Pyotr Poroshenko’s four problems

24 june 2014

Gevorg Mirzayan

Resume: The new Ukrainian President faces a range of serious political, economic and social challenges – challenges on which the country’s future depends. But right now, he has neither the readiness, nor the desire and political will to tackle them.

The new Ukrainian President faces a range of serious political, economic and social challenges – challenges on which the country’s future depends. But right now, he has neither the readiness, nor the desire and political will to tackle them.

Ukraine is pinning great hopes on Pyotr Poroshenko following his victory in the presidential elections. The Ukrainian media, which is controlled by pro-Maidan oligarchs, wrote that Poroshenko has the necessary experience, authority and capability to lead the country out of its protracted economic crisis. More than 50 per cent of those who turned up at the polls voted for him.

Meanwhile, at the present time, the only positive aspect that can be gleaned from Poroshenko’s election is the international legitimization of his power. Unlike Alexander Turchinov, who was installed as president after a coup, Poroshenko has been chosen to lead the country, even though the election that put him there was not quite nationwide. In everything else, the new President is continuing the flawed foreign and domestic policies of his predecessor, thus aggravating the country’s systemic crisis and not addressing the numerous problems it is facing. The key problems are overcoming the economic crisis, restoring the country’s territorial integrity, choosing the correct model for further development, normalizing relations with Russia and bringing the “Maidan state” in the country to an end.

Loans are the only hope

One of the most serious challenges facing Ukraine is the country’s deteriorating economy. The Ministry of Economic Development and Trade of Ukraine forecasts a 5 per cent drop in GDP for 2014. And this is just the current forecast. “In March, we forecast a drop of 3 per cent, but the situation between March and June has changed,” Minister Pavel Sheremeta admits. International organizations, including the World Bank, have also been revising their forecasts downward. In January 2014, it predicted that GDP would fall by 2 per cent; in April, it changed that prognosis to 3 per cent, and now it stands at 5 per cent. The hryvnia has lost 30 per cent of its value since the beginning of the year.

Industry is suffering heavily. According to the State Statistics Service of Ukraine, in April 2014, industrial output in the country was 6 per cent down year on year. The biggest slump was in the chemical sector (down 11.2 per cent in April, or 23.3 per cent YOY), followed by mechanical engineering (down 8 per cent, or 18.9 per cent YOY), metallurgy (down 2.3 per cent, or 12.8 per cent YOY), the consumer goods industry (down 6.6 per cent, or 14.9 per cent YOY), and coking coal and petroleum products (down 7.7 per cent, or 10.1 per cent YOY). And we have to bear in mind that industry accounts for about 40 per cent of the country’s foreign exchange earnings, according to Vitaly Kravchenko, head of the Industrial Policy Department of the Ministry of Economic Development and Trade.

The Ukrainian authorities claim that the situation will improve soon; Poroshenko has promised to resolve the economic crisis within three months. But the opposite scenario is more likely, and the forecasts predicting decline in the GDP are likely to grow more pessimistic in the near future. This is because the country’s entire economic policy boils down to trying to get more loans from international institutions: Ukraine is counting on $17 billion from the International Monetary Fund and a further $15 billion form the World Bank, the European Union and individual countries. In turn, nothing is being done to address the two other challenges that would greatly ease the country’s economic plight, namely, pacifying the East and stabilizing relations with Russia.

It’s time for talking, rather than shooting

Pyotr Poroshenko claims that one of the main causes of Ukraine’s economic problems is the separatist activities in Donbas. There is a grain of truth in this: in May 2014, 88 per cent of taxes were collected in Lugansk Region. In Donetsk Region, that number was 75 per cent. But the real reason for the aggravation of the situation lies in the way Kiev has chosen to tackle the problem rather than in Donbas separatism.

