Ukraine: A Generation Of Failure And Missteps

Independence for the Ukraine arrived in early December of 1991, after a referendum. It was practically inevitable, following the failed coup attempt against President Mikhail Gorbachev in August. The effort to replace him, actually accelerated the dissolution of the Soviet Union.

The Ukrainian parliament had already passed a resolution in support of the upcoming vote, in making the former Soviet republic, a separate state on August 24th. That is why this date is recognized as Independence Day in Ukraine.

The referendum itself had 82% of eligible voters participating, with more than 90% in favor of making the Ukraine a sovereign nation.

The Ukrainian parliament had declared the territory of the country to be indivisible and inviolable, as part of the Act of Declaration of Independence.

This was the third time in the 20^th century that Ukraine had announced its independence. One was near the end of World War I, with the collapse of the Russian Empire.

The second occurrence would be during World War II. Both times, the Soviet Union would conquer and reincorporate the territory into its domain.

Considering the history of the country, security was a concern for Ukrainian leaders in the 1990’s. However, the country declared itself a neutral state, reasoning that Russia was no longer a threat.

Boris Yeltsin the President of Russia, had embarked on a pro-Western foreign policy and was far weaker militarily than the former Soviet Union. The Cold War had at last ended.

In fact, Ukraine would form a limited military partnership with Russia as well as a relationship with NATO (North Atlantic Treaty Organization).

There was also cooperation with the CIS (Commonwealth of Independent States) which compromised the majority of the former Soviet Republics.

The Budapest Memorandum on Security Assurances signed in late 1994, was a major miscalculation on the part of the Ukrainian government. These were three identical political agreements, that provided security assurances to Belarus, Kazakhstan and Ukraine.

This was in exchange for these three countries to turn over their nuclear weapons, a legacy effect resulting from the breakup of the Soviet Union.

The documents were signed by Russia, the United Kingdom and the United States. China and France would initial similar assurances in separate notes.

The memorandum gave a pledge that the borders of the three former Soviet republics were guaranteed by the signatories. These nations were to be protected against threats or use of force, and their political independence secured.

Before the agreement, Ukraine had in its possession, the third largest nuclear weapons stockpile in the world. However, operational control had remained in Russian hands. By surrendering the missiles, a major bargaining chip had been given away.

The weakness of the Budapest understanding retrospectively, is that it does not render a legal obligation on the part of the signatories to protect Ukraine. It gives justification if action is taken, but does not guarantee any military assistance, if the text of the memo are violated.

It is therefore in reality, not a formal treaty. This would be a bitter disappointment for the Ukrainian government, less than a decade later.

In the 2000s the country slowly began to move towards Europe and NATO. A more firm cooperation with the West was put in motion by the NATO-Ukraine Action Plan in 2002. It was then decided that membership in the military alliance would come after a future referendum. The country was moving ever closer to integration with the rest of Europe as well.

The election of former President Viktor Yanukovych in 2010, brought a change in Ukrainian policy towards Europe. He was against his country joining NATO.

After Yanukovych suspended the Ukraine-European Union Association Agreement in favor of closer economic ties with Russia, protests against his decision began to break out. These demonstrations that began in late 2013, became known as the Euromaidan.

It escalated into the 2014 Ukrainian Revolution and the ouster of the pro-Russian President Yanukovych.

A new government would then be installed, with Petro Poroshenko being elected in 2014.

Observing that Ukraine would now move to foster an ever growing relationship with the West, the Russian government would initiate a civil war in eastern Ukraine (Donbass) as of March 2014. The Russian minority would be encouraged to rebel, against the new European oriented government in Kiev.

The same month Russia would send military forces without insignia into Crimea. The peninsula would be annexed a short time later. The occupation of Crimea and the War in the Donbass region are still unresolved. Russia continues to arm the insurgents and as recently as last month, is keeping more than 100 thousand troops on the border with Ukraine. The intimidation of the Ukrainian government has been ongoing.

Ukraine with a population of 42.6 million (not including Crimea), is the largest country geographically entirely in Europe. Blessed with extensive fertile farmland, the country has been a major exporter of grain for generations.

Ukraine has a diversified economy with abundant heavy industry, especially in aerospace and industrial equipment.

After independence Ukraine sank into oligarchy and economic stagnation. There was a huge decline in output and soaring inflation in the early 1990’s.

The currency would be replaced in 1996, but would remain unstable. A deep recession during the time, would lead to a relatively high poverty rate.

A economic recovery would arrive in 2001 and would continue until the 2008 global financial crisis.

