PrismUA

UkraineDigest Issue 1 , 2015

Oleksiy Krysenko is an Associate Professor of Political Scienсe in PROCESSES AND PROGRESS IN the Department of V. Karazin National University IN THE FIRST HALF OF 2015

Iurii Vdovenko is a Member of the It is our pleasure to present the rst piece of the achievements when it comes to constitutional Steering Committee of Ukrainian monthly digest “Prism.UA” which is devoted reform, decentralisation, anticorruption, National Platform of the Eastern to analysing the ongoing social, political and defence and security. Implementation of the partnership Civil Society Forum economic processes in Ukraine. Even though Association Agreement and the Association Ukraine has been at the centre of world Agenda between the EU and Ukraine is also Dmytro Levus is a Director of attention for quite some time, the reason behind on the public radar. But Russia is using its huge the Center for Social Studies “Ukrainian Meridian” the project is to present more qualitative and information resources to paint Ukraine as a reliable expertise for stakeholders in the EU and “failed state”, and this is another reason why Eastern Partnership. more objective, unbiased and on-the-ground assessments that provide a holistic picture of all Since the Revolution of Dignity in February the processes, are needed. 2014 Ukraine has become the target of severe multifaceted aggression from Russia.  e  e core group of experts engaged in this Crimean peninsula, an integral part of Ukraine, project constitutes the expert network has been annexed and two other regions in the “Ukrainian prism”, the initiative of like-minded East of Ukraine have been  ooded with Russian people in Ukraine with strong expertise in weaponry and regular troops. Unfortunately, political sciences, economics, diplomacy and not everyone is aware of these cynical actions international relations. In cooperation with the that threaten not only Ukraine but the whole of Eastern Europe Studies Centre, a Lithuania- Europe as well. based think tank, and with the support of the Ministry of Foreign A airs of Lithuania, It is worth blaming the so-called hybrid war that this digest will do its best to ll some gaps in Russia is waging against Ukraine on the di erent distributing analytical products that might be tools of the propaganda machine. Kremlin’s useful to politicians and experts interested in CONTENTS mouthpieces and media have proved active in Ukraine. 1 distorting reality on the ground and the facts PROCESSES AND PROGRESS IN pertaining to the Russia-led con ict.  e most Taking into consideration the time of this UKRAINE IN THE FIRST HALF OF telling manifestation you might remember is rst digest, the rst piece draws on general the downing of  ight MH17 and the desperate assessment and trendsetting in Ukraine in the 2015 attempts by Russia, even exotic ones, to avert rst half of 2015. Should you have any ideas on 2 direct accusations. how to make the digest more attractive to the SUCCESSES AND RISKS OF THE audience, please do not hesitate to contact us. POLITICAL On the other side of the coin there is a di cult CONFIGURATION IN UKRAINE internal political and economic situation Hennadiy Maksak, co-editor of digest “Prism.UA”, 4 in Ukraine – a legacy of the previous state Coordinator of the FP expert network “Ukrainian THE ECONOMY OF UKRAINE IN administration of the Yanukovych era and the prism” THE FIRST HALF OF 2015 current transformation processes launched by the Ukrainian authorities. Against this 5 backdrop, the path of reforms is far from Vytautas Keršanskas, co-editor of digest SUCCESSES AND FAILURES OF smooth or secured in the country. But at “Prism.UA”, THE OSCE’S SPECIAL the same time Ukraine has some tangible Analyst at the Eastern Europe Studies Centre 1 Issue 1 (1), 2015

