Frontera Deep Dive: Cancer of Corruption Riddling Ukraine 3
Ukraine

Who needs Russia? Ukraine is proving perfectly able to destroy itself, writes Michael Mesquita.

After funnelling billions of dollars to rescue Ukraine’s sinking economy last year, US Vice President Joe Biden visited the parliament in Kiev with one request: tackle the “cancer of corruption.” The West, he warned, is running out of patience.

Ukraine’s politicians, it seems, hadn’t heard or cared. Less than two months later, Aivaras Abromavicius, the economy minister representing the best hope for reform, resigned. No longer, he said, could he put up with the crony appointments to state enterprises under the administration of President Petro Poroshenko.

For the West, the only viable option for Ukraine is to move forward with reforms that have so far been superficial or too slow to materialise.

Political reform historically has been a façade used to engage Western powers and international organisations while continuing with the abuse of privilege. It’s a common thread running through the past administrations of Leonid Kuchma and Viktor Yushchenko – with Viktor Yanukovych taking it to the extreme.

Against such a low benchmark, the reform process has proven the most successful under Poroshenko and his Prime Minister, Arseniy Yatsenyuk. But – as evidenced by Abromavicius’s resignation – it’s a painstaking process, with plenty of obstruction from members within the ruling coalition.

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The stakes are high. Should the West become disillusioned with the pace of reform and consistent obstruction from entrenched political networks, foreign aid could evaporate. The ensuing political fallout could lead to the collapse of the governing coalition, threatening to undermine what progress has been achieved over the past year.

On the positive side, success in confronting corruption could take Ukraine down a path of meaningful economic progress and, ultimately, finding a peaceful resolution to the stalemate in the divided east of the country.

Lifeline

It’s true that government officials and international donors can point to a string of achievements in the past year, including new anti-corruption legislation, police reform and greater transparency in political party financing.

From an economic perspective, Ukraine has turned a corner from gross domestic product plunging 17% in the first three months of last year to growth of around 1% last quarter. A trade deal between Kiev and Brussels could revitalise the economy further, along with a proposed visa-free regime tabled for mid-summer.

Negotiations with foreign creditors (minus Russia) allowed the government to write off 20% of its national debt, providing a lifeline to Kiev and paving the way for the next tranche of IMF funding.

But what is still fundamentally lacking is the political will that would turn such top-level reforms into sustainable and measurable results.

Year of “De-oligarchisation”

Informal elite business networks are the backbone and guiding hand behind every president and ruling coalition in Ukraine since independence. Contrary to Russia and other former Soviet states, Ukraine’s oligarchs hold a disproportionate amount of influence over the political system.

Poroshenko pledged 2015 would be the year of “de-oligarchisation” – and he had some success. Yet the fundamental power of the oligarch class remains their propensity to switch allegiances and support any political party that grants access to state resources and affords them economic security.

Perhaps the most telling were the victories of oligarch Ihor Kolomoisky’s political parties in last October’s regional elections. The Renaissance party that Kolomoisky funded made minor gains with 5.4% of the vote and his UKROP party secured 7.3% – but more importantly, his allies won mayoral elections in Kharkiv, Dnepropetrovsk and Odessa.

In the Azov Sea port of Mariupol, an associate of Ukraine’s richest oligarch, Rinat Akhmetov, won the mayoral race with 72% of the vote.

Given the gains oligarchs made in these regional elections, they could make meaningful inroads in the nationwide polls, particularly if the government – as is widely speculated – calls for early parliamentary elections before a new law governing party funding comes into effect in July 2016.

A Parliament stuffed with oligarchs’ puppets could severely restrain the reform agenda, strengthen business influence over the political decision-making processes, and hinder foreign investment.

Case of Korban

Corruption investigations have been few and far between. Prosecutor General Viktor Shokin, an ally of Poroshenko, has yet to investigate or arrest any members of former president Yanukovych’s regime.

When Britain’s Serious Fraud Office opened an investigation into the former Ecology and Natural Resources Minister Mykola Zlochevksy, owner of Ukraine’s new gas intermediary, Burisma Holdings. the Prosecutor’s Office sent letters of support for Zlochevsky. In January 2015, the SFO was unable to prove reasonable cause for the investigation to the courts.

The case has since been turned over to Ukraine’s National Anti-Corruption Bureau (NABU), which will take no further action. Instead, it will assist in recovering $23 million in blocked funds.

The only corruption probes that have occurred look like a façade to silence political opponents. Take the case of Hennadiy Korban.

Shortly after losing in the Kiev mayoral race last October, the businessman-turned-politician was arrested by the Security Services on suspicion of involvement in organised crime, embezzlement and kidnapping.

