08.05.2006
Change in the Air in Ukraine
№2 2006 April/June
Arkady Moshes

Arkady Moshes is Program Director of the EU Eastern Neighborhood and Russia Research Program at the Finnish Institute of International Affairs.

Ukraine’s track record between the time of its presidential
elections in 2004 and parliamentary elections in 2006 has been
rather inconsistent, while it missed any chances for a rapid
breakthrough in the reform sphere. The main pledge delivered on
Independence Square – to provide the country with an honest and
effective government – failed to materialize. Divisions within the
ranks of the erstwhile winners, combined with reciprocal
accusations of corruption, romanticism and a lack of direction
within the political leadership, as well as visibly declining
economic performance, eroded the credibility of the ruling
establishment and its popular support. In the foreseeable future,
Ukraine is unlikely to have the same favorable conditions for
accelerating the reform process that existed in the spring of 2005.
As for its foreign policy, Ukraine still has bleak prospects for EU
membership and, as shown by the January 2006 natural-gas agreement
with Russia, it is unprepared for constructing transparent
relations with its eastern neighbor.

Nevertheless, there is a sense of change in Ukraine. According
to a poll conducted by the Kiev-based International Institute of
Sociology for the first anniversary of the Orange Revolution, over
60 percent of respondents said that the country had changed from
the days of President Kuchma’s Ukraine. On a national scale, 53.6
percent of respondents in the east, 57 percent in the south, 57.6
percent in central Ukraine, and 75.6 percent in the west held this
view. Only 28.6 percent of the respondents said they saw no
difference.

What is more important is that Ukraine’s vector has become less
uncertain. Whereas under Kuchma it was enough for the local elites
to declare, “Ukraine is not Russia,” the country’s present leaders
must overcome its indefinite status and integrate into the
Euro-Atlantic community. This implies a far-reaching domestic
reform. Such objectives cannot be achieved within the space of a
year. Transformations will always be painful and tumultuous, thus
de facto Ukraine will long remain a “transit European state.” This
must be considered progress, however, in light of its image as a
member in the western sector of the post-Soviet space.

In analyzing the current situation in Ukraine, it is essential
to focus not on absolute results but on the shifts that have
already occurred; not on the speed of change, but rather on
maintaining the course of change. For all the setbacks and failures
of the “Orange” authorities, a return to the pre-revolution
situation is impossible. So both those who are disappointed with
Ukraine and those who are gloating over its problems (“there is no
way it can get away from Russia”) should simply hold off
judgment.

A FACELIFT OF COMPROMISES OR CORE CHANGES?

Ukraine’s domestic political map has changed. The multitier
system of compromise, checks and balances of today does not
resemble what was in place one and a half years ago and is more in
sync with the tasks of systemic reform. Although there can be no
guarantee of success, things are looking more positive.

First, despite the ideological and political
confrontation between the country’s western and eastern regions,
the contradictions between the “Orange” and the “White-and-Blue”
forces have decreased. In the post-Soviet period, the east
Ukrainian elites enjoyed sovereignty in upholding their economic
interests and acquired a taste for power in an independent state.
Yet they are incapable of developing an ideology of an independent
Ukraine and pursuing an appropriate foreign policy (that is, a
multilateral foreign policy, which would be unpopular with the
eastern electorates), and so now they must rely on
national-democrats. The latter, however, are not in a position to
ensure normal economic development single-handedly. This
realization drives both sides to search for compromise that would
guarantee stability in the country.

The nonviolent nature of the Orange Revolution, the preservation
of the legal status quo, and the composition of the new ruling
establishment, many of whose members had personal connections with
the opposing camp, helped to establish a modus vivendi. The East
Ukrainian opposition abandoned the fight for autonomy (the plan
evolved as a means of exerting pressure on the Orange opposition in
the fall of 2004) since its interests are better served by using
the support of the local electorate to fight for a re-division of
power on a nationwide scale. In response, the central authorities
halted the persecution of East Ukrainian officials on charges of
ballot rigging in the 2004 election and made no attempt to
“Ukrainize” the east. The compromise was formalized in September
2005 when the formerly irreconcilable opponents, Victor Yushchenko
and Victor Yanukovich, signed a memorandum of accord between the
ruling establishment and the opposition. Yushchenko withdrew his
signature in January 2006 when the Verkhovna Rada (Ukraine’s
parliament) sacked the Yekhanurov Cabinet by a majority of votes,
but that move did little to change the overall situation.