Alexander Turchinov, Poroshenko’s predecessor, refused to talk with the rebels and opted to use force to crush the uprising. The protesting citizens of Donbas were branded terrorists, and the government and the press launched a campaign to dehumanise and depersonalize them, coining derogatory terms such as “vatniki” (which means “padded jackets” in English – traditional Russian wear for cold weather associated with the working class; now often used in a defamatory way to describe people with strong pro-Russian views) and “Colorados” (a reference to the Colorado potato beetle, whose black and yellow bodies are similar in colour to the St George’s Ribbon worn by protesters and their supporters), and an anti-terrorist operation was launched against them. Before long, most observers realized that this policy was a mistake. The country’s armed forces, brought into a state of disarray over the past 20 years and demoralized by the recent events (the massive victimisation of members of Alpha and Berkut security forces in the wake of the Maidan protests and orders to fight their own citizens), proved to be unfit to carry out their mission. After several months of fighting, and suffering heavy losses, they managed to capture several small communities and the city of Mariupol. The self-defence forces, by contrast, are in high spirits. And the modern weapons they have received enable them not only to ambush and destroy ground units, but also to shoot down enemy aircraft. The Ukrainian armed forces have already lost several helicopters and planes, including assault aircraft, an Antonov An-30 reconnaissance plane and an Ilyushin Il-76 transport plane. If the Ukrainian Air Force continues losing its combat aircraft at this rate, the army will be unable to deliver air strikes on the positions of the self-defence forces and the anti-terrorist operation will become meaningless. There was some hope that, with the election of Poroshenko, the situation would change and Kiev would adopt a more rational policy of dialogue with the self-defence forces and seek a peaceful way out of the crisis. The two main preconditions for the dialogue should be a general amnesty and massive decentralization of the country in the cultural, political and economic spheres (the representatives of the Donetsk and Lugansk People’s Republics prefer the term “federalization”). As things stand today, federalization is the only thing that can preserve the country’s territorial integrity: the project of creating a mono-cultural state from parts that had for centuries been included in different ethno-cultural projects (Austro-Hungary, Poland, Russia) has, predictably, failed.

However, Poroshenko missed a golden opportunity. In his inauguration speech, he of course said he was ready to grant amnesty to the “separatists”, but only to those “who do not have the blood of Ukrainian soldiers and civilians on their hands and are not complicit in financing terrorism.” In other words, none of the rebel commanders and fighters can count on an amnesty. Poroshenko dismissed the idea of federalization, declaring that Ukraine “has been and will be a unitary state. There is no basis in Ukraine for the delirious idea of a federation.” And the President said that Ukraine would have only one official language – Ukrainian.

It can be said with a fair degree of certainty that unless the president changes his policy, the civil war in the South East will aggravate the economic crisis. To continue the anti-terrorist operation would be costly, and the operation itself is destroying the infrastructure of the industrialised South East, leading to closures of businesses and coal mines. Moreover, the anti-terrorist operation (ATO) may lead to de facto independence of the Donetsk and Lugansk regions, depriving Ukraine of further IMF loan tranches (Kiev’s continued control over Donbas is one of the conditions of the loan).

Provocation, not partnership

One of Pyotr Poroshenko’s key foreign policy tasks should be to stabilize relations with Russia. This would facilitate the solution of some other problems – above all that of separatism in the east of the country – and bring the economy out of its crisis. However, judging from his behaviour with regard to Russia, Poroshenko has other priorities.

Until recently, Moscow has been demonstrating its readiness to normalize relations. Thus, Russia has de facto recognised the new Ukrainian power. Vladimir Putin had talks with Poroshenko during the Normandy summit, and later spoke with him over the phone after returning to Moscow. Russia sent its ambassador back to Kiev, thus stressing, in the words of the Chairperson of the Federation Council of the Russian Federation Valentina Matviyenko, its readiness to restore diplomatic relations and demonstrating its good will. The Kremlin hoped that Poroshenko would respond by taking a constructive stand at negotiations with Russia on a number of sticky issues, notably gas. However, Poroshenko chose a path of conflict rather than one of cooperation, and is now trying to provoke Russia into sending troops into Donbas. Poroshenko feels that such a move would help him to solve some short-term domestic and foreign policy problems (drumming up Western support, stimulating the mobilization of the population, justifying the economic collapse). That is why there have been so many open acts of anti-Russian provocation in recent weeks on the part of official Kiev, such as Ukrainian armoured vehicles illegally crossing the border (the Ukrainian authorities have no intention of apologising), taking Russian journalists hostage on a regular basis and then mistreating them. The mob attack on the Russian Embassy in Kiev on the evening of June 14 was the ultimate outrage. Ukrainian Foreign Minister Andrey Deschitsa showed up on the scene and, surrounded by the demonstrators, called Vladimir Putin an unrepeatable word on live TV.

