A Fledgling Democracy Struggles to Get on Its Feet
By Stewart Pollock
politics, standing as it does between Russia and the West and serving historically as a buffer between the two. Since the fall of the Iron Curtain, as a democratic and increasingly nationalistic state, it has been devoted to maintaining its independence from all of the blocs which surround it. Yet the economic woes that grip the rest of the continent have not left Ukraine unscathed. In fact, a weak government and poor fiscal planning mean that Ukraine may be particularly vulnerable to a new recession.
The country’s recent parliamentary elections seem to have compounded its economic woes, adding political uncertainty to a situation already marred by continued bad economic news. Eastern Europe’s largest country has never been known for the strength or accountability of its political institutions, but with the Ukrainian economy teetering on the brink of collapse, the weak coalition that emerged from those elections, led by Prime Minister Mykola Azarov, has its work cut out for it.
The credit ratings agency Moody’s cited “poor policy predictability,” among other factors, in its recent decision to downgrade Ukraine’s credit status. A lack of consistent fiscal policy from the Azarov government is seen as one of the main reasons for continued pessimism about the country’s financial situation. The weakening of the Ukrainian hyrvnia against the dollar, as well as dwindling foreign currency reserves, and external debts totaling around $10 billion, have provided solid economic backing to such fears. Although the government theoretically has the power to implement reforms and patch up the economy, the circumstances of its election undermine its ability to do so.=
Mykola (Nikolai) Azarov has been Prime Minister of Ukraine since 2010, when Victor Yanukovich, whose campaign Azarov ran, defeated Yulia Tymoshenko. Tymoshenko has since been charged with a variety of corruption-relate crimes and imprisoned in Kiev, stoking fears about the political motivation behind her imprisonment, and loud claims by her supporters that Tymoshenko was framed. President Yanukovich, who previously served as Prime Minister from 2002 to 2004, is notable for having lost the 2005 presidential election to Viktor Yuschenko, following a series of protests known as the “Orange Revolution.” His return, combined with Tymoshenko’s controversial imprisonment, has cast an especially inauspicious aura over the new government. Former President Yuschenko, formerly the poster boy for political optimism in Ukraine following the Orange Revolution, provides one of the most dramatic examples of how vicious Ukrainian political culture has become. In 2004, he was left disfigured after he ingested large amounts of dioxin, in what he claims was an assassination attempt by his opponents. The resulting burns and pockmarks on his face have been a continual reminder of how ugly Ukraine’s politics have become, as well as giving him the appearance of a Bond villain.
The coalition that currently rules Ukraine’s parliament is formed from an uneasy alliance of Yanukovich and Azarov’s Party of Regions and several smaller parties, including the Communist Party. Formed Christmas Eve of last year, the Azarov-led government has even less of a mandate than the first. In order to get the various disparate elements of his coalition to agree to make necessary reforms to prevent a recession, Azarov will have to get his own support base in order. And he is running out of time to do so: The nation’s foreign currency reserves fell 5.4 percent in November, down to $25 billion. The hyrvnia continues to fall, with some forecasts even suggesting that the currency will be worth a tenth of the dollar by the end of the year. The likelihood of Ukraine falling in to a Greek-style debt crisis grows more and more plausible. Meanwhile, Ukraine’s representatives continue to bicker and fight, both figuratively and literally. A brawl between legislators on the floor the Verkhovna Rada, Ukraine’s parliament, was caught on television, showing suit-clad bureaucrats grappling with each other and putting Ukrainian political incompetence and pettiness on display for the whole world to see.
The dysfunctional nature of Ukrainian politics stems partially from its history following the breakup of the Soviet Union. In 1991, Ukraine held its first election as a republic, following its official independence the previous year. What had originally been trumpeted as one of the first expressions of Ukrainian independence in centuries soon collapsed in the face of a harsh economic and political reality. Corruption and a lack of government organization resulted in an eight-year recession, which was among the deepest affecting former Soviet territories.
Matching this economic uncertainty was a political system marred by rampant corruption. A survey of Ukrainians in direct contact with the government done by Chatham House found over sixty percent admitted to complicity in some form of official corruption; nearly twenty-five percent acknowledged taking bribes. Huge amounts of government funds derived from Ukraine’s steel industry were embezzled, and according to cables leaked by Wikileaks, U.S. officials familiar with Ukraine referred to the country, and particularly Yuschenko’s government, as a “kleptocracy.” In 2012, the Kiev Post exuberantly reported that Transparency International no longer considered Ukraine to be the third-most corrupt country on Earth, as it had in 2011. Instead, Ukraine was only the 11th most corrupt; second-most corrupt in Eastern Europe. Such dubious honors hardly speak highly of either Mr. Azarov or Mr. Yanukovich.
All of this means that it is unlikely that the IMF will extend a much needed loan to Ukraine, which the country’s leaders had hoped to use to build up its currency reserves and prevent further weakening of the hyrvnia into 2013. Azarov has publically dismissed fears about the loan, telling major Ukrainian media at a press conference in December that Ukraine had done fine without IMF credits over the past two years, and doesn’t need them for 2013. This seems to be little more than typical public overconfidence, however, as Ukraine’s leaders have desperately been searching for an alternate lender to give them the necessary funds should the IMF refuse to extend the new loan. Having recently taken a $1.25 billion Eurobond, Ukraine will be hard pressed to find any more help from the private sector. For the IMF to take another chance on Ukraine, Azarov’s government must press for politically unpopular but necessary changes, like higher gas prices for Ukrainian households and exchange rate liberalization. But in the current political climate, it is very unlikely these steps can or will be taken, and therefore hope for a new IMF loan remains slim.
Ukraine’s biggest problem in the short term is its volatile and leaky economy. But in the long term, fighting corruption, and the public institutions that support it, should be the Azarov government’s biggest concern. President Yanukovich has frequently spoken of a commitment to joining the EU and distancing Ukraine from its large, autocratic neighbor, Russia. But before his country should even be considered for membership, his government in Kiev must do a better job of providing evidence that it is not just a continuation of the crony state which has ruled Ukraine for the past decade. If it can do this, then and only then may Ukraine be able to rise out of the bog of corruption and apathy that has engulfed the country.