Presently, the creation of a “big” coalition between the Party
of Regions led by Yanukovich and Yushchenko’s Our Ukraine is a
likely post-electoral scenario, which was inconceivable in the fall
of 2004. Furthermore, because Our Ukraine has somewhat more freedom
in choosing coalition partners and enjoys presidential support, the
Party of Regions, despite its success in recent elections, might
have to agree to join a new Cabinet as a junior partner.

Second, the oligarchic system was to a very
large degree dismantled. Of course, big business retained great
lobbying power and still has broad representation in parliament.
But whereas before basic issues were resolved between clans, in
which the “state” was represented insofar as the interests of
people close to the leadership were concerned, at best playing the
role of a counterbalance, today the Yushchenko administration is
far more independent of oligarchic support. At the same time, they
are not necessarily looking for a confrontation with them. Those
once powerful groups, whose political importance previously hinged
on access to the administrative resource, failed to effectively
advance their political programs. For instance, the Working Ukraine
party, which earlier represented the Dnepropetrovsk clan, fell by
the wayside, while the United Social Democratic Party, led by
Victor Medvedchuk, Kuchma’s last chief of staff, and Ukraine’s
first President Leonid Kravchuk, had slim chances of making it into
parliament in the run-up to the election. A number of high-profile
figures from the era of clan rule (e.g., Victor Pinchuk, the
ex-president’s son-in-law; or Alexander Volkov, who once enjoyed
great clout) failed to secure seats in the Verkhovna Rada since
their inclusion on party lists would have caused more trouble than
it solved.

Meanwhile, it seems that the “Orange” establishment is gradually
coming to terms with the business community over how to build a new
working relationship. The oligarchs recognize the role of the state
in setting new rules of the game, while at the same time they
receive certain advantages. For example, the ruling authorities
have abandoned the idea of mass re-privatization and “revolutionary
logic,” limiting their measures to changing owners at a handful of
enterprises that have symbolic value. A good example is the
Krivorizhstal plant; the re-privatization of this business was part
of Yushchenko’s election program. Meanwhile, the re-privatization
is transparent, directly benefiting the state: Krivorizhstal was
sold in the fall of 2005 at six times its original price. Finally,
in order to advance its products on the European market, a
substantial part of Ukrainian business needs state support and the
administration’s pro-European image. For example, in 2005, the
Donbass Industrial Union took control of a steel making plant in
Czestochowa, Poland – something that it was unable to do under
President Kuchma.

Today, no new groups of oligarchs are privy to the political
establishment. Petro Poroshenko, for example, an individual closely
associated with Yushchenko, who allegedly made a major financial
contribution to the Orange opposition coming to power, lost his
position as secretary of the National Security and Defense Council
when he was publicly charged with abuse of office (the charges were
never proved in court). Meanwhile, lingering suspicions that the
deprivatization of the Nikopol Ferroalloy Plant could have been
carried out by Yulia Timoshenko’s Cabinet for its subsequent
transfer to the Privat Group was definitely a factor in the prime
minister’s dismissal.

Third, constitutional reform began in earnest,
turning Ukraine into a parliamentary-presidential republic. The
president retains sufficient powers (including the power to
dissolve the Verkhovna Rada should it fail to form a government
within 60 days) and parliamentary leverage through his faction, but
with parliament empowered to form the Cabinet of Ministers, the
balance of forces between the executive and the legislative is
shifting in favor of the latter. Today, parliament and the regional
assemblies are formed exclusively on the basis of party lists. In
general, these changes strengthen the pluralism of Ukraine’s
political system, bringing it closer to Central European models. It
should be borne in mind, however, that despite his clearly negative
attitude toward the reform measures, the president made no attempt
to revise the basic compromise agreement that enabled him to come
to power. This will prove to be an additional factor in the
stabilization of the country’s political system in the foreseeable
future.