Korban is a close ally of Kolomoisky – and Kolomoisky is in a tense confrontation with Poroshenko. Seven months earlier, the President fired Kolomoisky as Governor of Dnepropetrovsk in response to Kolomoisky instituting a raid on the government-owned energy company, UkrTransNafta.

At Korban’s court hearing, hired thugs barged in, attacking his supporters. Police reportedly stood by as the brawl ensued.

Ukraine

Credibility

The process of political reform will limp on in Parliament, the Verkhovna Rada. But an increasingly likely scenario is that Prime Minister Yatsenyuk gets voted out of office. That could throw the ruling coalition off-balance and impede political progress.

Yatsenyuk’s popularity and that of his political party, the People’s Front, has been in precipitous decline over the past year. Since garnering 22% of the vote in parliamentary elections in October 2014, the People’s Front has exhausted support, at only 2-3%. In last October’s regional elections, the party chose not to field any candidates and instead supported the Poroshenko bloc.

On top of the party’s poor approval ratings, Yatsenyuk’s own political credibility has come under attack following accusations in September of bribery and corruption levelled against him and members of his party.

Working in Yatsenyuk’s favour is the fact that the governing coalition remains dependent on the People’s Front. Without its political support, the government would likely collapse. Although some may feel Yatsenyuk is replaceable, jeopardising the entire coalition may be a step too far.

Secondly, the US continues to support Yatsenyuk and sees him as the best chance the government has in pursuing its reform agenda, regardless of how lax it has been so far. The US is adamant about maintaining two spheres of power within the government, and Yatsenyuk is the US’s chosen candidate.

These bargaining chips could nonetheless be squandered if either his party members revolt to save their political careers, or the US sees that Ukraine’s political stability would be better served under a more popular Premier.

When Yatsenyuk was delivering an address In December, Oleh Barna, a deputy in Poroshenko’s bloc, approached the speaker’s podium and tried to physically remove the Prime Minister. The altercation stirred a fight on the floor of the Verkhovna Rada.

Frozen conflict

Brawling and general physical behaviour by government officials is commonplace in Ukraine’s political history. Still, it is indicative of the level of confrontation between the political heavyweights.

Such violent gestures sometimes seem motivated mostly by political expediency. Two days after the brawl in Parliament, Interior Minister Arsen Avakov was facing accusations of corruption from Odessa Governor Mikheil Saakashvili. His response was to hurl a glass of water at Saakashvili. The meeting was swiftly adjourned.

The stumbling and buffoonery in Kiev translates to a prolonged state of limbo for the frozen conflicts in the separatist in the east. In the midst of winter, the prospect of a full-scale escalation in fighting has been mitigated, although ceasefire violations on both sides are to be expected.

The Minsk II ceasefire agreement expired on Dec. 31, with both nations having failed to fulfil its protocol. Leaders from Ukraine, Russia, France and Germany agreed to extend the deadline into 2016. The exact date remains unclear; however, Russian government officials have publically stated it would take three-to-five years to implement the agreement, signalling that the Kremlin sees ample time to manipulate Ukraine’s political process.(See yesterday’s  Deep Dive on Russia) 

Meanwhile Ukraine will continue to publicly denounce Russia in front of the international community, and the West will keep the pressure on by extending economic sanctions on Moscow. But it’s no longer enough for Ukraine simply to play the ‘Russia card.’ For continued international support, it will need to demonstrate that progress is being made on political reforms.

The fate of the nation rests with the government’s ability to enact the necessary political reforms to continue receiving Western support. Certainly, Ukraine in 2016 is in a more precarious situation than last year.

2016 Watch Points:

In the 2015 local elections, Yulia Tymoshenko’s Fatherland party garnered the biggest share of votes after the Poroshenko bloc. With her reputation as a firebrand, Tymoshenko may build on this to drive a wedge between coalition factions for greater influence.

Prosecutor General Viktor Shokin is one of the most divisive figures in the current government. Although Poroshenko has thus far fended off calls to remove his lieutenant from office, mounting domestic and international political pressure may lead to his demise. The replacement of Shokin could be a watershed moment for Ukraine that would enable the Prosecutor’s Office to take on a more independent role.

Odessa Governor Mikheil Saakashvili has led the charge against Yatsenyuk. High approval ratings could make Saakashvili the obvious choice should the (reform-minded) political elite wish to regain the population’s trust.

 

The author is Michael Mesquita, Senior Analyst (CIS) at West Sands Advisory Limited. Michael is involved in a longstanding project focused on investigating the intricacies of informal elite networks of power in the CIS, and how these networks exert influence.

West Sands Advisory Limited is a business intelligence, investigations and political advisory firm that has, since 2006, helped clients identify opportunities and reduce risk in emerging and frontier markets www.westsandsadvisory.com

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