Gunfight at the Ukraine Corral

Survival  Blog  04 February 2016

By Elizabeth Pond

2016 promises to be a decisive year for Ukraine. The sudden resignation on 3 February of Economics Minister Aivaras Abromavicius – and the immediate sharp fall of Ukraine’s sovereign bonds – suggest that the showdown is at hand, much sooner than expected.

The country faces a stark choice. Its second civil-society uprising in a decade could dissolve into infighting among oligarchs, as the first one did. Or, with the help of its free-trade and association agreements with the European Union that finally entered into force on 1 January – along with Washington’s newfound interest in diplomatic engagement – it could at last begin to enact the reforms needed to consolidate its fledgling democracy.

The departure of Abromavicius, one of Ukraine’s leading technocrat reformers, was in response to what he said was pressure from Ihor Kononenko, the deputy head of President Petro Poroshenko’s parliamentary faction, to name his own lieutenants as Abromavicius’s deputy and as head of a major state-owned enterprise. The economics minister said in a statement that he had ‘no wish to be a cover for open corruption or puppets under the control of those who want to establish control over state money in the style of the old authorities’.

The key deciders now will be the Ukrainian oligarchs, who have shunned state-building in the past and concentrated instead on funding and controlling the evanescent political parties that operate as clientelistic personal networks. The deciding issue will be the reform of the kleptocracy that remains not just a parasite on governance but, as in Russia, the very driver of post-Soviet systems of neo-feudal governance.

The oligarchs left at the top of the heap after two years of Russian President Vladimir Putin’s undeclared war on Ukraine are President Poroshenko and Dnipropetrovsk baron Ihor Kolomoisky. Poroshenko is the sixth-richest Ukrainian, with an estimated wealth of just under $1 billion, according to Kiev’s Novoye Vremya. From the beginning, he has supported the 2013–14 ‘Euromaidan’ protests against authoritarian rule and their demands for a shift from East Slav fraternity with Russia to a new European identity. He was elected president of embattled Ukraine by 55% in first-round voting in May 2014, when memories of the shooting of a group of protestors known as the ‘Heavenly Hundred’ by the special police of then-president Victor Yanukovich in February, and the disgraced president’s subsequent flight to Russia, were still fresh.

Poroshenko’s rival for power is oligarch Ihor Kolomoisky, the second-richest Ukrainian, with an estimated wealth of just under $2bn. He returned from his Swiss residence to become the official governor of his personal stronghold of Dnipropetrovsk just as Putin was completing the annexation of Crimea in March 2014. He was the most lavish benefactor in 2014 of the volunteer militias that held off the vastly better-armed Russian/separatist troops in and near the Donbass until the ragtag Ukrainian army could be reconstituted following its budgetary strangulation under Yanukovich. According to the New York Times, a deal was made at that point promising oligarchs that they could keep their wealth if they remained loyal to Ukraine.

At present, both men are too weak to knock the other out. Poroshenko won their first public duel in March 2015, when he fired Kolomoisky from his political post as Dnipropetrovsk governor after the latter, along with 40 or 50 armed men, burst into the headquarters of the 51% state-owned UkrTransNafta pipeline firm in Kiev to try to reinstate a dismissed CEO who was allied to him. That clash paralleled efforts to bring volunteer militias under the aegis of Ukraine’s official armed forces and helped to establish in the 25-year-young state of Ukraine, at least in principle, the Weberian precept that a state must have a monopoly on the legitimate use of physical force.

Their second public brawl was more of a draw. Last October, a 500-man SWAT team detained Hennadiy Korban, Kolomoisky’s deputy in Dnipropetrovsk and head of Kolomoisky’s newly established pro-Ukrainian Dill Party (as distinct from his newly established pro-Russian Renaissance Party). Korban was first jailed on suspicion of kidnapping and embezzlement. He was released three days later, then consigned to house arrest, then to custody in a hospital, where he underwent surgery. Little has been heard about him since. Poroshenko supporters see the detention as a sign of the president’s seriousness about fighting corruption and organised crime. Kolomoisky supporters see it as a political vendetta.

