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Countdown: Last Chance for Ukraine

Countdown: Last Chance for Ukraine

by Michael Hammerschlag | Kiev
November 26, 2013

Ukraine has reached the crunch time in their fence-sitting act between East and West: whether they will join the Russian Eurasian Customs Union or sign the EU Partnership Association Agreement (AA) and Free Trade Agreement (DCFTA) in Lithuania on Nov 28. Both alliances say the other is incompatible. For years now Pres. Victor Yanukovich's government has given signs that they wanted and intended to sign the PA, as a majority of the people wanted. But the rub has been the still-incredible jailing of former opponent Yulia Tymoshenko in 2011 over some trumped up charge, essentially doing her job in signing an admittedly lousy gas deal with Russia (since re-ratified by this government several times). Yanukovich hated the demagogic braided gas princess and former Orange Revolution firebrand with a passion, as unpopular former Pres. Yuschenko did; in fact his pathological feud caused her 3½ % loss to Yanukovich in the 2010 Pres. Election (Yuschenko got only 5.5%).

The choice is stark: whether Ukraine will be locked in a neo-Soviet ghetto of dependency and corruption for the next several decades, or join the Western world in greater transparency, freedom, and rule of law.Customs Union member Belarus has essentially disappeared as an independent country- they rely on Russia for every bit of energy, resources, and have even sold them their pipelines; while Kazakhstan has chafed under tariff restrictions and imperial pressures that have gained them little. EU AA leaning Armenia, after the leader was recently summoned to the Kremlin to hear Putin's threats, collapsed and joined the Customs Union- they also rely on cheap Russian energy and troops. The Customs Union isn't an association of equals, but one of vassals.

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The road West wouldn't be easy: Russia regards Ukraine as an integral part- as it's heartland, and it's revenge could be near-psychotic: to pressure their little brother they are threatening yet another gas shutoff (the 4th), and already are embargoing chocolate and numerous other products - $50 mil a month of railroad wagons aren't being shipped North, and trailers of goods have been sitting on the border for 2 months: Russia could strangle the Ukrainian economy. But Ukrainians could sell their products to the 350 million people of the EU without tariffs, reap the freedom of world travel, rather than the undergo the current expensive and lengthy EU visa process; and escape the clammy embrace of their longtime fraternal ruler (300 years), who killed 5-7 million in the genocidal Stalinist famine of 1932-33, as well as million s in purges and Gulags.

Sadly, what seemed like a done-deal has collapsed- the Government said Thursday they wouldn't sign it. Shock and dismay across the country and globe greeted the government's reversal. For the last week, all signs were bad. They simply can't release Yulia- the Presidents own Party of Regions chief Yefremov said he had no intention of voting for any of the 6 bills to send her to Germany for medical treatment, Yanukovich reported told EU enlargement head Stefan Fule Nov 20 that he wasn't going to sign the PA, he had jetted off to the Moscow for a semi-secret meeting with Putin to hear his carrots and sticks Nov. 9 as PM Azarov suddenly claimed requiring Tymoshenko's release was unjustified and complained, "nobody.. will offer compensation for the loss of this (Russian) market", they arrested Tymoshenko's lawyer Vlasenko Nov 8 for an alleged assault that happened in 2008... they'd already stripped his Parliamentary seat and immunity, and the Rada (Parliament) passed a bill to prevent popular boxer/ party leader Vitaliy Klitchko (a German resident) from running for President in 2015. "Either Yanukovich is losing control of his own Party, or it's a cynical very nuanced Machiavellian play,' said longtime Kiev editor Jim Davis. It was always possible this was a carefully choreographed scheme- wait for the very last minute, release Tymoshenko, and in the relief, no one will notice that 2 other preconditions were ignored.

They also haven't circumscribed the unlimited power of the prosecutor (maybe 1% are found innocent in trials here, and juries barely exist- "persuadable" judges only), they haven't reformed the breathlessly corrupt court or election systems but instead appointed close Yanukovich cronies to run both, they refuse to raise hugely subsidized Soviet level natural gas prices demanded by the IMF for desperately needed loans (people control the central over-heating by always keeping windows open), public support for the EU path has faded to 45% vs only 14% for the Customs Union (another says 58% for**), theEuropean Bank for Reconstruction + Development head canceled a Nov 5 trip to Kiev to sign an anti-corruption agreement (Ukraine ranks 144 out of 175 countries, behind Russia, Pakistan, and Nigeria byTransparency Int.). The ex-con* President's unknown dentist son 3½ years ago Alexander... is now a half-billionaire, and they are known as The Family.

The thinking was even the 10 big oligarchs who rule this country as their personal plaything didn't want to suffer under the Russian yoke- the 110 Russian billionaires are richer and more ruthless, and Putin has not been gentle with them. "Maybe not", said one connected insider- adjusting to greater transparency is traumatic; even many companies' ownership here is completely secret. "Many industrialists …ask 'why should I vote for this (EU)'. We have 77% of our machine building output going to Russia," said Yefremov. Azarov claimed there already was a 25% drop in Ukraine's exports from the Russian embargo.

