Ukrainian № 8 (20) September 2011 International Monthly Edition Week

Ukrainian № 8 (20) september 2011 international monthly edition Week

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The Lessons 1991-1994 of Independence A Crisis of Incapability Ukraine failed to take advantage of the opportunities offered by the collapse of the USSR. This can be blamed on the unreadiness of the counter-elite and 4 shortsightedness of the political establishment 6

1991–1994 1994-1998 Late Start The Dawn of the Oligarchs In its first years of independence, The late 1990s brought a system Ukrainian politics took the steps of governance to Ukraine that necessary for the creation sent the country tumbling into of Ukraine as an independent country poverty but never resolved the fundamental problems of its development 16 24

Ukrainian 1998-2004 Oligarchs The Wind from the East The first The inability of the oligarch regime steps to withstand systemic pressure from abroad virtually led to the loss of sovereignty. It was only the response of society that saved the country 32 36

The Energy (In)Security of Ukraine 2005-2011 Throughout all 20 years of the revolution and Revival new history of Ukraine, The opposition failed to fulfill schemes have been used for the task of society and eliminate energy resource supplies, the oligarch and lumpen system to the detriment of the country, in the early 2000s. There is still but which made specific people hope for the emergence of a new much richer counter-elite 42 46

Tricky Balance 20 Years of Balancing: Only a force that What’s Next? relies on the The new elite must middle class and show the way to a right-centrist eliminating the ideology can oligarch-controlled pull Ukraine out model and discovering of the oligarch's Ukraine’s potential vicious circle 54 57

Ukrainian international monthly editionWeek The Ukrainian Week № 8 (20) September 2011 Mailing address: PO Box 2, Kyiv, 03067 Founder: ECEM Media Ukraine LLC Publisher: The Ukrainian Week LLC Publisher address: vul. Mashynobudivna 37, Kyiv 03067 Ukraine First published in January 2010 E-mail: [email protected], Tel.: (044) 351-1300 State registration certificate 16412-4884P of March 13, 2010 www.ukrainianweek.com Bohdan Andriytsev, Director, ECEM Media Ukraine LLC Print: ТОV SKIMP, Triada Print Publishing Roman Tsupryk, Chairman of the Editorial Board Ordering number: 2488. Print run: 15,000 Serhiy Lytvynenko, Editor, Ukrainian Week International Edition Sent to print on August 22, 2011 Natalia Romanec, Editor; Anna Korbut, Translator Free distribution № 08 (20) september 2011|The Ukrainian Week|3 special edition|Ukraine-20

THE OVERTHROW OF THE IDOLS. Protesters start to dismantle Lenin’s monument on The October Revolution square in Kyiv (today, the Independence square) photo: volodymyr falin volodymyr photo:

4|The Ukrainian Week|№ 08 (20) september 2011 Ukraine-20|special edition The Lessons of Independence

years is a significant regardless of his or her social dence of Ukraine as a subject of in- stretch of time on standing. ternational law and the fulfillment the verge of the 20th Irresponsibility, indifference of the declarations for re-integra- 20and 21st centuries, towards the country, the inability tion into Europe made by each gov- packed with events. 20 years ago, to think ahead or strategically, ernment in turn. former socialist and Soviet Union greed, lack of initiative and a trend This concept includes economic countries demonstrated their will- towards choosing the easy, often competition; improvement in stan- ingness to move towards democ- sneaky, ways are the sickness of dards of living (in line with the UN racy and the free market. Samuel both the elite (or rather, the “elite” Human Development Index which Huntington referred to this period of the establishment) and groups not only takes income into account, as the beginning of the third wave that are not related to power, but but also the development of educa- of democratization and the world are striving to attain it. tion and culture, the protection of literature picked up on this defini- Luckily, this is not a verdict so rights, as well as other aspects; the tion. Yoshihiro Francis Fukuyama far. Such social symptoms can be democracy of political processes; described it as “the end of history” cured, even if slowly, with the de- the transparency of government and final victory of liberal democ- velopment of the economy and the decisions, and the possibility of racy in the world. middle class which relies on its public control over them. However, the countries in this own resources and is able to de- We searched for the answers to region, which surprised the world mand respect and appropriate ac- these questions, when examining in the late 1980s are now showing tions from the government. How- the stages of Ukraine’s develop- divergent results from the way they ever, in an aggressive geopolitical ment. Each stage differs qualita- have chosen – or at least declared. and geoeconomic environment, tively from previous ones as re- Some, that embarked on transfor- there may not be time for the slow gards relations within the estab- mations with a clear vision of the start and evolution of society. It lishment and society; a specific final goal and an idea of the steps follows that the latter should be deciding trend is inherent in each, that should be taken, have already accelerated by conscious deci- which impeded the state’s imple- joined key institutions of the united sions: the establishment of rele- mentation of its own potential: Europe, thus completing their re- • Why were the unprecedented turn to where they belong. Others Ukraine’s development is capabilities, which existed at the have seen despotism emerging moment when independence was from the ruins of the old regime. being hampered by the gained, not used in the process of The rest, including Ukraine, are Soviet Union – stereotypic state-building? Why were the hopes still en route, asking themselves for the “huge economic potential” and others for directions. homo sovieticus thinking of Ukraine not realized? 20 years is sufficient to look and behaviour • Why was “state-building” be- back, assess the path taken and come a synonym for empty wan- provide answers as to where and vant public institutions that would dering in a circle and the emascula- why the country took a wrong turn. promote the responsibility of those tion of the notions of “national In the early 1990s, EU officials ex- in power, as well as legislative ideas”, “national interests”, and so pressed the same skepticism about changes which would unlock the on? the prospect of the membership of energy and creative potential of • How and why did control of Ukraine’s Western neighbours in the nation rather than suppress it. the economy of Ukraine end up in the EU as they are doing about A closer look at how Ukraine the hands of several people? What Kyiv’s chances to this day. Yet, got to where it is now will help out- are the dangers of the “oligarchic- within a few years Europe saw Cen- line the priority of the steps it lumpen” model? tral European governments and should take, and what these steps • Who was interested in weak- nations make the successful transi- are. The Ukrainian Week has ening the country and could have tion from dictatorship to democ- launched Ukraine-20, a special been behind the domestic and for- racy, that it is now focused on as- project to search for answers to eign policy scandals? sisting in the integration of these these questions. • What does the opposition nations into the European commu- It will focus on well-known, need to justify the confidence of the nity. publicized facts which reveal the people? Why has Ukraine failed? The specific features and explain rea- Having outlined the reasons, short answer may seem too defini- sons why the country evolved as it which lie in the basis of the indi- tive, but unfortunately, we keep did, what could have been done dif- cated “braking” trends and having coming across evidence of its accu- ferently and what should be taken analyzed their nature, this knowl- racy. The explanation lies in the into account to avoid mistakes in edge can be used in the coming ten fact the country’s development and the future. years for the adoption of the right potential is held back by its Soviet This research determines the decisions. Hence our research is di- mentality, which includes stereo- success of various moves and pro- rected towards the future, arising types in the mindset and behavior cesses and evaluates the extent to from the trends described in it, that are typical of homo soveticus, which they affected the indepen- rather than the past. № 08 (20) september 2011|The Ukrainian Week|5 special edition|Ukraine-20 THE EVE OF INDEPENDENCE

• Striving to take over control of economic resources on its territory, the lead- Independence by Intuition ership of the Ukrainian SSR laid a foundation for the establishment of the new state’s economic system; the curve towards “Group A” (heavy industry) in the For centuries, people have fought for the independence of Ukraine, structure of the economy created additional difficulties for conducting re- but obtained it within the course of several years, when it became forms. apparent that the Moscow center was incapable of maintaining the • Taught by the experience of “hot spots”, power structures were not in a empire and the Soviet Union naturally became obsolete. Centuries hurry to suppress the actions of the people, which opened the possibility of of lack of statehood made themselves felt: neither the political es- putting pressure on the government. tablishment, nor the opposition had a clear vision of the steps, nec- • The speeches and strikes of miners and employees in other professions, as essary for the consolidation of an independent, democratic and suc- well as students’ hunger strikes demonstrated the following: the nation was cessful Ukrainian State. For this reason, in contrast to its western seeking changes and supported the idea of independence. neighbours, in Ukraine, most of the actions of the government and • The government was at a loss and was afraid of using force, so for the most its opponents were intuitive: they were based on the fact that inde- part, simply went with the flow. pendence was a distant goal, instead, it was necessary to take ad- • The opposition did not have a clear plan of action, random people often vantage of the favourable circumstance of the confusion within the forced their way into the leadership, thus it was unable to present the country leadership for the resolution of urgent issues: with its own agenda. 6|The Ukrainian Week|№ 08 (20) september 2011 Ukraine-20|special edition A Crisis of Incapability Ukraine failed to take advantage of the opportunities offered by the collapse of the USSR. This can be blamed on the unreadiness of the counter-elite and shortsightedness of the political establishment

he turbulent years of the overthrow of Soviet regimes WE WON’T EAT; in Eastern Europe and the WE WON’T DRINK UNTIL WE ARE FREE. Tcollapse of the USSR – a The student time of quick decisions and real- hunger-strike showed ization of historical opportunities Ukrainians’ willingness – offered several different scenar- for independence ios for the transition to a new, post-Communist life. There were two basic means for the success of quick reforms, the establishment of democracy and economic development. The first was the unification of the political establishment and the opposition around independence. This is what happened in the Baltic States. In an interview with the Ukrainian Week, Vitautas Landsbergis, the Lithuanian Member of the Euro- pean Parliament, succinctly pointed out their motivation: “We all wanted democracy to renew our independence”. The other an- ticipated a “velvet revolution”, similar to the one in Czechoslova- kia or a successful roundtable between the government and the opposition, (such as in Poland and Hungary). According to their results, Communist political establishment was replaced by counter-elites. Other means, such as counting on a strong-hand policy, delayed reforms or attempts to pay off historical scores with neighbours, led to Communist dictatorship being replaced with a new despotism – with which George W. Bush scared Ukraini- ans in his infamous “coward” speech on 1 August 1991, Ukraini- ans as he tried to convince MP’s to drop their struggle for independence. Ukraine is always walking a fine line, both in terms of its independence, and many other issues. It has succeeded in inent of which was the collapse of from intellectuals to the military, avoiding the worst scenarios, but the Soviet economy, paralysis of to look for new ways of survival. has failed to take full advantage the governance system and the First autonomy, then indepen- of the opportunities presented expansion of the battle for power dence, was seen as a tool for pro- during the collapse of the USSR. in Moscow. tection from these looming eco- In the late 1980s and early The economic crisis forced nomic troubles. 1990s, the USSR suffered a slew both the establishment and the The Soviet centrally planned of systemic crises, the most prom- public, including all social classes economy had exhausted itself № 08 (20) september 2011|The Ukrainian Week|7 special edition|Ukraine-20 long before the 1980s - attempts nues of oil and gas sold to the foundation for many oligarch em- to reform it had begun as far back West partially removed the struc- pires of today. as 1965. However, the then gov- tural distortions of the economy. The soviet administration ernment had entrenched a basic However, the influx of oil dollarsl was unable to find a way of over- contradiction in the reforms, came to an abrupt halt as a result coming the economic crisis. This combining such market regula- of plummeting energy prices. In angered the public, particularly tors as profitability and income, 1986, the USSR only earned 5 bn since the ideology no longer with a deepening of centraliza- convertible rubles from the ex- played its mobilization role, tion. For example, it set up 40 all- port of oil and oil products, com- while the Chornobyl disaster union ministries and agencies pared to the previous annual 10- which the government tried to during 1965 –1985 which took 12bn. As a result, the country lost cover up and the unpopular war 90% of all enterprises in the nearly 40bn convertible rubles in in Afghanistan undermined loy- Ukrainian SSR under their con- 1986-1988 alone. alty to those in power. trol. This was command economy The attempts of the USSR Moreover, the might of the managed by government officials government to improve the situa- Moscow core was shaken from rather than business managers. tion by administrative means, by within. The RSFSR government, We can see the consequences of increasing output and improving led by Boris Yeltsin, strove to take this mentality in Ukrainian eco- its quality failed. Most types of power in the largest republic of nomic policy to this day. goods remained uncompetitive. the Soviet Union, which would Meanwhile, the structure of Partial liberalization in the have been impossible without the the economy of Soviet Ukraine late 1980s also failed to resolve undermining of the all-union gov- was ill-balanced, where the share these issues. A cooperative move- ernment. Ultimately, the RSFSR of industries working for the ment was permitted under unfa- became virtually the first republic consumer market did not exceed vourable conditions, including 29% of total gross output, com- taxes amounting to 65% and up There was no elite pared to 50-60% and more in de- to 30 supervisory authorities. veloped countries. The rest of the There were no mechanisms to that was capable of taking economy was consisted of Group support the production business, responsibility for what was A enterprises, more specifically such as loans, or to control abuse coal mining, metallurgy and me- of office, when small enterprises happening in Ukraine chanical engineering. Production and joint ventures were set up plans for the Ukrainian SSR were around large state-owned compa- in the USSR after the Baltic States drafted in Moscow. The distor- nies for the purpose of selling off to declare its sovereignty on 12 tion of the economy resulted in the latter’s assets. Research-tech- June 1990, more than a month not only a shortage of goods, but nical youth associations, estab- prior to Ukraine’s declaration. also aggravated environmental, lished on the basis of Komsomol New alternative union-wide demographic and social prob- committees were yet another organizations either did not exist lems. good way to siphon off the cash or played a marginal role in poli- Throughout the 1970s, FMCG allocated for the party and Kom- tics. Unable to deal with the eco- products imported from the reve- somol into what served as the nomic crisis and meet the growing hunger of all republics for cash and goods, the leadership of the USSR turned a blind eye to the attempts of local administra- How the USSR collapsed tions to solve these problems on their own, until these efforts Ukraine transformed into the construction of an economic basis for the inde- FSU pendence of the republics. Thus, the imperialistic kernel was unable to use all avail- 26 April 1986 The Chornobyl catastrophe. The government tries to hide information about the disaster and its consequences from the public

11 March 1985 26 July 1986 28 May 1987 February 1988 26 May 1988 June 1988 Mikhail Gorbachev is The Central Committee of German pilot Mathias Protests unfold in Step- The government passes Abkhazian elected General Secretary the Communist Party Rust freely lands his sport anakerti, the administra- the Law “On Cooperative Autonomous Soviet of the USSR Central Com- passes a provision on the aircraft in downtown Mos- tive capital of the Na- Business in the USSR” to Republic, a part of mittee of the Communist structure and governing cow. Gorbachev launches gorno-Karabach Autono- legalize the business of Georgia, applies Party. He declares the bodies of the “civil and the systemic purging of mous Republic, and entrepreneurs which was to join the RSFSR need to speed up “socio- public system of the scien- law enforcement agencies Erevan. Protesters de- previously banned but se- economic progress and re- tific and technical creative mand independence for cretly operational forms” work of the youth” sub- Nagorno-Karabach for mitted by the Union Lenin subsequent joining with Communist Youth Union. Armenia This allows nimble activists to build the first business entities, using Kom- somol money

8|The Ukrainian Week|№ 08 (20) september 2011 Ukraine-20|special edition able leverage to influence the situation in its republics, particularly Ukraine. The conditions that emerged should have been taken advantage of, however the key players in Ukraine at that time proved to have been un- ready for this. The Political Establishment: Running Forward, While Looking Back In 1990, the mindset of the ruling Communist elite in the Ukrainian SSR experienced a dramatic turning point. The 1990 election launched the ideological and political adjustment of the Commu- nist elites to the new conditions of the erosion of the role of the Communist Party and the collapse of the union kernel. The following factors in the transformation of the political focus can be singled out: 1. The inability to overcome the economic crisis and to resolve military and political conflicts undermined the confidence of Ukrai- nian Communists in the USSR’s omnipotence. 2. The protest campaign with hundreds of thousands of people filling city streets during 1989- 1990 scared the “partocrats”. In spring 1990, the country was in the throes of a wave of miners’ strikes, which in contrast to those taking place in the 1960s, the government decided not to bring to a halt by force. 3. Glasnost revealed the truth about the crimes of the soviet regime, leaving many people disenchanted with Communist ideals. 4. In the early 1990s, some members of the Ukrainian Com- munist Party and governing elite felt that they had the opportunity From the open sources to get even with the Kremlin for

June 1988 28 July 1988 16 November 1988 15 February 1989 26 March 1989 26 May 1989 Massive The USSR Supreme Estonia’s Supreme Soviet troops are The USSR holds its first Lithuania declares NGOs “to support Pere- Council issues a Decree Council declares withdrawn from parliamentary election sovereignty stroika” are established, “On the Procedure for the sovereignty Afghanistan on alternative basis which later developed Organization and Holding into independence move- of Assemblies, Protests, ments, in particular Rallies and Sąjūdis, the Reform Demonstrations in the Movement of Lithuania, USSR”. An event is the National Front of considered legitimate Latvia started in April if it has been authorized and the National Front by the Council’s executive of Estonia launched authority in October

№ 08 (20) september 2011|The Ukrainian Week|9 special edition|Ukraine-20 its arrogant attitude experienced in previous years – a “complex of offences” of the Moscow-based elite. 5. Most members of the high- Ukraine in the USSR ly-qualified Communist Party elite quickly realized the career In 1980-1986, Ukraine was 13th according Ukraine was 8th according to average salary opportunities that were available to the national income growth rate in the Soviet rate for workers and civil servants and 10th as a result of the expanding pow- Union by average monthly wages for kolkhoz workers ers of republican bodies. (90.9% and 92.1% accordingly, compared Thanks to this position of the to the average union-wide rate) in the USSR Revenues generated Ukrainian establishment, it man- by Ukraine to the Soviet aged to pass a series of political budget regularly exceeded The ratio and administrative acts to prepare expenditures for the of pensioners Ukraine for independent life as a republic by 10% to people state. However, it did not become employed an administrative and political in farming: (national Communist) elite that 1:3.8 in 1960 would be able to launch the pro- 53% 1:2 in 1985 cess of Ukraine’s separation from of the the USSR from the top, as was the Ukrainian case in the Baltic States. According population to various estimates, people born worked under and raised in the Soviet Union arduous In 1965-1980, and hazardous constituted 25 to 30% of the cen- labor produ ivity conditions tral political establishment. Their growth rate integration into the empire not in Ukrainian SSR only made them extremely loyal to fell more the Kremlin, but also meant that than twofold the most talented and ambitious ones did not see their future in the In 1980, the share of individual types 52.4% – Ukrainian SSR, but had Moscow white sugar in their sights. Therefore, the qual- of produ s supplied ity of personnel remaining in by the Ukrainian SSR in total USSR output Ukraine was not on the same level 95.1% – mainline was as follows: as that the Baltic republics or even locomotives Transcaucasia. As a result, the goals were 27.5% – 51.3% – 36.3% – 52.1% – bla and eel-smelting much more grounded and di- coal mining iron ore mining eel produ ion equipment rectly linked to the interests of the ruling circles, who wanted to From open sources receive all necessary resources from the center but did not allow its interference in domestic, par- 28 September 1989 ticularly commercial processes Volodymyr within Ukraine. In fact, back in Shcherbytsky, the First Secretary of the mid-1991, the local elite was Communist Party of ready to accept a new Union Ukraine, resigns due Agreement granting the Ukrai- to old age. He is succeeded by Volod- nian SSR expanded powers, in- ymyr Ivashko and subsequently chairs 17-24 September 1989 cluding its own system of power 8-10 September 1989 Chernivtsi hosts Chervona The People’s Movement of the Supreme Council and law enforcement as well as of the Ukrainian SSR Ruta, the first Ukrainian Ukraine for Reforms convenes music festival for an inaugural congress

29 July 1989 23 August 1989 24 August 1989 September 1989 23 October 1989 9 November 1989 Latvia declares Lithuanians, Latvians and Es- Opposition leader Tadeusz Azerbaijan and Georgia Budapest declares the The fall of the Berlin Wall: sovereignty tonians line up in a live chain Mazowiecki heads the declare sovereignty. In Hungarian Republic which the Council of Ministers of called the Baltic Path on the Polish Government November 1989 Georgia’s replaces the Hungarian the German Democratic Re- anniversary of the Molotov- Supreme Council approves People’s Republic. The public resolves to open the Ribbentrop Pact which served a declaration deeming Hungarian Republic iden- border with the Federal Re- as the legal basis for the oc- the provisions of the So- tifies itself as a free, inde- public of Germany and cupation of the Baltic States viet legislation that run pendent and law abiding Western Berlin by the USSR army in 1940 counter to the local laws democracy ineffective on Georgian territory

10|The Ukrainian Week|№ 08 (20) september 2011 Ukraine-20|special edition the minimization of the economic Lviv, Ternopil, Ivano-Frankivsk leaders that often discredited the influence of union-wide authori- and Volyn Oblasts, and Kyiv. idea of Ukraine’s democratic re- ties on the decision making pro- With time, the Verkhovna vival and the establishment of cess in Ukraine. These two ele- Rada of the Ukrainian SSR split conditions for the mass plunder- ments shaped most laws passed into two groups – the pro-Com- ing of state-owned assets in the in 1990-1991after the signing of munist one was called “For a So- first years of independence. the Declaration of Sovereignty of viet Sovereign Ukraine” or simply The worst consequence of all the Ukrainian SSR. “Group 239”, and the opposition was that the opposition was run However, the power crisis in – “Narodna Rada” (the People’s by many people who used the sit- the USSR and the coup of 19-23 Council). uation to their benefit while ig- August 1991 considerably acceler- On the one hand, “Narodna noring the everyday process of ated the collapse of the Soviet Rada” was referred to as the building the country. As a result, Union. The Ukrainian leadership “moral majority” since it intro- the opposition failed to either ar- then took the lead in the indepen- duced clear demands for auton- ticulate the concept of an inde- dent country and became respon- omy and in time, independence pendent Ukraine or come up with sible for the resolution of its eco- for Ukraine to the parliamentary a specific transformation plan. nomic, social, political and secu- agenda. Taking into account the Therefore, even though in the rity problems. However, the new fact that its sessions were aired early 1990s the People’s Move- establishment failed or was inca- live on TV and radio, parliament ment of Ukraine consisted of pable of coming up with an ideol- became a platform for the propa- more than 600,000 members and ogy for the building of a new state. ganda of national and state inde- even more sympathizers, includ- For this reason, the “Baltic sce- pendence. Yet, there was no ing quite a few intellectuals with a nario” of the quick and successful proper reliable counter-elite, ca- technical background and busi- establishment of a new country pable of taking upon itself the re- proved impossible for Ukraine. sponsibility for the state of affairs In mid-1991, the government Moreover, the country had no in the country. The 1990 election counter-elites who could shape its and the consequent party estab- of the Ukrainian SSR vision of what the establishment lishment process revealed an ex- should be, and replace it. tremely negative trend, which was still ready to sign new would affect future processes in union treaty Counter-Elite: Ukraine – the leadership of oppo- Neither Purpose, sition groups were largely com- ness managers of all levels – even nor Understanding prised of representatives of the top managers, this element of the The growing influence of power- humanitarian sphere and those party was barely used. The lead- ful individuals and organizations who came from agricultural re- ers, who had grown used to con- as an alternative to the party no- gions, few of whom had manage- ducting rallies, had no idea what menclature affected the outcome rial experience or proper back- they should do at each stage of of elections to councils at all lev- ground and qualifications for tak- state-building. They had nothing els, which were held on 4 March ing important economic and to offer those who wanted to work 1990. Yet, they only proved once business decisions. constructively. more that the elites had not really It was the managerial incom- All of this kept Rukh from changed. petence of the then opposition growing into something similar to Despite the fact that the majority of the Verkhovna Rada of March-May the Ukrainian SSR was made up 1990 of partocrats or supporters of the The Ukrainian SSR holds USSR and a pro-Communist re- alternative- gime, 90% of the parliament based elections changed and now included 25% to local councils or 126 members of the democratic March-May 1990 human rights and patriotic camp. 22 January 1990 Miners’ strikes, demanding the Ukrainians line up in a live chain from Lviv to resignation of Mikhail Gorbachev The latter won a majority in the Kyiv to commemorate the Day of Unity when in addition to other political and the West Ukrainian People’s Republic united economic demands with the Ukrainian People’s Republic in 1919

24 November 1989 15 December 1989 18 January 1990 7 February 1990 11 March 1990 14 March 1990 Massive protests force the Massive protests begin in Ro- The Azerbaijan Soviet The political monopoly of Lithuania’s Supreme The Assembly Communist Party leaders in mania. Nicolae Ceaușescu, Republic declares war Communists ends in the Council passes an act on of People’s Deputies Czechoslovakia to resign. President and leader of the on the Armenian Soviet USSR. The Central the revival of the national elect Mr. Gorbachev Negotiations between the local Communist Party, is Republic Committee votes to state, the Lithuanian as the first and last government and the opposi- overthrown on 22 December abolish Article 6 of the Republic, that existed President of the USSR tion, held on 28 November, and executed on 25 Decem- USSR Constitution “On before 1940. Moscow result in a resolution to es- ber along with his wife the Leading Role of the does not recognize the act tablish a new government USSR Communist Party” as legitimate and applies and abolish the provision on economic sanctions the leading role of the Com- against Vilnius. The munists from the Constitu- Republic’s Government tion. Vaclav Gavel is elected announces a moratorium President of Czechoslovakia on the act on 29 June on 29 December. 1990

№ 08 (20) september 2011|The Ukrainian Week|11 special edition|Ukraine-20 Solidarity in Poland or the Na- tional Fronts of the Baltic States. At the beginning of 1990, Ukrainian opposition forces did not have any groups which would raise the question of Ukraine’s exit from the USSR. Even the pro- gram of Ukrainian Helsinki Hu- man Rights Group didn’t say anything about this, only mentioned the transformation of the USSR into a confederation. The provision about Ukraine’s renunciation of the USSR appeared in the Nar- odniy Rukh Ukrainy (People’s Movement of Ukraine, which only appeared in October 1990, while the vision of specific steps to be taken for this apparently never emerged. The turning points that could have launched an all-Ukrainian independence movement were WE HAVE WHAT largely wasted. During the min- WE HAVE. ers’ strikes in the spring of 1990, Leonid Kravchuk the connection with Narodniy won 60% of Rukh Ukrainy was, for the most the vote in the first presidential part, declarative, although the election in two movements actively drafted Ukraine. slogans together, and virtually He became came to a halt on their conclu- President sion. In October 1990, the Gran- on 5 December ite Revolution, a hunger strike ar- 1991 ranged by more than 200 Ukrai- nian students, shook the country. happened to the rest of the stu- All these examples mark a One of the demands was that the dents’ demands. Eventually, 19 dangerous trend that has already signing of a new Union Treaty by August 1991, the first day of the haunted democratic forces in the government of the Ukrainian coup, served as a perfect demon- Ukraine for more than two de- SSR should not be allowed. The stration of the oppositions’ weak cades. It is their inability to ar- latter fulfilled only one demand mobilization skills. According to range continual work with the so- though, which was the resigna- the most optimistic estimates, cial groups who would support tion of Prime Minister Vitaliy only a few thousand people came them and whom they could in Masol. No-one controlled what out onto city streets. turn represent.