For the sake of Ukraine’s democratic evolution, the relative lull in fighting in the Donbass (Putin dialled down the violence in September, turning his attention to Syria) is good news. This gives Kiev the breathing space to continue with urgently needed economic, administrative and legal reforms. Unlike mainstream Western analysts, who continued to warn for months that the lull in eastern Ukraine was only a tactical trick, the Ukrainians sensed instantly that Putin was finally retreating from his Ukrainian quagmire.

The lowered intensity of fighting is also bad news for democratic prospects, however, as the respite from Russian pressure has freed Poroshenko and Kolomoisky from their two-year compulsion to hang together in order to avoid hanging separately. It has allowed them to resume power struggles in redistributing the assets of declining oligarchs and stiffened their resistance to the uprooting of endemic corruption that might conceivably redound upon themselves.

This shift in atmosphere has triggered fear among reformers that today’s ‘Revolution of Dignity’ might repeat the failure of the pioneering Orange Revolution, the leaders of which, Prime Minister Yulia Tymoshenko and President Victor Yushchenko, quarrelled bitterly after attaining power. Their mutual hostility paralysed the government, alienated voters, and delivered the presidency to old-regime Victor Yanukovich in a reasonably fair election in 2010.

The fears of Euromaidan activists are compounded by concern over popular-reform fatigue and the populism that caters to it. MPs from the new Self Reliance party and Tymoshenko’s Fatherland party, among others, are manoeuvring to call a vote of non-confidence in the government and force early parliamentary elections in the spring that would favour their parties. A snap vote only a year and a half after the first post-Yanukovych election would certainly add turmoil and weaken the main parliamentary reform parties, those of President Poroshenko and Prime Minister Arseniy Yatsenyuk. Reforms such as hikes in consumer prices (even with offsetting subsidies for Ukraine’s poorest citizens) have reached the point of stirring up the greatest discontent, and public-approval ratings have now sunk to 25% for Poroshenko and 12% (some polls say only 2%) for Yatsenyuk. Meanwhile, a full 70% of Ukrainians think their country’s general situation is getting worse. Even now, Poroshenko and Yatsenyuk are unable to muster the two-thirds parliamentary majority that the constitution requires to approve key decentralisation measures in eastern Ukraine that are needed to keep the German- and French-sponsored ‘Minsk’ peace process on course.

Reformers hope to avert a regression to oligarchic business as usual by getting the West to apply pressure for enforcing last year’s raft of anti-graft legislation and to offer incentives by granting Ukrainians visa-free travel to the EU. This would reprise the EU’s approach to the 11 post-communist Central European states that were eventually permitted to partake of the peace and prosperity of Western Europe’s premier club of nations following the Cold War. To accelerate domestic evolution toward good governance in these countries, Brussels mixed the top-down co-option of local elites with the bottom-up fostering of proto-democratic civil society in what a Swiss-initiated interdisciplinary study has called functional cooperation.

Implementing this reform process in Central Europe was hard enough. Attempting to do so in Ukraine, which has had little exposure to western European democratic culture, and without even offering the lure of eventual EU membership this time around, presents an even greater challenge. Nevertheless, such reform remains a hope of the robust Euromaidan movement spawned by the 2013–14 protests in Kiev.

Indeed, the tacit partnership between the EU and Ukrainian reformers has already begun its work. Finance Minister Natalie Jaresko drums in the message at every opportunity that Ukraine will not attract Western investors unless it cleans up its act. Young MPs in Poroshenko’s party, such as former investigative journalists Mustafa Nayyem and Serhiy Leshchenko, make incriminating documents public to name and shame officials as they find evidence of corruption and political blockage of criminal prosecution and judicial lustration. NGOs such as Kiev’s Centre of Legal and Political Reform press the case for dismissing Chief Prosecutor Viktor Shokin, a holdover from the old regime’s procuracy who was promoted to the top by Poroshenko and who is now seen by many as the main obstacle to investigation and indictments in high-level corruption cases. When reformers like these run into a brick wall, the EU applies conditionality, informing Kiev that the introduction of visa-free travel for Ukrainians to Europe will be postponed until Kiev’s proclaimed anti-corruption drive actually starts putting senior offenders behind bars. American officials such as US Ambassador to Ukraine Geoffrey Pyatt and Vice President Joe Biden have also joined the fight by exerting public pressure on President Poroshenko to start implementing anti-graft legislation by firing Shokin. On 3 February, 10 ambassadors, among them those of the US, Canada and the EU, signed a bluntly worded public statement saying, ‘We are deeply disappointed by the resignation of … Abromavicius, who has attained true results of reforms in Ukraine’.

