Backing Ukraine's Reforms

An excellent short Policy Brief on the reform process in Ukraine and what the West ought to do in support has been written by Anders Aslund (@anders_aslund), adjunct professor at Georgetown University and senior fellow at the Atlantic Council in Washington, DC.

Ukraine stabilized its finances in 2015-2016 and returned to modest economic growth this year.  It introduced major reforms, including restructuring the energy sector and anti-corruption measures such as public disclosure by public officials of their financial interests and making government procurement substantially more transparent.  It has, as well, contained the threat from Russian-led insurgents in eastern Ukraine bordering Russia (without defensive arms support from the West).

Ukraine has achieved a lot and must do more to limit corruption, reform government, and free its internal market, but continued progress requires Western support.  As set out by Aslund, the West needs to do three main things,

• "...mobilize its [the West's] resources for investment funding for the next half decade.  Former Finance Minister Natalie Jaresko has proposed US$5 billion a year for the next five years for investments, which sounds right."

• "...allowing visa-free travel for Ukrainians in the European Union...This step alone could salvage the European Union's positive standing among Ukrainians."

• ...that the European Union expands or abolishes its 36 import quotas for Ukraine.  These cover all of Ukraine's most important goods, notably all significant agricultural products.
  

With a population about half that of Germany and a land area 70% larger, with abundant and varied resources including a well-educated, industrious workforce, Ukraine has the potential to greatly augment Europe's economic strength.

The key is not to let this promising moment be wasted.

Putin's Long Descent (Post 2)

Photo Credit: Euromaidan Press

Having written my last post on "Putin's Long Descent", Foreign Policy has an excellent article this week by Mark Galeotti, visiting fellow with the European Council on Foreign Relations, that makes the same point that Putin's tactical successes are not translating into strategic gains, including that,

"The Russian president’s tactical instincts for how to seize an opportunity are so brilliant, and yet the strategic outcomes are almost invariably disastrous."

 and

"The Kremlin’s problem, among others, is that Putin the Opportunist is consumed by the moment. He is focused on what he can accomplish tomorrow, without necessarily thinking through to what the consequences may be the day after. He also too easily assumes that he will remain in control of what he started..."

The Foreign Policy article rightly points out that, in my words, Putin's successes are not victories and they cost more than they are worth.  There is a pattern here.  Putin’s tactical successes to date do not translate into strategic gains due to his penchant for miscalculation.  (Putin's Long Descent)

Putin’s Long Descent

Photo Credit:  Euromaidan Press

As airstrikes resume in Aleppo after a brief pause, Putin seems to be on the verge of another tactical success and to hold the fate of Aleppo in his hands.  Yet Putin would have preferred that Syrian forces had already taken Aleppo.  Syrian forces, Iranian Guards and Hezbollah fighters have failed to sew up a clear win over tenacious rebel forces.  In addition, even if Aleppo now falls, Russia will pay a high price for success because it will require carpet-bombing reminiscent of Putin’s conquest of Grozny during the second Chechen war.  The West is already united in condemning Russia’s barbarism in Syria and further brutality will have unpredictable consequences for Russia (even if the EU failed at its meeting on October 20 to threaten sanctions).

In fact, Putin finds himself where he has been before.

His successes are not victories and they cost more than they are worth.  There is a pattern here. Putin’s tactical successes to date do not translate into strategic gains due to his penchant for miscalculation.  Consider each of Putin’s supposed successes.

Putin hoped to gather a new pan-Russian world under an Eurasian Economic Union, for which Ukraine was key.  He attempted to maneuver former Ukrainian President Yanukovych into keeping Ukraine under Russian suzerainty, including through bribes, threats and subversion of state institutions, especially the military and security services.  Not only did Putin misjudge the resistance and strength of civil society in Ukraine, his actions strengthened resistance to Russian dominance across all the former Soviet Republics. 

Putin attempted to base Russian economic power on rents from resource extraction and a corrupt keptocracy, but he misunderstood what drives a dynamic economy.  GDP growth slowed due to lack of investment and poor governance.  Russia then plunged into economic crisis when commodity prices collapsed in 2014 and sanctions were imposed on Russia for the seizure of Crimea and invasion of eastern Ukraine.  GDP feel 3.7% in 2015 and is expected to fall 1% in 2016.  Russia is currently running a budget deficit that may reach or exceed 4% this year, putting an enormous strain on social spending, including all-important public sector salaries and pensions upon which a large share of the population depends and upon which his support is based.  Even the modernization program for the military, with which Putin hopes to project Russian power, is subject to budget cuts.  GDP growth is projected to be nearly stagnant into the foreseeable future, without deep economic and governance reforms, and the Russian Economic Ministry projects no change in Russians’ living standard before 2035.