Fourth, under Yushchenko, Ukraine is moving
away from ‘managed democracy.’ The use of the so-called
administrative resource in the interest of different political
forces is still a viable option, not least because the
investigation of the 2004 ballot-rigging allegations has not been
completed. Yet it seems that the central authorities are not
inclined to use administrative leverage to resolve political
struggles. Furthermore, today there is no guarantee that they will
be able to mobilize bureaucracy: in this respect, Yushchenko’s
administration is weaker than Kuchma’s since the use of the
administrative resource would undermine the legitimacy of the
Orange Revolution that began as a protest against ballot rigging,
and Yushchenko’s chances for re-election in 2009.

The ruling authorities did away with particular media-control
devices, such as temniki [lists of set topics], which in the last
few years of Kuchma’s rule were used for shaping the editorial
policy of both state and non-state media outlets. In its 2005 list
of press freedom, the international organization, Reporters Without
Borders, ranked Ukraine 112th, up from its 138th ranking from the
year before. The role of the press as “the fourth estate” became
obvious during the discussion of the Russian-Ukrainian gas
agreements when the media not only divulged particular details, but
also compelled the government to provide explanations of certain
issues that were rather embarrassing for them.

Fifth, the authorities have reviewed their
attitude toward corruption, yet their ability to deal with the
problem in a systematical manner remains questionable. The
dismissal of Poroshenko, for example, and a number of other
top-level officials, is an indirect indication of this problem.
According to Transparency International, which publishes an annual
Corruption Perception Index, last year Ukraine upgraded its
position from 122nd to 107th. By comparison, in the same year,
Russia dropped from 90th into the 126th position, marking the first
time it ranked below Ukraine.

For Ukraine, time will tell how justified were its compromises
with the business community and the opposition; each compromise has
a down side. By coming to terms with the political opposition and
big business the ruling authorities demonstrate their inability to
adhere to their original platform. At the same time, constitutional
reform threatens to spark a new series of governmental and
political crises. Meanwhile, corruption is still a major impediment
to development. These factors call into question the consistency of
the reform course, but any other alternative would provoke a
general heightening of tensions within the country, which would
make reform impossible in principle. Thus far, this unfavorable
scenario has been avoided.

A EURO-ATLANTIC CHOICE FOR “TRANSIT EUROPE”

Yushchenko’s Ukraine has abandoned multilateralism in its
foreign policy, which was characteristic of the Kuchma era, while
giving top priority to Euro-Atlantic integration. Again, a standard
black-and-white appraisal of the administration’s performance would
differ from a more flexible appraisal, taking all specifics into
account.

On the one hand, as the euphoria of those first post-revolution
months fades, there has been growing skepticism in Europe
concerning the prospects for Ukraine’s EU membership. Indeed, the
integration of such a large post-Soviet and under-reformed country
would require Europe to deploy inordinate efforts. At the same
time, Ukrainian integration would push the issue of EU borders to a
new level of intensity, something that the EU would like to avoid
due to the current difficulties of institutional development.
Furthermore, a number of large EU member states are not willing to
see new problems emerge in relations with Russia, which would be
inevitable in the event of Ukraine’s integration. For countries
such as France it is important to prevent the EU’s further
orientation toward the United States, which seems to be growing as
the EU takes in former East European countries where pro-Atlantic
sentiments are strong. Finally, the “Ukraine advocacy” group within
the EU is not as yet sufficiently influential or prepared to push
its own agenda.

On the other hand, it would be wrong to say that there is no
prospect for Ukraine’s EU membership since the quality of
Ukrainian-EU relations is changing. For all its vagueness, one
could agree with President Yushchenko who, in his inauguration
speech, said that Ukraine had become closer to Europe. Under a
joint action plan (incidentally, prepared when Yanukovich was prime
minister, which further highlights the proximity of the opponents’
views on European issues), in addition to a 300-point “road map,”
work has already begun to adapt the Ukrainian political and legal
system to EU norms and requirements.

