Ukraine`s fall: Rocking the boat

V4 Revue, 28.9.2015.

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The ultimate task for Ukraine is not to move the country away from Russia but to modernize its state institutions and re-build its social contract.

Both Ukraine and the West should promise less and deliver more. The way out of reacting from the current damage control mode is a combination of continued pressure, critical engagement, as well as increased assistance for Ukraine.

Kyiv’s summer was marked both by blue and red.

The introduction of new patrol police in Kyiv has been by far the most visible change in Ukraine. Their cars, donated by Japan, are required to have flashing lights on during patrol, just like in Georgia, but they only have blue lights and are missing the red flashers. The new policemen and women clad in black uniforms (donated by the US), who have been patrolling the city, are exhibiting more integrity when addressing citizens and a greater respect for the rule of law.

However they were unable to prevent the bloodshed at Parliament when a grenade thrown by a volunteer battalion soldier on vacation killed three National Guards and wounded over a hundred. The violence was attributed to the much-disputed vote on the constitutional changes in the first reading, which should have led to greater decentralization. Although more Ukrainians want peace in the nation’s eastern Donbas Region, those opposing the nationalistic leaning forces will actively resist reconciliation. Emotions are running high, as the number of victims killed in the conflict has exceeded 6,000; and many Ukrainians believe the Donbas conflict is a product of the oligarchs and Russia’s unwillingness to move the country forward.

Reforms and resistance: New Ukraine in a minority

Ukrainians are bracing themselves for local government elections in October amidst security concerns, large economic uncertainty and rapidly growing poverty. With the controversial constitutional vote – passed with the support of the Opposition Bloc, a party created by the remnants of the Party of the Regions – the post-Maidan ruling coalition is decomposing.

President Poroshenko continues with a delicate balancing, but still tries to concentrate more power in his own hands. A re-shuffle of the cabinet is becoming more likely after the local elections. Mikhail Saakashvili, the governor of Odessa Oblast and a civic truth-teller, former PM Yulia Timoshenko and even Opposition Bloc’s Lyovochkin all seem to be positioning for the prime minister post. The Samopomich party, led by the Lviv Major Sadovy, a coalition partner, acts like internal opposition. While Dnepropetrovsk oligarch, Ihor Kolomoyskyi, tries to put political pressure on Kyiv with the Association of Ukrainian Patriots (UKROP), a party utilizing the growing outrage towards the peace protest in the ranks of those fighting in Donbas.

What the country needs is more of a technocratic leadership delivering reforms, what speak for the elevation of Finance Minister Jaresko, the US born cabinet member who delivered a “victory” by striking a deal with Ukraine’s private creditors. This could pave the way for much-needed macro-economic stabilization.

However, summer stats are raising the question of the sustainability of Ukrainians’ (political) patience: real wages are down to a quarter of 2014’s and the average monthly salary plummeted to $186. Inflation during the summer reached 53%, while the producer price index is rising 37% annually. Pensions were cut and taxes were raised. While earning exceedingly less, Ukrainians will be paying 450% more on household energy bills. Consumer confidence has deteriorated. Unofficial estimates of unemployment range from 15% to 18%; and the poverty rate has increased by 33%. According to UN measurements it is much worse: 80% of Ukrainians live on less than $5 a day and $150 a month.

The acceptance of austerity Ukrainians’ awareness about the root causes by citizens is evident in light of no other apparent geopolitical choice due to Russia’s aggressive policies and Western pressure. Kyiv actively communicates the Russian threat, but its economic policy is far from being popular. Ukrainians’ awareness about the root causes of the worsening socio-economic situation is clear: 72% blame corruption, 54% the oligarchization of the economy, 47% government incompetence and 30% the Donbas War.

The new Ukraine is in the minority: there are cells of reformers embedded in the system, largely concentrated in Kyiv, who enjoy strong support from the international community. But vast numbers of bureaucrats are neither engaged in the reform process nor necessarily supportive while facing these existential issues. Therefore the social aspects of economic reforms should be considered: too Draconian reforms may erode the remaining confidence in public institutions. Although firing tens of thousands of civil servants is necessary to reform state institutions, this may also further erode state capacity.

Unless there are emerging efficient state institutions – like a new police – the weakening of the remaining post-Soviet state capacity will allow for more feuding in the regions and oligarchs capturing the state.

Protests have been ratcheting up; while the fear of a third Maidan has made them smaller, the decline of living standards has made them more aggressive. As protests may become more radical, they will have lesser chance of gathering mass support from society: 67% of Ukrainians say they would not participate in protest actions. The fear of the consequences of a potential third Maidan has left Ukrainians little desire for another uprising.