Reputedly, when deciding to seize Crimea, Putin asked his advisors if Russia could weather a year of adverse international reaction.  Putin mistakenly believed that the West was so dependent on Russian energy and so weakened by economic and political disarray--encouraged in part by Russia--that it could not sustain diplomatic opposition to Russia’s land grab for longer.  Putin appears not to have anticipated the scale of sanctions that were imposed by the US and the EU.  Nearly three years later, international isolation and the prospect of continuing sanctions looks only stronger due to lack of progress on a settlement in eastern Ukraine and events in Syria.  Meanwhile, Russia continues to bleed resources to sustain Crimea and Russian-backed eastern Ukraine, as well as conduct military operations in Syria.

Buoyed by the first flush of success when seizing Crimea, Putin attempted to take control of the east and south of Ukraine through Odesa to the Moldovan border, calling it “Novorossiya.”  The people did not rally to Russia as expected, and Russian provocateurs and local agents who attempted to seize control of the region were overwhelmed.  Russia had to send in “unmarked” regular troops and armor to stop the Ukrainian military advance in eastern Ukraine.  The price in dead Russians and diplomatic fallout became too high and Putin was beaten to a standstill.  During the course of the conflict, Russia and/or its proxies committed an act of international terrorism by shooting down a civilian aircraft, MH17, killing nearly 300 persons.  A Dutch-led investigation released in September 2016 confirmed Russian involvement and the identification, and possible prosecution, of guilty Russian military and political leaders is expected in the future. 

Putin pivoted to Syria, looking for new leverage over the West.  In Syria, Putin believed he had seized the initiative from a feeble EU and American response to the crisis, while avoiding an Afghanistan-like quagmire by relying solely on airpower to support the Syrian army, Iranian Guards and Hezbollah fighters.  And, indeed, the West looked flatfooted and outmaneuvered.  But the Syrian army proved unable to make the gains that Russia expected.  Russian Special Forces and “irregulars”, as well as barbaric methods, had to be added to sustain gains.  Putin was compelled to add support for a campaign to take Aleppo.  As of this writing, the combined pro-government forces have yet to take the city.  In the meantime, the brutality of the campaign has alienated the EU, which condemned Russian supported bombing and threatened prosecutions for war crimes.  Rather than gaining leverage over the West, Russia finds itself even more isolated. 

Meanwhile, Russian hacking of the Democratic National Committee (DNC) and others is disruptive but has given the US new resolve to confront unconventional Russian interference and aggression.  The US has promised a firm and unmistakable response.  Ecuador cut Julian Assange, the Wikileaks founder who is believed to be working hand-in-hand with Russia, off from the Internet on suspicion of interfering in the US election, and the Russian news service, RT, accused of propaganda, had its bank accounts frozen in the UK.  If Russia had hoped to undermine Hillary Clinton’s presidential campaign, it failed miserably.  Russia’s capacity to be disruptive will now be confronted by firm US and European counter-measures.

Even if one steps back and looks at Putin’s probable strategic objective of a West too weak and in disarray to counter Russia’s interests, it is not clear Putin is making any headway.  Discord in Europe is the result of homegrown political mismanagement and of events elsewhere, such as Syria, that Putin can only hope to exploit but not control.  Even where Russia has had an outsized influence, such as using illicit money and offshore financial centers to corrupt Western elites, the window is closing after numerous revelations, including the Panama Papers and Spanish indictments of Russian mobsters and serving political figures.  Everyone is now alert to Russia’s corrosive influence.  That elites can be corrupted or that institutions can be undermined is not an insight that Putin alone has.  Europe and the US understand it also and can be effective in confronting it.  In short, what the Soviet Union could not do, Russia cannot do either.  Although Putin has managed to elevate Russia’s profile on the international stage, its standing is fragile because Russia’s role is seen as more disruptive than constructive.

Putin may deflect, feint, cut his loses, and pivot to a new provocation to distract from his failure to translate tactical successes into strategic gains, but the costs are mounting and his opportunities are narrowing.  Fundamentally, Putin cannot overturn global leadership on the foundation of political deceit and corruption, nor on militant nationalism.  Lack of political credibility and corruption through which Putin hopes to undermine the West are more deeply rooted in Russia.  And militant nationalism—especially if based on ethnicity--is a formula for catastrophe, whether in Nazi Germany, post-Yugoslavia Serbia or contemporary Russia.