The e ciency of the functioning of the SUCCESSES AND RISKS OF THE POLITICAL “President – Cabinet of Ministers – governing CONFIGURATION IN UKRAINE coalition” triangle is in Oleskiy Krysenko many respects dependent  e snap elections called by the President of see not just a revision of the activity of the Cabinet on domestic electoral Ukraine (25 May 2014) and the Verkhovna Rada of Ministers and the prime minister personally, but dynamics. of Ukraine (26 October 2014) allowed the national will also allow a re-con guring of the governing political system to be legally reloaded1 and the coalition in respect of some speci c members of A serious challenge foundations for the formation of a rather consistent the coalition in the Parliament.  is will happen, to ongoing changes con guration of political power in Ukraine to be inter alia, depending on successes and failures of in Ukraine is the laid.  e key characteristic of Ukraine’s current the prospective control over regional assemblies, threat of revenge on political system is its institutional design – premier- regional media, and regional businesses. the prospective local presidential (parliamentary-presidential) model of executive authority based on a parliamentary elections by forces of the  e core of the parliamentary coalition consists of 5 coalition, mainly consisting of 5 parliamentary democratic pro-European actors (“ pro-Russian group. fractions representing the constitutional majority. Bloc” [PPB], “People’s Front” [PF], “Self-Reliance” [Ukrainian – “Samopomich”], “Radical Party of  e e ciency of the functioning of the “President – ” [RPOL], “Fatherland” [Ukrainian Cabinet of Ministers – governing coalition” triangle – “Batkivshchyna”]) united by a common coalition is in many respects dependent on domestic electoral agreement representing a contradictory attempt to dynamics.  e speci c nature of the political formalise the programme of government actions model lies in the fact that both the prime minister in implementing urgent reforms and the strategic and the president, representing di erent political development of the country. Alongside this, the actors, o en take up the competitive struggle for coalition association remains rather sustainable as domination in adopting political decisions in “the senior partners” of the coalition – PPB and PF – the system of political government. Two or more represent the president and the prime minister and clientelism type verticals are created: presidential are interested in supporting the existing coalition’s vertical, premier vertical, and opposition vertical. con guration, and none of the “junior partners” Ukraine faced similar challenges when the (all other participants) has “the golden share”.  is cabinets of President Viktor Yushchenko and Yulia factor pre-conditioned the coalition’s responsibility Tymoshenko and V. Yanukovich (2006–2010) co- for the number of extremely unpopular government existed, in the context of frequent electoral cycles decisions, which de nes some kind of short-term (reference points of this rivalry were nationwide optimism in respect of the sustainability of the elections in 2006, 2007, 2010, which sharpened dynamics of the internal politics. the electoral competition inside the pro-European “orange camp”, thereby, nally, enabling Yanukovich Alongside this, there are risks and threats that could to get revenge). destabilise the situation: A serious challenge to ongoing changes in Ukraine Unlike the preceding co-existence, in the current is the threat of revenge on the prospective local situation both the president and the parliament elections by forces of the pro-Russian group (Party 2 have 3–4 years before the next electoral cycle, i.e. of Regions, Opposition Bloc, the Communist Party frequent elections cease to play a destabilizing role of Ukraine), which occupied a marginal niche in in the system of power sharing in the executive the formed political con guration on the wave of authority.  e weaker actor in this case is the prime the last all-national elections. It should be noted minister () as he is the hostage that a decrease in the electoral rating of the political of the parliamentary coalition’s sustainability. parties-participants of the coalition increases the His political positions/prospects are the most chances of current outsiders for electoral and inconsistent, as his yearly immunity expires in political rehabilitation. October 2015. It is very likely that November will A signi cant factor complicating the functioning of the Ukrainian state is the continuation of military 1 As distinct from the national level, the restart on the level actions with the pro-Russian troops in the East of of regional political regimes emerged fragmentally and Ukraine. Apart from heavy human losses in icted remains incomplete. The prospects of such reload as well on Ukraine, the continuation of war draws the as of institutionally and politically oriented modernisation Ukrainian economy, which is not yet su ciently of regional political regimes depend on the results of the elections in the local councils, which will preliminarily take developed, towards military mobilisation which place on 25 October 2015. is contrary to the e orts aimed at destatisation 2 Ordinary elections of the and of the and economic liberalisation.  e signi cant Parliament of Ukraine will take place in 2017. contributing factor is the “reload” of the state 2 Issue 1 (1), 2015