Ukraine is an impressively corrupt nation - the reconstruction of Kiev's Olympic Stadium cost an estimated $700 million, over 5 times what a Hamburg stadium did new... that in a country where wages are 12 times lower and materials probably 3-5 times lower. Even then some workers from the villages who labored a year at 11 hour shifts for $19 were cheated out of $5000. Such is the venality of Ukrainian bosses. Like Dick Cheney in Iraq, Dep. Prime Minster Kolesnikov awarded himself the task of building all the Euro 2012 soccer facilities - Tymoshenko had him jailed for a month in 2005, her current woes may be related. In business dealings, jobs, apartment rentals.. one is more likely to be cheated than not: every arrangement is subject to endless renegotiation, and paying wages monthly makes it easy- after 1 month workers are invested, and often last 3 before quitting in disgust. College students often have to pay for grades or degrees- even exposure of professors' extortion carries little risk. Yanukovich's endless broken promises and false hopes are a graphic example.

The most amazing example are the raider attacks (only in FSU) where 40-130 thugs with wooden or iron bars invade a business, beat and throw out the employees, and take it over, armed with the decision of some corrupt regional judge that they are the owners. It even happened to the $1.2 billion Ilyich Steel Co., the holder of the foundational documents simply sold them for $30,000. That was reversed after the whole city of Mykolaev screamed bloody murder. 2 malls in downtown Kyiv suffered the same fate- inc. one directly under Maidan (Independence Sq). An enormous percentage of government money disappears into various pockets; a huge difficulty in getting anything done here is government or oligarch squabbling about who gets to steal what. A government inspector of verifying business compliance seemed in a perfect position to pad his pay: "No, Michael," he said morosely, "only my bosses are allowed to steal."

The thought was meeting EU standards would moderate Ukrainian rapacious tendencies, but there has been little evidence of that- the changes they demanded have been passed in a flurry of last minute bills that few think will be taken too seriously. For already unpopular Yanukovich, the failure of the ballyhooedAssociation Agreement could be fatal in the 2015 election, but he may have calculated that the economic devastation of a full Russian embargo was worse. Polls show all 3 contenders: heavyweight boxing champion Vitaliy Klitschko, Tymoshenko, and former Rada Speaker Arseny Yatseniuk, beating Yanukovich, though only Klitschko has a real shot- Yanukovich has packed the courts, regions, and election boards with his loyalists. Klitschko is one of the few people in this country untarred by corruption- he has his own fortune- and with the Rada banning of non-residents as Presidential candidates.. he finally formally declared himself running. Tymoshenko is probably destroyed as a political force, and Yatseniuk relatively uncharismatic.

Demonstrations broke out in a dozen cities on August 21, including Kiev's Maidan (Independence) Sq. on the 9th anniversary of the Orange Revolution that overturned Yanukovich's first corrupt victory. On Sunday the 24th they had perhaps 70,000 people in European Sq., the largest demonstration since 2004, and are keeping a continuous vigil, though the weather has turned bitter- below freezing after 6 weeks of mild temperatures. The government, seeking to not alienate more, has been magnanimous, setting up warming tents and directing police to not being too aggressive. Still, pitched battles have broken out between the security army and protesters trying to block the Cabinet of Ministers. Unlike 2004 however, there are no other independent bodies left in power that could force the signing of the AA.

Amazingly, for this total betrayal and stunning reversal, the Yanukovich government got nothing solid from Russia: Azarov claimed they would renegotiate Gazprom's sky-high gas price- Putin immediately shot that down: "Gazprom and Ukraine have a contract until 2019", then brutally raised the pressure and ante for complete capitulation, claiming the total debt to Russia in loans, gas, etc was $30 billion. "We will work with Ukraine- not at a loss, but... further in the energy and financial sector." Without joining the Customs Union, the huge aid needed is dubious, and once entered into, Ukraine's independence and sovereignty will quickly disappear.

Exhausted by the endless dithering, the EU has still been penurious, offering only $610 million according to Yanukovich, for significant Euro-adjustment expenses when Ukraine would also face brutal reprisals from Russia and stiff competition from Euro producers when tariffs come down (though it's lower cost products offer some protection). Azarov complained, (financially) "We did not get support during the hardest period." Fule disputed that: "We are talking about billions of dollars.. the Association is a measure to .. strengthen financial assistance."

But if Ukraine gets to pay Belarus's gas price (~$170/1000 CuM) in the Customs Union, they would immediately save $2½ billion a year and Belarus is currently subsidized by ~$10 billion a year. Cheap Russian loans can stem the debt crisis Ukraine faces without IMF help, but will increase their abject dependence. Had this government really cared about the $4 billion/year it hemorrhages to Russia for gas, they could have built an Black Sea LNG terminal within a year 5 years ago and bought Algerian gas for 30% of what Russia is robbing them for- $415/1000 CuM, almost the highest price in the world (US prices have been as low as $80)- saving Ukraine $10 billion and preserving its sovereignty. Ukraine's Naftogas pays only $53/1000 cum for domestic gas, allowing middleman to make billions off the spread, and subsidizing expensive Russian gas- this is what the IMF was demanding they raise, not direct home prices.