Although it has been touched on by policy analysts at times, Putin’s personality is an underestimated weakness that contributes to his penchant for miscalculation.  Putin is not fully aware of how the most human of qualities, “empathy”, informs judgment and, therefore, he does not understand how it affects political decisions.  Much like Benedict Cumberbatch’s Sherlock Holmes character in the hit series “Sherlock,” Putin is oblivious to societal norms because he is a “high-functioning sociopath.”   He recognizes societal norms based on empathy, such as aversion to doing harm and sympathy for those who suffer or are less fortunate, but he does not feel it, and because he doesn’t feel it he is suspicious and contemptuous of it.  He personally expresses little sympathy and evidences no effort to comfort those who suffer in Donbas or for the horror in Syria or the increasingly difficult circumstances of the Russian people, except at the abstract level of strategic policy when he condemns the actions of others that he perceives are directed against Russian power.  Putin perceives Western leaders' concern for the impact of their actions on people as weakness.

Putin is not only indifferent to causing harm, he is personally culpable.  Putin is strongly implicated in “terrorist” attacks that killed hundreds of Russian citizens in 1999 that propelled him into the Presidency on a law and order platform.   Military and security services under his command are also implicated in provocations in 1999 that launched the second Chechen war that killed tens of thousands.  Putin is believed to be responsible for the deaths of countless opponents, including investigative journalist Anna Politkovskaya and whistleblower Alexander Litvinenko whom a British Public Inquiry concluded had been murdered on orders by Putin personally.  The imprisonment--and torture--in Russia of numerous Ukrainian citizens, including Ukrainian pilot, Nadiya Savchenko, could not occur without Putin’s concurrence.  There are no checks on Putin’s behavior and deaths of ordinary Russians, opponents, and citizens of other countries, do not bother him and so are not part of his calculus of risk.

With less room to maneuver and an increasingly fragile base on which to support his actions, Putin will attempt further aggression.  His current bluster in Syria, moving missiles closer to the EU, and invading Finnish airspace may be carefully calibrated to convey threat without risking direct confrontation, but Putin’s hubris and inability to empathize mean that he will overreach yet again, and at some point his luck will collide with his penchant for miscalculation, and he will experience a categorical tactical failure.  At that point, rather than be unmasked as fallible, Putin will attempt to reverse his failure, possibly up to and including through a tactical nuclear “event” (not necessarily, but possibly, involving an actual limited strike). With the smoke and mirrors removed, Putin will be revealed to be, like Stalin, a plague on Russia and the world.

Putin's Attempt to Delegitimize a Revolution (Paul Niland, KyivPost)

photo credit

Paul Niland is a blogger (Twitter @PaulNiland) and regular contributor to the KyivPost, a Ukrainian English-language newspaper.

He writes with exceptional clarity in an objective, fact-based manner on the Ukrainian reform process and Ukraine's continuing democratization.

His latest article responds to remarks by Russian President Putin that badly mischaracterize Ukraine's recent history and the status of the Minsk agreement.  The article is essential reading for those that are too easily misled by Russian misinformation and propaganda; particularly those in the Western press who frequently fail to challenge Putin's false narrative about events in Ukraine.

The article can be read here:

Putin's Attempt to Delegitimize a Revolution

Paul has also provided a definitive narrative on Ukraine's Maidan Revolution and subsequent events that should be required reading for informed reporting on Ukraine.

The Way Forward For Ukraine (Part 3)

Euromaidan Revolution Myth and Reality (Part 2)

What Has Changed In Ukraine Post-Yanukovych (Part 1)

and

The Will Of The People?

Putin By The Numbers (How To Count Russians)

Maybe Putin has a point.  He doesn't really need the Russian people in order to rule Russia.

  

 The results of the just concluded parliamentary elections might serve as a kind of proxy for what Putin really needs.  Voter turnout was about 48%, a dramatic fall from previous elections, and Putin’s party, United Russia, garnered about 54% of the vote, or 26% of the electorate.  Despite the low numbers, United Russia ended up with a supermajority of 76% of the seats in parliament.  There was hardly a whiff of discontent from the people.

In fact, with the economy failing and the rate of poverty rising, the people might just get in the way.  To run the economy, Putin relies on a handful of comrades in key strategic business positions, all of whom have prospered and are counted among the oligarch class, which numbers around 600.  To take Crimea from Ukraine required only about 10,000 active troops, since there was no resistence, and to maintain eastern Ukraine in a state of near war, Putin has around 40,000 troops stationed on the border (while up to 10,000 are believed to be in eastern Ukraine itself).  As tools of policy, not all Russians are equal, so here’s a simple graphic to keep size in perspective when thinking about what is important to Putin in his relationship with the Russian people.

Ukraine Economy Resumes Growth

http://euromaidanpress.com/2016/09/30/98143/

Almost unnoticed, economic growth in Ukraine has turned positive and the pace of growth has quickened.  This is important not only for the material well-being of Ukrainians but because more than anything else economic growth promises a more secure future for Ukraine.