July 1990 October 1990 24 October 1990 7 December 1990 Mr. Ivashko “Revolution on First amendments are made in the Ukrainian Republic leaves office Granite” – the Constitution of Ukrainian SSR dated 1978 passes the Law “On and moves to hunger strike of based on its Declaration of Sovereignty. Local Councils of Moscow to students, de- They introduce the rule of law; put military People’s Deputies work for the manding the service by citizens of the Ukrainian SSR under of Ukrainian SSR party. Leonid resignation of Ukrainian legislation; and name “the and Local Kravchuk is the leadership of establishment of conditions to ensure the Government”. They 16 July 1990 elected Chair- the Ukrainian state sovereignty and economic act as the executive The Ukrainian SSR’s Supreme Council man of SSR and rejec- independence of the republic” as the bodies of the approves the Declaration of Ukraine’s Ukraine’s Su- tion of the Union government’s top priority government State Sovereignty preme Council Agreement

25 March 1990 26 April 1990 4 and 8 May 1990 12 June 1990 23 November 1990 9 December 1990 Estonia’s Communist The USSR passes the Law Latvian and Estonian The RSFSR approves USSR’s Supreme Council Lech Wałęsa wins Party announces its exit “On the Segregation of Supreme Councils pass the Declaration of State delegates extraordinary the second round from the Communist Powers between the resolutions on the official Sovereignty. It puts Rus- powers to President of the presidential Party of the Soviet Union Union of Soviet Socialist declaration of sian laws above the Mikhail Gorbachev for the election in Poland Republics and Federation independence. Following union-wide legislation purpose of “maintaining Entities” whereby the Lithuania’s experience, order in the USSR” functions of USSR’s both countries postpone “higher authorities and the implementation of governing bodies” include their declarations defense, state security, and control of the armed forces, border security, internal and railroad military units

12|The Ukrainian Week|№ 08 (20) september 2011 Ukraine-20|special edition This can partly be explained independent and democratic fered to the country, a specific by the inertness of society itself Ukraine and giving the relevant step-by-step plan for their imple- whose proactive members had signals to the administrative ap- mentation, as well as firm and been killed by soviet repression, paratus. Instead, society, with natural, rather than transparent while the “strong” peasants – a virtually no elite, was unable to and decorative links to social prototype of the middle class - either insist on vital reforms or classes that are essentially the al- had been exhausted by the fam- generate a social class, which lies of market reforms, civic lib- ine. As early as 1991, when the could have acted as an ally to erties, the impartiality of legal question of Ukrainian indepen- changes. This lesson from the proceedings and a strong and dence was raised, 58–59% of our first years of independence sustainable state. These are the compatriots claimed that “as long should be also learned by Ukrai- social groups that are joined to- as everything was okay in the nian activists, currently striving gether by the notion of the “mid- country”, they did not care who for power. A mandatory element dle class”. In the case of Ukraine, was in power of success, both in exercising the middle class has developed By year-end 1991, a mere 5% powers and developing the state, not due to, but in spite of govern- of Ukrainians were members of is a clear vision of changes of- ment policy. political parties or civic and political movements, 3% took part in Attributes of the Era rallies and 2% were attending party meetings. Only 7% of those polled said that they could take measures if the government ruled against the interests of the nation. The opposition of that time failed even to hold pre-term parliamentary elections although this was an integral element of the successful transformation of Cen- tral European countries. The new parliament could have been more disposed to conducting necessary reforms, but the opposition allowed itself to be lulled asleep with the allusions of the government regarding the necessity “to build the state together.” As a result, the Communist majority in the Verkhovna Rada of the Ukrai- nian SSR attempted to build an independent Ukraine and a market economy in the first three years of its independence – a kind of “mummifica- tion of soviet traditions. 17 March 1991 The background, qua Ukraine’s Supreme Council includes an additional question in the union-wide lification and motivation referendum bulletin: “Do you agree that Ukraine should be in the Union of Soviet Sovereign States on the principles of the Declaration on the State of the key players in Sovereignty of Ukraine?” Ukraine’s struggle for in- The local government in Halychyna, Western Ukraine, adds another item: dependence in 1991 pre- “Do you want Ukraine to become an independent country which solves all 18 April 1991 domestic and foreign policy issues on its own and ensures equal rights for its The Cabinet of Ministers is estab- vented them from shap- citizens regardless of their nationality or religion?” lished in the Ukrainian SSR coming an integral vision of 70.2% of the population vote for the preservation of the USSR and 80.2% prised of the Prime Minister, First of Ukrainians support a union on the principles of the Declaration of State Vice-Prime Minister, Vice-Prime Min- the already post-soviet Sovereignty. The referendum in Halychyna finds more than 80% of those ister, State Secretary of the Cabinet polled voting for Ukraine’s withdrawal from the USSR of Ministers, state ministers and ministers of the Ukrainian SSR

11 January 1991 9 February 1991 3 March 1991 17 March 1991 9 April 1991 23 April 1991 Lithuania experiences 84% of Lithuanian voters A poll is held which finds Ukraine’s Supreme Coun- The Supreme Council of the Based on negotiations an overthrow attempt, participate in the referen- that 73.6% of Latvians cil includes an additional Georgian Republic declares between the inspired by Moscow. dum. 90.4% of them support a “democratic question in the union- sovereignty and indepen- administration of the The Committee for voted for the indepen- and independent Latvian wide referendum bulletin: dence from the USSR on USSR and union National Salvation is dence of the democratic Republic” “Do you agree that the second anniversary of republics in Novo- established, declaring Lithuanian Republic Ukraine should be in the the tragedy in Tbilisi Ogariovo near Moscow, itself to be the only Union of Soviet Sovereign a decision on a new legitimate authority in States on the principles of treaty is made, but the republic. 12 civilians the Declaration on the signing is postponed are killed in a clash with State Sovereignty of until 20 August 1991 Soviet troops Ukraine?” as requested by the Ukrainian party

№ 08 (20) september 2011|The Ukrainian Week|13 special edition|Ukraine-20 The Right to Be Yourself

hen empires crack, states emerge on their ruins, the emergence of which no Wone counted on. Remem- ber the collapse of the Austro-Hun- To agree with the first view, it will tant not to forget major obstacles, garian Empire, or even Yugoslavia. be necessary to not notice or forget which are no less significant, includ- This also happened 20 years ago to the unsuccessful experience of libera- ing very real might of the Soviet the USSR. Was Ukraine’s indepen- tion struggles, the efforts of several Union built on force and violence, dence just a whim of destiny, the con- generations of Ukrainian dissidents with its army, militia and secret po- sequence of a combination of geopo- within the framework of various lice, the indifference, even hostility of litical circumstances, or a byproduct countries, the armed resistance foreign players in the international of the struggle for power between against the soviet monster, and fi- arena who were terrified of an inde- Gorbachev and Yeltsin? Or on the nally, without exaggeration, the evi- pendent and unpredictable Ukraine; contrary, could it be the implementa- dent or concealed dream of millions the numerous “fifth column” the car- tion of the internal logic of a nation’s of Ukrainians that “We too shall rule, riers of a specific type of mentality, development, the general line that brothers, in a free land of our own”, who see themselves as the agents of was sometimes lost under the pres- as the national anthem goes. civilization and their opponents as sure of external forces, but could not In addition, bearing in mind the barbarians and finally, the force of ultimately rise to the surface of the favourable situation for Ukraine to habit of a huge number of people who historical process? gain independence, it is also impor- did not want or could not imag- ine a life, other than one behind barbed wire. 6 June 1991 Independent Ukraine was Ukraine’s Supreme Council 5 July 1991 passes a Resolution “On Laws are approved built by the forces of several Transferring State-Owned and on the establish- categories of activists, those USSR-Controlled Enterprises ment of the presi- Located on the Territory of dential office in the looking in many different di- Ukrainian Republic to the Ukrainian SSR Jurisdiction of Ukrainian SSR”

27 May 1991 8 June 1991 12 June 1991 1 July 1991 29 July 1991 19-22 August 1991 Soviet troops leave A conflict unfolds in Russia holds the first na- The Warsaw The RSFSR recognizes the The August coup in the Czechoslovakia North Caucasus. The tional presidential elec- Pact is officially independence of Lithuania USSR: top officials led by National Congress of the tion in its history. Boris terminated in Prague. Vice President Gennadiy Chechen People declares Yeltsin is elected President Soviet troops leave Yanayev establish the the Independent of the RSFSR. Aleksandr Hungary State Emergency Commit- Republic of Noxзiyзц, Rutskoi becomes Vice tee but find themselves switching the country to President. arrested within less than dual power 72 hours

14|The Ukrainian Week|№ 08 (20) september 2011 Ukraine-20|special edition rections and even those with opposite ducing defense products that no-one Legal nihilism, failed expecta- priorities, goals, ideologies, and ex- needed and fast-moving consumer tions, the establishment of corpo- perience. goods that were unfit for use. rate capitalism typical of the third The first group was comprised of No-one or barely anyone world, based on corruption and idealists who saw winning their coun- thought about the fact that the dec- personal relations, and vice-versa, try as the ultimate goal. In their view, laration of independence was not the hampering of the much needed other objectives would “take care of the end of a long road, but merely its economic reforms, as well as the themselves”. Enthusiastic experts beginning. No-one or barely anyone lack of humanitarian and language and intellectuals, who, until recently, remembered the well-known ex- policies – the concept of an inde- had no intention of resisting the sys- pression: “We have created Italy. pendent Ukraine has absolutely no tem even though they hated it, now The only thing to do now is to create relation to all of these sins. accepted the national revival slogans Italians.” No-one, or barely anyone We can list wasted opportunities equally enthusiastically. dotted the “I’s”, that to have a com- and recall wasted time as much as The second group included yes- mon state, language and culture are we want. We can search for and find terday’s soviet functionaries who not the ultimate goal, but a tool for someone to blame for the fact that quickly saw the prospects of career preparing a political nation for the the country is as far from the ideals growth; the so-called red directors – purpose of consolidating such prin- of freedom and democracy on the the powerful and not so powerful ciples of society, such as integrity, 20th anniversary of its indepen- managers who had the best knowl- dignity, education, readiness to ac- dence as it was in the late 1980s. edge of the ‘real sector’ of life, hoping cept new things, and as a conse- Still, with a sober understanding of to adjust it to their needs. They were quence, its well-being. all sins and defeats, we can say that amateur businessmen; recent heads Romanticism always bears a there is still a chance. Independence of co-operatives, with unlimited ap- trace of irresponsibility. The new re- is not a hollow word as long as the petites and ambitions; and represen- sponsible and competent elites had current government does not totally alin tatives of the criminal world, who nowhere to come from. That was a vi- give it away. Independence means moved into business with their own cious circle: they had to be prepared that there is still a chance to reboot.

olodymyr F olodymyr specific ideas of the ways to run it. based on the potential of the country In the final instance, it is a feeling of They all turned out to be closely con- but the leadership of the country was responsibility for the country as a

hoto: V P hoto: nected by joint interests that subse- not interested in this. whole, not as the separate province quently grew into joint projects. Whether the ruling class realized of an empire. EAST AND WEST Also, there was a mass of simple this or not, it was diligently resisting To everyone who now says TOGETHER. Ukrainians, who believed in the sin- the birth of a new generation and that the Ukrainian project has Representatives from all regions cere intentions of the newly-created new type of players. On the contrary, failed, a recommendation to make carry the blue and elites despite the chaos and poverty, it selected those who accepted the one mental experiment: let him or yellow flag from and were satisfied with the first newly-established playing rules. To a her picture Ukraine as still being Independence speechmaking exercises of the Presi- certain extent, it tolerated some ex- part of the USSR... the old one, Square to the dent. This was easier than building a ternal expressions of patriotism and with a Central Committee, Af- Verkhovna Rada real democracy based on the real di- national awareness but in fact, from ghanistan, political labour camps. (1991) vision of power, equal opportunities the very start, it followed its own in- Or the new one, with a power hi- and competitive ideas, than trans- ternal logic and squeezed out all sub- erarchy, Chechnya, and inter-eth- forming the economy which was lim- stantial expressions of anything nic clashes. Well, what do you ited to a handful of giant plants pro- Ukrainian to the margins of life. think?

24 August 1991 30 August 1991 30 Septem- 1-3 November 1991 1 December 1991 The Supreme Council of The Presidium ber 1991 The local council of Ukrainian Ortho- 92% of Ukrainian citizens the Ukrainian SSR ap- of the Verk- The Cabinet dox Church led by Metropolitan Filaret support the Act of the proves the Act of the Dec- hovna Rada of Ministers (Denysenko) at the Kyiv-Pechersk Declaration of laration of Independence bans the Com- holds the Lavra votes for the Ukrainian church to Independence of Ukraine of Ukraine. The Verkhovna munist Party first con- become “fully autonomous and inde- in a nationwide Rada, the Parliament of and transfers scription to pendent, i.e. autocephalous”. On 27 referendum. Leonid independent Ukraine, ap- its property to the Armed May 1992, opponents to the separa- Kravchuk wins the proves a Resolution “On Parliament and Forced of tion of the Ukrainian Orthodox Church presidential election with the Departisation of Pub- local councils Ukraine arrange their own convention in 61.6% of the vote, 12 December 1991 lic Authorities, Institutions Kharkiv to declare Volodymyr Sabo- followed by Viacheslav Ukraine’s Verkhovna and Organizations” dan as Metropolitan, not Filaret Chornovil with 25% Rada ratifies the Belavezha Accords

20 and 21 August 1991 24-31 August 1991 6 November 1991 7-8 December 1991 9 December 1991 21 December 1991 Estonia and Latvia Virtually all Soviet Boris Yeltsin chairs the Ukraine, Russia and Be- Slobodan Milosevic Almaty hosts a summit declare independence republics declare inde- reform-oriented Russian larus sign the Belavezha is elected President where all FSU countries, from the USSR pendence from the USSR government. Egor Gaidar Accords denouncing the of Serbia with the exception of is appointed Yeltsin’s 1922 Treaty on the Cre- Georgia, Estonia, Latvia Deputy ation of the Soviet Union and Lithuania, join the CIS and establishing the Com- monwealth of Indepen- dent States

№ 08 (20) september 2011|The Ukrainian Week|15 special edition|Ukraine-20 1991-1994

The constitutional model did not contribute to the formation of a responsible government. Inde- Lost pendence was not immediately followed by elections thus the structure of political forces in government authorities that was typical of the last years of the USSR remained in place Managers of industrial enterprises – the so-called “red directors” and kolkhoz managers, who con- Opportunities trolled economic resources affected strategic and tactical decision-making, unrestrained by any public or civil control Having fulfilled the minimum task of es- Looking for quick enrichment, this so-called establishment siphoned off the country’s resources tablishing an institutional foundation, while placing the burden of the resolution of social issues on the state budget, often demanding which included setting up institutions and that “the printing presses are put into operation”, thus saturating the economy with a money sup- laying the foundation of the legislative ba- ply that had no guarantees behind it sis for Ukraine as a state with a demo- At the same time, the political forces that declared Ukraine’s independence as their goal and ap- cratic political regime and a market econ- pealed to patriotism, failed to shape any appropriate alternative regarding either economic re- omy, the then political establishment forms or the state governance system. Moreover, their inertness disenchanted their potential sup- failed to determine a direction and come porters. Therefore, the opposition ended up with a limited electorate up with an efficient development pro- The country never got its own “face” comprised of clearly defined goals, interests and concept gramme, while the opposition failed to about mechanisms for their implementation, either in domestic or foreign policy present society with a reasonable alterna- A combination of these factors resulted in hyperinflation, impoverishment, the takeover of the tive. economy by oligarchs and a political crisis

16|The Ukrainian Week|№ 08 (20) september 2011 Ukraine-20|special edition arena. This entailed the matching of desired goals with available resources, a search for allies, focusing foreign policy and economy on re- inforcing the country’s advantages 1991-1994 and gaining resources to develop priority sectors within the country. Late Start Ukraine is often said to have ended up in a more difficult situa- In its first years of independence, Ukrainian tion than its neighbours because it was forced to solve issues arising in politics took the steps necessary for the creation the process of establishing a new of Ukraine as an independent country but never state at the same time as it was conducting reforms. However, if resolved the fundamental problems of its there had been a vision of what these reforms should have been, development this detail would have been a virtue n theory and in practice, experts the trust and support of the elec- rather than a vice. The establish- in post-Communist transforma- torate. ment of a new state meant a higher tions believe that success is – the existence within society level of freedom in choosing what it Ibased on several key compo- of classes supporting reforms, would be. As a result, the Ukrainian nents: would win from them and become elite was faced with the opportu- – a clear plan of reforms to un- allies in further transformations. nity to build a country, which could lock economic initiatives of the These groups should have been make the best of its advantages and public and give people access to numerous enough to provide nec- minimize the effect of its inadequa- free market resources and mecha- cies, taking measures to offset nisms rather than reforms con- Side-by-side with the them. In practice, though, it turned ducted for the sake of reforms. In out that those in power failed to order to make a market work, it “romanticists” were use even one component of success needs to have legislative environ- the “big people”, who effectively. ment based on the specific situation in the country, taking into ac- preferred to maintain Romanticism, sabotage count its comparative advantages and opportunism and disadvantages. customary means for At first glance, there were plenty – the establishment of a running the country of programmes and visions. Back power structure, which would al- on 3 July 1991, the Verkhovna low efficient decision-making and essary support in elections and to Rada of the Ukrainian SSR ap- the implementation of decisions, expand continuously, demonstrat- proved a government “Programme including those that will have a ing the success of reforms, the ul- for Emergency Measures to Stabi- (short-term) negative impact. At timate goal of which was for soci- lize the Economy in Ukraine and the same time, the government ety to gain from a new economic Bring It Out of the Crisis.” It was should have remained responsi- and political system. based on earlier platforms and ble to voters, which meant the – determination by the country concepts. During 1991, parliament prevention of a dictatorship, and of its distinctive place and role in passed 35 laws, including ones on legitimate, which meant having the region and in the international private property, rent, entrepre-

No Strategy Events in Ukraine Events on post-Soviet territory 10 January 1992 The kupono-karbovanets is introduced as 6 December 1991 the Ukrainian currency The Verkhovna Rada passes the Law on the Defense of Ukraine and January-February 1992 the Law on the Armed Forces of Approval of the state symbols of Ukraine in- Ukraine. Parts of the Soviet army cluding the anthem, the flag and the emblem located in Ukraine are transferred to the jurisdiction of Ukraine January 1992 The Ukrainian government is forced to fol- 25 February 1992 13 December 1991 low Russia’s example in cancelling state The establishment of the Presidential Administration in Ukraine The State Duma of Ukraine, led price control without having an action plan by the President to develop stra- in place for these new circumstances tegic decisions, exists for nine months

2 January 1992 12 January 1992 14 February 3 March Russia cancels centralized Ukraine and Russia 1992 1992 price control, based on enter into their CIS Presidents Former the RFSSR Presidential first agreement on sign a declara- USSR Decree dated 6 December the division of the tion on the prin- troops be- 1991,with other CIS coun- Black Sea Fleet ciples of cooper- gin to tries following suit shortly ation and enter withdraw thereafter into a treaty on from Lithu- the status of ania strategic forces

№ 08 (20) september 2011|The Ukrainian Week|17 special edition|Ukraine-20 neurship, banks and banking, commercial entities and others, THE EFFECT OF WANDERING BLINDLY that were crucial to the life of the Ukraine was at its lowest level of socio-economic development in 1991-1994 country and laid a legislative GD P shrink framework for the transition to a s by 5 market economy. 2% Although fundamental to the 1990 economic life of a new country, these decisions had one major UAH 110.43bn 1995 drawback. The reasoning behind them was to separate Ukraine from UAH 52.93bn the Soviet economic system, a sys- In 1994, GDP shrank by 24.5% which exceeded its annual rate of tem that ran counter to the inter- decline by 1.5 times during 1991-1993 ests and needs of an independent Ukraine, rather than to undertake serious reforms. Worse, the initia- In 1993, corporate debt worth USD 2.5bn tors of these reforms, both within is nationalized, signiﬁcantly booing foreign the government and in the opposi- debt tion, were caught up in a kind of romanticism that seemed to be the spirit of the times, based on the hope that Ukraine’s rich natural re- Virtually every third sources would allow the country to employee in the public seor switch to a modern market econ- was in the hidden unemployed omy quickly and painlessly. The category in 1994 reality was that decision-makers at all levels knew next to nothing about how a modern economy operated. Moreover, the romantics 10 156 HYPERINFLATION were surrounded by many who had 1930 State gold and forex no interest in any changes, prefer- Ukrainians became 2000 poor millionaires reserves decline 1.7 times ring to preserve their habitual life- from USD 2.1bn in 1992 styles and the way things were run in 1991-1994 to USD 1.24bn in 1995 in the past. And sprinkled among % them both were the usual shame- 900 less opportunists, for whom the 1100 700 new conditions represented an op- 800 Annual retail price growth rate, % portunity to gain unlimited wealth. 700 Missing in all this were the people 600 Annual money supply growth who were prepared develop serious 401 rate (M3), % programs and take responsibility 500 for carrying them out, rather than 400 290 39,7 explaining the reasons for failure. 300 182 125 20 134 141 19,2 Red directors 200 10,1 240 213 The specific structure of Ukraine’s 100 135 economy determined the compar- 0 ative power of one group within 1991 1992 1993 1994 1995 1996 1997 1998 1999

5 March 1992 1 July 1992 22 August 1992 3 September 1992 The Law “On the Representa- The draft Constitution of Ukraine is The exiled leaders of the Ukraine joins the Interna- tives of the President of presented for national discussion. Ukrainian People’s Republic tional Monetary Fund, Ukraine”. They are appointed The draft is not subsequently offi- (UNR) formally transfer their World Bank and European and dismissed by the Presi- cially considered. Throughout 1993, powers to Leonid Kravchuk, Bank for Reconstruction dent acting as his executive the Constitution Committee drafts the President of Ukraine and Development representatives in oblasts other versions which also remain and regions. The system con- untouched tinues until 1994 when the hierarchy of executive council committees is briefly revived

21 March 1992 31 March 1992 20 September 1992 Tatarstan holds a refer- All the republics of the Russian Federation, Right-wing parties convincingly win the endum on sovereignty, with the exception of Tatarstan and Chech- first parliamentary election held after with most of the popu- nya, sign a federative treaty, dividing pow- the declaration of independence in Esto- lation supporting the ers between the federal authorities of the nia idea Russian Federation and the authorities of its republics