Maidan’s heritage: Money and Power

Although the risk of a third Maidan is there, those who could initiate it are discrediting themselves by their violent actions. In this situation, President Poroshenko keeps consolidating his party’s grip on power. Yet, his efforts continue to be a delicate balancing act : he is incorporating both part of PM Yatsenuk’s National Front, winner of the last parliamentary elections, and the former Party of the Region structures in the region. At the same time, he keeps working relations with Yatsenuk, as well as Timoshenko’s Batkyvschina (BYuT) and Samopomich.

With the Opposition Bloc voting with part of the ruling coalition, the constitutional vote ended the formal post-Maidan political unity. Poroshenko`s government will be able to retain a parliamentary majority in an ad hoc way though.

The Opposition Bloc wants to prove that it is a formidable force during the local elections. It may propose a “government of national unity,” yet this would mean high reputation costs for Poroshenko in the war torn country, because Opposition Bloc is considered pro-Russian. This would bring back the post-Orange revolution hangover: former President Yuschenko named Viktor Yanukovych prime minister in 2006, merely two years after the Orange Revolution.

Kyiv`s lousy attempt to implement the Minsk agreements, which were meant to halt the war in the Donbas region, made the fighters and politicians, both under patriotic slogans, clash over the post-Maidan order. As there were no serious attempts to investigate the violence at Maidan, Odessa or Mukachevo, armed far right groups’ impunity is now catching up with the post-Maidan government. Even the ugly lessons from the bloody Ilovaisk defeat from August 2014, the one that forced Ukraine to accept the Minsk agreements, have not led to any consequences. Little wonder that the far right nationalist party, Pravy Sektor continues to portray itself as a “people’s justice” actor. Given it is not popular in the polls, their arms have become the main argument.

Meanwhile, Yulia Timoshenko cautiously crawled back into the polls,trailing just behind Poroshenko. Her strong ratings correspond to the dwindling support for the National Front. Essentially BYuT is taking back its previous constituencies from Yatsenyuk. Timoshenko seems to have learned a lesson from her 2010 campaign failure: she keeps the party disciplined with a key focus of social instability and injustice instead of herself. She, instead of the far right, seems to be reaping the political benefits from the protest mood. Yet, she also seems to understand the risks and unlikely turns directly against the current rulers.

The presidential administration and the foreign ministers are the main drive behind the reforms aiming to modernize the state. Poroshenko is no Mr. Reform, but he is under Western pressure to deliver. The reform efforts seem to be catching up in a number of areas from law enforcement to macro-economic stabilization, energy sector and tax reforms. Yet, there is no serious fight against corruption – that is simply kept under “control”.

In response to the grenade attack, he may go after the nationalist groups. That may increase his political legitimacy, as there is an increasing call for a strong hand. At the same time the Donbas peace process – viewed as a concession to Russia – will make him a “traitor” in the eyes of many fighters. The biggest test will be whether he and the government can go from words to action, and prosecute the perpetrators.

While, Kyiv’s short-sightedness, over-promising and under-performing, continued corruption, and impunity derived from a lack of proper investigation from Maidan to Muckahevo over-shadow the slow but on going reform process, the level of criticism is also rising against Poroshenko`s (manual) governance and micro-management (i.e. his appointment of people loyal to him into key positions). The IMF’s conditionality of gas sector privatization and a recent court decision to annul Akhmetov’s DTEK privatized stake in 25% of DnepEgergo signalize more conflicts. Poroshenko may have public support to act on behalf of the state, but rumored expansion of his business interests toward sectors awaiting privatization (ship building, energy, agriculture and land) will alienate other oligarchs. As his oligarch rival Kolomoyskyi stated, the old rules of the game are being broken, and the new ones have not yet been written.

Mukachevo: Feudalization at Work

No other incident shows how power is illusive in today’s Ukraine than Mukachevo.With the July shoot-out incident between Pravy Sektor and the police, the local landlord Viktor Baloga’s supposed control over Transcarpathia, Ukraine`s most Western region, has appeared all but gone.

The region was previously the neo-feudal case study of Ukraine. It was always a “state within state” in Ukraine, but so was Donbas. Such similarities tipped the region as another potential conflict zone, while the incident had symbolic meaning as the most western region of Ukraine, directly at the EU border.

The easy answer for “who benefits?” is obviously Russia. Russia’s local proxy, Viktor Medvedchuk, visited the region several times in the past year. Ihor Kolomoyskyi, financier of UKROP, was also believed to gain from this conflict, as local observers noted an abundance of the party’s billboards across the region.

The main factors were fundamentally local though. Most importantly economic vulnerability: smuggling has traditionally been the main income of the elites that has grown in importance as Kyiv can no longer keep state subsidies’ distribution at previous levels. This business has been divided and controlled by the regional elites; such interruption is fragmenting power as new players are entering the field. While Maidan and the war in Donbas re-enforced other players, like the battalions, whose track records are more than dubious.

