Ukraine's Future

February 28, 2014 Topic: Politics Region: Ukraine

Ukraine's Future

Factors to watch.

As a new “Unity Government” gets down to work in Kiev, the factors determining the political and economic trajectory of Ukraine will be determined less by a tug of war between Russia and the West than by the actions and decisions of the leadership that emerges in Ukraine. The key factors will be the ability of the new leadership to unify the mainstream opposition and marginalize fringe elements, while satisfying the demands of the protestors of Independence Square who are distrustful of the Ukrainian elite and impatient for change. The process will be long and messy, and the outcome is unclear. The one thing that could transform Ukraine's domestic crisis into an East-West confrontation would be a threat—real, perceived, or manufactured—to Ukraine's Russian-speaking population, which could trigger an intervention by Moscow. Unfortunately, there are some early signs of this in Crimea.

The Maidan revolution represents a tactical defeat for Russian President Vladimir Putin, who had sought to incorporate Ukraine into a new “Eurasian Union,” as a kind of successor to the former Soviet Union. As Ukraine’s major trading partner and virtual monopoly supplier of energy, Russia still holds many cards which it can and will use to exert influence on Ukraine, Europe’s second-largest country and the historical center of the Russian empire.

On the other hand, now that Russia has halted its $15 billion aid package, Ukraine’s short-term solvency will turn on the speed, scope and terms of Western assistance. Ukrainian officials now say they will need $35 billion to avoid economic collapse in 2014. Bogged down and internally divided as a consequence of its own economic woes, the EU has been slow to act, but together with the IMF it is likely to come through with a substantial aid package now that the new government is successfully formed. U.S. officials have said they are also prepared to provide $1 billion in near-term financial assistance.

In the long run, however, the decisive factor will be whether the various elements of the Ukrainian opposition can come together around a program of genuine political and economic reform, and then demonstrate the political fortitude to implement it. The factors that will determine Ukraine’s trajectory are the same as those that led Ukraine to the current crisis.

Twenty-three years after the breakup of the Soviet Union, Ukraine has yet to build effective political or economic institutions. The protesters on Independence Square were venting their disgust at Ukraine’s corrupt political system as much as they were making a choice between the EU and Russia, although Ukrainians now supporting closer association with Europe do not break as neatly along east-west lines as they did at the time of the 2004 Orange Revolution.

Ukraine’s economic indicators over the past generation tell the story: governance matters. In 1989, on the eve of the Soviet collapse, Ukraine’s GDP was slightly larger than that of its neighbor to the west, Poland. Today, the economy of Poland, a country 20 percent smaller than Ukraine that undertook early and painful economic reforms—so-called "shock therapy,"—has a GDP today that is almost three times greater. Poland ranks in the top quartile of Transparency International’s Corruption Perception Index; Ukraine is 144 out of 177, on par with Nigeria and Iran.

Factors to Watch. During the period between now and the newly planned presidential election on May 25, the main issue will be whether the caretaker government can continue to act swiftly enough to meet the demands of an impatient electorate. In the longer term, Ukraine's trajectory will depend on who emerges and with what level and breadth of support.

Former Prime Minister Yulia Tymoshenko's dramatic appearance on the Maidan after her release from prison in Kharkiv received mixed reviews, although reliable internal polling suggests that she still commands more support than the other opposition leaders. Is she damaged goods or will her name recognition and past popularity allow her to prevail, or assume the role of kingmaker?

Tymoshenko, ambitious to a fault, is not a favorite of the West, despite the universal criticism of the selective prosecution that landed her in jail.

Arseniy Yatsenyuk, who held senior posts in the pre-Yanukovych government, including economy and foreign minister and deputy governor of the central bank, is a well qualified if uninspiring technocrat. He is, nonetheless, well liked in the West because of his government background, and because as a representative of the Fatherland party, he might be able to assume the mantle of Tymoshenko, of whom he is a close ally. In addition, he received high marks for his performance during the protests and since, including public statements about the importance of attempting to avoid unnecessary provocation of Moscow.

