The Why Emerging Europe portal, which serves as a platform of business opportunities in Central and Eastern Europe, on April 2 held a webinar about the Political Economy of Ukraine together with the Centre for Social and Economic Research (CASE). The webinar was moderated by Andrew Wrobel, Head of Content at Why Emerging Europe, and hosted by three prominent experts in the Eastern European politics and economics, Anders Åslund, Senior Fellow at Peterson Institute for International Economics; Oleh Havrylyshyn, Professor at University of Toronto and the Joint Vienna Institute; and Christopher Hartwell, President of CASE.
The webinar started with the discussion of the recently signed natural gas contract between Ukraine and Russia where the price is 25% lower than in the previous quarter. Anders Åslund thinks that this is a defensive measure from Gazprom because Ukraine had earlier decided not to buy any natural gas from Russia starting from April 1. Mr. Åslund said that the price in the contract is essentially the market price and not some benefit for Ukraine, as Russia is trying to portray it.
Mr. Åslund said that Gazprom has lost its biggest customer by mistreating Ukraine for years. The main purpose of Gazprom in Ukraine has been to spread corruption and in this way buy political power. In this system, some oligarchs close to Moscow have been allowed to buy gas cheaply and then sell it at a much higher price in Ukraine. The best Ukraine can do, said Åslund, is to stop buying gas from Russia altogether. Ukraine is now saving gas “extraordinarily” partly because of the recession. According to him, on April 1, the gas prices for households went up by 330%, which is “the right thing to do, as well as buying gas from Europe.”
Going forward, Mr. Åslund thinks that Putin will continue trying to make Ukraine fail and show that democracy is no good for an eastern Slavic country. The aggression in Ukraine is thus “a pre-emptive strike against democracy in Russia”. Having lost the gas weapon against Ukraine, Putin may continue his military invasion in Ukraine and wage an offensive on Mariupol. He also has other means of damaging Ukraine – he is complicating the IMF financing for Ukraine. Oleh Havrylyshyn thinks that the latest Russian move to lower the natural gas price for Ukraine may be directed against Ukraine's position in the war by trying to lure Ukrainian populists towards Russia.
Christopher Hartwell said that currently in Russia the old Soviet siege mentality is prevailing with no strategic thinking. Strategically, a strong Ukraine on the Russian western border would be beneficial for Russia. But the old tradition to destroy everything which “threatens” Mother Russia is prevailing. There is no strategic thinking as to what this aggression will cost Russia, just some tactical moves on how to win in particular situations.
Andrew Wrobel quoted Dr. Mohammad Zahur, the publisher of Kyiv-based English-language newspaper Kyiv Post and owner of Istil Group with interests in Ukrainian steelmaking, who thinks that Ukraine should not be related either to the European Union or to Russia. To this opinion, Oleh Havrylyshyn said that this opinion is a non-starter. He thinks that Ukraine cannot be a Switzerland and entirely neutral either in military or in economic sense.
Anders Åslund added that the choice for Ukraine is between a developed economy in the EU and corruption and domination of the Russian security apparatus. The fact that corruption has gone down in all Eastern European countries which have joined the EU, speaks for turning to the West because corruption remains the biggest problem in Ukraine. Mr. Åslund believes that Ukraine's people and large businessmen alike, as well as President Poroshenko, are in favor of the EU.
To battle corruption, Anders Åslund thinks, Ukraine needs to start from the top and fire all the judges and prosecutors, and rely on the civil society. Oleh Havrylyshyn also thinks that there needs to be a “shock therapy” in the Ukrainian judicial system.
Oleh Havrylyshyn also thinks that there need to be substantial changes in structural policies, regulations and licensing. This is being done in Ukraine, but Professor Havrylyshyn thinks, it is being done too little and too slow. Anders Åslund credited, in particular, Minister of agricultural policy and food Oleksiy Pavlenko and Minister of Economy Aivaras Abramavicius for reforms in this regard.
As to the role of the West in Ukraine's future, Oleh Havrylyshyn said that the Western sanctions are having an effect but that they are not that important to Putin. Professor Havrylyshyn called the West “relatively generous” in its help for Ukraine despite many complaints that reforms are not moving enough in the country. The current financial assistance package has bought Ukraine “time to do its own adjustment”. However, Ukraine's main demand to the West about lethal weapons is being ignored. In Mr. Havrylyshyn's opinion, the most cynical way to describe the Western attitude to Ukraine would be “they are being more generous than they might otherwise be on the financial support as sort of a diversion from the fact that they are not providing a military support.”