So far, this double-pronged campaign has manifestly failed to persuade Poroshenko to replace Shokin, whose influence derives both from the wide competences vested in the chief prosecutor under the patched-up constitution and from Shokin’s personal memory of skeletons in political closets. But Shokin’s tenure, along with the wrestling match between Economics Minister Abromavicius and the Western underwriters of Ukraine’s financial bailout on one side and President Poroshenko and Kolomoisky on the other, pose the most immediate test of what Tomas Fiala, CEO of Kiev’s Dragon Capital, has called Ukraine’s much-needed ‘deoligarchization’.

Having invested so much political and monetary capital into saving Ukraine from Putin’s assault, the EU in particular has a huge stake in the outcome. Besides wielding the stick of conditionality –with the implicit threat that ultimately some tranches of this year’s $40bn of pledged international aid might be held back in case of serious breaches of agreed programmes – the EU will be sending a corps of on-the-ground advisers to Ukraine to help with everything from small-business promotion to political-party formation to rule-of-law basics.

There are no guarantees. Even this massive Western engagement and functional cooperation with Euromaidan activists in building a new, European Ukraine could well get ground down by the stubborn inertia of the country’s kleptocracy. If this happens, the country’s reformers are unlikely to get a third chance to clean up Ukraine’s economy and politics for a very long time.

Elizabeth Pond is a Berlin-based journalist and author. She has contributed several articles to Survival, most recently ‘Will Ukraine Snatch Defeat from the Jaws of Victory?’, in vol. 57, no. 6, December–January 2015, pp. 59–68.


And Now For “Hybrid Politics”

After parliamentary elections, another chance for Ukraine to rid itself from post-Soviet kleptocracy

IP Journal, German Council on Foreign Relations  October 27, 2014

by Elizabeth Pond

Now comes the hard part. Let’s call it “hybrid politics.” With Sunday’s election of a new parliament, Ukraine has its third chance in 23 years to rid itself of post-Soviet kleptocracy and grinding poverty.

Paradoxically, the odds are both better and worse than in 1991, when the Soviet Union collapsed and independent Ukraine was born, or in 2004, when infighting aborted the democratic birth of the Orange Revolution. The odds are better because, ironically, Russia’s undeclared war on Ukraine has finally forged an unprecedented consensus among Ukrainians that they have a distinct identity that differs from the fuzzy Russian notion of an East Slav brotherhood of senior Russians and obedient junior Ukrainians. The odds are worse because painful transformation must be effected while Russia’s “hybrid war” on Ukraine is ongoing. Already, the war has cost Kiev Crimea and half of Donbas to Russian annexation and control, along with some 3,700 lives, one million displaced persons, and a projected shrinking of GDP between 7 and 10 percent.

Preliminary results suggest that a reformist coalition led by President Petro Poroshenko (21.5 percent for his own bloc) will win an unexpectedly high majority of 60 percent, in tandem with interim Prime Minister Arseny Yatsenyuk’s People’s Front (21.9 percent), and (less formally) the Self-Help Party of democratic activist and Lviv mayor Andriy Sadovy (11 percent), and the remnants of the Orange Revolution in Yulia Tymoshenko’s Fatherland Party (close to 6 percent). The exact majority will be known only after votes in the single-mandate constituencies that determine half of parliamentary seats have been counted. It will clearly give the centrist parties a caucus that approaches the two-thirds majority needed to amend Ukraine’s dysfunctional constitution and allow fundamental political and economic reforms.