Ukraine de facto has already joined the EU’s common foreign and
security policy, primarily in the post-Soviet space. In the case of
Belarus, for example, Ukraine sided with the EU position concerning
the Lukashenko regime, while in the Transdniestr conflict, the
Yushchenko administration showed itself as an active player. It was
largely due to its efforts as part of the “Yushchenko plan” that
the EU joined peace negotiations as an observer and agreed to open
an auxiliary mission in Ukraine to monitor the Transdniestr section
of the Ukrainian-Moldovan border. The EU made some symbolic moves
toward Ukraine, in particular recognizing it as a market
economy. 

Today, the EU is even more deeply involved in Ukraine and has a
great interest in the successful outcome of reform, but most
importantly, it feels responsible for Ukraine. Europe pointedly
refused to treat the Russian-Ukrainian natural gas conflict in the
winter of 2006 as a bilateral dispute, and although it recognized
the legitimacy of the Russian position concerning natural-gas price
hikes, it limited Russia’s rather than Ukraine’s room to maneuver.
This, however, had less to do with Ukrainian policy as with the
EU’s resolve to prevent Russia’s monopolization of access to energy
sources in Central Asia. In this showdown, Ukraine as a key transit
state and the EU oppose Russia.

The idea of Ukraine’s rapprochement with Europe remains popular
at home. This is crucial given the general level of disappointment
that Ukrainians feel about Brussels’ refusal to negotiate with Kiev
on EU membership. According to the Razumkov Polling Center, from
December 2004 to June 2005, an absolute majority of Ukraine’s
population supported the idea of EU membership; by the fall of
2005, support began to decline, finally stabilizing at 40 percent
for membership and about 35 percent against. Furthermore, until
June, all age groups without exception supported EU membership (in
September, the share of opponents began to increase in the over-50
age category). In November, according to the Kiev-based
International Institute of Sociology, the third most important
achievement for the new government, after the increase in social
security and welfare benefits and the reduction of compulsory
military service from two years to one, was its improvement of
relations with European countries. Not surprisingly, during the
election campaign, Victor Yanukovich worked hard to prevent
Yushchenko’s monopoly on European integration rhetoric, and even
advocated a pro-European policy.

The Ukrainian elites did not take Brussels’ refusal as a final
answer. According to the Razumkov Center, 64.6 percent of experts
polled said they thought Ukraine could meet the qualifications for
EU membership within 10 to 15 years (7.7 percent said within five
years, while 6.9 percent said 20 years), while a mere 1.7 percent
said they thought Ukraine was in principle unfit to join the
EU.

It seems that in the worse case situation, Ukraine’s chances for
EU membership have not diminished. If Ukraine can show that it
measures up to membership standards like the former East European
countries, it will be very difficult for Brussels to reject it.
Furthermore, the need to ensure stability and economic growth on
the eastern periphery could compel the EU to graduate Ukraine from
an intermediate transitional status to full membership. Ukraine’s
European integration could improve further if a decision is made to
prevent an increase in the share of Russian fuel in the European
energy balance, which is quite possible in the wake of the
Russian-Ukrainian gas conflict.

The issue on the agenda now, however, is Ukraine’s accession not
to the EU but to NATO. Ukraine’s NATO membership appears to be a
very realistic option as Kiev searches for status that would help
to unequivocally bind it to the West and, at the same time, keep it
outside the EU; even countries that are the least favorable toward
Ukraine could side with the position of the United States and
Eastern members of the alliance (the position that is based on
geopolitical considerations) and opt for further enlargement.
Ukraine would be content with NATO membership as the proverbial
bird in the hand that is worth two in the bush. In a more favorable
scenario, Kiev hopes to follow the Polish path and join one
organization followed by the other, i.e., the EU.

According to the Razumkov Center, almost 80 percent of experts
thought that NATO membership would facilitate the country’s
European integration. It is not ruled out, however, that the
situation could turn out completely opposite. By joining NATO and
thus gaining a foothold in the Western security system, Ukraine
could lose its chance of integrating into the European zone of
prosperity and development, which is hardly in its interests.
Nevertheless, there is no doubt that NATO membership for Ukraine
today is a shortcut to higher status and away from its
“transitional” status. All the indications show that the Ukrainian
leadership hopes to do its homework on EU membership as a NATO
member, while it does not expect, or is not afraid of, a
fundamental worsening of relations with Russia.