18|The Ukrainian Week|№ 08 (20) september 2011 Ukraine-20|special edition the establishment, specifically “the skillfully used populism and nos- citations red directors”, which played a talgia for past times when “the Expert talk “It took us a year to make people leading role in processes taking state provided everything” to get lose faith in our ability to run the place in 1991-1994. “The produc- the support of dozens of their col- state… I suppose only someone tion of the production means” leagues in the Verkhovna Rada with hangover steals less than a carload in this country today,” said reached 65% leaving only 35% for from other segments of the party Ukraine’s Premier Leonid Kuchma the production of consumer goods. and soviet leadership and even on 18 November 1992 In real prices, however, this pro- representatives of Narodna Rada, portion constituted 87 to 13 com- the People’s Council that was in pared to 35 to 65 in Poland whose the opposition. The latter was un- On the nature of power “Ukraine has never been an independent state,” said Leonid Kuchma when he production structure was also con- able to shape its own vision of eco- became Preme Minister on 13 October 1992. “Ukraine has been run as a prov- sidered to be distorted. The use of nomic issues and often followed ince. Having declared independence, we have not yet managed to break free of the framework of provincial governance. Our politicians have to realize that fixed assets was characterized by someone else’s ideas. power cannot be given or taken. Power is created.” low-level technologies, high energy consumption and the waste- A strategic mistake: On the essence of the problem ful use of resources during the the non-dissolution “Having embarked on the path of production process. As a result, of parliament independent development we have managers of Group A enterprises, The continuation of this situation, only managed to determine where to go in general terms,” said Ivan more commonly known as the red comprised of a lack of strategy and Pliushch, Speaker of the Verkhovna directors and kolhoz heads, the domination of short-sighted Rada, on 25 December 1994. “and emerged as the leading players. and selfish interests over national even less about how to do it.” One fact to note is that for the ones, was mainly a result of the most part, making an enterprise postponement of the issue of a On basic approaches more independent, particularly pre-term parliamentary election. “We had an occupation administration and treated it as an enemy of large ones, during the last years of In virtually all East and Central the Ukrainian nation until 24 Au- the USSR, presented directors European countries, the first dem- gust 1991,” said MP Levko Luki- anenko on 6 December 1991. with the opportunity to make free ocratic elections, won by reform- “Since 24 August, we have had our with funds. Since the collapse of ers, marked a transition from the own independent state in Ukraine. But it’s not complete. It has no traditional relations within the soviet to the post-soviet period, al- army or border patrol. It’s no good: the Verkhovna Rada is extremely reactive, USSR resulted in the problem of lowing the accomplishment of a while the Government and local authorities are even worse than that. But these selling production, which could series of tasks: are now the attributes of our independent Ukrainian state.” not be resolved at the expense of – revive the elite. Indeed, as Western markets due to almost democratization and indepen- non-existent experience in foreign dence gained momentum, talented serving the parliamentary filter economic activities, and the poor and patriotic professionals who against the introduction of purely quality or specific nature of the had proved their ability to reach a lobbied interests, often abused by goods, many red directors resorted goal, had the opportunity to get the uncontrolled executive branch. to selling off the assets of their en- into parliament; The situation with each of the terprises to make a quick buck. In – increase the legitimacy of three above items left much to be the meantime, they paid wages for the government and clearly show desired in Ukraine. Prominent their employees and covered other the public which political forces representatives of the then oppo- expenditures from the state bud- undertook reforms and who sition would later recall that they get since the enterprises remained should be held liable for the out- wanted to support Ukraine in the state-owned. come, which increases the motiva- first months of its independence, The managerial elite felt com- tion for politicians; and so they did not directly ask for pletely confident in the Verkhovna –ensure the sustainable sup- things that could shake the boat. Rada. MPs included 97 red direc- port of reform-oriented moves in This was one of the major draw- tors and 35 kolhoz directors. They the Verkhovna Rada, while pre- backs of the then opposition, in-

13 October 1992 11 November 1992 18 November 1992 December 1992 Leonid Kuchma is The National Bank of Ukraine The Verkhovna Rada del- Based on year- appointed Prime and the Cabinet of Ministers egates some legislative end results, in- Minister of Ukraine issue a joint resolu- functions to the Cabinet flation exceeded tion to introduce Ukrainian of Ministers authorizing 2,000% karbovanets into non-cash cir- it to issue decrees on culation, thus establishing a economic issues, which single monetary system in have the power of laws Ukraine

25 September 1992 1-15 December 1992 1 January 1993 Azerbaijan and Arme- The 7th convention of the MP’s of the The Czech Repub- nia sign a ceasefire Russian Federation’s, at which Viktor lic and Slovakia agreement Chernomyrdin is appointed Prime Minis- become indepen- ter. The conflict between the MPs and dent sovereign President Yeltsyn intensifies and results states in a power struggle and firing at the Russian White House

№ 08 (20) september 2011|The Ukrainian Week|19 special edition|Ukraine-20 herited by the political forces that grew from it: the inability to separate strategy, national interest and the existence of the state from the details of the development and specific political decisions that do not question the existence of the state, yet are called on to search for the best ways of its development. Therefore, succumbing to cooperation with the government and dropping early elections or the availability of opposition from the agenda, in the eyes of the public, the democrats – meaning the opposition to the Communist Party of Ukraine – turned out to be no better than those in power. Ultimately, both the government and the opposition experienced complete public disappointment in 1993 when the decision to hold early elections was finally passed. The contextual leftist majority that resulted from these circumstances managed to choose a socialist speaker, while the structure of the parliament turned out to be too fragmented to support the uniform direction of reforms. President Leonid Kuchma, elected in 1994 on the same surge of disenchantment, used the situation to his own benefit turning the unstable Verkhovna Rada into a convenient sparring partner which could conveniently be blamed for the lack of change for the better. Moreover, many foreign observers remembered Rus- sia where the conflict between the THE EXTINCTION OF president and parliament ended PROTESTS. in armed clashes. The MPs elected Mass-strikes of coal miners thereafter proved incapable of were slowing down. supporting liberal reforms. Ex- Trade Unions have bowed plicitly or implicitly referring to their heads this example, Kuchma was able to to the “Red directors” expand his powers. ukrinform photo: Society is ready for an May 1993 7 June 1993 21 September 1993 integral policy The Verkhovna Donbas miners go on indefinite strike. On 17 June Leonid Kuchma re- Rada discontin- the Verkhovna Rada fulfills their demand to set a signs from the post During the first years of indepen- ues the power of referendum to impeach the President and the par- of Prime Minister dence, Ukrainians were giving the Government liament. After negotiations with Mr. Kravchuk, the to issue decrees Verkhovna Rada cancels the referendum two days conflicting signals. According to having the power before it was to be held and sets 27 March 1994 as of laws as of 21 the date for an early parliamentary election and 26 surveys by the Sociological Insti- May June for the presidential election tute at the Academy of Sciences of

22 February 1993 25 April 1993 19 September 1993 The UN Security Council passes a Russia holds a national Leftists come to power in Poland, but resolution to establish a Military referendum. Most partici- continue reforms Tribunal for the investigation of pants express support of military crimes committed on the the President and opposi- territory of former Yugoslavia. This is tion to early presidential the first Military Tribunal of this sort and parliamentary elec- since the 1945-1946 Nurnberg tions Tribunal

20|The Ukrainian Week|№ 08 (20) september 2011 Ukraine-20|special edition cials. The West saw Ukraine as an THE ESTABLISHMENT OF ENERGY DEPENDENT “unstable country with the third In 1990, the share of deficit fuel (natural biggest nuclear potential in the In 1990, Ukraine had twice the gas and oil products), asw 61.3%, world”. Meanwhile, tactical nu- GDP energy consumption per GDP compared to 64.3% in 1994 clear weapons were removed to of industrially developed West European the Russian Federation in 1992 countries. During the economic crisis energy consumption increased by a further 34% without any negotiations, while and electricity consumption by 7%4 strategic weapons which Ukraine could neither afford to maintain nor use, became one of the major A clear downward sticking points in attempts to es- trend of natural fuel tablish contacts with the world. extra ion was seen Negotiations resulted in the 1994 in Ukraine over 1991-1995 A steep rise in the price Budapest Memorandum, whereby of oil, which is largely nuclear states guaranteed secu- Coal 1995|83,6 mn tons 1994|94,4 mn tons 1990|164,8 mn tons supplied by Russia, resulted in a gradual decline in oil rity to Ukraine. Among other refining. The amount things, they promised to refrain Oil 1995|4,0 mn tons 1994|4,2 mn tons 1990|5,2 mn tons refined in 1995 was only from using any economic lever- 16.9mn tons (14% less than age (!). Still, Ukraine never made in the previous year) use of the options granted by the Natural gas 1995|18,1 bn м³ 1994| 1990| including 11,5mn tons document, neither during the Tu- 18,3 bn м³ 28,1 bn м³ of raw material supplied zla conflict nor during the gas by the customer. As a result, wars. Others* 1995|25,8 mn tons** 1994|27,6 mn tons** 1990|28,5 mn tons** only 25% of the industry’s Secondly, Moscow played an capacity was used ambivalent role. On the one *Natural energy resources ** Standard fuel hand, it was less aggressive and tough towards its neighbours un- Ukraine, 22.1% of those polled in and development of a state in der Yeltsin, in comparison to the 1994 supported the socialistic Europe. years after 1999. Yet, Ukraine style of development for the coun- was dependant on energy sup- try, while 12.7% opted for the Foreign policy: illusory plies and the Ukrainian elite was capitalistic way. 23.7% “sup- and obvious threats unable to solve this issue. This ported both as long as they did In the international arena, the at- resulted in powerful leverage for not cause conflicts among them- tempts of the Ukrainian govern- Russia. The Ukrainian Week is selves” which meant that they ment to find its place in the region publishing a special report on were ready to accept any scenario. and the world faced at least three energy and the way it affects the 20% did not support anyone and region. 19.3% were unable to determine Thirdly, Ukraine’s Western their own positions. Interestingly, So-called democrats have neighbours made a definitive this ratio has remained the same either quarreled over choice to join NATO and the EU. to the present time. In the early 1990s, neither the This proves that a reasonable some symbolic questions, government nor the opposition in plan of reforms and their proper or practiced their Ukraine included European inte- implementation could have gration in the political agenda. It found a lot of supporters. They eloquence was not referred to as a series of could later have turned into the major barriers. Firstly, Ukraine decisions to be made. Therefore, nucleus of the middle class which fell victim to Western stereotypes, in many issues concerning Euro- is the platform for the stability skillfully fuelled by Russian offi- pean integration, Ukraine finds

22 October 1993 December 1993 8 February 1994 March-April 1994 The Verkhovna Rada passes a The inflation rate Ukraine is the first CIS Ukraine holds a first-past-the-post Law “On the Status of War Vet- exceeds 10,000% state to join NATO’s election to the Verkhovna Rada, re- erans and Social Security Guar- Partnership for Peace sulting in the election of 336 out of antees for Them”, which for programme 450 deputies. The constituencies that the first time, recognized the fail to elect a representative hold a members of UPA, the Ukrai- second round. A temporary leftist ma- nian Insurgent Army, as partici- jority is formed with the Socialist Par- pants of military actions, fight- ty’s Oleksandr Moroz being appointed ing against the Nazis Speaker of the Verkhovna Rada

2-4 October 1993 12 December 1993 16 January 1994 Clashes between the supporters of Russia holds a referendum on the new Yegor Gaidar resigns parliament and the president take Constitution of the Russian Federation from the Russian Gov- place in Moscow, resulting in a state with 58.4% of the population support- ernment in protest of emergency, the firing on the Rus- ing it and elections to the Federation against its “conserva- sian White House and the leaders of Council and Gosudarstvennaya Duma - tive policy” the RF Supreme Council the new legislative body of the RF. The Liberal Democratic Party of Russia led by Vladimir Zhirinovski won the most votes with 22.8%

№ 08 (20) september 2011|The Ukrainian Week|21 special edition|Ukraine-20 itself at the level its Western Attributes of the Era The president appointed and dis- neighbours underwent back in missed the prime-minister, as 1993. well as the power and economic blocs of the Cabinet of Ministers Shock without therapy with parliament’s consent. So the This set of circumstances deter- governments looked more like mined the helplessness of teams comprised of different Ukraine’s movement in the early classes, rather than teams of like- years of independence. Many re- minded people. searchers consider it to have been There was an attempt to mend unfair to drag Ukraine into the the situation in 1992, with the ap- shock therapy along with Russia, pointment of Leonid Kuchma, a which cancelled price regulation member of the red directorate, as in early 1992. This was a complete prime-minister and authoriz- shock for the Russian economy, as ing him to pass decrees, that well as the related economies of were the power of the law, former union republics. without the approval of the Instead, this fact is proof that Verkhovna Rada. On the one the Ukrainian political establish- hand, this led to the elimina- ment had zero understanding of tion of many loopholes. Some economic processes and decisive- of the documents from that ness in implementing a policy of time were still effective in the its own. Even after the price 2000s. On the other hand, the shock, it took the government lack of control entrenched lob- and the central bank until No- byist interests into the docu- vember 1992 to introduce the ments, such as the decree on non-cash circulation of the trusts or the resolution on kupono-karbovanets, the first the introduction of a fixed Ukrainian currency after the col- currency rate. lapse of the USSR! Until then, the cash for settlements with the Russian Federation or CIS countries was literally transported in sacks. This indecisiveness was a result of both the individual features of the post-soviet elite as well as combined and institutional factors. Red directors played a major role in this. They resisted bold moves preferring to not tilt the balance at their enterprises. The early 1990s saw large-scale and resonant strikes. Red directors just began to win over strike initia- tors with promises to pay and raise salaries. The burst of hyperinflation in 1993 was partly caused by the printing of money as a means to solve the issue of salary payment quickly and painlessly, thus July 1994 10 July 1994 flooding the economy with unse- Yukhym Zviahilsky, Leonid Kuchma Acting Prime Min- wins the sec- cured funds. ister of Ukraine, ond round of The muddled constitutional accused of finan- the election cial speculation, and becomes model, in turn, prevented the flees to Israel President of government from establishing Ukraine clear responsibility for the implementation of the economic policy.

9 May 14 May 1994 August-September 11 December 1994 1994 The Georgian 1994 Large-scale military A ceasefire government Russian troops with- action begins in is agreed in and Abkhaz- draw from the Central Chechnya. Troops Nagorno- ian insur- Europe. They leave Esto- of the Russian Min- Karabakh gents agree nia and Latvia on 29-30 istry of Defense and to a ceasefire August, Germany on 31 Ministry of Interior August and Poland on 8 enter the republic September

22|The Ukrainian Week|№ 08 (20) september 2011 special edition|Ukraine-20 1994-1998

• Oligarchs used all kinds of tools including financial fraud, artificial debts and coercive pressure to Bagging grab or take under their control the juiciest, or at least potentially profitable objects, particularly steelworks and chemical plants that basically produced semi-finished components for other technological productions. the Country • This led to the subsequent distortion of the structure of Ukraine’s economy. • Meanwhile, other industries, including engineering, hi-tech productions that needed huge invest- With a government that had no strat- ment before they could even compete at foreign markets, food and textile industries were decaying. egy for national development, eco- Even being swallowed by oligarch empires could hardly save them, since they turned into side busi- nomic reforms or European integration, nesses rather than central projects. and an opposition unable to offer rea- • SMEs remained neglected despite the favourable flat-rate tax system law passed in 1998. They had sonable alternative scenarios or exert no access to cheap loans and real privatization, nor could they compete with oligarchs seeking control pressure effectively on those in power, over medium-sized business, comprised of the food industry, farming, the hi-tech sector and others. Ukraine ended up with an economy • The privileges lobbied by oligarchs for their businesses left gaps in the state budget. To cover them, shaped by the logic of least resistance the government increased tax pressure on businesses that had no such protection. This led to the in- and quick profits. As a result, an oli- evitable decline of the investment climate in Ukraine. garch system emerged, comprised of • Ultimately, government decisions based on private interests rather than a comprehensive analysis the following components: of the situation were inefficient and often more troublesome than helpful. 24|The Ukrainian Week|№ 08 (20) september 2011 Ukraine-20|special edition The Dawn of the Oligarchs The late 1990s brought a system of governance to Ukraine that sent the country tumbling into poverty

eforms means changing the behavior, means of interaction and the mindset of peo- Rple. They require systemic and persistent efforts and need forces that objectively see the point in changes. Without this, people only care about their own interests as they see them. This leads to a society with no purpose, triggering processes inherited by mankind, since the beginning of time. Society stratifies into a general mass, over- whelmed with daily survival and a handful of lucky ones who found a way to make all available resources serve them. At the same time, the lucky ones are not always the smartest. They are rather the ones quick- est to make use of their benefits, Kuchma- arising from a society without a Director. purpose, such as connections to the Leonid Kuchma movers and shakers, the skill to tried to rule grab anything within the arm’s the country as reach, regardless of the interests of a big plant others and the ability to withstand a battle with the like. than fragmented measures. This tors”, i.e. the managers of big com- Despite being part of human was accompanied by the failure of panies who had grabbed their enter- nature, the danger of this situation the opposition, and particularly the prises and were using their business is that it leads to a distorted distri- democratic opposition, to follow resources to exert pressure on poli- bution of society’s resources while the suit of reformers in Central Eu- tics. Leonid Kuchma, an offspring of curbing its potential. Those who ropean states in setting forth and this generation, first became Pre- could have used such potential implementing their plan. As a re- mier to be elected President later. were deprived of the opportunity sult, the situation was left adrift. On the other hand, the nouveau to do so. riche, who gained their first mil- Ukraine faced this situation in A FAVOURABLE ENVIRONMENT lions and subsequently billions the early years of independence as In the early 1990s, it looked as if the earned on scams that included the the government proved incapable country would end up with only two bagging of state-owned assets. One of determining and implementing a most powerful economic forces. On of them was a buzz word story of comprehensive reform plan rather the one hand, were the “red direc- the Black Sea shipping company

Oligarchy Outlined Ukraine FSU

5 December 1994 17 March 1993 15 April 1994 19 July 1994 20 July 1994 Ukraine, Russia, Great Britain and USA Premier Kuchma’s government passes a Ukraine signs a Free Trade Zone Leonid Kuchma becomes Presi- President Kuchma, Premier Masol and Verk- sign the Memorandum on Security As- Decree on Trusts legalizing the opportu- Agreement with the CIS which is, in dent of Ukraine hovna Rada Speaker Moroz make a joint surances in connection to Ukraine’s ac- nity to establish Ponzi schemes using essence, a profanity statement confirming the “objective need for cession to the Non-Proliferation of Nu- people’s contributions. The Decree is ter- coordinated moves by all powers” which is vi- clear Weapons Treaty (Budapest Memo- minated on 26 June 1995 because of olated almost immediately, as the Verkhovna randum) “drawbacks in the operation of trust asso- Rada does not ciations” support Kuch- ma’s initiatives while the latter takes security structures and oblast heads under his control

№ 08 (20) september 2011|The Ukrainian Week|25 special edition|Ukraine-20 sale, which surfaced after it turned Alarming expansion of the shadow economy «Shadow» measures in 1998-1999 into a criminal case, while other Estimated shadow economy: 60% of GDP G INVESTME such scandals were kept quiet. Oth- NIN NT C SE LIM ers involved intermediary services OR A Funds illegally leaving Annual budget W T E in such deals or Ponzi schemes the country in 1991-2001: up to USD 40bn shortfalls caused A Based on the 1998 IN by the shadow IN U mushrooming after the special 1993 A economy: T survey by The Economist, K R R decree, of which the Moscow-based UAH 12-15bn E A C Ukraine had the highest I up to N S E MMM became a trademark, fol- A corruption score out of 97 countries

60-80% S lowed by many similar Ukrainian T of the world. In 1999, Ukraine landed of cash flow R

companies, such as Ometa, which ATTEMPTS E 21st in the international corruption

P P X

promised a 1,000% return on in- X

E index and 3rd among the countries

TO ELIMINATE N

vestment and lured nearly 12,000 Direct N with the most corruption in politics, G G

THE «SHADOW» SECTOR and indirect I

participants, yet ceased to pay divi- E R

taxes R behind Bolivia and Columbia,

BY RAISING TAXES AND MAKING 61% O

F dends in 1995. F according to the World of calculated Both groups were too numer- TAX COLLECTION TOUGHER, ONLY Economic Forum taxes ous. They plunged into a tough in- AGGRAVATE THE PROBLEM Taxes paid ternal struggle for access to re- Source: State Statistics Committee, State Tax Administration of Ukraine, open sources to the budget sources and power, where the winner would be the strongest fighter that was best suited to live and act They are the and regions. This systemic ap- businesses of Viktor Pinchuk and ones at fault! under such circumstances. proach was one of the tricks behind Kostiantyn Hryhoryshyn exploited the quick progress and victory of their proximity to those in power INTRAGROUP WARS his Hromada (Community) party in and temporary unions with others. The roads to the status of an oli- the 1998 election. And it was the Eventually, Donbas ended up with garch were diverse. They included ex-Premier’s systemic approach a pact among the owners of compa- influence on enterprises through that most scared both the newborn nies and young businessmen of Do- control of critical resource supply, oligarchs and President Kuchma’s netsk origin who still avoid being particularly gas or oil. Gas served as Leonid Kuchma: circle. The fact that all these groups asked about where they earned the foundation for Pavlo Lazarenk- I’m a happy man united to push Mr. Lazarenko out their first millions. They struggled lo’s business empire and brought when the parlia- of the business and political arena to protect their monopoly in the re- ment goes on va- smaller capital to less significant, cation was a precedent of sorts. After he gion, keeping invaders, primarily yet no less cash-hungry, figures, fled, his opponents returned to from Dnipropetrovsk, away. Clashes such as Ihor Bakai in the early their usual squabbles. between these groups were largely 1990s and subsequently after Mr. Another method of warfare was postponed until the beginning of Lazarenko’s fall, or Dmytro Firtash to entangle “victim” plant in con- the 21st century. almost a decade later. But they tracts with firms and banks that Some potential oligarchs, using were far from Mr. Lazarenko’s scale would artificially turn it into a government support, combined dif- of efforts or plans. Unlike most oli- Self-appraisal debtor. In the late 1990s, the media ferent methods to the dream status, garchs, he was not simply building Pavlo Lazarenko: was rife with such stories that in- including the provision of all kinds a business empire, but a system I’m a manager, volved people and entities currently of financial and legal services (par- that allowed him to run industries not a politician circling in the Privat Group’s. The ticularly access to offshore zones)

28 December 1994 27 January 1995 1 March 1995 17 March 1995 8 June 1995 The Verkhovna Rada passes the Presi- President Kuchma issues a Decree “On Prime Minister Vitaliy Masol, inherited The Crimean disobedience ends. The Leonid Kuchma and VR Speaker Olek- dential draft law “On State Authority and Financial and Industrial Groups in by Kuchma from his predecessor Leonid Verkhovna Rada passes the Law on the sandr Moroz sign the Constitutional Local Self-Government”, redistributing Ukraine” establishing legal framework Kravchuk, resigns. He is replaced by Act- Autonomous Crimean Republic confirm- Treaty between parliament and the authority, including control of the gov- for businesses to unite into under the ing Prime Minister Yevhen Marchuk. Mr. ing its status as an inseparable part of president “On the Fundamentals of the ernment in favour of the President, in its control of oligarchs. On 2 March 1995, Marchuk is dismissed on 27 May 1996 Ukraine, determining the status of its Organization and Operation of Central first reading. The Constitution has to be the Verkhovna Rada vetoes the decree for the publication of his “platform” ar- law enforcement agencies, and abolish- and Local Governments in Ukraine until amended for the law to come into ef- but it remains in effect until the Presi- ticle labeled as “image making” ing the office of president and a series the Approval of the New Constitution”. fect, but the President’s supporters have dent cancels it as an outdated docu- of laws, which run counter to the Con- Ukraine becomes presidential republic. a 2/3 majority in parliament. The battle ment four years later, on 27 January stitution of Ukraine. President Meshkov The president and parliament set up a surrounding this document leads to the 1999 is forced to move to Moscow. According joint constitutional committee to draft political crisis in early 1995 to Mr. Kuchma’s memoirs, the crushing the new Constitution of the Crimean revolt is crushed with Boris Yeltsin consent

1 January 1995 6 March 1995 26 March 1995 Austria, Finland and Russian army Seven EU-member states, Sweden join the EU commanders Belgium, France, Germany, announce the Luxemburg, Netherlands, establishment Portugal and Spain, abolish of total control internal border control and in Grozny, the reinforce control on their bor- capital of the re- ders with other countries bellious Chech- nya

26|The Ukrainian Week|№ 08 (20) september 2011 Ukraine-20|special edition THE HARDEST HIT BY INEFFICIENT ECONOMIES WAS Constructively for a fee, expanding their market optimistic presence and struggling to take over THE WELFARE OF THE POPULATION power supply monopolies. Read GDP per capita more on such deals including, for (based on purchasing $4097 instance, K7, the Kyiv Seven of Vik- power parity) tor Medvedchuk, the Surkis brothers, Bohdan Hubsky and others. This leverage, used with the sup- 1994 $3458 port of the national leadership (Dni- $3295 Viacheslav propetrovsk-based groups started Chornovil: off protected by Pavlo Lazarenko We have not who, in turn, enjoyed the trust of won, but have not lost, either. President Kuchma; K7 found ways to the offices of both President Kravchuk and President Kuchma;