Vitali Klitschko, the head of the anti-corruption UDAR party is, by comparison with the others, a relatively fresh face, with less political baggage and a measure of street credibility that the others lack, although that was tested after he was booed and criticized for reluctantly agreeing to sign the compromise interim agreement brokered by the Weimar group of European foreign ministers. Although seen in the West as political neophyte (at least by one senior U.S. official), Klitschko has handled himself well in a number of high-level settings throughout Europe over the course of several years.

The wild card is the role of fringe elements, whose impact cannot be ignored. Ukrainian nationalists may not only reject Parliamentary decisions but also refuse to go along with an agreement to a Western-promoted austerity package. Of additional concern is the potential of Russian ethnic populations in Crimea and the Eastern border areas to act out, in response to protests by Tatars and Ukrainians, who comprise a substantial proportion of the Crimean population, which is more diverse than many realize. Real or perceived threats to Ukraine’s Russian-speaking population are the actions most likely to provoke or be used as a pretext for an intervention by Russia, military or otherwise.

Finally, the role of the oligarchs cannot be overlooked. If past is prologue they will continue to exert influence behind the scenes and without regard to the rule of law. The optimistic scenario is that having failed to seize the opportunity of the 2004 Orange Revolution to reform Ukrainian institutions, the missed opportunities and mistakes of the past will unite the new Ukrainian leadership to build a system of accountability and transparency to which the oligarchs will accede over time.

Ideally, assistance to the Ukrainian state would come not only from the EU, the IMF, and United States but also from the ill-gotten gains of the oligarchs who owe their position to their country. In addition, as Peterson Institute economist Anders Aslund has said, reclaiming extorted assets by Yanukovych and his cohorts could improve the situation, but will require “energetic international assistance to find and confiscate those stolen funds.”

In short, will the Ukrainian revolution eat its own, or will the opposition seize this as an opportunity for national unity to build a new, more open, prosperous and secure country?

Impact on U.S.-Russian Relations. Although U.S.-Russian relations are being tested by the conflict in Ukraine, it is clear that the Obama administration seeks to avoid a direct confrontation with Moscow over the issue, if Moscow will allow it to do so. The Administration’s “reset” is dead, but the principles that drove President Obama to adopt the reset policy remain in place. The aim of the reset was not to improve relations for the sake of doing so but, instead, to pragmatically identify opportunities for cooperation in areas of importance to the United States. This remains an accurate description of administration policy now, despite heightening tensions over Crimea.

The administration seeks to avoid a rupture in its relationship with Moscow as it continues to pursue cooperation on Syria, Iran, and in Afghanistan, among other issues. The administration has been exploring options for arranging a summit meeting between Presidents Obama and Putin on the margins of the G-8 meeting in Sochi. The United States is even considering entering into negotiations on a bilateral trade and investment treaty with Moscow, as a way to keep relations on a pragmatic course, despite tensions over Ukraine and on a variety of human rights issues. The administration’s response to the surprise saber-rattling military exercises ordered by Putin on Russia’s western border, were firm, as they should be. Hagel affirmed America’s support for Ukraine’s territorial integrity and sovereignty, and urged Russia “not to take any steps that could be misinterpreted, or lead to miscalculation during a … time with great tension.”

Until events in the Crimea, Moscow seemed to be in a similar mood to contain East-West tensions. Last weekend, even as Prime Minister Medvedev was denouncing the ouster of Yanukovych as an illegitimate coup, Russia voted with the United States for a UN Security Council Resolution to increase humanitarian aid to Syria.

A worsening of relations, however, remains a possibility, and will depend largely on Russian actions or on how Russia responds to real or perceived provocations in Ukraine. Military reinforcement of positions in Crimea, for example, would require some kind of response by the United States to include, for example, raising the readiness of NATO forces, and Congress in such an event would insist on a stern response by the United States, including the possibility of sanctions.