budget by expenses on defense and safety (the level climate and not by departmental successes, of these expenses is close to 5% of GDP), which is professional competence or public opinion. For The probability of summer signi cantly re ected in the state performance of example, fatal sta ng mistakes were made in the military escalation (July- its social guarantees. In 2015, 80% of party and quota placements for the position of live below the poverty line, the o cial minimum September) in the East General Prosecutor (Oleh Makhnitsky – Freedom subsistence level is UAH 1,176 (≈USD 50) or less Party, Vitaly Yarema – Fatherland Party), etc. of Ukraine (if last year’s than USD 2 a day, which pushes Ukraine towards events are anything to the poverty line of African countries.  e most remarkable decision in the sta ng policy go by) remains high, (from the end of 2014 to the rst half of 2015) was and this could result in  e issue of the prospects of state reformation the proactive attraction of managers/non-residents destabilising the state. during the war remains topical despite the existing (foreign citizens with experience in successful state sustainable understanding of the fact that Ukraine or corporate management) to state authorities might not have another time for anti-crisis reform. (Cabinet of Ministers, Prosecutor’s O ce, regional  e ruling elite has concerns that, at the rst stage, state administrations etc.). It is actually the personal deep institutional changes in the system of state participation of these persons which conditioned government will decrease the level of control over progress in reforming the relevant structures and the system. Moreover, the decrease of the level directions. Among others, the most popular and of control of the system in the case of external authoritative are: aggression by Russia may lead to fatal consequences. Eka Zguladze, deputy Minister of Internal A airs of e speed of social, economic and political Ukraine – responsible for MIA reform and creation transformations is important. In today’s public of the “new police”; opinion, this speed is evaluated as unacceptable, Davit Sakvarelidze, deputy General Prosecutor of society wants fast and improved changes for Ukraine – responsible for reform of the Prosecutor’s the better, which is extremely complicated due O ce and the justice system; to the institutional inadaptability to quality Mikheil Saakashvili, governor of the Odessa region transformations. One of the most important – headed the unique experiment of reforming the dysfunctions of the state system is the total system of state management in the Odessa region.3 corruption in the state sector (compounded by the low level of state service), which has a clear vertical Forecast for the second half of 2015: dimension, confounded by the post-Soviet system 1.  e probability of summer military escalation of administrative centralisation.  e solution to the (July-September) in the East of Ukraine (if last current situation is the prospective reform involving year’s events are anything to go by) remains decentralisation of the system of state management, high, and this could result in destabilising the however, this reform will be implemented against state. Since the forthcoming local elections a background of external aggression, and reduced are the only opportunity to reload regional control of the state system by centre and opposition- political systems/regimes, the importance of minded local councils. Political monopolisation of these elections for all domestic actors cannot local councils by opposition parties in the context be overestimated. of the decentralisation of the system of state 2. Based on the foregoing, the following threats management bears the threat of “regional political emerge: feudalisation”: regime of Igor Kolomoysky in • undermining/rescheduling of local elections; Dnepropetrovsk, regime of Gennady Kernes in • complication of relations between the Kharkov, regime of Gennady Trukhanov in Odessa, central authority and local elites, challenges and etc. of voluntary armed forces; • rupture/reformatting of the governing One of the most signi cant challenges to the coalition.4 stability of the political process is the quota 3. Local “stories of success”, their application principle of forming the acting Ukrainian Cabinet of Ministers. On the one hand, this principle is the to other regions/areas, and acceleration of most practical one in terms of the necessity to divide reforms increase the rating of the parties of the the collective political responsibility and electoral governing coalition, which will stabilise the costs between all the participants of the coalition European line on the development of Ukraine. to implement the line, but, on the other hand, the quota principle undermines the management expertise as technocratic competence is o en 3 Odessa region is one of the strategical but most corrupt substituted by various kinds of corporate and regions of Ukraine. party loyalty inconsistent with the public interests. 4 Threat of the coalition rupture remains due to the  e key executive posts are occupied by “non- utilitarian strategies of particular members of the coalition to professionals”, in which institutional and political participate in the local elections as actors quasi-opposing the governmental line. Indicators of such strategies are counter- sustainability in the vertical of state management reformation populist legislative initiatives adopted by the is de ned by backstage inter-party compromises, coalition, blocking of the most part of the governmental degree of sustainability of the coalition, political legislative initiatives as “unpopular” before the elections. 3 Issue 1 (1), 2015