The Ukrainian economy grew at an average of just 2.53% from 2000 to 2016. The civil war in the east of the country, plunged the country into a deeper recession. The downturn had already begun in 2013.

The first major effort at reform arrived with the Orange Revolution of 2004. It ultimately failed to bring any real improvements for the country, due to massive and ongoing corruption. Even today, only about 10% of the current legislature is committed to reform.

The Euromaidan revolution nearly ten years later, did indeed change the foreign policy of Ukraine away from statist Russia and towards Europe. This was largely achieved by the overthrow of President Yanukovych and a number of his main enforcers.

However, the majority of the corrupt government officials remained in place. Most of them serve the interests of the powerful and coercive oligarchs. It is the reason why the reform movement has continued to sputter.

Each improvement is met with vehement resistance from some quarters, who are loathe to give up their previous privilege.

Ukraine for example, now has a new police force that has been trained by Western experts. It confronts an absolute debased legal court system, where bribery is rampant.

The government has set up the National Anti-Corruption Bureau that remains in conflict, with a unreformed and powerful prosecutors office. The latter is making various attempts to protect the elites of society, despite their illegal activities.

There has been a change in society as a whole over the last 25 years. More Ukrainians are of the mind, to hold their government and its officials accountable for their actions.

There is a rise in civic groups, non government organizations, journalists and other entities that are keeping the pressure on the authorities, to move the country towards more reform.

There have been some notable achievements. Naftogaz which beforehand needed continuous government subsidies, is now turning a profit. The same is true for the state owned railways company.

A new direction towards decentralization, is now returning more tax revenues to localized areas. This allows lesser officials to decide what will be the foremost infrastructure investments.

Unlike in the past, external financial assistance today is increasingly tied to the pace of economic and political reforms. This keeps the pressure on the government to maintain progress, despite the resistance from many levels of bureaucracy and the recalcitrant oligarchs.

This is why so much of the present economic aid is conditional and handed out in a piecemeal fashion. The European Union, the International Monetary Fund (IMF) the United States and other partners have all adopted the same stance. It is estimated that more than half of the reforms achieved, have been made possible by this posture.

Ukraine signed the Deep and Comprehensive Free Trade Area with the European Union, at the beginning of 2016.

Only recently has the Ukrainian economy emerged from more than two years of deep recession. The first half of the year finally showed some positive growth of 0.1% in quarter 1 and 1.3% in the second quarter.

Industrial output rose 2% during the same period, the first increase since 2012. Retail sales are up 2.3% in 2016.

Inflation is finally easing, allowing the key interest rate charged by the central bank to be cut from 22% at the end of 2015 to 15.5% last July. Monetary restrictions have also been eased. This would include limits on foreign currency purchases and the ban on withdrawing investment profits from the country.

Average wages have surged 22.4% in the first half of 2016.

On the negative side exports a major contributor to the GDP (Gross Domestic Product) are still down 9.2% from a year ago. In addition, sovereign debt has increased 2.5% in the first six months of 2016 alone.

The country can easily enter into another recession. Russia has used the fact of Ukrainian dependence on gas supplies from them, to exert constant pressure on the economy. Another cut off of energy supplies, can easily sabotage any economic recovery.

Ukraine remains quite dependent on Russia economically. The country remains their largest trade partner by far. Germany is a distant second.

Any increase in political uncertainty or an escalation to the conflict in the Donbass, will drive off both domestic and international investors even further. Direct foreign investment in 2013, was the equivalent of $5.7 billion USD (United States dollar). In 2015 it was only $3.7 billion USD.

As a result, Ukraine is becoming increasingly dependent on aid and loans from the European Union and the IMF. Government debt to GDP ratio has been rising and hit 79% in 2015.

The geopolitical impact of a economically successful and democratic Ukraine are momentous for Europe as a whole. It greatly adds to clout and influence that the West will have, in this part of the world.

Ukraine had the second largest military after Russia, if reserves are included. The country holds a geographically strategic position, between the EU and a militarily resurgent Russia.

Ukraine has a large Russian speaking population, with numerous contacts with its far larger neighbor. A prosperous Ukraine with a parliamentary style government, will present a major challenge to the increasingly authoritarian Russian government.

It is the major reason why President Putin of Russia will wish to keep the civil war in Ukraine an ongoing concern. It makes a thriving and stable country, all the more difficult to achieve. Putin understands the threat. If Ukraine is not fully in the Russian orbit, it must be kept divided, unstable and weak.