But the Mukachevo incident showed that the battalions’ threat of a third Maidan is no longer that vivid. Their capacity and appeal is limited. Although the return of fighting units is tangible, Ukrainian society is tired and has no desire/capacity for another (certainly bloody) regime change. Battalions fighting in Donbas have broad popular support, but they have neither the political sophistication nor the firepower to fight the government at home.

The lack of a fair investigation and justice led to a lingering impunity that has become Ukraine’s biggest risk. Reacting to Mukachevo, Prime Minister Yatsenuk came up with his usual big statements, while President Poroshenko continued its “manual governing” by dispatching Hennady Moskal, the former governor of Ukraine-controlled Luhansk, as a new governor and Mustafa Nayyem, the hero of EuroMaidan, to oversee police reform. But no one is sitting in jail for the Mukachevo incident and the Zakarpattya police chief was promoted to Kyiv.It was Hungary who arrested 18 of its border officers for allegedly participating in the smuggling business.

The local fragmentation of central power makes family and local “clan” based politics increasingly more influential. Poroshenko’s micromanagement from Kyiv is just the tip of the iceberg. The return of old cadres loyal to whoever is in charge is evident. The militarization of society, endemic corruption coupled with low social mobility, the continued impunity for ruling elites and their loyal state bureaucrats, the abundance of weapons, and growing poverty in the regions has the potential to make such political fights more dramatic.

The summer brought similar, yet bloodless, incidents across Ukraine – from business conflicts in Rivne to unrest in Kharkiv at an Opposition Bloc rally to Odessa, where Yanukovych-era “feudal leaders and their vassals” are still the real power, and where local business, courts, police, etc. are in the hand of the local elites.

The on-going decentralization process provides a new framework for rebuilding Kyiv’s relations with regional elites, as Poroshenko tries to co-opt and make agreements 66 with regional landlords. As long as Kyiv has limited state resources to spend on the regions, the local elites’ roles will only continue to grow. Land distribution, the last of the public assets, and local energy businesses are likely to be the regional elites’ carrot. Providing security will remain another lucrative local business opportunity.

Meanwhile, as reforms reconstructing old institutions and building new ones are naturally slow, the anger of those wanting to see change is growing. The entrepreneur’s situation is dire, and separatism can be “found” for money.The conflict in Donbas – where Russian influence and potential of muddling were the largest – also started as a regional struggle in the aftermath of a collapsing central authority due to the dramatic events of Maidan.

As poverty looms, buying votes has become cheaper than ever, which became evident in Chernigov’s city elections, where out of the 127 original candidates, the battle came down to the pro-Kolomoykyi Korban and the pro-Poroshenko`s Berezenko, formerly with the Party of Regions, while neither of them is from Chernigov. Berezenko’s campaign even signed so-called “social contracts” – money in exchange for campaigning.

What the West Could Do: Damage Control

Ukraine`s oligarch-driven elite is fighting for its own survival. Reforms are largely happening under Western and local pressure – not from the willingness of the ruling elites. If Kyiv continues its rhetoric, Russia and not reforms will become the key indicator of its own progress.

Although Ukraine does deserve credit for its reform efforts, the West should not be silent over the rampant impunity and prolonged rent seeking. Ukraine is far from the social contract Maidan hoped to achieve. The cause of a rise in populism is the failure of the new government to confront the corrupt elites – essentially itself.

The combination of continued pressure, critical engagement, as well as increased assistance are therefore key. The West should pressure Kyiv to complete investigations of all violent actions since Maidan, without interfering.

The West should also abandon the notion that de-oligarchization could be a serious process with an oligarch in charge. We are back in an oligarch-run Ukraine. Poverty and paternalism will keep playing into the hands of the ruling elites. Contraband from the East and black markets will play into the hands of new actors, i.e. criminal gangs.

Yet, state modernization is a realistic goal, but holding those in public office accountable is a must. Below the law enforcement reform, a judiciary reform should get much more impetus and push. One of the key indicators of success should be oligarchs` re-investing their own money into the country.

Given the regional feuding, rigorous election observations are necessary for the October 25th local elections. The West should brace for a similar or worse election than Ukraine held in 2012.Ukraine unlikely will fall though: the post-Maidan government should have already collapsed under so much external and self-inflicted internal pressure, but also due to the lack of Western support.

The ultimate task for Ukraine is not to move the country away from Russia, but to modernize its state institutions and re-build its social contract. Notions such as, “without Donbas Ukraine would quickly move to West,” are unrealistic: Kyiv is not willing nor is the West capable to support such a move.

Ukraine is capable of muddling through the upcoming turbulent period and Ukrainians’ patience will last longer if Kyiv can speed up well-thought reforms. Much more attention should be focused on appropriate and honest communication with Ukrainians: ultimately both Kyiv and its Western supporters should promise less and deliver more.