1997 NBU Committee, Statistics State ce: 1999 yet the Donetsk group preserved Sour Dubious their power in the region) left no op- promises portunities for those struggling to The rate in developed protect their businesses. countries was $25,000-42,000 THE THREAT OF AVERAGE MONTHLY SALARY OLIGARCHIZATION 1,427,708 karbovantsi The word oligarch has been a swearword ever since journalists The meagre wages were paid UAH 143 borrowed it from their Russian col- sporadically, often with a delay Viktor Pynzenyk: of several months leagues to denote winners of the UAH 178 We will devalue distorted competitions mentioned your dollar-de- above. However, the protagonists Official exchange rate of the Official exchange rate of the Ukrainian nominated savings. of all these stories prefer to describe Ukrainian currency, currency, for USD 100 themselves as big national business. for USD 100 They sponsor and donate to projects and pay good salaries, at least to the top managers, who are often hired abroad, while regular workers do not count. After all, taking over companies on the verge (or over the 1997 1994 1999 Taking into 1999 account the verge) of collapse and swallowing 1997 UAH 413,04 91 80 74 state of health, them into their empires was not a 1994 UAH 186,17 education level and real Ukrainian invention. UAH 3.170.000 purchasing power of the population Still, unfair privatization tenders, legal manipulations and the

9 November 1995 11 March 1996 28 May 1996 28 June 1996 2 September 1996 Ukraine is the first CIS country to be- The Constitution Committee approves Pavlo Lazarenko becomes Prime The Verkhovna Rada approves the new Constitu- Ukraine introduces the hryvnia, come a full member of the Council of the final draft Constitution. Mr. Moroz Minister. Scams, based on tion of Ukraine after almost three months of de- its national currency. Karbovantsi Europe. A Monitoring Committee is and some MPs on the Committee monopolized gas supply by his bate and the “Constitution Night”. The left wing of are transferred into hryvnia at an set up to supervise the fulfillment of claim excessive power consolidation Single Energy Systems, enjoy full parliament protests against approving national exchange rate of 100,000 karbo- Ukraine’s human rights commit- in the president’s hands government support symbols, drawing public attention to a “demon- vantsi per 1 hryvnia, with no re- ments strative” conflict. Kuchma uses this to pass provi- strictions or confiscation sions that make his role decisive in the system of power. To implement the Constitution, the VR needs to pass more than 50 other laws, of which barely half are passed in the coming years

30 August 1996 Peace treaties are signed in Khasavyurt, 9 June 14 June 1995 30 July 1995 19 November 1995 3 April 1996 Dagestan, on the withdrawal of Russian 1995 Chechen terrorists attack Bu- Chechnya and Russia Former Communist Russian and Belarus troops from Chechnya and the holding The presi- dionovsk, a town in the Stav- representatives sign a Aleksander Kwas- sign a Commonwealth of democratic elections. The decision on dents of ropolski province. More than peace treaty in Grozny niewski wins 51.7% Treaty Chechnya’s Ukraine and 10 terrorist attacks occur in of the vote against status is Russia meet Moscow, St. Petersburg and Lech Wałęsa in the postponed in Sochi, Russia, to discuss the equal the Caucasus over a period of presidential election in Poland. for five years division of the Black Sea fleet, after 18 months, killing tens and Kwasniewski takes the presiden- which, Russia is supposed to buy out wounding hundreds of people tial oath on 23 December Ukraine’s share

№ 08 (20) september 2011|The Ukrainian Week|27 special edition|Ukraine-20 exploitation of connections in the THE INNEFICIENCY OF THE ECONOMIC STRUCTURE government to take over highly CONTINUED TO GROW: profitable producers make the own- The share of technically obsolete contaminating productions and energy supply ers treat the prize they won as pi- grew while hi-tech and consumer goods production shrank rates. Instead of investing in devel- As a result, opment and making manufacturing Sector share in industrial production the ratio of more efficient, the new owners Ukraine’s largely exploit them to their benefit. 51,6 import This practice is encouraged by the 50% 45,4 dependence

understanding that someone else open , 40% kept can sooner or later use the illegal s growing ce: State Statistics Statistics State ce: swallowing of the asset as an excuse ce 26,4 24,4 ommittee our 30% in 1999, Sour C s to take it away. Therefore, oligarchs 17,3 reaching prefer to squeeze everything they 20% 12,3 15,9 16,6 13,8 15,2 possibly can from the company 10% 4,3 1,4 48% right here and then, rather than wait for a return on investment into 1991 1994 1999 Key production modernization. industries in Ukraine Moreover, this logic leads to mo- ■ Industries that produce interim products or ended up barely interdepen- tives for exerting selfish pressure on energy resources: ferrous metallurgy, fuel and dent. The Ukrainian machine the government. For instance, grow- electric power supply industries building sector uses less than ing fuel prices push plant owners to ■ Industries that manufacture ready-made 20% of the country’s ferrous products: machine building demanding the government to cut metallurgical output and provides Industries that produce consumer goods: less than 1% of its own output to fuel prices no matter what, rather ■ Light industry the domestic ferrous metallur- than investing in increased energy ■ Food industry gical, textile and food efficiency. The oligarch-dependent industries. government cannot resist this strong Ukraine imports nearly 25% more pressure. Hence, the Kharkiv deals. gas than the US and the UK together, consuming Oligarchs distort the economic ﬁve times more gas per capita than Japan and twice structure, stifle initiatives and leave as much as Germany small ghettos for the middle class, especially small and medium business that generates up to 60% of GDP in other countries and, most Ukrainian economy importantly, provides new jobs and has 10-12 times the energy ideas for economic growth. Mean- intensity of developed countries while oligarchs largely channel re- 1990 1991 1992 1993 1994 1995 1996 1997 1998 sources, both of their own and ac- cessible public resources, to take over and maintain enterprises that These processes resulted -51,4% generate quick profits, such as in the GDP plummeting 74.2% steelworks, chemical plants and so from 1990 to 1998 with 51.4% being in 1994-1998 on. Yet, they keep others from ac- -74,2%

31 May 1997 June 1997 18 June 1997 9 July 1997 10 October 1997 Russia and Ukraine sign systemic Verkhovna Rada passes new legisla- Pavlo Lazarenko is dismissed from Ukraine and NATO sign the Special The presidents of Georgia, Ukraine, Azerbai- Agreements in Kyiv “On Friendship, tion on value added tax and corpo- his post as premier. He establishes Partnership Charter in Madrid. jan and Moldova announce the creation of Cooperation and Partnership” and rate tax. Numerous amendments Hromada (Community), his own po- Should there be any threat to the GUAM, Organization for Democracy and “On the Status and Terms for the introduced later provide privileges litical party, in the run-up to the security of Ukraine, the latter can Economic Development at the Council of Continued Location of the Black Sea to companies and industries, the in- 1998 election initiate “relevant consultations” Europe summit in Strasburg. The motivation Fleet of the Russian Federation Stay terests of which are lobbied in the with NATO is “to resolve economic problems more effi- on the Territory of Ukraine government ciently and ensure the operation of Europe- an-Asian transport communication”

12 May 1997 23 May 1997 The Russian Federation and Russia and Be- 18 November 1996 2 April 1997 Chechen Republic of Ichkeria larus sign the Explosion of a resi- Russia and sign an Agreement “On Union Charter dential building in Belarus Peace and the Principles of Kaspiysk, a town in sign a Mutual Relations” the Dagestan Re- Union public, where the Agreement families of border police live, killing 67 people

28|The Ukrainian Week|№ 08 (20) september 2011 Ukraine-20|special edition cessing other industries on a fair lished oligarch system. They are WHO HAS REAL POWER IN UKRAINE basis. As they affect tender terms most often linked to the passing of Local government bodies Criminal groups, maﬁa and determine playing rules in the the Basic Law and the establish- The Verkhovna Rada 10,1% economy, oligarchs make competi- ment of Kuchma’s dominance. All 9,2% 48,5% tion a lost cause. The small privati- these things are interrelated. zation of 1995 was one such exam- Experts were most concerned 11,4% ple. During the course of one year, about the “excessive concentration 14,6% 90% of small and medium-sized of power in the president’s hands” 37,2% enterprises switched from being in the 1996 Constitution of Ukraine. The Government Source: Survey by the state or community owned to pri- In fact, the president was autho- Ukrainian-American Center vately owned, while more than 75% rized to unilaterally appoint and for Strategic Studies from increased sales, gained new clients dismiss not only the prime minis- October 1998 The President Private business and created new jobs. Still, they got ter, but also ministers and heads of under the press of the tax machine, local administrations. Enforcement designed as a mechanism to use en- ministers also had to report to him. considering the possibility of chang- trepreneurs to cover budget gaps Parliament was supposed to ap- ing the rules or even the referee, and that emerged as a result of ineffi- prove the prime minister and could far enough away to keep them from cient management and the govern- pass a motion of no confidence in the obvious competitive benefits ment’s failure to channel oligarchs’ the government. Yet, politically that could spur the ambition to be- money into the state budget. fragmented, polarized and close to come referees themselves. According to many international various oligarchs, all parliaments Journalists labeled this system institutions, Ukraine still has one of elected in Ukraine before 2006, “Kuchmism”. The word was later the worst business environments in failed to use their powers to the full widely used to denote the moderate Europe. This affects respectively the extent. authoritarianism in Ukraine in the creation of new jobs, the develop- Fragmented parliamentary fac- late 1990s and early 2000s. It was ment of the economy and the in- tions result in inconsistent and un- not state enforcement and all re- creased prosperity. Even the simpli- stable legislation that was typical of spective agencies reporting to the fied taxation, accounting and report- Ukrainian politics. This caused president alone that kept Kuch- ing systems introduced in 1998 problems in creating a legislative mism alive. Virtually all oligarchs failed to make things much better. background for necessary reforms and other major political players, They improved the standing of small and an advantageous argument in wittingly or unwittingly, co-au- entrepreneurs, yet the whole eco- favour of the further consolidation thored the regime. nomic system, including the struc- of power in the president’s hands. Anti-Communist and national ture of demand, access to loans and Kuchma’s decrees acted as laws, movements failed to offer a counter- the behavior of supervisory authori- thus encouraging oligarchization or elite. Some of its members moved to ties, distorted by oligarchs, was no providing privileges to some of the serve the government and some longer able to use the potential and mighty of this world. struggled to be a constructive oppo- the energy of free business. Mr. Kuchma used the disparities sition, hoping to get their piece of among oligarchs in his “divide and the pie, but no-one offered the pub- KUCHMISM AND conquer” strategy that kept the play- lic a realistic alternative scenario. THE SWAMP ers close enough to the president to The hopes for such alternative Political events during 1994-1998 fuel their interest in the game and scenario arrived much later. But were largely shaped by the estab- the benefits it could give without they were wasted, too.

24 September 1997 29 March 1998 7 July 1998 14 September 1998 Verkhovna Rada passes a new Ukraine holds parliamentary election After a long process of choosing the VR The Prosecutor General opens a election law, whereby 50% of MPs in which 30 political parties and blocs Speaker, The Farmers’ Party of Ukraine’s Olek- criminal case against Pavlo Laza- are elected by party lists with a 4% participated, with 8 getting through sandr Tkachenko becomes the Speaker. Accord- renko charging him with the large- threshold, while the other 50% are to parliament ing to speculation, the appointment is sup- scale stealing of state-owned election in majority constituencies ported by Mr. Kuchma’s advisor Oleksandr property Volkov. By making the maverick Mr. Tkachenko Speaker of Parliament, executive power gains the opportunity of blaming its inefficient policy on a non-constructive parliament

17 February 1999 Verkhovna Rada strips Pavlo Lazarenko of MP immunity. He flees Ukraine a week earlier, is arrested in Switzerland and extradited to the US

23 March 1998 17 August 1998 23 August 1998 Viktor Chernomyrdin re- Black Monday. Russia plunges into a deep economic crisis. The Mr. Kirienko’s Government signs from his post as government announces a default on internal debt accompa- resigns. On 11 September Chairman of the Russian nied by alarming ruble 1998, the Government. He is re- devaluation. This hits Gossudarstvennaya Duma placed by Sergei Kirienko Ukraine’s economy as a (Russia’s Parliament) on 24 April, who is nick- result of its integration appoints Yevgeniy named “Kinder Surprise” with the Russian econ- Primakov Government because of his youth omy and its dependence Chairman on the third on orders from Russian attempt counterparties

№ 08 (20) september 2011|The Ukrainian Week|29 special edition|Ukraine-20 The Triumph of Ruins The assassination of Vadym Hetman removed all barriers to the chaotic disbursement of the banking and financial sector in Ukraine and opened the way for the tycoon-controlled economy

n 22 April 1998 Ukraine was rocked by the news of a heinous murder. OVadym Hetman, one of the most respected politicians and financiers of the time, was shot dead on the doorstep of his home in Kyiv. The alleged killer Serhiy Kuliov, a member of Kushnir gang, the most notori- ous criminal group of the 90s, was arrested in 2002. A Luhansk court of appeal gave him a life sentence, yet the crime was never properly investigated to find the real truth. Those who ordered the killing never stood trial. The statesman Notably, neither Mr. Hetman’s foes nor ill-wishers ever doubted his great contribution to the benefit of independent Ukraine. When he joined the NBU, Uk raine’s central bank, in March 1992, Mr. Hetman upgraded its organizational structure, com- puterized its banking processes, including setting up the interbank database which is still considered one of the best in Eastern Europe, initiated the research and design process to establish the Audit Chamber of Ukraine, and launched a complex mechanism for printing hryvnia, the new (at that time) Ukrainian currency. “Hetman was always more innovative than others,” says Oleh Rybachuk, director of the NBU’s external relations department and later the department for international relations over 1992 - 1999. “He decided that Ukraine should print hryvnia when it was basically still part of the Soviet Union. He decided to leave the ruble zone when other politicians didn’t even dare mention it.” In 1993 Vadym Hetman left the central bank and focused on establishing the Ukrainian Inter- bank Currency Exchange (UICE) 30|The Ukrainian Week|№ 08 (20) september 2011 Ukraine-20|special edition as a public structure where the stituency in Cherkasy Oblast to ally all political groups, supported controlling stake could not be Mykhailo Onufriychuk, the then by his great personal and profes- owned by just one entity and this First Deputy Information Minis- sional reputation, to make sure is how it was for the rest of Mr. ter, falling just 3.87% short of his that his viewpoint was always Hetman’s life. opponent. He appealed against taken into account. He at least “Mr. Hetman was a pioneer the voting results claiming that had the power to prevent the dis- in many ways,” says Volodymyr his opponent had been using il- bursement of the banking and fi- Lanovyi, a National Deputy of legal political technologies and nancial system and crush many the 2nd and 5th parliamentary administrative leverages against scams which damaged the Ukrai- conventions and Economy Min- him. However, the pursued seat nian economy. ister in 1992. “He founded new bio was not worth killing a man for. Secondly, all his colleagues market institutions in Ukraine.” Vadym Hetman Another assumption was that appreciated his skills concerning Mr. Hetman was the first to offer was born on those who ordered the assassina- organizing resources and people. ideas about the creation of a sec- 12 July 1935 in tion were trying to harass Viktor Mr. Hetman was the centre of ondary stock market, a futures Snityn, a village in Yushchenko, who treated Vadym gravity for many controversial, and currency market, and a bank Poltava Oblast, Hetman as his mentor, giving yet significant figures, such as market for precious metals in Ukrainian SSR him a warning of sorts before the Viktor Yushchenko, Oleh An- Ukraine. He participated in draf 1956 – graduated presidential campaign 1999. But dronov, Oleksandr Kireyev, Yuriy ting all new banking laws which from the Kyiv Fi- they did not need to kill Hetman Liakh, Oleksandr Veselovsky and nancial and Econ- determined the structure and op- omy Institute and to discourage Mr. Yushchenko Ihor Mitiukov. Through coopera- eration of Ukraine’s banking sys- worked at various from running in the election – he tion they could have hidden their tem in compliance with market financial and ad- was virtually pushed into big weaknesses and shown their standards. Even if the bills had ministrative facili- politics, so there must have been strong points, had Vadym Het- different sponsors, Mr. Hetman’s ties in Zaporizh- a legitimate way to convince him man remained their mastermind, proposals and amendments were zhia Oblast. out of the running. Moreover, restraining their urges for reck- often significant enough to criti- 1975 – was ap- Mr. Yushchenko only turned into less enrichment. cally change the documents’ phi- pointed First Dep- a threat for the circle of Leonid Mr. Hetman was the key fig- losophy. uty Chairman, Kuchma after he resigned from ure in preventing the chaos Vadym Hetman was a 100% Ukrainian SSR the prime minister’s office. which once loomed over Ukraine. State Price Com- true statesman, protecting the mittee. Mr. Hetman might have been In the late 90s, as the economy interests of the state – not his 1987 – was ap- removed to clear a path to the demonstrated some signs of re- own - in all his actions, decisions pointed Board then public Ukrainian Interbank covery despite the Russian crisis, and proposed laws. Unfortu- Chairman, Agricul- Currency Exchange. Yet, the it was crucial what Ukraine’s fi- nately, this position often made tural Bank of change of its owners took eight nancial and economic policy him very inconvenient for the Ukrainian SSR years, which was too long to be would be in the future. There many partly criminal, opaque (Ukraina bank seen a reason for the assassina- were two options: Ukraine could and mercenary Ukrainian eco- since 1990), until tion. have had a well-thought out state nomic and political elite of those 1992 when ap- When looking for criminal strategy implemented through pointed Board moves which had been tested by times. Chairman for the paymasters the best advice has National Bank of always been to look for those other countries, or a cocktail of Murder mysteries Ukraine. who would benefit from the decisions taken chaotically under The Prosecutor General of 1990, 1994 – crime. None of the popular as- the pressure of lobbyists working Ukraine claimed the now infa- twice elected to sumptions answer this question. exclusively for their own benefit. mous Pavlo Lazarenko was in- the Verkhovna It makes more sense to look at The first scenario gave Uk volved in the assassination. How- Rada. Mr. Hetman’s role in Ukrainian raine a chance to stop lagging ever, the one-time prime minis- 1997 – awarded politics of the time, rather than behind, for what seemed like for- ter had already been accused of the title of Best to analyse individual facts from ever, and use its resources to get so many crimes that this scenario Member of the his life or work. closer to EU standards following Parliament 1996 looked doubtful. What is more, and the Best Fi- Everybody who was familiar Central European states. If Uk by 1998, the year of the assassi- nancier 1997. with Mr. Hetman noted two fun- raine had chosen this path, it nation, he had been removed 22 April 1998 – damental things. Firstly, he was a would be much closer to the EU from office and the only political shot outside his man of principle, reluctant to get today. The other scenario al- position he still had was as leader house. On 11 July involved in obscure deals or the lowed just a few people to keep of the Hromada (the Commu- 2005, Mr. Het- creation of legislation loopholes generating their wealth quickly nity), faction in the Verkhovna man was posthu- for the purpose of stealing. One and recklessly, while weakening Rada. Was it not coincidence that mously decorated of many examples was his firm the country. The chaos of short- this was at the time of the surge with the title protest against the resolution of sighted decisions made to fit a in big-time war against the ex- ‘Hero of Ukraine’. the Cabinet of Ministers to imple- certain situation and corrupt premier’s business empire, and ment the so-called fixed hryvnia politicians who ignored strategic besides, Hetman had never stood rate which resulted in massive interests, made Ukraine very vul- in Lazarenko’s way? currency outflow abroad and the nerable to the exploitation of its Political scenarios also seem expansion of the shadow econ- resources internally and un- too unbelievable. The first as- omy, while also undermining the friendly influences from abroad. sumption was that Hetman was position of Ukrainian exports in Ever since Vadym Hetman died, killed in a struggle for a seat in the global market. Also, Mr. Het- Ukraine has seen one of the worst parliament. Mr. Hetman lost the man used his connections with models of a tycoon controlled 1998 election in the 189th con- the movers and shakers in virtu- economy unfolding within it. № 08 (20) september 2011|The Ukrainian Week|31 special edition|Ukraine-20 Ukrainian Oligarchs

The first steps

$ 20−25 bn

Rinat Akhmetov of some “Donetsk-born young people” who Poliakov, Chairman of the local Oblast State Currently owns assets worth an estimated were not connected with the so-called red di- Administration and Mr. Lazarenko’s hench- USD 16-17.8bn rectors, the traditional Donbas elite at that man, resigned. He was replaced by Viktor Mr. Akhmetov is the richest man in Ukraine time. Yanukovych, supported by Mr. Akhmetov. and Peoples’ Deputy in the Verkhovna Rada, In 1996, Rinat Akhmetov became the Presi- Mr. Akhmetov only entrusted the most re- from the Party of Region. More than 90 com- dent of Shakhtar (The Miner) football club af- sponsible positions to his closest family mem- panies, directly or indirectly controlled by Sys- ter the death of Akhat Bragin, a criminal bers. His wife Lilia is the Head of SCM CJSC Au- tem Capital Management (SCM), the largest known as Alic Grek, on 15 October 1995. Ac- dit Committee, while his mother Nyakia chairs company in Ukraine, generate his revenues. cording to some sources, Mr. Akhmetov “in- the company’s Supervisory Board. SCM employs more than 160,000 people. herited” both the football club, and the business structure of the deceased. Yevhen Main strategy Mr. Akhmetov was born on 21 September Shcherban, another visible figure in the re- According to some publications, Mr. Akhmetov’s 1966 in Donetsk to a mining family. gion, was killed shortly thereafter. By the end popular practice in the 1990s was to force people According to some sources, Mr. Akhmetov of the 1990s, Mr. Akhmetov had in fact be- to sell their businesses. Later, the tycoon in- tensely exploited power leverage to promote his used to be a professional poker player during come the most powerful man in the Donbas own interests. These included the privatization of the Soviet era, while the mass media has also region, having outrun other local groups, such state-owned companies thanks to connections in listed other illegal activities. However, Mr. as the Industrial Union of Donbas, Energo the government, budget privileges for his compa- Akhmetov appealed to the London court, concern and so on. He squeezed entities con- nies, particularly for his ore enrichment plants, and access to state-owned resources. Currently, which recognized this material to be libelous. trolled by Pavlo Lazarenko out of the region. Mr. Akhmetov presents himself as an entrepre- In 1995, Mr. Akhmetov was among the found- Eventually, there was a change in power in neur that wishes to conduct “honest business”. ers of the Dongorbank that merged the assets the Donetsk Oblast. On 14 May 1997, Serhiy 32|The Ukrainian Week|№ 08 (20) september 2011 Ukraine-20|special edition IHOR KOLOMOISKY AND THE PRIVAT GROUP Owns assets worth an estimated USD 2.5bn His key allies include Hennadiy Boholiubov, Oleksandr Dubilet and Serhiy Tihipko

For many people, the words “Kolomoisky” and “Privat” are synonymous. In fact, there is no group with this official name. However, there are several dozen various businesses that belong to the owners of PrivatBank Commercial Bank CJSC. Currently, the only remaining major shareholders and the bank’s biggest partners are Mr. Kolomoisky with 45.01% and Mr. Boholiubov with 44.99%. Each individual industry or business is under the supervision of one of the shareholders. Ihor Kolomoisky, who was born on 13 Febru- ary 1964, plays a leading role among the partners. This status, in addition to the completely private lifestyle of his partners, makes him the only known representative of the Privat conglomerate. In the mid 1980s, Mr. Kolomoisky and his friends began to import computers. To- gether with Hennadiy Boholiubov, he co- founded a company that imported office equipment from South-East Asia and another company called Sentoza. Oil trading was the business that boosted the development of Privat Group. In 1992, four companies: Vist Ltd., Sentoza Ltd., Som Ltd. and Privat Intertrading CJSC founded a commercial bank, Privat Bank $ CJSC. Supposedly, the initiator behind the idea was Serhiy Tihipko. He was the bank’s 4−6,5 first CEO and worked there until 1997 when he was appointed Vice Premier. Mr. Tihipko bn sold his share, taking along part of the group’s assets. As concerns the majority of projects, the strategy of the co-owners of PrivatBank co- owners focused on portfolio investment and Group shortly thereafter due to a complex its own. Just as in business, it gives prefer- the highest possible revenues over the situation regarding the supply of raw mate- ence to situational unions, considering them shortest possible term. To this day, the man- rials and the company’s debts. to be a more efficient and cheaper instru- agers and staff of the iron and steel plants In the mid 1990s, Privat Group entered the ment to protect its interests. and ore mining companies once owned by ferroalloy business together with Kostiantyn The Group focuses on portfolio investment, Privat Group and subsequently sold to Evraz Hryhoryshyn. They acquired more than 50% getting the highest possible revenues over still recall their one-time owners, who com- of the Ordzhonikidze and Marhanets Ore En- the shortest possible term, grabbing all it pletely ignored environmental and social is- richment Plants. By the end of the 1990s, can lay its hands on, and placing its people sues at the plant, as a nightmare. Only the Mr. Hryhoryshyn sold his shares in at state-owned enterprises and government banking and food businesses that are part of Bagleykoks and Dniprodzerzhynsk coke authorities to promote its own business in- the group, boast a long-term development plants to Privat Group for a mere USD terests. strategy. The mass media has often accused 30mn, who stated that he was threatened Privat Group owners of raider attacks: they that he would be dealing with bandits if he used to pick high-profit companies that were didn’t do so. Main strategy Privat Group uses the courts and the state regis- legally easy to seize due to gaps in the own- During the establishment stage, Privat trar to gain control of profitable businesses, par- ership structure. Group enjoyed the political protection of ticularly those that have gaps in their ownership The biggest scandals in the Group’s history Pavlo Lazarenko, the Head of Dnipropetrovsk structure; conducts legal wars; gains control of were between Privat Intertrading and two Oblast State Administration, and President companies by means of appointing “its own” administration while blocking meetings of share- steel giants, the Dzerzhynsky Dniprovsky Kuchma. Later, Serhiy Tihipko became a holders; exploits the minority shareholder status Steelworks and Petrovsky Dniprovsky Steel- public promoter of their interests in the gov- of its business partners to force them sell their works, stirred. The plants’ payables to the ernments headed by Mssrs. Lazarenko, Pus- shares through court appeals, meetings of share- Group brought them under its unofficial con- tovoitenko and Yushchenko. holders and so on; and places loyal people in government authority bodies to promote its own trol. Although initially privatized by the ISD, Unlike many financial and industrial groups business interests. Petrovsky Steelworks was acquired by Privat (FIGs), Privat Group has no political force of № 08 (20) september 2011|The Ukrainian Week|33 special edition|Ukraine-20