It is tempting to think Ukrainians deserve their fate- they knew whom they were choosing in Feb 2010 in a supposedly honest election, an Eastern Russian-leaning machine poll who had stolen the 2004 election (before it was reversed by the Orange Revolution), beholden to the industrial oligarchs and promising an era of unabashed kleptocracy. But the vicious feud between Yuschenko and Tymoshenko had so exhausted the populace that they wanted anyone else. The day Yanukovich was declared the official victor, 2 of 6 interviewees for a radio report, Tymoshenko supporters, had already suffered repercussions.

On the other hand, with a cheap modern reliable transportation, communication, utility, and food system, Ukraine was rated the best poor country in the world (under $3946/yr income: GNI per capita). Unlimited talking, SMS's, Internet on 3 different mobile phone networks costs only $6/month total; unlimited 10 Mb/s Internet- $6/month. The famous black earth is the most fertile on the planet- and could be the most productive. This is a country with spectacular potential- what's holding it back are the criminality of its rulers, the passivity of the people, and the sour fog of Soviet Slavic corruption that covers the landscape like a choking blanket. The hope, the prayer, the expectation... was that EU Association would finally blow that away and bring in some fresh air.

Even Eastern Russian-speakers wanted to join the EU, but time was almost gone anyway for Ukraine's hopes of joining the world's biggest trading block at $16 trillion- the EU mission returned to Brussels Nov 13 with a presumably bleak assessment, but the EU Foreign Affairs Committee postponed the Nov 18 vote whether to proceed with their offer at Vilnius and extended their rapporteurs' mission until Nov. 28th. Stefan Fule came to put a full-court press on the recalcitrant Ukrainians, and foreign policy ministers of Germany, Sweden, and Austria (where Yanukovich went Nov. 21) pleaded with him to release Yulia... all to no avail.

President Yanokovich's concerns are only short term- avoiding the economic devastation of a full scale Russian embargo that would endanger his reelection in 15 months, and enriching family and friends- when you jail your predecessor and greatest rival over nothing, losing power is not an option. The outrage over reneging on the AA, however, may be a greater threat. His Euro sympathies were always suspect- they didn't jibe with his origin, personality, and tendencies. In a letter from prison, Tymoshenko sagely warned that dumping the EU for Russia would condemn Mr Yanukovich "to live all your life according to its diktats".
Although the EU is concerned about Russian bullying and the prospects of another huge border state under their thumb, this whole eastern enlargement is being largely pushed by Poland and the Baltics. However, the EU leadership will change soon- delaying even a few months could be fatal. If this long-planned signing failed, Lithuania's President warned, "The pause in relations may take a very long period of time." There are many members more concerned with the economic health of current members, and worried about the influx of 15 mil immigrants from Ukraine. If 1/3 of Poland has permanently decamped to Europe because they can make double or triple the wages, what happens when Ukrainians can make 10-13 times more. Azarov blithely and blindly made coy suggestions that negotiations could continue in the Spring, and Yanukovich plans to attend the EU meeting he torpedoed, where "he will be welcomed" says EU reps.

It is likely that the 15 year torturous negotiation is over and Ukraine is now sealed in the neo-Soviet ghetto; it depends if they join the Customs Union or stay somewhat independent, but for backward, corrupt Ukraine - independence is no prize, either. Yanukovich called for trilateral talks with Europe and Russia, but Europe is exhausted and disgusted. Now little Moldova, poorest country in Europe, probably can't resist the Russian bear-hug either- their wine goes primarily to Russia (though their EU minister said, "There is no intention...of hesitation.") Putin was outrageously dishonest in victory: he said Moscow was "not opposed" to Ukraine signing the EU deal. "We are not against Ukraine's sovereign choice.", and incredibly accused the EU of "blackmail" in fomenting the demonstrations breaking out across Ukraine.

It is a tragedy for Ukraine, and a huge failure for the West, for yet another country to fall back into the pit of the slowly reconstituting Russian Empire, particularly one so cruelly treated over history.

*Yanukovich spent 3 1/2 years in 2 prison stretches for assault and robbery. One victim was beaten unconscious.
** Another Deutsche Welle poll Nov 18 has it 58% for eventual EU membership, 31% against; breaking at 51 years old: older, they are against it, younger, they are for it- diverging proportionally.


Michael Hammerschlag's articles ( have appeared in NYT, IHT, Seattle Times, Providence Journal, Columbia Journalism Review, Hawaii Advertiser, Capital Times, MediaChannel; Moscow News, Tribune, Times, and Guardian, Novaya Gazeta; Kyiv Post & Weekly, Politics in Ukraine, and Business Ukraine. He's spent 8 years over the last 22 in Russia & Ukraine.

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