is essentially a final fight over the spoils as part of a prelude to a new period of Ukraine making a concerted effort to deepen its relationship with the EU. This in turn will lead to enhanced domestic reform, a clampdown on corruption, and an unequivocal return to the path of democratization.

In this regard, the PoR’s key aims over the coming months are the completion of an EU Association Agreement, including a Deep and Comprehensive Free Trade Area (DCFTA) by the end of he year, and the agreement of a much simplified visa regime for Ukrainian Citizens visiting the EU next summer (perhaps to coincide with Ukraine’s joint hosting of Euro 2012 with Poland in June/July). The PoR believes that the successful conclusion of these agreements would give it a considerable (and badly needed) boost in the October 2012 parliamentary elections.

This renewed concentration on EU integration comes after Ukraine ignored Russia’s invitation to join its Customs Union in late April, despite Putin’s promises that Ukraine would earn an additional $6.5 billion to $9 billion per annum from the deal. It has been rumoured for some time that the oligarchy that funds the PoR has come to see the Russian “virtual mafia state” as a key threat to its own independence (although this does not automatically make them keen Europeans, or mean that they will easily accept restrictions on their own activities). Additionally, according to almost everyone Democratist has spoken to, there is considerable popular sentiment throughout the country that Ukraine will be far better off as an independent state than it would be as a glorified southern province of Russia. More specifically, the pro-European policy is being driven to a considerable extent by the First Deputy Head of the presidential administration, the economist Irina Akimova.

From Democratist’s perspective, Ukraine’s timely completion of the Association Agreement and DCFTA would be most welcome, as it would prove beneficial to both the European and Ukrainian economies and set the stage for further integration. If these negotiations are indeed successfully completed by the end of the year then it certainly would make a great deal of sense to reward the government with a relaxation of the EU’s visa requirements next summer (provided all required criteria are met) with a view to scrapping visa requirements entirely for Ukrainians over the medium term. The current tight restrictions are very unpopular in Ukraine, with many people feeling that they are being treated more like potential criminals, than potential “Europeans”.

However, further progression towards full integration beyond that point is clearly going to take some time, and the current situation is not very promising. A critical indication of whether Yanukovich is really serious about Ukraine’s eventual European orientation will come during the conduct of the parliamentary elections next October: If domestic and international observers conclude that these are run in a free and fair manner (with none of the problems witnessed in the municipal polls last year), if the media and judicial situations show sharp improvements, if there is no abuse of “administrative resources”, if the rumours that the PoR is secretly funding the nationalist Svoboda Party in Western Ukraine suddenly cease, and if Tymoshenko does not discover that she is unable to contest the poll because she is in prison on politically-motivated charges, then even the more reluctant EU member-states will have to concede that Yanukovich is someone who means to transform Ukraine, and with whom they should do business.

Posted in EU Enlargment, European Union, Russia-Ukraine Relations, Ukraine, Ukrainian Corruption, Western Foreign Policy | 3 Comments »

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 »

 
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