In its September Update, the World Bank confirmed GDP growth of 0.8% in the first half of 2016 and projected growth of 1.0% for the full year.  The World Bank also projected growth of 2.0% in 2017 and 3.0% in 2018, in line with its April forecast.  Even more promising though is that the underlying economic indicators have strengthened significantly.  Consumption is projected to increase 0.2% in 2016 rather than declining -1.3% as previously forecast.  Fixed investment is expected to climb 9.5% rather than 8.7%.  In 2017 consumption and fixed investment are expected to climb 2.9% and 10.5% before leveling off in 2018 at 3.1% and 5.6%, respectively.  Early strength in consumption and investment is good news because these provide a stronger base for future growth with continued implementation of sound economic and monetary policies.

Fragility with respect to fiscal and current account balances and risk of Russian aggression in eastern Ukraine remain key concerns.  However, corruption is the greatest threat.  In an accompanying Special Focus Note, the World Bank states,

“Powerful vested interests across a wide range of sectors seriously impede progress in addressing key development challenges. A two-pronged strategy is important in addressing Ukraine’s governance and corruption challenges. The first involves building institutions of public financial management (PFM), anticorruption, justice, and public administration. The second prong involves advancing progress on reforms across the three challenges that undermine vested interests. Both will require nurturing citizens’ engagement, voice, and accountability to overcome vested interests. [Emphasis added]”

Missteps such as the Ukrtransgaz fiasco and doubts about the pace of judicial reform do not instill confidence; nor does the failure to prosecute a single case of corruption from the period of Yanukovych’s administration or, more importantly, recent corruption.

If, as the World Bank writes, citizen engagement is key to economic and governance reform, what are the prospects for engaging civil society?  

Like economic growth, there are promising signs of improvement.  In contrast to Russia’s recent parliamentary election results, Ukraine has an energetic, fractious parliament, where no one party can dominate the debate. This slows progress sometimes but in the right circumstances, it strengthens consensus.  Ukraine also has a dynamic civil society, where citizens freely express their views from far left to far right.  Even so, despite what Russia would have the world believe, the great majority of Ukrainians are not extremists but are somewhere in the political middle, which promises inclusion and social stability.  

With Western economic support, Ukraine’s economy is orienting toward business opportunities in the West including through foreign investment and trade.  If anyone doubts the benefits of foreign investment and trade, let them examine where Russia stands after two years of increased isolation.

In the near future, Ukrainians will enjoy visa-free travel with the European Union, which will increase their familiarity with the larger world where rule of law and fair dealing are commonplace.  Already in Kyiv, unlike 10 years ago, one can hear English spoken almost anywhere as young Ukrainians assimilate new ideas and innovations.  This week on Kyiv’s “high street”, Khreschatyk, the largest store selling Ukrainian clothing and accessories opened selling 150 domestic brands.  Innovative, entrepreneurial businesses can be found in Kyiv, Lviv, Odesa and throughout Ukraine.  For a great read on how civil society activism is changing Ukrainian society readAtlantic Council on “How Ukrainian Geeks Tackled Corruption…” A new generation is emerging steeped in patriotism but also with a keen sense of social justice and unwilling to accept the status quo.

As the World Bank released its update, Ukrainian parliamentarian, Nadiya Savchenko, was in Washington to discuss Ukraine’s reform prospects.  Ms. Savchenko has come to embody the courageous spirit of a strong, independent Ukraine after her stubborn refusal to buckle under Russian pressure while on trial in Russia on fabricated war crime charges.  After two years she was exchanged for two Russian soldiers who were captured in eastern Ukraine while on a reconnaissance mission.  She speaks with impressive resolve about the challenges and the determination of the Ukrainian people to reform Ukraine.  In her view, not enough has been done to end corruption, but there is no going back.    

On the economy, Ms. Savchenko welcomed Western support, but she emphasized that the objective was to build a self-reliant Ukraine, which at the moment is looking considerably more promising.

Putin's Not Enough Economics And Too Much Politics

Photo Credit

A good discussion in Bloomberg by Evgenia Pismennaya and Ilya Arkhipov of Russia's economic challenges, especially competing interests and Putin's likely approach dominated by domestic political and geopolitical priorities--which will only prolong Russia's economic agony.

The article does not get into what appears to be Putin's seeming intent to wait out the economic decline until circumstances turn in his favor (through weakening his perceived adversaries), but it does touch on the difference between having a strategy and Putin's approach to "cherry pick" short term fixes that will not achieve Russia's objective of 4% growth considered necessary to maintain Russia's broader national interests.  This is one time when a clever sleight of hand isn't going to be enough.

BLOOMBERG

Putin's Economy Is Stuck And He Doesn't Know How To Get It Going