VIKTOR PINCHUK Main strategy Owns assets worth an estimated USD 3.3bn Mr. Pinchuk used favoritism, family connections Mr. Pinchuk founded EastOne investment con- at the top state level and power leverage to sultancy firm that provides support for new in- privatize highly liquid companies at knock-down vestment projects and the current portfolio prices and get official preferences during the im- covering more than 20 businesses and wide- plementation of his business projects. scale projects including Interpipe, pipe and wheel producer; media resources, including Mr. Pinchuk started his business in Dnipro- STB, Novyi, ICTV, M1 and M2 TV channels; petrovsk in 1990 with Interpipe, a research and Fakty i Kommentarii (Facts and Comments), a investment group co-founded with Volodymyr Russian-language newspaper; and The Econ- Arshava, his first father-in-law and a friend of omy publishing house producing Delo (Busi- Pavlo Lazarenko, his own mother and wife. Be- ness) and Investgazeta I( nvestment Newspa- fore getting involved in intense steel trading, per), Russian-language newspaper and maga- Interpipe had been a dealer for a gas company zine; and the insurance business including a called Itera. For this purpose, Mr. Pinchuk set firm called Russia and others. His business em- up Spivdruzhnist (The Commonwealth) corpo- pire covers Novomoskovsk Pipe Plant, Nikopol ration between Interpipe and Ms. Tymoshen- Seamless Pipe Plant, Nyzhniodniprovsky Tube ko’s KUB, an importer of Turkmen and Russian Mill, Nikopol Ferroalloy Plant, and Credit Dni- gas. After his commercial entities left the Com- pro Bank, founded in 1993. Mr. Pinchuk also monwealth in 1995, Mr. Pinchuk switched to controls the Dniprovsky Railroad Car Repair metallurgy, especially pipe production and sell- and Construction Plant, Kherson Combine ing, banks and the mass media. As a politician, Plant, Aerosvit airline and other companies. Mr. Pinchuk first joined the People’s Demo- $ cratic Party (NDP) that was in power and sup- Mr. Pinchuk was born on 14 December 1960 in Kyiv. ported the Labor Party later. His funding of indi- 3,3−6 His career began at large plants in Dnipro- vidual projects, including the Team of the Win- petrovsk rising all the way from a lab assistant ter Generation in 2002 and Viche (Assembly) in at the Dnipropetrovsk Steelworks Institute and 2006 led by Valeriy Khoroshkovsky and Inna bn cold pipe cutter at Nyzhniodniprovsky Tube- Bohoslovska, respectively, failed to meet ex- Rolling Mill, to senior research assistant at the pectations as none of the blocs crossed the 4% Research and Development Institute for Tube and 3% threshold in the parliamentary elec- and Pipe Industry during 1981-1985. tions.

PAVLO LAZARENKO notably, he conducted a “business-war” for Current assets: unknown control of regional enterprises with Donestk It is assumed that some of Mr. Lazarenko’s as- groups. Mr. Lazarenko himself used to say sets are still in hands of the people loyal to that he opened the door to big business for him, linked to Gorky Agriculture Company other Dnipropetrovsk-born tycoons including OJSC, UkrAnt Consulting Ltd, Oranta Dnipro Viktor Pinchuk, Serhiy Tihipko and Ihor Kolo- insurance company, Land Capital commercial moisky. bank and a group of mass media. Having resigned from the post of preme minister, Lazarenko headed The Yednist (Unity) Mr. Lazarenko was born in the Dnipropetrovsk parliamentary faction. In September 1997, he Oblast on 23 January 1953 to a family of kolk- chaired the nationwide association Hromada hoz workers. (Community), established in 1994 by Olek- In 1984–1992, he was involved in party and sandr Turchynov, an ally of Ms. Tymoshenko; administration work, mostly in the agricul- the latter became deputy head of Mr. Laza- tural sector of the Oblast, then as Deputy renko’s party. In 1998-2002, he was MP of Head of the Oblast Executive Committee. the 3rd convocation and leader of the Com- In 1992–1995, Mr. Lazarenko was the Repre- munity party that managed to cross the 4% sentative of the President in the Dnipro- threshold in the parliamentary election. petrovsk Oblast and was appointed First Vice In February 1999, the Verkhovna Rada Premier in September 1995 staying in office stripped Lazarenko of the immunity enjoyed until May 1996. From May 1996 till July 1997, by all members of parliament thus allowing Mr. Lazarenko was the Prime Minister of the Prosecutor General to bring him to crimi- Ukraine. People knew Mr. Lazarenko as a good man- nal liability. Later that same month, the one- ager during his years in the Dnipropetrovsk time Prime Minister was arrested in New York Oblast. After his short-term premiership, he airport carrying a fake Panamanian passport, was also known as one of the richest and attempting to enter USA illegally. most influential politicians in Ukraine who He asked the US government for a political had an eye on the entire country, and a realis- asylum but instead of a warm welcome from ? tic rival to President Leonid Kuchma. the Americans, he faced a bouquet of Most of Mr. Lazarenko’s income supposedly charges, including the laundering of USD came from supplying Russian gas to Ukrai- 280mn. The San Francisco court found him nian companies through Yulia Tymoshenko’s guilty of financial fraud in the amount of al- United Energy Systems. He invested the funds most USD 5mn. In August 2006, Mr. Laza- Main strategy into acquisitions or gaining control of compa- renko was sentenced to nine years in jail and Mr. Lazarenko used power leverage to nies and industries both in the Dnipro- a fine of USD 10mn. He is currently trying to get privileges for his companies. petrovsk Oblast, and all over Ukraine. Most prove his innocence. 34|The Ukrainian Week|№ 08 (20) september 2011 Ukraine-20|special edition Main strategy K7 used power leverage due to its members’ close links to those in power to privatize highly liquid state-owned companies at knock-down prices; gain interest in profitable companies, especially oblast power supply enterprises; get tax benefits through joint ventures set up in the 1990s, and employ bill schemes in settlements with state-owned companies. K7’s opponents and former business partners have informed the mass media about their businesses being grabbed out of their hands by group members.

1990s, nearly 12,000 people wanted to buy Ometa’s shares. However, in 1995, the concern stopped paying out dividends. In 1994, K7’s commercial entities set up Sla- vutych Industrial and Financial Concern, a closed joint stock company. The multi-profile company operated on the fuel, oil refining, grain, sugar, steel and other markets with Mr. Hubsky as Chairman of the Board and Grygo- riy Surkis as CEO. According to some sources, more than 2,000 major clients were buying oil products supplied by Slavutych in 1998. In 1997–1998, the company enjoyed VAT-free oil imports thus leaving a UAH 3bn shortfall in tax revenues in the state budget. The company was also granted a virtual monopoly to conduct settlement for Turkmen gas sold to Ukraine. As a result, Ukraine’s gas debt in- ? creased by USD 243.6mn in 1994. K7’s business grew and diversified. Slavutych Nafta, Slavutych Agro and Ukrainian Gas Complex CJSC began to develop individual K7 Fund, a multi-profile joint stock company. Its profitable business lines, later joined by Dy- Current assets: unknown branches included Ometa Trust, Ometa In- namo Kyiv Football Club, headed by Grygoriy The Kyiv Seven includes Viktor Medved- vest, Ometa Inster and Ometa Private. These Surkis. chuk, Valentyn Zhursky, Grygoriy and Ihor entities turned out to have other partners, Dynamo-Atlantic, a Ukrainian-American joint Surkis, Bohdan Hubsky, Yuriy Karpenko and such as Bohdan Hubsky who used to be the venture was also part of K7 with Ihor Surkis Yuriy Liakh who died in 2004 Deputy Chairman of the Supervisory Board as a “supervisor” who managed the import at Ometa Inster insurance firm with Grygoriy and sales of huge shipments of alcohol and This Kyiv-based FIG was supposedly set up Surkis as Chairman of the Supervisory Board. tobacco in Ukraine went through the compa- back in 1989 by Valentyn Zhursky, a fairly Ometa founders included BIM, an interna- ny’s books, duty-free. powerful functionary in Soviet Ukraine and tional law firm set up by Ben Israel & Co law Although after the 1994 election, the newly- the Chairman of the Communist Party’s Kyiv firm based in Haifa, Israel, as well as Viktor elected President Kuchma removed K7 from Executive Committee. Mr. Zhursky still chairs Medvedchuk, Grygoriy Surkis, Ihor Surkis, influence and power, it succeeded in return- the Supervisory Boards at Dynamo Football Valentyn Zhursky, Yuriy Karpenko, Bohdan ing closer to the country’s administration in Club CJSC, Slavutych financial and industrial Hubsky and Yuriy Liakh - all K7 members. 1996, luring in the new president with its ser- concern and Ukrainian Credit Bank CJSC. In 1992, the group’s entities imported oil to vices. In 1998, K7 took the United Social Dem- K7’s business background began in 1992 Ukraine to sell it internally. ocratic Party of Ukraine under its control, thus through offshore companies, such as Berly In early 1993, Ometa 21st Century issued se- guaranteeing its political protection. Management, New Port Management and curities worth 400,000 karbovantsi1 with Ometa 21st Century National Investment dividends reaching 1,000%. By the mid 1The Official currency in Ukraine during 1992-1996 preceding the hryvnia.

Attributes of the Era A ll the materials are based on data from open sources № 08 (20) september 2011|The Ukrainian Week|35 spacial edition|Ukraine-20 1998-2004

• In 1998-2004, the government seemed to be “the most powerful ever,” said Viktor Medvedchuk, one of the major antagonists of the time. It was the era of a perfectly controlled parliamentary majority, large yet ineffective op- The position, and a mass media dominated by the ideas imposed from above. Still, the oligarch system failed to use this resource to either develop the country or at least duly protect its interests and sovereignty. • The first vulnerability of the system was corrupt scams for resource supply, privatization tenders or determining Failed Test control over leading industrial plants. Under these circumstances, those who acted to please Russia got access to strategic enterprises and industries in Ukraine. Western investors did not rush to invest in an unpredictable and cor- Having consolidated power and rupt country thus offering zero counteraction to the promoters of Russian interests. gained control over resources, the • Another weak point was human resources policy, based on favoritism and narrow corporate interests. Top gov- oligarch-controlled regime in ernment positions were ultimately held by people who not only worked to drag Ukraine into the Russian orbit, but Ukraine faced systemic external also openly boasted about it. pressure. The government only re- • The third vulnerability was that the leaders of the oligarchic system lost contact with the people of its own coun- sponded to some challenges from tryand sees no need for such contact. Even though they understood the true roots of the Kuchmagate cassette outside. If not for the Orange Rev- scandal rooted (from the very start, Leonid Kuchma himself spoke of the signs of the work of secret services, the or- olution in 2004, Ukraine could igin of which he later named as being Russian). the Ukrainian government never did find the courage to start an have ended up under the com- honest dialogue with Ukrainian society. Instead, took the path of satisfying the Kremlin’s whims and at best, trying plete external control of the Rus- to soft-pedal them. sian Federation • Ultimately, the indicated “specific features” of the oligarch regime resulted in the state’s negative reputation in the world, thus limiting its maneuverability in responding to external threats and pursuing its own interests. 36|The Ukrainian Week|№ 08 (20) september 2011 Ukraine-20|special edition The Wind from the East The inability of the oligarch regime to withstand systemic pressure from abroad virtually led to the loss of sovereignty. It was only the response of society that saved the country

ladimir Putin’s ascent to power signaled the intent to reach his goal without Vselecting any tools. Russia’s strategic documents clearly declared the revival of Russia’s status as the leader in the region as the country’s objective and listed somewhat harsh methods to reach that objective, from controlling transit and allocation of energy sources to aggressive information campaigns outside Russia. Ukraine was predictably in the spotlight of these plans. More- over, 9/11 gave Russia and West- ern states a common ground in fighting terrorism, which causes KUCHMA 2.0 2000, the sum of due debt repay- many European politicians to In the late 1990s, Ukraine ended ment was equal to total budget rev- think that Russia’s value as an up with a classical partly oligarch, enues. However, the logic of the ac- ally allows them to turn a blind partly lumpen system. By mid- tions of the establishment was to eye to its violations of human 1999, 46.9% of Ukrainians found open doors so that wealth would rights and the imperialistic treat- themselves on the verge of the pov- fall into the laps of their homeboys, ment of its neighbours. Especially, erty level. Against the background ensure their immunity from re- if these neighbours, particularly of Russia’s financial crisis, Ukraine sponsibility and the overall sup- Ukraine, have themselves contrib- faced the risk of default, and this pression of competition in both uted to the confirmation of nega- was not the result of its gross debt, business and politics. Strategically, tive stereotypes about them. but of its poor borrowing policy. In this weakened the country to exter-

Dangerous New World events in Ukraine events in the world

11 June 1998 23 December 1998 25 March 1999 30 May 1999 24 August 1999 Autumn 1999 President Leonid Kuchma en- The Verkhovna Rada of Ukraine Viacheslav Chornovil dies in a Kyiv elects a Mayor. Oleksandr The Kaniv Four is established, The presidential election cam- dorses Ukraine’s EU Integration passes the Constitution of the car crash under circumstances Omelchenko wins the first round comprising Yevhen Marchuk, paign was noted for its “innova- Strategy. It lists associated mem- Autonomous Crimean Republic that are a mystery to this day against Grygoriy Surkis, 76% Oleksandr Moroz, Oleksandr tions”, such as the concentra- bership in the EU as the key for- putting Crimea under strict cen- against 16% Tkachenko and Volodymyr Oli- tion of economic and adminis- eign policy priority while becom- tral control ynyk. They agree to nominate trative leverages on the Social ing member-state of the EU is one candidate for the presidency. Security Fund, provocations us- declared a strategic goal The candidate is Yevhen ing force, such as the assassina- Marchuk, yet Mr. Moroz contin- tion attempt on Natalia Vit- ues running in the campaign “on renko, and the involvement of

the demand of his party” Russian spin doctors. As a result, ANDR C H E KM N V , UNIAN UKRINFORM Leonid Kuchma and Communist Petro Symonenko make it to the second round. On 14 November 1999, Mr. Kuchma is elected for

his second term as President : OL E K S PHOTO

1 January 1999 12 March 1999 24 March 1999 9 August 1999 31 August 1999 4 September 1999 Most EU countries switch to Hungary, Poland and Czech Re- NATO launches the first air raid Chechen fighters unexpectedly at- A bomb explodes in the Okhotnyi Buildings begin to explode in non-cash settlement in euro, public join NATO on Yugoslavia. The bombing tack Dagestan. The Government Riad (the Hunter’s Row) under- Moscow and other Russian cit- with the putting into circulation lasts until 10 June of the Russian Federation resigns. ground shop- ies. During the period 4-16 Sep- of the common European cur- The unknown Vladimir Putin is ap- ping mall at tember, nearly 300 people are rency scheduled for 1 January pointed Acting Prime Minister. On Manezhnaya killed and hundreds are injured. 2002 16 August, parliament appoints Ploshchad in On 22 September, the Ryazan him Prime Minister. Boris Yeltsin Moscow, kill- police find explosives in a local soon calls Mr. Putin his successor ing one building. FSB claims this is a as Russia’s President woman and “training item.” Explosions stop injuring 40 immediately thereafter. people № 08 (20) september 2011|The Ukrainian Week|37 special edition|Ukraine-20 nal influences. But, in the late kovsky, among others. Some of Prime Minister for the Fuel and 1990s, the government was more these spin doctors still work in the Energy Complex. These types of concerned with getting their presi- country. They were of little benefit appointments were typical of the dent, Mr. Kuchma, re-elected, to Mr. Kuchma, though. His vic- counterbalancing system Mr. rather than the abovementioned tory was largely based on the fail- Kuchma used to keep forces problems. At that point, his rating ure of his opponents to provide a within the establishment bal- was under 6%. realistic alternative, hence the suc- anced. As soon as one oligarch They used administrative le- cess of the “Kuchma vs Commu- group grew too strong, the Presi- verage to ensure electoral support, nist” scenario. UNEQUAL dent provided support to their ri- forced public sector employees to Yet, many looked to benefit DIALOGUE: vals. Yushchenko was supposed vote “properly,” and made tar- from this triumph. There were After to prevent default by negotiating geted handouts through a special several parallel campaign offices Kuchmagate, debt restructuring, since the West Social Security fund, supposedly linked to the oligarchs close to Mr. at virtually trusted him. Ms. Tymoshenko supervised by Oleksandr Volkov Kuchma, and each tried to get a every top-level was an expert in energy so her and the “bureaucratic” part of Mr. bite of victory. The common belief meeting, the task was to get things in order in is that Viktor Pinchuk and Viktor Russian party Kuchma’s circle. presented ever the field, where settlements for The regime also took good care Medvedchuk along with Hryhoriy more demands supplied energy were critically of protection by law enforcement Surkis from the so-called SDPU(o) and initiatives. low, and possibly halt sector mo- agencies. The total number of em- (Social Democrat Party United) Ukraine agreed nopolization by the SDPU(o) ployees at the Ministry of Internal benefited the most from Mr. Kuch- to them group. On the whole, the govern- Affaits was 434,000, exceeding ma’s victory. Each of them found a that of the Armed Forces. way to convince the President that In 1998, the mass media faced they played a unique role in reach- huge pressure, particularly that of ing the victory. For the most part, the opposition. Courts and force Pinchuk converted the President’s were used to achive this, from appreciation into business gains, multimillion court claims to the while SDPU(o) aimed higher. kidnapping and murder of journalists. ‘YOU WILL In 2002, “lists of topics” SEE A NEW emerged in Ukraine, which be- PRESIDENT’ came routine by 2003. Being a This quote from Russian invention, these were or- Leonid Kuchma’s speech in 1999 ders for the mass media about the was supposed to signal the begin- issues they should cover. In fact, ning of resolute moves. in the 1999 election and less so in In December 1999, the Presi- the 1998 parliamentary election, dent did indeed make an unex- spin doctors from Moscow began pected move. He appointed Vik- to work in Ukraine, supposedly in- tor Yushchenko, the then Gover- vited by Viktor Pinchuk, Viktor nor of the NBU, as Prime Minister, Medvedchuk and Valeriy Khorosh- and Yulia Tymoshenko as Vice

22 December 1999 21 January 2000 March 2000 16 April 2000 22 June 2000 16 September 2000 Viktor Yushchenko is appointed A non-leftist majority is estab- Russian-Ukrainian trade wars The government arranges a ref- The Government presents a draft News surfaces of Georgiy Gon- Premier while Yulia Tymoshenko lished in Ukraine. 255 MPs of all rage. The Russian Pipe Industry erendum “initiated by the peo- law “On Electricity”. Energy mar- gadze’s disappearance becomes Vice Prime Minister for factions other than left-wing par- Fund initiates an antidumping ple.” It announces the partici- ket reform allows Ukraine to over- the Fuel and Energy Complex. ties vote to replace VR Speaker investigation of Ukrainian pipe pation of 81.5% of voters with come barter schemes and raise The new government’s priority Oleksandr Tkachuk with Ivan exports to Russia an absolute majority support- the rate of settlement for electric- is to restructure foreign debt Pliushch at the Ukrainian House. ing the idea of reducing the ity from 20-50% to 90%. The re- Viktor Medvedchuk becomes First number of MPs from 450 to form also abolishes more than Deputy Speaker of the Verkhovna 300, restricting their immunity, 250 decrees granting unjustified Rada introducing a second house of privileges to certain enterprises the parliament and expanding and industries. The budget re- the list of grounds for impeach- ceives revenues to cover the debt ing parliament. However, these in social benefits results are not implemented in Ukrainian legislation

31 December 1999 29 February 2000 26 March 2000 30 July 2000 8 August 2000 12 August 2000 Boris Yeltsin resigns pre-term The federal army headquarters in Russia holds a presidential elec- The Foreign Policy Concept of the A terrorist attack in Moscow: a The Russian atomic submarine from his post as President of the Chechnya reports of taking all tion which is won by Vladimir Russian Federation endorsed by bomb explodes at the Pushkins- Kursk sinks during a training ex- Russian Federation. Vladimir Pu- Chechen territory under control Putin. He officially takes his post Presidential Decree for the first kaya subway station, killing 13 ercise. The entire crew dies tin becomes Acting President and “terminating the military on 7 May 2000. On 17 May, time mentions the need to domi- people and injuring 100. Over phase of the anti-terrorist opera- Mikhail Kasianov, who is be- nate its neighbours by creating 2000-2001, terrorist attacks in- tion.” The coverage of Chechen lieved to be connected to oli- “a belt of good neighbours” cluding exploding bombs, hos- developments garch Boris Ber- around Russia, tage-taking, stealing airplanes in the Russian ezovsky, is ap- “the strongest and so on, occur virtually every mass media de- pointed Prime Eurasian month, killing tens and injuring creases signifi- Minister power” hundreds of people cantly

38|The Ukrainian Week|№ 08 (20) september 2011 Ukraine-20|special edition ment fulfilled the task. Moreover, for them should have been elimi- bragged about working to draw the economy began to grow. nated. For this, the Verkhovna Ukraine closer to Russia. The fact that even relatively Rada had to be loyal, i.e. “have a small changes for the better had a permanent majority” that would SPEED AND PRESSURE positive impact on the rules of the “carry joint responsibility together By the early 2000s, Russia saw the game, confirms the assumption with the government”, this is how ultimate consolidation of Putin’s that inefficient management based the task was formulated by the regime. The Kremlin made its first on an oligarch -controlled system Presidential Administration. The attempts to get the establishment remains Ukraine’s biggest prob- President failed to entrench this of the neighbouring countries un- lem. Apparently, Mr. Kuchma re- objective into legislation through der control to implement its proj- alized this as his moves after win- the implementation of the results ect of re-integration on post-Soviet ning the election were aimed at of the 2000 referendum to re- territory. Throughout 2000-2004, streamlining management to his strict parliament’s powers, yet de the Ukrainian government and the vision of it. facto gained control over the country itself encountered a series In the first place, keeping the Verkhvna Rada. Vice Speaker Vik- of blistering hits from the East, symbol of ineffective parliament, tor Medvedchuk was supposedly each taking advantage of the weak i.e. its left-wing leadership, no lon- in charge of the deal. He kept in- and corrupt nature of Ukrainian ger made any sense. Instead of creasing his influence over the politicians. looking for someone to blame the President, in part converting it On 16 September 2000, the ongoing failures on, the reasons into control of key industries. Ac- world heard of the disappearance cording to the information pub- of journalist Georgiy Gongadze, lished in the media at that time, followed by the shocking contents that was when the SDPU(o) group of the Melnychenko tapes, made intensified its efforts to privatize public by Oleksandr Moroz on 28 oblast power supply companies. November. Kuchma immediately Control of such companies basi- announced that secret services cally allowed the owners to were involved in the scandal but dictate terms to both en- did not specify which service it terprises – energy con- was. His circle and the Russian sumers, and the state. media began to blame the deal on Sometimes, this led to the West, implying that the scan- sad curiosities, such as the case dal played into the hands of Pre- with the Kirovohrad and Kherson mier Yushchenko. Yet Yush- Oblast power supply companies chenko, who never really wanted controlled by a Slovakian investor to go into politics, was not a strong linked to the SDPU(o) and Rus- enough player to have used the sian businessmen, simply refused scandal for his own benefit. He to pay its debts to the energy mar- was loyal to Mr. Kuchma going so ket in 2003. Moreover, the lever- far as to sign the letter rebuking ages for such tricks ended up in the participants of the “Ukraine the hands of people who openly Without Kuchma” protest together