Unfortunately, reform ef- THE ECONOMY OF UKRAINE IN THE FIRST HALF OF 2015 forts of the government are not enough to de ect Iurii Vdovenko this continuing decline.  e rst half of 2015, over which Ukraine survived actually regained control of the state company in a state of ongoing economic crisis, has come to Ukrna a, which has been falling under the The impact of the “Rus- an end. in uence of Igor Kolomojskij. sian factor” on the na- tional economy remains  e main contributing factor to the current state Preserving relative macro- nancial stability can be signi cant. of the national economy remains continuous seen as the main achievement of the government’s military actions on the Eastern borders. economic policy during this period. However, Destruction of transport infrastructure, loss of this was reached mainly because of the support main funds, and external factors such as the drop of the world community, rst of all the IMF. For in world prices for the main export positions and instance, Ukraine has already received the rst closure of the Russian market, remain the main transfer of USD 5 billion, of a total USD 10 billion factors contributing to the current state of the for 2015, in nancial aid from the IMF. In total, national economy. In addition, the rst half of the within the scope of the programme of support to year has seen many di erent de ning events for the Ukrainian economy, IMF will allocate USD the country, which has been teetering on the edge 17.5 billion. However, one of the painful e ects of economic disaster for a long time now. of such nancial aid are the growing prices of community services conditioned by bringing the Unfortunately, reform e orts of the government tari s in line with the prices on imported energy are not enough to de ect this continuing decline. resources.  e price of gas has increased 285% By the end of the rst half of the year, many since March, the price of water has doubled since international institutions have worsened the May and electric energy tari s are expected to forecast of decline in the Ukrainian economy. For increase 2.5 times within the next two years. instance, according to di erent evaluations and the results of 2015, GDP will decline by 9%, the level In addition, even though the Conference held in of state debt will be up to 90% of GDP (amount support of Ukraine on April 28 witnessed the pro- of repayment of liabilities in 2015 is approx. USD Ukraine position of the international partners, it 11 billion), and by the end of the year, in ation did not bring the expected results as regards the will exceed 45%.  e topic of restructuring the provision of economic aid in the amounts desired foreign debt against the background of setting by the government. In total, by the end of the a pre-default rating for Ukraine by world year, Ukraine needs more than USD 7 billion of agencies is becoming increasingly popular in the credit, aid and investments (apart from the IMF informational space. Already the state enterprise programme). In May, during the summit of the Ukrzaliznytsia has experienced a technical Eastern partnership, the European Union and default, and so has the Metinvest company, which Ukraine signed an agreement granting a loan is part of ’s SKM. of EUR 1.8 billion for the redevelopment of Ukraine’s economy. For example, the World Bank notes that the situation is worsened by a decrease in internal  e currency market has been relatively stable demand because of budgetary consolidation, recently, although there was a signi cant reduction in pensions and increases in taxes. At devaluation of the national currency in February. the same time, the country is also experiencing Currently, the absence of signi cant  uctuations changes – in energy, banking, management of of the currency rate is in many respects related to state companies and corruption management the restrictive policy implemented by the National sectors. Bank of Ukraine. By 1 June, gold and exchange currency reserves had increased compared to the  e most notable changes occurred in the system of beginning of the year, and now stand at USD 9.9 state nances and are related to the decentralising billion. In addition the banking system remains changes of budget and tax legislation, which came under signi cant pressure due to the insolvency into e ect from the beginning of the year. Further and liquidation of commercial banks, which leads to their implementation according to the results to the necessity to make payments to the natural of the rst quarter, local budget income has persons’ Deposit Guarantee Fund. increased by 35%. As regards the functioning of the state sector of the economy, a er conducting Foreign Trade was the worst hit by the disasters in an analysis of the activity of state companies and the national economy. One of its main problems concluding that most of them were ine cient, is its focus on low-productivity export-oriented the pro le Ministry is preparing to launch large- industries and dependence on imports. In the scale privatisation. At the same time, the state has rst quarter, as compared to the indicators of last 4 Issue 1 (1), 2015

year, export of goods and services from Ukraine Federation continues its attempts to in uence decreased by 32.6%, import – by 35.6%, the this process with a view to dilatory tactics and It is obvious that the cur- positive balance was USD 597.5 million (share reformatting the current contract into a trilateral rent state of the Ukrainian of goods exported to the EU is 34.1%, share of one. economy cannot be over- import from the EU is 42.6% of the total volume). come without applica-  ere are no valid grounds for increasing foreign  erefore, it is almost certain that the second tion of cardinal measures investments or growth in the spending capacity half of the year will be crucial for the Ukrainian based on a review of state of Ukrainians. economy with the following issues remaining policy and systematic op- extremely relevant: erative implementation of At the same time, the impact of the “Russian • state debt restructuring, including both roll- sectoral reforms. factor” on the national economy remains over and writing down of the main amount signi cant.  is is primarily related to the rapid and decrease of interest rates; slowdown in economic growth and disruption • state expenses decrease by virtue of decrease of traditionally tight economic relations.  e of the level of state consumption, particularly role of the Russian Federation as Ukraine’s managerial expenses; key trade partner continues to decline (the • real tax system reform, which shall ensure reduction in the volumes of foreign trade is a decrease of the shadow economy sector, about 60%) by continuing the restrictive trade attraction of investments and job formation. policy with respect to Ukrainian exports. It also implements coordinated actions of a shake-out of It is obvious that the current state of the Ukrainian Ukrainian exports from the national markets of economy cannot be overcome without application CIS countries. Meanwhile, despite the steadfast of cardinal measures based on a review of state position of Ukraine and the EU regarding the policy and systematic operative implementation beginning of unimpaired operation of the free of sectoral reforms, which may be only by keeping trade area from 1 January 2016, the Russian and enhancing international support.