Russia’s response

Poroshenko missed his chance as a result. Not only did Russia refuse to take the bait, it also apparently gave up any hope of the Kiev authorities being reasonable and resumed its tough stand with regard to Ukraine. Moscow chose not to continue the futile gas negotiations and refused to postpone the deadline for debt repayment. It introduced an advance payment regime for Ukraine starting June 16, 2014. “The decision was taken because of chronic failure of Ukraine’s Naftogaz to pay. The company is $4.458 billion in arrears on its payment for delivered Russian gas: $1.451 billion for November–December 2013 and $3.007 billion for April–May 2014,” a Gazprom statement read. Moreover, Moscow expects that Ukraine’s intransigence over the gas issue, coupled with the change of personnel at the European Commission (which took an openly anti-Russian position), would speed up the implementation of the South Stream project and ensure greater support for it from Brussels. “The South Stream is an irreversible European project. The question is not whether it will be implemented, but how it will be done,” said Dragomir Stoynev, Minister of Economy and Energy of Bulgaria. “Within the EU, thanks to my efforts, there is a consolidated position for the project on the part of the energy ministers of Hungary, Austria, Croatia, Slovenia and Italy, through which the pipeline will go.” As soon as the project is completed, Ukraine will no longer be able to take advantage of its transit position to blackmail Moscow and Brussels. Once the Yamal – Europe-2 line is built, there will be no need for gas transit via Ukrainian territory. Ukraine’s gas transportation system will become irrelevant, depriving Ukraine of huge transit profits (which amounted to $3.6 billion in 2013).

In addition to long-term economic problems, the conflict with Russia (which in 2013 accounted for 32 per cent of all Ukrainian import and 25 per cent of its export) may create some short-term complications for Kiev. Russia banned the import of Ukrainian potatoes as of June 16, 2014, and more importantly, has stopped military-technical cooperation with Ukraine. “This may bring a further 500 enterprises to a halt and put hundreds of thousands of people out of work. Unemployment has grown by 130,000 during the first quarter and continues to grow,” says former Minister of Economy and Trade of Ukraine Dmitry Suslov.

Atomization of power

Unless Poroshenko changes stance on the three above-mentioned problems, they may become a catalyst for a fourth challenge, namely, a lack of internal legitimacy of the current government. By carrying out a coup in February 2014, the Ukrainians dealt a heavy blow to the entire state system, effectively destroying its constitutional legitimacy. As a result, the country today has a vast number of alternative power centres that may well challenge the President’s legitimacy and even stage a new government coup in accordance with the maxim that “a revolution has no end”. We are talking, first and foremost, about Ukrainian oligarchs. One of the ironies that resulted from the Maidan protests is that the people who clamoured for the oligarchs to be put on trial have in fact elevated the oligarchy to an even higher level. Before the revolution, the country’s tycoons simply controlled and financed politicians. Now they occupy the positions of official power: to begin with, one of the top oligarchs was elected president; then the more influential entrepreneurs were given problem regions in exchange for their loyalty and financial support in crushing the unrest in the south east. Thus, Sergei Taruta has been charged with restoring order in Donetsk Region, while Igor Kolomoysky has been given Dnepropetrovsk Region (and more recently Odessa Region). The oligarchs have already formed private armies: the Dnieper, Donbas and Azov battalions, among others, which are ready to use their weapons against anyone their sponsor may choose.

At present, the finger is pointing at the Lugansk and Dnepropetrovsk People’s Republics, because the oligarchs and the government share the same goal – to crush the rebellion in Donbas. However, their paths will diverge in the medium term. The oligarchs, having been granted control of entire regions, will bargain for additional powers and financial assets, defying Poroshenko and official Kiev. Thus, the weakening authority and financial capabilities of the central government would strengthen the oligarchs and split the Ukrainian state into fiefdoms.

In addition to the oligarchs, the government’s legitimacy is challenged by the Ukrainian mob, whose most aggressive part is represented by nationalists and radicals – the Right Sector and the Maidan Hundreds, who refuse to dismantle the barricades in the centre of Kiev. They demand that the authorities carry out a large-scale vetting campaign, regularly report back to Maidan, and adopt the Galician ideology and its components (glorification of Bandera and the 14th Waffen Grenadier Division of the SS, and the promotion of Russophobia). Any attempts by Kiev to at least be seen as striking a balance between East and West are met with fierce criticism and accusations of treachery. Thus, Ukrainian nationalists were furious that part of the new president’s inaugural speech (when he addressed the people of Donbas) was in Russian. In the event of an early election for the Supreme Rada, they are likely to win more seats in parliament.

In spite of all the mistakes in meeting the four above-mentioned challenges, Poroshenko has a theoretical chance to correct his mistakes. But to do that, the new Ukrainian President needs to show political will and go against the public opinion formed by the authorities and Ukrainian media propaganda. He should be ready to make difficult decisions – decisions that will undermine his popularity – and surround himself with people prepared to face what lies ahead.

However, the chances that he will make these corrections are slim. The quality of the Ukrainian elite is very poor, with most of its members thinking in terms of one election cycle and being ill-equipped to solve state problems. Pyotr Poroshenko is not an Ataturk or Park Chung-hеe and he is unlikely to carry out tough and unpopular, but necessary, measures. He will most probably opt for a different strategy: to pander to public opinion in order to remain president for as long as possible and derive all the possible benefits, both in terms of reputation and banal material gain.

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