28 November 2000 14 December 2000 15 December 2000 26 April 2001 25 October 2001 31 March 2002 Oleksandr Moroz reveals the Kyiv goes on an indefinite Chornobyl power station is fi- Mr. Yushchenko’s government is The Verkhovna Rada finally Ukraine holds a mixed system Melnychenko tapes, mention- “Ukraine Without Kuchma” pro- nally closed dissolved as a result of a no par- passes the new Land Code parliamentary election. The gov- ing, among other things, a pos- test. On 27 December, the govern- liamentary confidence vote ernment uses administrative le- sible contract for the murder of ment disperses protesters on the verage, manipulation and black journalist Georgiy Gongadze pretext of the repair of the Maidan PR. Yet, the pro-government Za Nezalezhnosti (Independence 5 December 2001 Yedynu Ukrainu (For a United Square). The protests continue un- 4 October 2001 The first Ukrainian census finds Ukraine) and SDPU(o) parties til 9 September 2001, when the A Ukrainian missile acciden- that the Ukrainian population has only gain 11.77% and 6.27% re- police and protesters clash in front tally hits a Siberia Airlines’ shrunk from 52 to 48 million. The spectively. The Nasha Ukrayina of the Presidential Administration Tu154 plane over the Black share of those who think of them- (Our Ukraine) party gains the Sea, killing 78 people selves as Ukrainians has grown 5% most votes by party lists ending 15 January 2001 over ten years of independence up with 23.57%. However, by in- Yulia Tymoshenko faces fluencing MPs elected under the charges under three articles of majority principle and taking ad- the Criminal Code of Ukraine. vantage of the mistakes of Our On 16 January 2001, she is dis- Ukraine, the government sets up missed from the post of Vice a loyal parliamentary majority Prime Minister to be put under arrested and sent to a temporary isolation cell in Lukianivska prison on 13 February

October-December 2000 7 November 2000 11 September 2001 The “Bulldozer” Revolution begins in Yugoslavia. The first “color” rev- USA holds presidential elections. The US experiences terrorist attacks. Ter- olution in the region begins after the first round of the presidential The winner is George W. Bush rorists steal four airplanes flying one into election on 24 September as the opposition claims that their candi- the Pentagon in Washington and two into date Vojislav Koštunica has in fact gained more than the World Trade Center buildings in New 50% despite falsification by those in power. On 5 Oc- York. Almost 3,000 people are killed. Rus- tober, thousands of people gather for rallies in Bel- sia’s President immediately expresses sup- grade forcing President Milosevic to resign on 6 Oc- port of Washington. On 7 October, the US tober. The opposition coalition wins the December and Antiterrorist Coalition countries em- election. On 1 April 2001, Mr. Milosevic is arrested bark on a military operation in Afghani- and extradited to the Hague Tribunal stan

№ 08 (20) september 2011|The Ukrainian Week|39 special edition|Ukraine-20 REFORMS DO WORK with the President and Ivan mentions of NATO disappear Even the basic reforms implemented in 2000 had an immediate positive eﬀe Pliushch, the VR Speaker, on 13 from Ukraine’s Military Doctrine Performance in 2000: February 2001. Thus the West had thus remaining only a declared Indu rial output growth GDP growth 6% 12,9% neither the interest nor the capa- intent. bility to arrange it. Meanwhile, the After all, Ukraine’s multibil- Increase Increase in the number in agricultural 15% outcome of Kuchmagate, i.e. the lion gas debt allowed Russia to use 9,2% of SMEs produion isolation of Ukraine’s leadership the energy issue to gain control Consolidated $2,6 Decrease in budget UAH 1,164.2mn BN from communication with world over Ukraine’s gas transit system the external debt deﬁcit (0.7% of GDP) (17%) leaders, was perfectly in line with by means of establishing a consor-

Pension debt is repaid in full Moscow’s expectations. After all, tium to manage the system. On 19 and salary debt growth is halted Mr. Kuchma has become more June 2001, Kuchma expressed his GDP PER CAPITA open recently, revealing that Ma- readiness to start negotiations on IN REAL PRICES jor Melnychenko was linked to the privatization of the Ukrainian 2614UAH 3436UAH 4195UAH Russian secret services. gas transit system with the partici- Meanwhile, Ukraine’s collab- pation of all interested parties, oration with the West was hit which included Ukraine, Russia 1999 2000 2001 again. Someone took the many and the EU, on a par basis. On 9 hours long Melnychenko records June 2002, a Statement “On Stra- to carefully select and disclose to tegic Cooperation in the Gas 4685UAH 7273UAH American officials and investiga- Sphere” was signed. Among other tive NGOs, such as the Center for things, the government had to Public Integrity, a conversation draft a contract to create a consor- 2002 2004 on the alleged potential sale of tium for running and developing Kolchuha aircraft detection sys- the gas transit system with the ce: State Stati ics Committee, NBU Committee, Stati ics State ce:

Sour tems to Iraq. US and UK leaders subsequent involvement of the were so furious that they even re- European party to upgrade the AVERAGE MONTHLY SALARY, UAH SALARY DEBT, UAH MN fused to sit next to Kuchma at the Ukrainian pipeline. Negotiations 1999 178 6518,6 NATO Council meeting in No- and the signing of technical docu- 2000 230 6400,8 vember 2002. Relations between ments lasted until 2004 but failed 2001 311 4928 Ukraine and the West warmed up to bring the expected result. 2002 376 2656,6 after President Kuchma’s desper- The negotiations were accom-

2004 590 2232,4 ate efforts including the proposal panied by trade wars, with Russia to send Ukrainian peacekeepers implementing a slew of restric- OFFICIAL HRYVNIA RATE, to Iraq and passing of the Law tions against Ukrainian trade PER USD 100 “On the Fundamentals of Na- items ranging all the way from 1999 413,0404 tional Security” on 19 June 2003 large diameter pipes to caramel. 2000 544,0022 by 2/3 of MPs, declaring EU and However, along with energy 2001 537,22211 NATO accession as Ukraine’s integration projects, Moscow was 2002 532,66,666 goal. Medvedchuk who became also offering political and eco- 2004 531,9292 Chief of Staff in June 2002 did nomic ones. In February 2003, the everything possible to make any establishment of a Single Eco-

15 April 2002 9 June 2002 27 July 2002 21 November 2002 5 March 2003 August 2003 News surfaces that Ukraine al- Presidents Kuchma and Putin sign An airplane crash during the air Viktor Yanukovych is appointed The first draft “constitution re- The new draft Constitution ap- legedly sold Kolchuha aircraft a Statement on Strategic Cooper- show at Sknyliv military airfield Prime Minister of Ukraine form” is presented and pre- pears that will later be used as detection systems to Iraq. The ation in the Gas Field, authorizing in Lviv kills 77 people including sented for “national discussion” the basis for changes to the Ba- scandal significantly strains rela- their governments to draft an 28 children sic Law on 8 December 2004. tions with the US. The Kolchuha agreement on the establishment On 23 December 2003, parlia- systems are not found in Iraq of a consortium to run and de- 19 June 2003 ment approves draft changes in but Ukraine is forced to send a velop the gas transit system “with The majority in the Verkhovna the first reading but fails to do peacekeeping unit there to save the subsequent involvement of a Rada passes a Law “On the so in the second reading on its relations with Washington European party”. However, the Principles of National Security” April 2004, lacking six votes subsequent negotiations come a listing Ukraine’s priorities as dead end, as each country sees it- joining NATO and the EU self holding the controlling stake in the consortium

October 2002 23 October 2002 4 February 2003 The European Com- Terrorists take hostages at The Republic of Yugoslavia is replaced mittee recommends the Dubrovka theater in by the State Union of Serbia and Mon- the acceptance of Moscow. On 26 October, a tenegro. Montenegro subsequently ten countries into special police unit takes broke away 2006 the EU, including over the building. As a re- Hungary, Cyprus, sult, all terrorists die, as Lithuania, Latvia, well as 117 hostages, of Malta, Poland, Slo- which 116 are poisoned by vakia, Slovenia, the the gas used by the police Czech Republic and Estonia

40|The Ukrainian Week|№ 08 (20) september 2011 Ukraine-20|special edition nomic Space with Russia, Ukraine, was being lobbied throughout the DIDN’T GET AROUND TO IT Despite GDP growth, the disparities that prevented Ukraine Belarus and Kazakhstan was pro- entire 2003 pre-election year. from moving out of the poor country category were posed. Kuchma, however, masked When it failed in April 2004, not overcome, but even aggravated the position of Ukraine under the Kuchma’s circle had no room to UNPROFITABLE ENTERPRISES IN THE ECONOMY “in parts where it does not run maneuver for the promotion of a counter to the Constitution of candidate of their own instead of e, 40% s ommitte

Ukraine” response, which in ef- Viktor Yanukovych. He became ce 30% fect, defeated the purpose of the Premier in November 2002, most State ce: excercise. The response to the likely as a result of a combination Sour C Stati ics sour open 20% 37,7% 38,2% 34,8% breakdown of strategically impor- of several factors. Firstly, Kuchma 10% tant initiatives was not long in could have supported the Donetsk coming. In September 2003, the group as yet another counterbal- 2000 2002 2004 Russians examined the speed and ance to the SDPU(o). Secondly, strength of Ukrainian and world Premier Yanukovych’s past could The government failed to create reaction by attempting to artifi- easily be exploited by the Kremlin proper environment for cially move the border near the is- to increase pressure on Ukraine. the development of small and land of Tuzla in the Azov Sea to Although the reform was not medium business (SMEs) their side. implemented before the presiden- While the Ukrainian leader- tial campaign, it contributed to- Total in the economy ship was struggling to avoid inte- wards the weakening of Ukraine. 10 mn 9,6 mn gration on Russian terms, the It was imposed on the winners of Number of enterprises 300 334 331 121 253 791 283 398 Presidential Administration, the repeated second round of the Average annual chaired by Viktor Medvedchuk, presidential election during the number of working employees aided by ‘advisors’ from the Rus- Orange Revolution, becoming one 1,9 mn 1,9 mn sian Federation, set about review- of the sources of conflict in Ukrai- Small enterprises ing the constitutional model. Since nian government in 2006-2010 Number of small President Kuchma refused to run and leading to disenchantment in enterprises for the third term, he could have the Orange leadership and their The share of small enterprises per been offered the premiership with subsequent defeat. 10,000 people expanded powers and the exercise In actual fact, the Orange Rev- Average annual number 53 60 real power. Yet, the draft reform olution turned out to be the only of employees working was a double-edged sword. It of- chance to stop pressure from the at small enterprises, including owners fered a clearly non-viable system East. It emerged that Kremlin The share of small of interaction for government au- leaders were not prepared for such enterprises compared thorities including a conflict zone developments and were obviously to the total number of enterprises between the president and the confused. For the first time in 7,3% 18,9% 5,3% 20,2% government. This would have ag- many years, developed countries By the number gravated the administrative chaos expected positive changes from of hired aﬀ in Ukraine and made it ever more Ukraine. Ukrainian society had By the amount of sold produion, works and vulnerable to external influence. similar hopes. Unfortunately, this services 2002 2004 Meanwhile, constitutional reform did not come to pass.

September-October 2003 September 2004 31 October 2004 21–22 November 2004 3 December 2004 26 December 2004 Russia and Ukraine get involved Presidential candidate Viktor Ukraine holds the first round of the The Orange Revolution begins. The Supreme Court of Ukraine The repeated second round in a border conflict over the Yushchenko is poisoned with di- presidential election. Mr. Yushchenko Participants build a tent city at recognizes the invalidity of the proves Yushchenko’s victory in Kosa Tuzla Island. Russia begins oxin. The case is still under in- gains 39.26% and his opponent Mr. Maidan Nezalezhnosti and result of the second round and the presidential election with to arbitrarily build a dam to join vestigation Yanukovych ends up with 39.11% Khreshchatyk, protesting sets 26 December as the date 51.99% compared to Yanuk- the island and the Russian shore against Yanukovych’s illegal vic- for repeated voting ovych’s 44.21% thus changing control of the tory Kerch Channel. On 23 October 2003, after strong protests in 23 January 2005 Kyiv, Moscow halts construction The inauguration of President 100 meters from the Ukrainian Viktor Yushchenko border post 21 November 2004 The Central Election Committee announces the victory of Viktor Yanykovych on 24 November 8 December 2004 after the second round of the Election legislation covering election, despite many viola- the key violation mechanisms tions witnessed by observers is amended in exchange for and exit poll results showing limiting the powers of the that Yushchenko is the winner President

2 November 2003 – 4 January 2004 14 March 2004 1 September 2004 The Rose Revolution in Georgia begins after the parlia- Russia holds a presidential election Terrorists take hostages in mentary election on 2 November as opposition leader with Mr. Putin being re-elected for a school in Beslan, North Mikheil Saakashvili announces the victory of his party de- his second term in the President’s Osetia, killing 330 of spite the officially declared result and demands a re-elec- office more than 1,100 people, tion. Georgians support his demand, attending rallies in including 186 children, their thousands. On 22 November, protesters take over and injuring more than parliament, which is trying to convene for its first ses- 800 others sion. President Shevardnadze resigns. Mr. Saakashvili gains more than 95% at the early presidential election on 4 January 2004

№ 08 (20) september 2011|The Ukrainian Week|41 special edition|Ukraine-20 The Energy (In)Security of Ukraine Throughout all 20 years of the new history of Ukraine, schemes have been used for energy resource supplies, to the detriment of the country, but which made specific people much richer

nergy security has never been the oil and gas industry. At the challenge in the 1970s and grew a purely economic issue for same time, the country is still ri- accustomed to it, introducing pro- Ukraine. On the one hand, diculously dependent on Russian tection systems ranging from na- Ethe ill-balanced industrial oil and gas, reaching a level of tional reserves of energy supplies structure with its dominating en- 75-80%, extracting only 10-12% of to the culture of energy efficiency. ergy-guzzling production gener- the oil 20-25% of gas required on Future EU-member states fol- ates an extremely high demand for its own territory. The history of lowed the same path accepting energy resources. On the other high price as a given and hand, Ukraine has been part of the in spite of them, man- geopolitical and geoeconomic dis- THERE WERE NOBODY TO aged to revive economic tribution system of oil and gas THINK ABOUT ENERGY SAVING, growth fairly quickly. flows ever since the USSR began By contrast, Ukraine to construct pipelines, seeking to DEVELOPMENT OF OWN ended up in unfavorable win the largest share of the West RESERVES OR THE RECEIVING circumstances during the European market during the Bre- early years of independence, which zhnev era. Europe’s energy depen- OF GAS FORM ALTERNATIVE dence on the Soviet Union allowed SOURCES it to use oil and gas leverage to exert political influence over the the Ukrainian energy sector over West. But it turned into a strategic the past decades is actually a se- defeat when plummeting fuel quence of alternating opaque prices undermined the USSR’s scams. economy and speeded up its collapse. THE SHOCK AND Independent Ukraine could THE MUDDY WATER have used its portion of the soviet The increase of prices for Rus- heritage for a geopolitical game of sian energy supplies came as its own. Yet none of its leaders a shock to all post-soviet were able to think on such a scale. economies mentioned in all Instead, the country’s leadership publications about that hurried to exploit the energy sec- time. Recollections of this tor, specifically the transit of en- became a mandatory attri- ergy as a source of its own excess bute of materials from profit. Most of the richest Ukraini- that time. The Western ans earned their first billions in world survived the same

Energy control At the end of the 1990s, November, 1998 1999 February, 1999 April 1999 the distribution of A group of off-shore companies, Grigorishin bought 40% of the Lviv, Poltava, Sumy and Following the conclusions made Court Holding, property of Kon- shares of the Poltava, Chernihiv, Prykarpattia oblenergos were by the Attorney General’s office, electrical energy was stantin Grigorishin from Russia, Sumy, Lviv, and Prykarpattia incorporated as stockholders of President Leonid Kuchma virtually controlled by have accumulated majority inter- oblast energy companies; accord- Joint-Stock Commercial Bank commissioned the government one group. Total control ests in three and a considerable ing to open sources, Grygoriy Sur- Zeus (associated with the Surkis to revise decisions concerning over Ukraine’s economy share of the stock of five energy kis bought 35% in each. However, brothers). the transfer of the shares of firms, such as Sumy Oblenergo Surkis and Medvedchuk deny their Kirovohrad, Ternopil, and was only prevented by a (58% of the statutory fund), involvement in oblenergo deals. Kherson oblenergos to the conflict among the Prykarpattia Oblenergo (59%), Grigorishin’s group also pur- control of Ukrainian Credit Bank owners of oblast energy Chernihiv Oblenergo (51%), Kher- chased from 1 to 40% of shares in (Grygoriy Surkis and son Oblenergo (25%), Kirovohrad 19 other energy companies, in an Medvedchuk supposedly being companies. Oblenergo (26%), Poltava Oblen- attempt to get a blocking stock- its co-founders). ergo (23%), Lviv Oblenergo (24%), holding and to influence the oper- and Ternopil Oblenergo (22%). ation of these firms. 42|The Ukrainian Week|№ 08 (20) september 2011 Ukraine-20|special edition hampered the making of strategically correct decisions. “Red directors” emerged as the most powerful lobbying group, since they were, in fact, running enterprises The Energy (In)Security of Ukraine with the most excessive energy- consumption, thus suffered the most from the growing prices. With no reforms coming either from the government or the opposition, politicians replaced politics with the promotion of their own interests. This resulted in two trends that shaped the energy market in Ukraine for many years to come. Firstly, the supply of energy resources to large enterprises turned into one of the most profitable businesses. Secondly, this generated another type of business, i.e. services to red directors in the areas that were unattainable in soviet times, such as trade, financial transactions and so on. The intersection of these two trends offered great prosperity and virtually every oligarch of today was either directly involved in the energy supply trade or a pa- tron of this business. The first half of the 1990s was characterized by the emergence of oil and fuel bar- ons, gas monopolists and owners of oblast energy companies. Cer- tain energy clans were established, that distributed quotas among themselves for received energy supplies and energy markets. At that time, the Ukrai- nian gas sector was dominated by several powerful players. The first of them were the Respublika (The Republic) Cor- poration, headed by hoto: UNIAN P hoto: Ihor Bakai and In-

Energy control May 1999 April 2001 June 2002 October 2002 November 2004 The Attorney General’s office filed The Slovak company Grigorishin and the SDPU(o) Grigorishin was detained by Grigorishin sold half of his claims to the Higher Arbitration Vychodoslovenske Energeticke group split. Grigorishin cites his agents of Organized Crime shares (20%) in the Poltava, Court, demanding the annulment Zavody SP (observers pointed out refusal to finance this political Police Unit, only to be released Chernihiv, Sumy, Lviv, and of sales agreements concerning its connections with Grygoriy force as a reason, while observers later, due to “lack of evidence.” Prykarpattia oblenergos the shares of Sumy, Chernihiv, Surkis and the Russian oligarch, believe that the real reason was He blamed his arrest on to Ihor Kolomoisky. Lviv, and Prykarpattia oblenergos, Aleksandr Babakov) won tenders the attempt takeover of Grygoriy Surkis and Viktor made in commercial tenders. The to buy 64 percent of the shares of Grigorishin’s business by Surkis Medvedchuk. buyer companies refused not Kherson, 51 percent of Kirovohrad, and Medvedchuk. provide information concerning and 70 percent of Sevastopol their experience in such oblenergos. The transaction operations and management in totaled approximately a mere the energy sector. UAH 290mn. From open sources open sources From

№ 08 (20) september 2011|The Ukrainian Week|43 special edition|Ukraine-20 tergas CJSC supported by Olek- sandr Volkov, the then advisor to ex-president Leonid Kuchma. The Spivdruzhnist (Commonwealth) Corporation owned by the Ty- moshenko family and Viktor Pinchuk was the second most powerful player on the market, and after the alliance collapsed, it turned into the PFK Single Energy Systems of Ukraine Ltd (YeESU). The third player was International Trade and Energy Resources As- sociation (ITERA), a Russian- American corporation established in Florida in 1992. This was the most stable company and the one that Dmytro Firtash, who participated in barter schemes – gas in exchange for commodities, who at that was taking his first steps towards becoming an oligarch, chose to work with. Prior to this, Mr. Firtash used to do similar business with Mr. Bakai and for the most part, lived in Ashgabat until the early 1990s. In 1994, another player emerged called OL- gas, an industrial and financial company connected to Oleksiy Ishchenko, registered on 15 De- cember 1994 in Kyiv as a closed joint stock company. Ukrgasprom and RAO Gazprom owned 31% each of the company’s shares, while the rest of shares were distributed between commercial OL- Bank and OlPetroleum SysteM company, which is also a founder of the Russian-Ukrainian RUNO oil company based at the Lysy- chansk Oil Refinery. When Pavlo Lazarenko was appointed Prime Minister in 1996, YeESU got powerful support and turned into a wholesale importer of Russian gas, supplying 9bn cu- bic metres of gas to nearly 70 companies in 7 oblasts. That was when the major war for gas unfolded. There was no-one to think about saving energy, developing Ukrai- nian gas resources or getting gas from alternative sources, other than Russian and Turkmenistan, which can only transit gas via Rus- sian territory. TUG OF WAR The late 1990s to early 2000s saw the redistribution of the market, gas wars and tug of war by the strongest players. What is inter- esting, is that contacts in Russia were used to win back positions on the Ukrainian market. After a short period of being out of favour 44|The Ukrainian Week|№ 08 (20) september 2011 Ukraine-20|special edition with the new government, Ihor forced him to resign in March to replace the intermediary with Bakai managed to sign a separate 2000. In addition, Ms. Tymosh- the no less mysterious RosUkrEn- contract with Gazprom in 1995 enko approved legislation on the ergo, which was set up in 2004. determining his quota on the energy market to stop non-trans- Gazprom owned 50% RosUkrEn- market. parent barter schemes in the in- ergo, the remaining 50% being In 1997, the political and eco- dustry thus raising revenues from owned by a “Ukrainian party”. It nomic climate changed abruptly the power supply sector to the later emerged that the Ukrainian as Mr. Kuchma changed his atti- state budget. party was in fact Dmytro Firtash, a tude towards Pavlo Lazarenko and friend of Yuriy Boiko, the new his company. After Mr. Lazaren- INTERNATIONAL CEO of Naftogaz, and the owner of ko’s resignation, YeESU’s rivals SHADOW SCHEMES Eural Trans Gas. gained weight. Having refused to In early 2001, Ms. Tymoshenko According to politicians from join the parliament, Mr. Bakai was found herself behind bars and Yushchenko’s circle, Mr. Firtash appointed Chairman of the Board Yushchenko’s Cabinet was dis- allegedly met with Mr. Yush- of Naftogaz of Ukraine National solved in April. The only compa- chenko to discuss the preservation Joint Stock Company on 1 June nies that got access to the gas mar- of RosUkrEnergo-based gas 1998. The newly-appointed Naf- ket were only the ones linked to schemes in the heat of the Orange togaz Chairman of the Board com- those in power. This was the time Revolution. To the surprise of mented “The strongest one be- of secretive and opaque deals be- many, the schemes were used after comes the sheriff and puts things tween the Ukrainian and Russian the Ukrainian-Russian gas conflict in order”. In fact, though, some- parties. As a result, some inter- in early 2006 to supply gas from one sounding like Mykola Azarov state intermediaries, such as Eural Russia and Turkmenistan. Essen- on the Melnychenko tapes charac- tially, this meant that to buy back- terized Mr. Bakai’s actions at Naf- THE POWER SOUGHT TO out the intermediary, the strategic togaz as “dumb and stupid”. energy relations of the country On 1 September, Mr. Bakai re- REDUCE GAS and huge cash flows that should moved all existing intermediary PRICE USING have been channeled to the state traders from gas supplies. The budget, were given away. It was only company left to fulfill the NON-TRANSPARENT SCHEME only possible to rid the market of contract between Gazprom and RosUkrEnergo in 2009. At the the Ukrainian party was Naftogaz’s Trans Gas, and RosUkrEnergo, same time, Ukraine ended up with subsidiary, the Gas of Ukraine emerged on the market. one of the highest gas rates and Trading House. This decision hit As Gazprom’s management lowest transit rates in Europe, ac- Single Energy Systems of Ukraine changed in 2001 and people from companied by unequal liability and OLgas the hardest, leading to Mr. Putin’s circle replaced the terms. This was the outcome of the their decline. Moreover, the Rus- “long-time gas experts” in the history of an energy dependent sian Military Prosecutor initiated company, ITERA was no longer an country where the government a case on abuse by YeESU when intermediary, supplying gas from tried to cut gas prices using non- supplying gas to Russia’s Defense Turkmenistan. It was replaced by transparent schemes and gave Ministry at prices that were alleg- Eural Trans Gas, registered in a temporary subsidies to the big edly too high. The Tymoshenko small Hungarian town. Both Gaz- business instead of providing pre- family faced an investigation in prom and Naftogas claimed that it dictable pricing, the systemic Ukraine for smuggling currency was a transitional entity which streamlining of energy consump- and other things. But Ms. Tymosh- both companies would later action and searching for alternative enko hit back as soon as she be- quire. However, when news sur- fuel sources. This energy policy, or came Vice Prime Minister for En- faced about Eural’s connections to rather the lack thereof, weakened ergy, accusing Mr. Bakai of con- criminal Semion Mogilevich, it the country and made it more vul- cealing Naftogaz’s debt to Gazprom caused an international scandal. nerable to pressure and blackmail- in the amount of USD 2.8bn. This Eventually, the companies decided ing from Russia. Attributes of the Era