Anders Åslund, in turn, does not think that the West is being particularly generous: “the IMF has stepped up, and of course the Western countries are on the IMF board, but the United States is providing 2 billion dollars only, and this is in low quality loans, and the European Union is also only providing 2 billion euros.” At the same time, China is discussing a total of 20 billion dollars of loans to Ukraine. Mr. Åslund thinks that the EU should provide much more to Ukraine.
Christopher Hartwell wanted “to be even more provocative”. He thinks that the West has been “a mess when it comes to Ukraine, the West has always been a mess when it comes to Ukraine. Look at George Bush the elder ‘Chicken Kyiv' speech (in the Soviet Ukraine's parliament in August 1991 – NP) that everybody in the Soviet Union should stay together because we don't know how to deal with it”. “There is no strategy. The sanctions are there but what are they going to accomplish? Are driving the Russians out of Crimea, are we topping Russian tanks…crossing the border in the East, are we bringing to justice the murderers of the Malaysian Airlines flight 17, what is the goal of these sanctions? It hasn't been debated in the West…Putin has a definite strategy in Ukraine, the West does not…And this is the problem, especially given the weakness of the US Administration and the disarray in the EU in confronting this issue.”
Oleh Havrylyshyn also criticized the Western strategy towards Ukraine saying that it follows an old Churchill's aphorism “Jaw-Jaw is better than Bang-Bang”. Professor thinks that this strategy is not a good one, is a “strategy of avoidance, a strategy of not getting into a potential conflict with Russia”. “And you don't hear a counter-argument that the way to pacify the bully is to stand up to him”. Oleh Havrylyshyn reiterated the position of many people, especially in Britain and the US, that “the sanctions have gone as far as they can and we have to show a little bit of firmness”.
Anders Åslund said that the decision to arm Ukraine depends on President Obama alone while the US Secretary of State and Secretary of Defence, as well as the Congressional leaders are all for it. He also added that Russia's military is stretched at the moment and provided an estimate by Igor Sutyagin, a Research Fellow at the Royal United Services Institute in London, that 90 thousand Russian soldiers are involved in the war inside or outside Ukraine, while Russia has only 100 thousand soldiers who can actually fight, out of 650 thousand altogether. Therefore, probably, Russia cannot do much more now. Given this situation, Mr. Åslund called it “incomprehensible that the West is not delivering arms to Ukraine”. Given that Ukraine's military spending this year should amount to about 4 billion dollars, an addition of 1 billion dollar a year of Western help to this budget, proposed in a report by the former US Deputy Secretary of State Strobe Talbott, would present a very small cost to the West but would go a long way for Ukraine. Mr. Åslund said that “the military struggle of Ukraine is not hopeless, …the Russian bear is not so strong.”
As to the Ukrainian government's performance, Christopher Hartwell praised the institutional and structural reforms of the past year, in particular, the removal of barriers to business and investment. He said that there is much more to be done. In particular, land property rights have to be ensured. It's worth quoting Mr. Hartwell's following words: “Ukraine today is probably the best that it's ever been and hopefully tomorrow it will be even better, but it's still not where it needs to be.”
Anders Åslund was quite worried about Ukraine's economic situation and said that, in particular, Ukraine's exports to the EU in 2014 grew by just 2.5%, because the European agricultural quotas for Ukraine were very small. The conditions for foreign direct investment (FDI) are not there and the IMF assistance will not help that.
Oleh Havrylyshyn thinks that the EU can further help Ukraine by agreeing with the visa-free regime, which would allow many Ukrainians to go to the West and become proponents of the market reform; and by harmonizing the fito-sanitary requirements for Ukraine which would considerably raise FDI, especially from Poland, and Ukraine's agricultural exports.
The webinar finished with the discussion of whether Russian will ever lure Ukraine into its Eurasian Economic Union. Christopher Hartwell said that Russia was broken before it invaded Ukraine and it would probably be at least in stagnation even without the western sanctions. Without an economic reason and with politics shifted the other way, there is no point for Ukraine to join Eurasian Economic Union.
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