In December 2005, a joint statement issued at the end of a
session of the Ukraine-NATO Commission highlighted the need for an
action initiative that would replace annual cooperation plans
inherited from the Kuchma era. According to some experts, the
Action Plan could be ready by the fall of 2006, while the decision
to send Ukraine a formal invitation to join NATO could be made at
the alliance’s summit in 2008.

There are no military or economic arguments that could force any
Ukrainian leadership to give up the idea of NATO membership, and
after 12 years of cooperation, Ukraine’s armed forces are largely
interoperable with NATO forces. Further military reform is costly,
but it is an unquestionable priority for the Ukrainian leadership,
while the prospect of NATO membership would provide it with
financial assistance. The Ukrainian officer corps is practically
devoid of anti-NATO sentiments. The negative fallout for the
Ukrainian military-industrial complex from the scaling down of
military-technical cooperation with Russia will be minimal. Even in
the Russian estimate, total losses will not exceed $150 million.
Not surprisingly, the course toward rapprochement with NATO was
consistently pursued under Kuchma, while in May 2002, the National
Security and Defense Council made the strategic decision on
Ukraine’s plan to join the alliance.

The main impediment to NATO membership for Ukraine is anti-NATO
public sentiment. According to the Razumkov Center, as of December
2005, even in Western Ukraine, the share of those in favor of NATO
membership was about 30 percent, while in the south and east of the
country where people fear that Ukraine, as a NATO member, could get
involved in a conflict with Russia, the proportion of opponents was
close to 80 percent. This public sentiment can hardly be changed
quickly by PR activities to improve the bloc’s image. On the other
hand, anti-NATO sentiments do not directly increase the influence
of political forces that have made this a central issue of their
political platform. The opposition bloc Ne Tak! (‘Not This Way!’),
formed around the United Social Democratic Party, according to its
own estimates garnered nearly 4.7 million votes for a referendum on
Ukraine’s accession to NATO and the Common Economic Space with
Russia, which is 10 percent of Ukraine’s total population. At the
same time, the political bloc’s rating in the run-up to elections
varied between one and two percent of the electorate. This gives
the executive considerable room to maneuver.

It will be necessary to take into account the lineup of forces
within the elites before arriving at a final decision. Given the
president’s role in shaping the country’s foreign and military
policy, as well as his powers to appoint the relevant ministers, it
is unlikely that the course toward NATO membership will be
abandoned after parliamentary elections.

THE END OF THE ERA OF BROTHERHOOD

By far the most serious changes, however, have taken place in
Russian-Ukrainian relations, as the Orange Revolution marked the
end of the post-Soviet phase in these relations. Ukraine refused to
play the role of “junior brother,” maintaining a semblance of
loyalty as Kuchma was willing to do, while Russia came to the
conclusion that it was impossible to continue with the old
mechanism of economic subsidies.

For the most part, Russia is no longer a major factor in
Ukraine’s domestic policy, especially after Moscow’s heavy and
ineffective interference in the 2004 presidential elections in
Ukraine. Russia still has some influence in the economic and media
sphere, but neither the Orange (which was Russia’s target in the
past), nor the White-and-Blue (which did not benefit from Russia’s
involvement), perceive it as a critical factor at the present time.
Russia’s presence as a player in the 2006 election campaign was
minimum, and ended up being more of an irritant and a subject of
debate.

Eventually, Kiev seized the initiative in bilateral relations.
In the past year, Moscow more often than not was forced to react to
developments than to raise questions. Kiev’s declaration that
Euro-Atlantic integration was a priority came as quite a serious
challenge to Moscow. That was followed by the creation of the
so-called Commonwealth of Democratic Choice – yet another mechanism
of tying Ukraine to Europe, while at the same time consolidating
those post-Soviet and East European countries whose relations with
Russia remain problematic.  Even more serious was Kiev’s
attempt to review the financial agreement of Russia’s Black Sea
Fleet based in the Crimea. The latest move concerning the rent
agreement is hardly justified since such behavior calls into
question Ukraine’s pacta sunt servanta, while Kiev’s persistent
unwillingness to admit that there are gaps in the legal basis of
the agreement – disadvantageous for Ukraine – is quite
understandable.