№ 08 (20) september 2011|The Ukrainian Week|45 special edition|Ukraine-20 2005-2011

• The Orange leaders ended up with distorted priorities treating victory over their opponent partner as their top priority rather than the implementation of reforms declared The Wasted Trust during the campaign. To do so, they wasted the energy and efforts that could otherwise have been used to overcome corruption, restrict the influence of oligarchs, imple- The Ukrainian opposition, in its composition at the beginning ment reforms and overcome resistance to reforms. of the 21st century, enjoyed support never seen before in the • The pursuit of “defeating (their partner) no matter what” pushed Orange politicians modern history of Ukraine and came to power thanks to into unions with their ideological opponents and populist moves that undermined the massive public protests. Yet it failed to meet the nation’s ex- economy, especially in the middle of the financial crisis, and aggravated the business pectations. In spite of having plans to solve the most burning environment. issues of society, the opposition never implemented them. • Internal squabbles also hampered resistance against external threats, including gas Even the changes that were indeed made, failed to become crises, trade wars and so on, and impeded European integration. irreversible. The result of the 2010 presidential election was not so much • After the revolution, its leaders virtually lost contact with the people. Parties contin- a victory of those currently in power, but a defeat of the pre- ued to be the “fan clubs of their leaders”, as has always been the case in Ukraine, used vious government that – for subjective or partly objective as tools for bringing to power those who have the necessary resources, rather than as reasons - failed to meet its promises, rise above political and means to seek and support allies for reform in society. personal conflicts, and withstand temptations generated by • Meanwhile, social activists and NGOs failed to establish either an efficient partner- power in a corrupt post-soviet country. ship with the government or get it under their control. 46|The Ukrainian Week|№ 08 (20) september 2011 Ukraine-20|special edition revolution and Revival The opposition failed to fulfill the task of society and eliminate the oligarch and lumpen system in the early 2000s. There is still hope for the emergence of a new counter-elite

From the partnership oncerned about Poland’s fu- cal consequence of wasted opportu- to hatred trust. In April 2005, 49% of those ture after the left-wing party, nities by those whom millions of polled claimed they fully supported VIKTOR YUSH- essentially one-time commu- Ukrainians expected to finally turn CHENKO, 2005: his policy and another 24% sup- nists, came to power in 1995, Ukraine into a civilized country. ported some of his moves. The cu- C “I trust her just like Adam Michnik labeled their come- mulative share of his supporters the millions of people back as the “velvet revival.” Despite HE WHO HAS MUCH WILL HAVE do” reached 73% breaking all records in this, over the past five years, Poland TO GIVE MUCH independent Ukraine. His team also and other Visegrбd Group countries In January 2005, it looked as if 2009: enjoyed huge social support: 47% of have experienced changes that Ukrainians had finally managed to “Crisis sits on Hrush- those polled supported Ms. Tymosh- made turning back impossible. By “get on the train to Europe,” said a evskoho str., on the enko’s policy in April and another 7th floor (which contrast, Ukraine’s new govern- Belarusian opposition member. For means in the office of 25% supported some of her moves. ment buckled down to “reviving” a the first time in the history of prime-minister)” Voting in the Verkhovna Rada comfortable soviet environment for Ukraine, people looked into the fu- showed how scared the one-time themselves in 2010 passing new ture with optimism. According to pro-Kuchma majority was, since vir- YULIA TYMOSHENKO, laws, changing its attitude towards surveys (by the Sociology Institute 2005: tually any proposal gained more journalists, grabbing and exploiting of the National Academy of Sci- “Viktor Andriyovych than 300 votes in support. The first business to squeeze out as much ences hereinafter, unless indicated Yushchenko is part of six months of the government being my team, which I profit as possible, flirting with the otherwise) in July 2004, only 17% love, I support and in power was the perfect time for Kremlin whose goal is to gain con- of Ukrainians saw their social pros- where I want to be.” virtually any changes. It imple- trol over Ukraine with the help of pects in Ukraine compared to 70% 2008: mented some, such as increasing the Party of Regions, and trying to who did not. In February 2005, “It is very pity that maternity benefits and passed legis- build some sort of multi-vector pol- that man, I mean the lation on a single tariff network that 36% saw their future in Ukraine president of the icy to abate the Kremlin’s appetite compared to 45% who saw it some- country, who I was entailed raising salaries regardless where it overlaps with the personal where else. In August 2005, most standing behind on of positions, qualification and so on. all the orange “Maid- business interests of those in power. Ukrainians thought of Ukraine as a ans”…decayed to The Stop Smuggling campaign in- Such a turn of events was virtually truly independent state for the first such a level that it is creased revenues from customs embarrassing to unpredictable at the beginning of time since 1991 with 49% vs. 37%. mention his name.” duty. Also, the government passed a the period analyzed below. How- President Viktor Yushchenko few more decisions that were helpful ever, it became the absolutely logi- got a never before seen rating of for the country.

High Hopes Crushed events in Ukraine events in the world

21 February 2005 11 March 2005 March-April 2005 24 January 2005 An EU-Ukraine Action Plan is signed. On A new “Government and Business as Part- The President begins to fulfill most of President Viktor 31 March, Ukraine introduces a visa-free ners” format of cooperation between the the social promises he made during his Yushchenko ap- regime for EU citizens government and business is launched. pre-election campaign, including the points Yulia Tymosh- Based on their conclusions the President is- single tariff network, raised salaries, enko Acting Prime sues decrees on deregulation, accompanied pensions and Minister before his by government resolutions. Reforms fade in child birth bene- trip to Russia. Verk- the future as a result of conflicts between fits. Military ser- hovna Rada ap- the President and the Government vice is cut to 12 proves her as Pre- months and ANDR C H E KM N V , UNIAN UKRINFORM mier on 4 February Ukrainian troops 2005 are withdrawn from Iraq : OL E K S PHOTO

12 January 2005 March 2005 2 April 2005 August 2005 Winter-Spring 2006 European Parliament passes the EU The Tulip Revolution in Kirgizia bringing in Pope John Hurricane Katrina hits the US causing News surfaces of H5N1 bird flu spreading Constitution but national referendums Kurmanbek Bakiyev to replace Askar Paul II dies the most damage in US history, hitting from Asia to Europe. Examinations show in some EU- Akayev’s re- New Orleans the hardest the panic is premature, but the speed of member gime. The for- the virus spreading and the reaction of states, in- mer is over- people remind us of how vulnerable hu- cluding thrown as a re- manity is in the face France, do sult of massive of possible pandem- not support protests in ics it spring 2010

№ 08 (20) september 2011|The Ukrainian Week|47 special edition|Ukraine-20 Pre-Crisis Improvement of the Quality of Life Social reforms launched in 2005 boosted the purchasing capacity of Ukrainians. Pre-crisis 2008 indicators show considerable progress compared to 2005

■ The share of GDP diributed through the ■ Income growth increases ■ Personal income growth allowed Ukrainians budget grows. Thus, it addresses purchasing capacity UAH to signiﬁcantly increase savings the government’s liabilities including 450bn in bank deposit accounts social beneﬁts UAH More RETAIL TRADE VOLUMES INDIVIDUAL AND CORPORATE 359bn STATE BUDGET REVENUES than BANK DEPOSITS UAH UAH 231bn 174bn UAH 134bn UAH 70.3bn 2004 2008 2005 2008 2005 2008

■ Higher maternity beneﬁts encouraged the improvement ■ Increasing prosperity booed NEW PASSENGER CARS No. OF FAMILIES 623,000 of the demographic situation demand for goods popular WHO OWN SOLD with the middle class A MOBILE PHONE The total number of new cars sold in NUMBER Ukraine over 2005-2008 is 2mn NEWBORN 17% No. 211,000 OF FAMILIES 83% WHO OWN 2004 2008 A TV SET 2004 2004 PERSONAL COMPUTERS AND More than

LAPTOPS SOLD s 50% of families own two or ce 100% 100% more mobile phones 9 babies per 1,000 citizens 426,000 11 babies per 1,000 citizens 510,000

50% ,000 30 53,000 7 2008 2008 928,000 ,000 870 2005 2008 2004 2008 2004 2008 Based on open sour open on Based

However, the conflict between THE CONFLICT THAT KILLED THE Firstly, the conflict of the pow- Mr. Yushchenko and Ms. Ty- NATION’S HOPES ers of the Premier and the President moshenko surfaced in spring. The conflict was multifaceted, be- infiltrated into the 2004 Constitu- Later, the participants referred to coming a reflection of virtually all tion by Viktor Medvedchuk, the it as “ideological, not personal” the problems, leading to the sad then Chief of Staff to President but eventually it led to the defeat conclusion that the Ukrainian elite Kuchma, contributed to the col- of the entire Orange political of the early 2000s was not capable lapse. This version of the Constitu- campaign, the opposition of the of responding to demands and ex- tion came into effect on 1 January early 2000s. pectations of the nation. 2006 aggravating political opposi-

April-May 2005 16 June 2005 8 September 2005 22 September 2005 Gasoline and sugar crises, that look like The President, Prime Minister and the The political crisis becomes public after The President, the leader of the Party of Regions (PR) Viktor Yanukovych cartel conspiracies, hit Ukraine. The situ- VR Speaker sign a Memorandum to the President’s Chief of Staff, Oleksandr and Acting Prime Minister Yuriy Yekhanurov sign a Memorandum of Un- ation is dealt with within a month, but Guarantee Ownership Rights and Ensure Zinchenko, resigns and gives a press- derstanding between the government and the opposition. The PR votes in pushes Mr. Yushchenko and Ms. Ty- Legal Exercise Thereof, whereby Ukraine conference. Yushchenko dissolves Ty- support of Mr. Yekhanurov’s candidacy as Premier but uses the Memoran- moshenko to criticize each other in pub- essentially abandons mass re-privatiza- moshenko’s Government and fires dum as a “sign that the government has recognized their power” in PR lic for the first time tion some people from his circle, who were campaigns accused of corruption by Zinchenko and Tymoshenko

3 June 2006 7 October 2006 30 December 2006 1 January 2007 10 February 2007 Montenegro declares independence Russian journalist Anna Politkovskaya is Saddam Hus- Bulgaria and Romania join the EU Vladimir Putin pronounces his Munich assassinated sein is executed speech about resistance to the “unipolar world” and Russia’s intent to implement the policy it believes necessary. “Mr. Pu- tin has confirmed why NATO must expand,” comments Karel Schwarzen- berg, Foreign Af- fairs Minister of the Czech Repub- lic

48|The Ukrainian Week|№ 08 (20) september 2011 Ukraine-20|special edition tion. The Constitution encouraged a premier who had his or her personal political ambition - which both Ms. Tymoshenko and Mr. Yanukovych, another Premier appointed by President Yushchenko, did - to consolidate economic leverage in their hands and de facto, head the executive branch. Secondly, the entourage of both politicians played their part in the conflict. The President and the Pre- mier blamed one another for business conflicts within their environ- TOGETHER ment and degrading corruption WE ARE MANY. Sincere scams. The fact that the conflicts impulses, a will were leaked to the public showed for changes of Ukrainians that the newly-elected orange Maidan politicians abided by something is impossible to quite different from the laws they simulate on the promised to the nation. “technological In fact, the way in which the po- meetings” litical forces of both leaders were organized gave very little hope of 1990s, people who were ready to other brightly-wrapped populist institutional wisdom, i.e. the fol- share their energy, efforts and ex- toy, promising to pay back the debt lowing of political reason at least, if perience to help the government to Savings Bank depositors known not the commitment to election fulfill its Maidan commitments as ‘Yulia’s thousand’, a profes- promises. The winning over of oli- were often unheard and ignored. sional army, the immediate annul- garch to their side, the inclusion of The leaders’ teams had nothing to ment of mandatory military service dubious individuals in their teams, offer these people. One example and so on. the following of a strict hierarchy was the “appeal to Ukrainians The third component of the and the perception of parties exclu- abroad” who would supposedly be conflict was the will of both parties sively as mechanisms for their own invited to work at Mr. Yushchenko’s to seek compromise with ideologi- self-assertion – this was the legacy Presidential Secretariat. Yet most cal opponents to beat their “cursed of the Kuchma-era that the Orange of them never even got responses to partners.” The history of “compro- leaders were unable to transform. their applications. Another example mises and betrayals for the sake of As a result, their circle often pur- was BYT’s projects, such as the Per- comfort” goes back to earlier times, sued their mercenary interests by fect Country initiative. It piqued the when Ms. Tymoshenko met with playing on the Yushchenko-Ty- interest of experts, the middle class Mr. Kuchma for a cup of tea before moshenko conflict to get certain and local activists but faded after the ultimate destruction of Mr. La- privileges. Similarly to the early Ms. Tymoshenko presented yet an- zarenko, or part of Mr. Yushchen-

24 October 2005 18 November 2005 1 January 2006 4 January 2006 26 March 2006 93% of Kryvorizhstal shares are sold The Supreme Court of Ukraine cancels Amendments to the Constitution, re- Supervised by Yushchenko, a gas supply A proportionate parliamentary elec- once again. Mittal Steel Germany all criminal cases previously filed stricting the powers of the president, agreement is signed after a few weeks tion is held with a 3% threshold. The GmbH pays USD 4.8bn, i.e. 2.4 times against Yulia Tymoshenko come into effect of conflict with Russia. Gas costs USD 95 Orange BYT, Our Ukraine and Socialist more than the starting price and 5.7 per 1,000 cu m for Ukraine, as opposed Party gain 243 seats. On 6 July 2006, times more than the sum paid for the to the USD 230 demanded by Gazprom. Oleksandr Moroz, the leader of the plant by Akhmetov and Pinchuk in RosUkrEnergo becomes the gas supply Socialist 2004 intermediary. Party, Mssrs. Firtash switches to and Fursin the opposi- own 50% each tion and of RosUkrEn- joins the co- ergo alition of the Party of Re- gions and the Commu- nist Party

7 November 2007 10 December 2007 23–27 January 2008 17 February 2008 2 March 2008 After five days of opposition protests in Dmitri Medvedev is nomi- The World Economic Forum in Davos Kosovo declares independence Dmitri Med- Georgia, President Saakashvili imposes nated as the presidential can- states that the global economy is in fi- vedev is a state of emergency and declares Rus- didate from Yedinaya Rossiya nancial crisis elected sian interference in Georgia’s internal (The Single Russia) president of affairs. Shortly after, Saakashvili wins a the Russian convincing victory Federation. in an early presi- 21 December 2007 He appoints dential election Estonia, Latvia, Lithuania, Malta, Po- Mr. Putin land, Slovakia, Slovenia, Hungary and Prime Minis- the Czech Republic join the Schengen ter shortly Area thereafter № 08 (20) september 2011|The Ukrainian Week|49 special edition|Ukraine-20 ko’s Our Ukraine party voted for Self-esteem bursement of Savings Bank depos- simplified administrative proce- the action plan of Premier Yanuk- OLEKSANDR MOROZ, its. The President got carried away dures and cancelled unjustified tax ovych, let alone the ‘letter of the 2007, with projects, the deadlines and privileges, had a palpable positive about three’ including President Kuchma, the reelection cost of which raised eyebrows effect on the country. This proved Premier Yushchenko and Speaker “I would not say among journalists, politicians and that Ukraine was able to develop that I am Pliushch, against the participants of slowpoke” voters, such as the Hospital of the quickly if cleared of the oligarch- the Ukraine Without Kuchma pro- Future, the Art Arsenal and so on. generated strains. test campaign. The post-revolution Meanwhile, Ukrainians wanted Curiously, on the eve of the es- flirting of Orange leaders with their the government to take care of so- tablishment of their so-called dem- opponents turned into the stairway cial and legal issues. According to ocratic coalition, BYT and Our leading the Party of Regions and the Ukrainian Sociology Service as Ukraine had approved a specific their leader to power. The games of October 2005, first and foremost, and realistic action plan to move to- included the Memorandum and 50.2% of those polled expected the wards a civilized state that would Universal proposed by President new government to stop price have to be passed by the Verk- Yushchenko to Mr. Yanukovych, growth, followed by 28.8% wanting hovnna Rada and the Cabinet of hoping to bind him with promises a tougher war on corruption and Ministers. But they lacked political which the latter broke without any 25.3% expecting improvements in resolve for its implementation. To qualms; Ms. Tymoshenko’s party the quality of life. put it simply, the leaders lacked re- voting together with the Party of sponsibility while party activists Regions to restrict the President’s failed to be consistent and respect powers, as well as the preparation CADRE POLICY OF ORANGE their commitments regardless of of amendments to the Constitution VERY OFTEN RESEMBLED THE relations between the leaders’ en- along with Mr. Yanukovych’s team tourages. that would distribute power be- ANALOGUES FROM THE HISTORY Eventually, politicians lost their tween the Party of Regions and OF THEIR PREDECESSORS connection with society. Our BYT. All this merely reinforced the Ukraine and BYT had to exist as en- Party of Regions while weakening The most certain way to guaran- vironments for cooperation with both Orange political forces. tee growing prosperity and the elim- the public, not as a mechanism to The final component showed in ination of corruption was to break support their leaders. Alas, they the first months of 2005 when the oligarch model of relations be- failed to do this, since both parties bright ideas of the election cam- Todays norms of life tween society and the government barely differed from oligarch-con- paign were over and it was time to ANATOLIY BLYZNIUK, and introduce a European system, trolled parties. At that time switch from PR to hard work that the head of the based on supporting initiatives, in- The public did not take long to involved changing the economic Donetsk Region vestment and human development. respond. Compared to April 2005 and political systems. This was State Even tiny moves in this direction, surveys where 52% of Ukrainians Administration, when the seamless operation was 2011: similar to the ones Mr. Yushchenko’s thought the new government was disrupted. The government em- “2,5 thousands UAH government had made back in 2000, better than the previous one, in Au- pro month provide barked on populism, spending cash a person with 100% including putting things in order in gust the number shrank to 37%. 9% on things it could show to the vot- biological norm the energy sector and abolishing of voters though it was worse com- ers as its achievement, ranging of consumption” privileges for big business, and over pared to the previous government from social benefits to the reim- the first months of 2005, including in April increasing to 21% in August

4 August 2006 January 2007 2 April 2007 30 September 2007 19 December 2007 Viktor Yanukovych is appointed Prime PR and BYT amend the Law “On the President Yushchenko issues a Decree BYT and Our Ukraine-National Self-De- Tymoshenko’s Government is estab- Minister. On 3 August, Yushchenko initi- Cabinet of Ministers of Ukraine”, fur- to dissolve parliament after the PR-led fense win the early parliamentary elec- lished with 50/50 for BYT and Our ates the signing of the Universal of Na- ther restricting Yushchenko’s power as coalition begins to lure opposition MPs tion and the majority in the parliament Ukraine-National Self-Defense after a tional Unity by all parliamentary parties President. With the cumulative 300 to the coalition causing the threat of by just two votes series of unsuccessful voting. Arseniy other than BYT, whereby the parties agree votes, they override the President’s the emergence of a PR-controlled con- Yatseniuk is elected VR Speaker earlier to implement economic reforms and veto. Soon, however, the PR refuses to stitutional majority in parliament. make a European and Euro-Atlantic support the law on the opposition as Yanukovych and his allies do not rec- choice. Yanukovych violates the Universal demanded by BYT ognize the Decree as legitimate. On 27 in September 2006 claiming in Brussels May, Yushchenko, Yanukovych and that Ukraine is not Moroz agree to hold early election as a interested in join- result of the dissolution of parliament, ing NATO. In au- with BYT and Our Ukraine MPs giving tumn 2007, the up their seats PR-led coalition fires all ministers from Our Ukraine

July 2008 8–11 August 2008 5 December 2008 16 December 2008 April 2009 Oil prices hit a record at USD 145 per The Russian-Georgian war unfolds. Af- Moscow Patri- Barack Hussein Obama is officially The first news barrel. The financial crisis knocks them ter the war, Abkhazia and South Osetia arch Alexei II elected President of the USA surfaces of the down to USD 30 per barrel by Decem- declare independence, which is imme- dies. Kirill Gun- spread of H1N1 ber 2008 diately supported by the Russian Fed- diayev is elected pig flu in the eration Patriarch in Jan- world uary 2009

1 April 2009 Albania and Croatia join NATO

50|The Ukrainian Week|№ 08 (20) september 2011 Ukraine-20|special edition IMPROVEMENT OF SOCIAL AND ECONOMIC INDICES ernment policy, particularly the fa- 0 cilitation of the competition of all ■ GDP per capita in actual 20 8 009 2010 regions and their mutual integra- 2 prices, UAH 2006 007 tion, solves the problem. 2 2004 005 Moreover, Ukrainians do not 2 ? see the “splitting issues,” i.e. lan-

n/a guage, history and so on, as priority problems. According to a survey by

72 73 11 0 the Democratic Initiatives Founda- 9 63 1 20 95 372 5 496 4 19 832 tion and the Kyiv International So- ciology Institute, conducted in ■ Average monthly salary, UAH ■ Salary indebtedness, UAH mn April-May 2004, the majority of 2004 590 2232,4 2004 voters are most concerned about 2005 806 1111,2 2005 welfare (86%), criminal rate (49%), 2006 1041 960,3 2006 environment (36%) and morals 2007 1351 806,4 2007 (22%). The language and geopolit- 2008 1806 668,7 2008 ical issues, as the survey shows, are 2009 1906 1188,7 2009 of less concern to people. Only 7% 2010 2239 1473,3 2010 of Ukrainians are concerned about ■ Oﬃcial hryvnia rate, UAH per USD 100 ■ Direct foreign investment in Ukraine, USD relations between the East and the Cumulative as of the end of each year since the beginning West, and another 7% are worried of inve ment about the use of the Russian lan- 2004 531,92 2004 8353,9 guage. According to the survey con- 2005 512,47 2005 16 375,2 ducted by the Ukrainian Sociology 2006 505,00 2006 21 186,0 Service in September-October 2007 505,00 2005, only 10% of those polled were 2007 29 489,4 concerned about making Russian 2008 526,72 2008 35723,4 the second official language, mak- 2009 779,12 2009 40 026,8 ing this priority 15th out of 19 alter- 2010 793,56 2010 44 708,0 native options.