To summarise the work SUCCESSES AND FAILURES OF THE OSCE’S SPECIAL of the OSCE’s SMM in the  rst half of 2015, we Dmytro Levus should note that the main To summarise the work of the OSCE’s SMM in of the territorial location of the Mission’s task of assisting Ukraine the rst half of 2015, we should note that the work. According to the decision of the OSCE in decreasing the level of main task of assisting Ukraine in decreasing Permanent Council of 21 March 2014, the tension and in holding the level of tension and in holding a dialogue Mission’s mandate covers the whole territory a dialogue between all between all sides has not so far been achieved. of Ukraine. OSCE’s SMM has actually kept its sides has not so far been distance from assisting in resolving the issue achieved. At the same time, in the current period, the of Crimea’s annexation. Instead of trying to Mission has achieved certain results and resolve the reasons for the Ukrainian con ict it has undoubtedly improved the quality of its has focused its attention on the e ects provoked work.  is can be seen rst of all in the case in the and regions by the of information collection and the increased annexation of Crimea. More speci cally, the number of daily reports that are dra ed. Mission does not monitor violations of human rights and freedoms in Crimea, which, in its  e objective work of the Mission on the line turn, does not lead to talk about relieving stress of re demarcation was certainly responsible in the Ukrainian community. for the fact that the majority of the members of the OSCE Parliamentary Assembly, which took We should also note that a complete cease- re place in Helsinki in July, passed the resolution on the line of demarcation and withdrawal of recognising the aggression of the Russian heavy arms have failed to materialise and these Federation in Ukraine. should be seen as failures of the OSCE’s SMM to Ukraine. Because of this, people, including  is directly concerns the work of OSCE’s peaceful citizens of Ukraine, are dying. SMM to Ukraine as more than 30 Russian representatives are part of it. In this regard, it  e issue of violation of the rights of prisoners would be logical for the Russian Federation to of war as well as the issue of illegal export of adopt an independent decision to withdraw its Ukrainian servicemen to the territory of the representatives from the Mission, which would Russian Federation are not covered enough. allow it to avoid accusations of it not being  is in turn provokes criminals to commit objective enough. similar actions with respect to peaceful citizens.  e recently improved communication with the We would like to expressly indicate the issue Ukrainian civil community and mass media is 5 Issue 1 (1), 2015

certainly a positive development in the work To summarise, we should note that several of the OSCE’s SMM to Ukraine. In the initial components are necessary for quality The recently improved stage of the Mission’s work, its representatives enhancement of the work of the Mission, rarely responded to invitations to participate whose mandate was extended to 31 March communication with the in research and practice events, trying to 2016: Ukrainian civil community formalise their contacts.  e last half of the year 1. Binding decision on the issue of the and mass media is demonstrates positive trends in this direction. presence of Mission employees in certainly a positive Speci cally, participation of the Mission’s occupied Crimea; development in the work representative Karl Pleintinger at the round 2. Enhancement of the SMM by a military of the OSCE’s SMM to table “Security Mechanisms’ Crisis in Europe: component for successful implementation Ukraine. Ways Out”, which took place on 17 February of the SMM’s tasks in the Donetsk and in the city of Kiev and the organisation of a Luhansk regions of Ukraine. It is only by dialogue between the patriots of Ukraine and direct extension of the Mission’s mandate the participants of the so-called Anti-Maidan or enlisting the support of some other in the city of Odessa on 24 April (on the eve of international organisation that SMM can the tragic events of 2 May 2014). reach its main goals of terminating the Ukrainian con ict provoked by Russian  ese gestures by the Mission and the actual aggression. work of speaker Michael Bociurkiw have been positively evaluated by the civil community.

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Hennadiy Maksak Phone: +380 462 777 847 Email: genmax@p rs.org Foreign policy expert The content of the articles is the sole responsibility of the authors and do not necessarily re ect the views or policies of network “Ukrainian Prism” the supporters and coordinators. This publication has been produced with  nacial re ect from Development Cooper- tation Programme by the Ministry of Foreign A airs of Lithuania. 6