The gas conflict was Russia’s attempt to wrest back the
initiative from Ukraine. Russian negotiators managed to secure
beneficial price agreements, direct access to the Ukrainian market,
and control over the supplies of natural gas from Central Asia. The
success, however, proved to be only partial and limited. To begin
with, the final results concerning both gas prices and pipeline
control went far below the initial demands. Furthermore, the
viability of the compromise that was reached remains dubious since
the lack of transparency of the deal makes it vulnerable both to
domestic political opponents of the Ukrainian government and to
Ukraine’s European partners. During the conflict, Ukraine
demonstrated the leverage that the transit state had in relations
with the producing country: in the foreseeable future, the latter
will not be in a position to cut off gas supplies at the risk of
failing to meet its obligations to end users and due to the lack of
gas storage facilities, while the former can still siphon off gas
if necessary.

In the long term, the gas conflict has the potential to become a
key step toward the reformation of Russian-Ukrainian relations.
Instead of the relationship being based simply on relations between
the elites, it will evolve to the level of interstate relations.
Whatever the new power configuration in Ukraine, Russia can hardly
be expected to return to preferential price policy that it
abandoned with such difficulties and loss of image. This, in turn,
makes it increasingly unlikely that the Ukrainian leadership will
review its foreign policy priorities.

On the whole, bilateral relations have become much more
conflict-prone than before 2004, although they have not reached the
level of intensity that marked the period of negotiations over the
withdrawal of nuclear weapons from Ukraine or, more recently, the
Black Sea Fleet base in Sevastopol. Initially, both sides sought to
play down the conflict. In Moscow, Victor Yushchenko and Yuri
Yekhanurov stressed their readiness to search for a new model for
bilateral relations, while in March 2005, Vladimir Putin paid a
visit to Kiev. Nevertheless, the systemic differences in both
countries’ vectors of political development prevailed. Ukraine’s
Euro-Atlantic choice is at odds with Russia’s attempts at
developing as an independent center of force without formal
integration with other countries. Economically, Russia is
interested in raising the profitability of energy supplies to the
maximum degree possible, while Ukraine would like to preserve low
prices. On this issue, East Ukrainian business groups that
traditionally are, or considered to be, the base of pro-Russian
political movements, especially oppose Russia. Finally, political
and personal trust between the partners was undermined by Russia’s
unsuccessful attempts to prevent Yushchenko’s election as
president.

On the other hand, even a controlled conflict is detrimental to
both sides. For Ukraine (where the eastern regions tend to
gravitate toward Russia), that would mean a deepening of
inter-regional contradictions, while for Russia, it means the
acceleration of Ukraine’s movement toward the West.

Furthermore, Russia has to bear in mind that any worsening of
bilateral relations only consolidates Ukrainian society (suffice it
to recall the Tuzla standoff and the rise in the popularity of the
pro-presidential party Our Ukraine in the winter of 2006, which not
accidentally coincided with the gas conflict). Such a development
would allow Kiev to stand up to almost any pressure. Furthermore,
the bilateral conflict has a negative impact on the two countries’
relations with Europe. Unlike the case with the Baltic States, it
will be extremely difficult for Ukraine to gain admission to the EU
if it has problems with Russia, unless Moscow subjects it to direct
geopolitical pressure first. At the same time, Russia, as a
stronger state that is less integrated into Europe and still
perceived as a post-imperial force, will be coming under increasing
pressure. It is also important to remember mutual economic
interests. According to the Ukrainian Economics Ministry, in 2005
Ukrainian exports to Russia grew by 27.3 percent compared with
2004, while imports from Russia grew 5.9 percent.

It seems that in the next few years, Russian-Ukrainian relations
will not be easy; the relationship will include turbulent moments
of partnership, competition and even conflict. Such relations,
however, are not at odds either with Ukraine’s present status as a
new “transit” state or with its membership in Euro-Atlantic
structures – when and if that moment comes. Even so, Ukraine’s
European integration priorities, regardless of the prospects for
its EU membership, will require greater transparency in
Russian-Ukrainian relations and, in a broader context, their
adaptation to European rules and regulations.