According to The State Committee of Statistics and NBU data of Statistics Committee State to The According Even with all the conflicts among politicians and regional ste- 2005. The situation continued to sources are keeping a tight grip on. reotypes, Ukrainians would accept worsen. The split became one of the stereo- and understand the historical com- types of the perception of Ukraine promise formula used, among oth- THE EAST AND although it is of a political rather ers, in Spain and Germany. Accord- THE WEST ARE TOGETHER than a social nature. Major diversi- ing to the Razumkov Center, 51.6% From 2005 until early 2010, the ties among regions exist in many of those polled, including slight re- spotlight was on the so-called split European nations including Spain, gional variations, agree that they of Ukraine into the West and the Italy, and less so Germany or Po- need to “come to terms with each East, yet another issue that various land. For the most part, skillful gov- other and think that nobody was

Winter-Spring 2008 2–4 April 2008 25 May 2008 August-September 2008 Yushchenko and Tymoshenko actively ac- Despite the expectations, Ukraine is Kyiv holds early mayor and city council The conflict between Yushchenko and cuse each other of corruption and acting not proposed for joining the NATO elections. Leonid Chernovetsky wins Tymoshenko intensifies. Yushchenko to damage national interests Membership Action Plan at the ex- again due to the disunity of opposition openly supports Georgia during the panded NATO summit in Bucharest. candidates Georgian-Russian war while Tymosh- Among others, Germany and France enko is asking for an end to the con- speak out against this, under pressure flict. BYT and PR vote jointly for a se- from Russia ries of bills restricting the president’s powers. Our Ukraine-National Self-De- fense leaves the coalition that supports Tymoshenko’s Government. Yushchenko issues a decree to dissolve parliament, but the latter refuses to implement it and fund an early election. A new coalition of BYT, Our Ukraine-National Self-Defense and the Bloc of Volodymyr Lytvyn is established with Mr. Lytvyn appointed VR Speaker

7 April 2009 1 December 2009 1 January 2010 April 2010 20 April 2010 Protests in Moldova end the long-last- The Lisbon Treaty comes into effect The Customs Union of Russia, Belarus Sensational secret documents are Oil spills in ing rule of Communists, replaced by and Kazakhstan comes into effect posted on WikiLeaks Gulf of Mex- the opposition coalition ico, causing a large-scale catastrophe

№ 08 (20) september 2011|The Ukrainian Week|51 special edition|Ukraine-20 Expansion of small business 23.5% 23.7% 24.3% 25.3% 25.4%

19.6% 20.2% 18.8% 18.1% 16.3% 16.7% 14.2%

5.3% 5.7%

1978,8 1890,42232,32231,52237,42152,0 2073,6 2004 2005 2006 2007 2008 2009 2010 No. of small business The small business production sold share The share of small business employees to total employees, 000 of total sales number of employed people, % right or guilty” (in the wars and the Party of Regions won the ma- rumored collapse of relations with clashes that split Ukrianians). Only jority in Eastern and Southern local Russia. According to the Russian 29.7% believe that “the guilty councils, it launched the “parade of Contra Rules State Statistics Committee, trade should be punished, be it many regional languages,” with the coun- VIKTOR flow between Ukraine and Russia years later.” cils declaring Russian the official YANUKOVYCH, grew from USD 20bn in 2005 to The “splitting issues” were re- language in their territories. The Brussels, 2006: more than USD 35bn in 2008. kindled artificially. In September Prosecutor challenged these deci- “Ukraine’s govern- Meanwhile, Ukrainian exports to 2004, Presidential candidate Yanu- sions, yet everyday speculation on ment postpones the Russia almost doubled going from negotiations on kovych announced his intention to the issues distracted both the coun- Ukraine’s entry to nearly USD 7.5bn in 2005 to USD make Russian the second official cils and the public from solving re- NATO” 15.7bn in the pre-crisis 2008. The language, introduce double citizen- ally urgent local problems. subsequent fall, exploited by the ship with Russia and speculated on Notably, the “rocking of the Unconscious Party of Regions resulted from the other issues which were supposed boat” stopped almost immediately breakthrough 2008-2009 crisis that hit both to increase his popularity due to the after Party of Regions came to VIKTOR Ukraine and Russia, not the “de- Russian-inclined voters. Obviously, power. As far as the status of the YANUKOVYCH, struction of traditional relations”. Brussels, 2006: this was the idea of his Russian spin Russian language is concerned, “Ukraine doctors, who were involved in the there are more statements than ac- is unfavorable THE REVIVAL AND AN campaign. With this, Mr. Yanuk- tion, while the provocations of pro- to EU integration” UNCERTAIN FUTURE ovych broke the long-standing Russian organizations have been Once in power, the Party of Re- moratorium on speculating on halted by law enforcement agen- gions’ team set a goal of consoli- these issues in politics. The Party of cies. dating power and taking the coun- Regions continued to speculate on Also, practice debunked yet an- try under control. It spent the first these arguments until it came back other myth that brought about the six months doing exactly this, in- to power in 2010. In 2006, when revival of the white’n’blues, i.e. the cluding the establishment of a co-

December 2008 – January 2009 May-June 2009 7 February 2010 3 March 2010 21 April 2010 року The second gas war starts between Ukraine Yanukovych and Tymoshenko negotiate Viktor Yanukovych wins the second Tymoshenko’s Government resigns. Presidents Yanukovych and Medvedev and Russia. On 19 January 2009, Tymosh- amendments to the Constitution, which round of the presidential election with Mykola Azarov becomes Prime Minister. sign Kharkiv deals to extend the term for enko and Putin sign the current gas agree- are supposed to divide power in the 48.95% against Tymoshenko’s 45.47%. The Constitutional Court soon justifies the the location of Russia’s Black Sea Fleet in ments. RosUkrEnergo is removed from the country between BYT and PR. Ultimately, Crossovers help pro-PR forces in parlia- formation of a coalition on an individual Sevastopol, Crimea for a further 25 years, market. The gas it considers its own is with- Yanukovych refuses to implement the ment to establish a majority that is loyal basis although the same members of the in exchange for a discount in gas price to drawn and the price for gas for the next ten agreements to the new President immediately after Constitutional Court announced its un- USD 100 per 1,000 cu m, without prior years is supposed to be determined on the the election constitutionality in 2008 public discussion basis of a special formula. It turns out to be one of the highest prices in Europe against a background of the lowest transit prices and asymmetric liability for incompli- ance with agreement terms

June-September 2010 December 2010 19 December 2010 1 January 2011 24 January 2011 Forest fires break out in Russia. Fire Clashes occur at Manezhnaya Plosh- Belarus holds Estonia be- An explosion at Domodedovo airport in fighters fail to extinguish the fires in chad in Moscow between people from presidential elec- comes the Moscow kills 36 people and injures 169 time due to inefficient forestry reform the Caucasus and local citizens, pro- tions. Mr. Lukash- 17th mem- voked by enko announces ber of the Russian ul- his victory with Eurozone tra-radical 79.67% of the organiza- vote. Opposition tions protests are vio- lently crushed and leaders arrested

52|The Ukrainian Week|№ 08 (20) september 2011 Ukraine-20|special edition alition, making the Constitutional proving that the Russian or Belar- Attributes of the Era Court obedient, returning to the usian scenario won’t work here. 1996 Constitution that brought the Secondly, reforms will eventually executive branch under the Presi- have to be implemented by those dent’s control, opening criminal in power, not simply foisted onto cases against political opponents society, and the logic of their ac- and testing mechanisms on local tions will have to be explained. So elections, which can be applied to far, this has been a drag for the guarantee a parliamentary major- government as every reform-ori- ity that is loyal to the President af- ented law is squeezed through un- ter the 2012 parliamentary elec- der the victorious promises of the tions. Notably, the current govern- pro-PR blabbers but makes the ment managed to present the situation worse for any group of reform plan in June 2010, within society – this has a negative impact several months of getting its hands on ratings, bearing in mind the upon the steering wheel, and this was coming parliamentary campaign. done on the level of a series of slo- Thirdly, the Russian Federation gans, not finalized documents. In has turned out to be less friendly practice, though, the reform slo- with the Party of Regions in power gans cover the mercenary interests than in when it was in the opposi- of the groups in power. For in- tion. The white’n’blues’, protection stance, the so-called administra- of their own interests in foreign tive reform put their representa- arenas has prevented the Kremlin tives in various offices while the from implementing its integration codification of tax laws made small initiatives on the territory of the business poorer and big business former Soviet Union. wealthier. 2012, the year of parliamentary However, it would be unfair to election and public response to yet say that the past five years have another predictable attempt of the been a waste for society. The gov- Party of Regions to ensure a loyal ernment has unexpectedly encoun- majority, will be decisive in many tered a slew of troubles that would aspects. The first 18 months of the hardly have been there if they had Party of Regions being in power won the 2004 election. Firstly, have proved that it makes no sense Ukrainians, being aware of their to call on it to change – it will con- power, can organize resistance, as tinue to act the way it is used to. proven by the Tax Maidan, student Meanwhile, it is completely possible protests and so on. Currently, that Ukrainians will have their say these protests are individual and and force the government to con- few, but they show a trend that is duct the reforms that the country dangerous for the government, needs so badly.

23 June 2010 1 October 2010 31 October 2010 December 2010-April 2011 1 February 2011 Anatoliy Makarenko, former Head of the The Constitutional Court rules that the Ukraine holds local elections based on Ex-Premier Tymoshenko faces three The Verkhovna Rada amends the Con- State Customs Service, is arrested. He is 2004 Constitutional Reform is illegiti- the new law, which provides for the re- criminal cases for the using funds re- stitution, postponing parliamentary accused of the illegal clearance of gas mate, restoring the 1996 Constitution turn of the majority system for the elec- ceived under the Kyoto Protocol for dif- elections to 2012 and presidential elec- which RosUkrEnergo considers to be its tion of 50% of Deputies and government ferent purposes, purchasing ambu- tions to spring 2015 own. Subsequently, more than 10 crimi- control over the establishment and oper- lances and concluding gas deals with nal cases are opened against members ation of Russia on 19 January 2009. The govern- of the government and other officials of election ment fails to convince the West and Tymoshenko’s premiership committees. Ukrainians that the Tymoshenko case is As a result, not politically motivated the PR increases its presence in local councils

February-March 2011 11 March 2011 11 April 2011 2 May 2011 21 July 2011 The Arab Spring unfolds, stirring pro- A 9-point strong A bomb explodes in a subway in Minsk, The US an- The 30-year long US Space Shuttle protests in Tunisia, Egypt, Libya, Syria, and earthquake Belarus, killing 15 and injuring more nounces that gramme comes to an end other countries. Tunisian and Egyptian shakes Japan. It than 200 Osama bin Laden rulers resign. Civil war begins in Libya. ruins Fukushi- has been killed Develop- ma-1 nuclear ments in Syria power plant, re- are also rap- sulting in the idly moving leak of radioac- towards civil tive materials war

№ 08 (20) september 2011|The Ukrainian Week|53 special edition|Ukraine-20 Tricky balance Only a force that relies on the middle class and a right-centrist ideology can pull Ukraine out of the oligarchs' vicious circle

kraine has been a country litical class is in cahoots with key and having resources to launch of great potential for two oligarchs and has failed to offer transformations. decades now. Potentially, the country a realistic strategy Uthis is one of the most in- for a national breakthrough. De- THE DARWINIAN MODEL fluential countries in its region; it spite the accumulated protest A society in which a group of oli- has sufficient natural resources potential, our society lacks an or- garchs on the top monopolize re- and is a leading player on key ganizing force and an under- source distribution and crack world markets (from agriculture standing of what the specific goal down on the opposition (espe- to energy). It also has cutting- of transformation is or how to cially the organized opposition) edge scientific research and plays achieve it. and there is a large number of the role of a powerful regional se- Consequently, the existing poor at the bottom who depend curity factor. There is perhaps no system may last for a long time — on the oligarchs and hope to ob- need to list the human, natural as long as it has enough resources tain paltry scraps from them and material resources which our or as long as oligarchs are able to (while their attempts at self-orga- country has and which give us withstand pressure from the out- nization are brutally repressed) is hope that this optimistic picture side without letting the country not a Ukrainian invention. This is may be real. be swallowed by its neighbors. a primitive social pyramid which However, all this potential However, against the backdrop of emerges in communities where remains mere potential. Ukraine a crisis both threats become very no force exerts a conscious and as a system lacks a fundamental real and systemic changes will be sufficiently persistent effort to es- success factor – effective cooper- needed for the country to con- tablish a different state of affairs. ation between existing elements. tinue being an independent player This is how primitive tribes are The structure of governance, the and exit stagnation. These organized. Similar pyramids organization of society and ways changes will affect (moreover, re- in which resources are distrib- quire the involvement of) both uted have led to an inefficient oligarchs and society. But it will “oligarch” model: a handful of take a different force to initiate oligarchs make decisions and re- them and push both the highest distribute the national wealth, and lowest strata toward them. It while most people are barely would be a force directly inter- making both ends meet. The po- ested in changing the situation

54|The Ukrainian Week|№ 08 (20) september 2011 Ukraine-20|special edition emerge among prisoners, army it distributes resources in an ut- billion, which is nearly half of draftees or other people who find terly inefficient manner. Ukraine’s annual budget. themselves in these types of situ- There is no shortage of signs These sad statistics can be ations. that Ukraine’s current model is continued. The primitive, Strikingly similar situations inefficient. The GDP per capita is thoughtless model of society that of “self-organization” in which about USD 7,000, which is near has emerged in Ukraine is unable the mind is turned off and primi- the bottom in Europe. On the UN to secure progress and achieve tive instincts rule can be found in human development index, the country’s potential. Moreover, the animal kingdom. For exam- Ukraine ranks 69 out of 169 coun- it is even incapable of sustaining ple, monkeys have a highly simi- tries. On the list of countries in all its representatives on a mini- lar structure of “society”: they terms of the conditions for oper- mally acceptable level. The oligar- have their “oligarchs” and small ating a business as compiled by chy-centered economy simply fish who serve the former for a the World Bank, Ukraine ranks lacks resources to this end. Fur- pittance. There are also average 145 out of 183, below all other Eu- members – those whom the oli- ropean countries. Overcoming the problem garchs keep in submission. Those Around 7 million Ukrainians, who advance to the rank of oli- approximately a fifth of the total of oligarchic society garchs are not the smartest or population, are working as labor requires efforts from even the strongest individuals – migrants abroad. According to they are simply the most brazen, surveys, over 46% of people are the social class that cunning and loudest. prepared to leave Ukraine in is on the losing position The above system is primitive search of a job, while almost half and stable in its primitiveness. of university graduates dream of thermore, oligarchs’ fear of losing Social sciences refer to this state finding a job outside the country. their status is pushing them to as nonoptimal equilibrium. Lack- The flow of capital out of the clamp down on the sprouts of ing any powerful outside pressure country is an estimated USD 19 self-organization which would en- or dramatic change of circum- able the society to figure out on stances, this equilibrium may ex- its own the best way to provide ist for a very long time. However, for itself. There are good reasons it has a fundamental flaw in that to rank Ukraine as Europe’s least attractive country for doing business. Against this background, ruling party members sound especially cynical when they express outrage over people who, instead of “honestly” sweating here for peanuts at oligarchs’ enterprises, flee abroad to earn a living there or dare open their “own business.” Lurking behind these statements is a domineering baboon from the African savanna all worked up over a disobedient troop of monkeys. RETURNING TO THE HUMAN WAY To overcome the problems of society’s primitive organization, the disadvantaged need to take action. There are two such groups. First, most people whom oligarchs have made dependent on their own good mercy and who are now on the verge of poverty. Left –wing parties and movements have traditionally pinned hopes of social transformation on them. However, they have proved almost everywhere their inability to resolve the problems they tackle. At its extreme – Marxist dictatorships (Bolshevism/Stalinism, Maoism, etc.) – this path led the led societies to an even deeper abyss: millions of victims of repressions № 08 (20) september 2011|The Ukrainian Week|55 special edition|Ukraine-20 and even worse backwardness. ever, the reverse side of trade Some of the things the platform of an effective However, even in countries union growth is the quick spread Ukrainian centrist party should include where the left evolved together of corruption among their leaders with the community without and their increasing distance Support for Ukrainian values questioning the foundations of from workers. In Ukraine this • promoting the Ukrainian language, creating stimuli to the political order, they made a danger has materialized in full – spur the production of competitive Ukrainian cultural prod- bad reputation for themselves. the trade union movement can ucts and forming a unified information and cultural space; The noted scholar Robert Mi- hardly play its natural role, be- • popularizing a truthful history of Ukraine in the world, in- chels, who studied the way par- cause its leaders are members of cluding its culture and its European character. ties were constructed in modern the ruling party. societies, formulated the “iron In these circumstances, the Stimulating small and medium business law of oligarchy”: political forces, one stratum that suffers from oli- • simplifying registration and permit-granting procedures even on the left wing, which set garchs and still holds out hope is and limiting the rights of tax and other controlling bodies the goal of overthrowing the oli- the middle class — people who that interfere with economic activity; garchic system turned into hier- can provide for themselves with • creating market stimuli for small and medium business in archical structures themselves, their own business or qualified all sectors geared toward competitiveness. while their leaders adopted the professional activity, own real es- roles of their enemies. The only tate, and ask the state for nothing Stimulating “demand for knowledge” difference was the origin of their more than the opportunity to • channeling state investments and creating conditions to wealth: production, market dom- freely develop their business. attract private investments in education, science and re- ination or other economic activ- People in this category profess search; ity vs. appropriations of contri- values traditionally classified as • supporting (via targeted subsidies, tax breaks, etc.) sci- butions and donations for one’s right of center or conservative. ence-intensive technology, inventions and cooperation be- Foremost among them are de- benefit. tween science, education and production. Organizations that defended mands to be able to freely develop the immediate interests of work- one’s own business in order to at- Removing oligarchs from power ers achieved greater results and tract investments and create jobs. • reforming the Antimonopoly Committee to make it inde- eventually turned into trade At the same time, this stratum is unions and other such associa- interested in having a strong state pendent of political influences and turn it into a leading tions. They were even the core of capable of laying down and de- mechanism in demonopolizing the economy; a dominant British party and a fending the rules of the game. In • splitting up artificial monopolies, including cases when the powerful political force in conti- comparison with big (and, all the concentration of power enables oligarchs to put economic nental Europe, one with which more so, oligarchic) business, the and political pressure on the state; governments had to reckon. How- middle class has far smaller re- • strict price and quality control for natural monopolies; sources, so it is the state’s natural • expanding state and civic control over large-scale privatiza- ally in preserving its indepen- tion and controlling investment commitments; dence and keeping law and order. • reforming the electoral system – introducing open lists There is one condition though: and making MPs responsible to their constituencies. the above conditions having to do with the business climate need to Achieving equity of all subjects before the law and be met. But considering the ad- guaranteeing rights (including ownership rights) vantage of development secured • guaranteeing the transparency of the government’s pur- for the state by this stratum, the chases and investments and monitoring law enforcement; game is worth it. • carrying out judicial reform: introducing a mechanism Finally, it is the middle class to make judges responsible and cross-monitoring in the that is most interested in stabil- judicial system; making all court decisions available to ity, because it suffers the most the public, etc. from a crisis when one comes. Thus, traditional values, morality Increasing Ukraine’s economic independence and and civic rights and freedoms are preparation for European integration a natural component of this • a joint project with the EU to upgrade Ukraine’s gas trans- class's worldview and the founda- portation system according to the 2009 Brussels declaration tion of a state capable of promoting these values. • realizing energy diversification projects; Like any social group, the • realizing a plan to force the adoption of energy-saving middle class needs political rep- technology within several years; setting up a fund to support resentation. Until now no party in investments in energy savings; imposing fines for exceeding Ukraine has been able to ade- energy consumption limits; quately formulate and, even less, • introducing European quality and technology standards. realize in practice all of the above right-centrist demands for civi- Increasing NGOs’ influence and the effectiveness lized development. Until a party of their leverage with the government of this kind emerges and comes to • fixing in law the mechanisms for NGOs to influence power, our country will have a the government and the means to prevent “controlled primitive model with domineer- civic society” from emerging in Ukraine; ing oligarchs and a majority with- • spelling out in laws the guarantees of interference-free out a say. investigative journalism. 56|The Ukrainian Week|№ 08 (20) september 2011 Ukraine-20|special edition 20 Years of Balancing: What’s Next? The new elite must show the way to eliminating the oligarch-controlled model and discovering Ukraine’s potential

he model of society and the formal arrangement of ideas into ary that meets their “biological state that has emerged in comprehensive programmes. needs” as oligarchs and their friends Ukraine, better known as the It made little sense to expect like to express themselves. The mass Toligarch and lumpen system those in power to take steps they of people have no chance whatso- based on the soviet Russian pattern were not inclined to, such as hold- ever for ownership, proper reward is far from perfect. It significantly ing an election that could lead to a for their work or opportunities to hampers the country’s development change of power, or implementing freely open and develop their own and dooms most of its citizens to reforms that would undermine op- business. Any expectations from the poverty. To break this vicious circle, portunities for quick and uncon- state are in vain. In fact, a special the fundamentals of relations be- trolled personal enrichment. There feature of the Russian-Soviet type of tween society and the state must was nobody in the post-soviet the oligarch system is the inter- change radically. Ukraine that could force them to do growth of oligarchs with the state this. The opposition, in the form and their interdependence. The COMMON HERITAGE that it was in at that time, was un- mass of people, in turn, can hope Despite the fact that the Ukrainian able to offer a realistic transforma- for certain handouts. In this case, economy was one of the most impor- tion action plan, although there populism – namely promises, privi- tant elements of the USSR’s econ- were plenty of projects. Nor was it leges, and anti-market actions such omy, while Ukrainians reached top possible to firmly ask those in power as pressure on business and so on, offices in the Soviet Union’s estab- for answers. Later, they would say is the reverse side of the oligarch lishment, these apparent benefits “those were hard times” to justify system helping those in power to emerged as a weakness of the new themselves. Nor could the opposi- gain votes in elections. country. Less than 30% of what was tion organize all those who were Such a system consolidates op- produced in Ukraine went to meet willing to help, including people ca- portunities to manage the resources the needs of the consumer market. pable of thinking systematically and 95% of output was produced at acting consistently, nor could it duly Without a renewal of the plants under central soviet control, support sporadic protests, such as which were run directly by Moscow. miners’ strikes or the students’ elite, the country will The reforms implemented in the granite revolution, and use these exhaust its opportunities USSR brought extra powers to the protests as a basis for pressuring the directors of enterprises. Meanwhile, regime. The opposition proved to be for development and will they gained no experience of selling cut off from its social foundation – their products in a competitive mar- millions of Ukrainians craving become a "resource ket and continued to enjoy adminis- change. Perhaps, a more consistent appendage" for its trative protection. This environment and capable counter-elite may not produced a class of “red directors” have been able to emerge at that neighbours who could dictate their rules to the time in Ukraine, where the best of the country and determine its key country’s leadership and affect key people were chosen to reinforce the policies in the hands of a very narrow appointments. At the same time, USSR’s establishment, where mem- circle. However, the power in pro- they preserved features typical of so- ories of the Holodomor (forced fam- tecting the interests of those at the viet directors, such as the lack of ine) were still vibrant, and the con- top reverts into a weakness in both strategic thinking and the pursuit of science of the nation – the intelli- domestic policy and the international their own personal benefit here and gentsia – was either killed or forced arena. The state moves from one cri- now. to serve the regime. sis to another facilitated by the ruth- The emergence of red directors less exploiting of some industries and later the oligarchs, though, was STRENGTH AND FRAILTY and markets. Inflation, default and not a result of the distorted econ- From then on, the new structure of stagnation are frequently used words omy and uncontrolled personal en- Ukrainian society was shaped by to denote processes in oligarchies. richment alone. No less important sporadic factors leading to the es- The showcase impunity of those in was the government that had no vi- tablishment of the oligarch-con- power alienates society and under- sion of the goal and mechanisms of trolled lumpen model. The leader- mines the legitimacy of both the gov- transformation. Nor did it take any ship ends up being composed of ernment, and the state. At the same moves to encourage the public to “dominants”, i.e. winners in a war time, the rigid administrative sys- search for a way out. Thus, the with their own kind, surrounded by tem, total corruption and poor image Ukrainian leadership did not opt for groups of retinues. At the bottom – in the world make the country vul- early election, which could have cre- the destitute “mass of people”, nerable to foreign influences. ated the basis for the consolidation forced to work at the enterprises of Ukraine has had a plenty of exam- of political parties and at least some the dominating oligarchs for a sal- ples, socio-political and economic № 08 (20) september 2011|The Ukrainian Week|57 special edition|Ukraine-20 avid c qu es - L oui s D avid 1789” by Ja on 20 Jun e 1789” by ath “ T h e Te nni s Court O crises, as well as interference from life in Ukraine, this impulse could WE WON’T GO ange Revolution problems, where the Russia, whereby it barely escaped come from social protests similar to HOME, UNTIL establishment has no critical mass of the loss of its sovereignty. those that took place in Latin Amer- WE ADOPT A change-oriented people and the Fortunately, unlike the Russian ica, Bulgaria or Romania. But CONSTITUTION. country will once again witness a lost model, Ukraine’s is much more com- Ukraine lacks the forces that could In the history opportunity. of the well- petitive, allowing several centers of help the organization of such protest. developed The history of Central European influence. It has never depended Trade unions are in a pitiful state, countries were states shows a way that looks natural solely on the resolve of the head of while a party that is concerned with moments when and acceptable for Ukraine. Modern- state. Also, Ukrainian society is not the interests of the people simply elite united ization in those countries has shown made up of the “mass of people” does not exist. So if any social explo- to create new “bourgeois nationalism” in action alone. The 2004 Orange Revolution sion was to occur, it would only be rules of the with representatives of “national” demonstrated the ability of society to caused by the government itself, by game to be movements, harbingers of change protect its rights effectively. But the reducing people to extreme poverty followed by and intellectuals capable of creating a success of such moves largely de- and despair. And even if this should everyone transformation plan, using the mid- pends on the quality of the counter- happen, the question remains as to dle class as a foundation while the elite they bring to power. The devel- who will be able to replace the cur- latter was developing and was ready opments of 2005-2010 proved that rent establishment. to protect its rights, interests and the hope to leap over the abyss has Meanwhile, without changing its profits in the manner that intellectu- not come to pass. The “elite” still has elite, the country will exhaust its op- als searched for and found. Without to catch up with society in terms of portunities for development turning the support of the middle class and its progress. into a resource addendum for its small and medium business, no envi- neighbours, leading to consequences ronment, capable of developing an “BoURGEOIS NATIONALISM” clearly demonstrated in Belarus. The efficient action plan for the country The need for a new elite has been de- country needs both “people of ac- can be created. Neither the state, nor bated from day one of independence. tion”, capable of specific actions, in- grant foundations will be able to re- The question is where and how it can cluding protests, protection of rights place national business, since their emerge. Some hopes are linked to and resistance to arbitrariness, and goals and scope are too different. competitive relations within the es- “people of thought”, i.e. the intellec- Meanwhile, without realizing its real tablishment. But going into opposi- tual elite, capable of showing the way interests and opportunities to protect tion is an extreme step that most to changes. The Tax Maidan, student these interests, business will have to leading players are incapable of tak- protests and local protests show that play a losing game of “compromise” ing, particularly in the current situa- Ukraine has the people of action but with oligarchs, which is becoming tion. Moreover, what unites current they are uncoordinated and justifi- ever more ruthless. This union has groups in power is no more signifi- ably do not trust politicians, therefore proved efficient for Ukraine’s neigh- cant than that which separates them. are not always able to organize inter- bours and will surely work for Competition will be a good founda- action and ensure a positive result for Ukraine, unless understanding of tion for breaking down the govern- their campaigns. However, without a this and unification of the business ing monolith, but it needs an addi- well-thought plan of further action and intellectual worlds does not come tional impulse. Given the quality of plan risks the recurrence of post-Or- too late. 58|The Ukrainian Week|№ 08 (20) september 2011 OPEN YOURSELF TO THE WORLD OF INTELLECTUAL BOOKS!

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