The overwhelming vote for centrist pro-European parties has marginalized the extremes. On the left, for the first time since independence, Communists fell far below the 5 percent minimum needed to enter the Verhovna Rada (or simply Rada) legislature. The Opposition Bloc, successor to the old regime’s Party of Regions, won 9.8 percent – a sufficiently low figure to curtail the residual influence in eastern Ukraine of Viktor Yanukovych, the disgraced billionaire president of Ukraine who fled to Russian exile last February. The bloc is financed by oligarch Rinat Akhmetov and former Fuel Minister Yuriy Boyko , who is affiliated with oligarch Dmytro Firtash. Firtash, the one-time intermediary for Russian gas exports to Ukraine, was arrested in Vienna last March to face an American request for extradition on charges of bribery and involvement in a criminal enterprise.

On the right, both the Right Sector ultranationalists and the more moderate Svoboda nationalists – whom Russian propaganda brands as fascist engineers of a “coup” in Kiev last February – failed to enter the Rada. The Radicals, under the flamboyant Oleh Lyashko, who is equally renowned for his fistfights on the parliamentary floor and for his role in organizing volunteer militias to fight separatists in eastern Ukraine, won 6.4 percent.

Sunday’s vote was based on old rules designed to help autocratic leaders control their party followers in the era of pro-Russian Ukrainian governments. Democratic reformers are intent on changing this party-list system. Yet in a chaotic election in which most parties campaigned on identical bland platforms of patriotism, fighting corruption, and participating in Europe’s peace and prosperity, the legacy rules helped reformers. With the old Yanukovych political machine reduced to a shadow and a horde of unknowns seeking office, the familiar president and interim prime minister stood out as heroes who had rebuilt the desolate Ukrainian army and would have defeated motley pro-Russian separatists in Donbas if Russian paratroopers had not invaded Ukraine directly in late August to save their proxies. President Poroshenko and Yatsenyuk, who is likely to continue as prime minister, should be able to keep their parties and broader coalition with them in the next one or two years.

Despite the pro-European landslide in the election, the fight for reforms will be a tough one in what is still a hybrid system with more old-timers than newcomers in the Rada. Mustafa Nayem –the Afghan-born investigative reporter who initiated last winter’s three-month-long pro-democracy protest on Kiev’s “Euromaidan” square – and his fellow activists who are now entering the Rada will have to challenge the many troglodytes still in office, including those in their own parties.

The most painful reforms will be economic and must start with a sharp hike in the cheap rates for electricity. State enterprises that have served as golden geese for those politicians or magnates who controlled them – Anders Aslund at the Peterson Institute for International Economics calculates that billionaire Yanukovych could single-handedly solve Ukraine’s budget deficit by returning money to the state that he took from it – must be privatized fairly. And the whole bureaucratic system must be stripped of regulations for business that serve as gates for the extraction of bribes.

In politics, controversial decentralization must be enacted and anti-corruption laws must be enforced once the constitution is amended. Lustration of Russian agents still in place from the Yanukovych administration must be carried out without becoming a witch-hunt. The stranglehold on politics by oligarch-criminal-political networks must be broken, and real political parties that offer coherent policy choices must be formed from the bottom up. The judiciary must be de-politicized, election laws must be revised, and the rule of law must be established. The parties, ministries, and the legal system must be depersonalized and replaced by sturdy institutions that are strong enough to resist being highjacked for private gain.

This agenda would be daunting for any government. It is herculean for a state that has had its territory dismembered by a giant neighbor that is still waging undeclared war on it. The big question now is whether the shock of Russian aggression will unite Ukrainians long enough to transform their country.

NB. This blog post was updated on October 28, 2014, to take account of changes in the projected election results.

ELIZABETH POND, a Berlin-based journalist, is the author of “The Rebirth of Europe.“ She has covered Ukraine for over 30 years.

© Elizabeth Pond