Ukraine

Austria’s refusal to extradite Dmitry Firtash to the US is confirmation that Europe holds two contradictory positions on corruption. While the European Union urges Ukraine to fight corruption, some of its member states – such as Latvia, Cyprus (still the largest ‘foreign investor’ into Ukraine), the UK, Austria, France, Monaco and Switzerland, along with Caribbean offshore zones such as the Virgin Islands – continue to enjoy the fruits of corrupt proceeds that are laundered abroad.

Firtash, a Ukrainian gas mogul and former partner of Gazprom, had been charged in the US with involvement in an international racketeering conspiracy that allegedly paid $18.5m in bribes to government officials in India in exchange for permits to mine titanium for export to Boeing in Chicago. Read more

By Taras Kuzio of the University of Alberta

This week, St Petersburg hosted a bizarre gathering organized by the Rodina (Motherland) party of 150 European fascist and nationalist-populist political parties united in their opposition to the EU and US and in support of Russia’s annexation of Crimea and invasion of eastern Ukraine. Rodina is the loyal nationalist ally of President Vladimir Putin’s United Russia party and consequently plays a similar role to the Radical Party’s alliance with the Serbian Socialist party. Read more

By David Clark of the Russia Foundation

Natalie Jaresko, Ukraine’s finance minister, is in London this week to drum up support for her country’s ailing economy. It is badly needed. The physical destruction of property, the loss of production and the disruption to trade and finance caused by Russia’s military intervention mean that Ukraine has lost around a fifth of its economy in the last year. Forecasts that it will contract by a further 5.5 per cent this year are widely seen as optimistic. With the value of the hryvnia down by 70 per cent, inflation at around 35 per cent and foreign currency reserves running low, the IMF’s recently agreed $17.5bn support package already looks like a sticking plaster solution for an economy that needs a blood transfusion. Read more

It would be hard to put it another way. Volodymyr Lavrenchuk, chairman of the board at Raiffeisen Bank Aval, the biggest foreign lender in Ukraine, describes the situation on the market there as “very complicated”.

With Ukraine in economic and political crisis, with Crimea annexed by Russia and a pro-Russian rebellion in the Donbas, state and corporate finances have been badly hit with predictable effects on the country’s banks. “What we are seeing is a set of dramatic events that is hard to encounter anywhere else,” Lavrenchuk tells beyondbrics. Read more

By Matthew Duhan, Global Counsel

Despite the economic and currency crisis engulfing Ukraine, by 7 o’clock in the evening the National Bank of Ukraine (NBU) is virtually empty. But as the majority of its 12,000 employees head home, lights remain on in a few offices and footsteps echo through dark hallways as a small group of reform-minded individuals arrive for their unofficial night shift. To paraphrase the old line about the Indian economy, at the National Bank of Ukraine reform happens in the night while the government sleeps. Read more

So, how would you go about bailing out a war-zone? The IMF’s rescue plan for Ukraine, agreed by the fund’s executive board last week, has to grapple with an extraordinary combination of problems. On top of the usual party pack of issues endured by IMF borrowers – a collapsing currency, a large debt burden, a corrupt and sclerotic economy – Ukraine faces the unusual challenge of a belligerent nuclear-armed neighbour fomenting a civil war.

In this context, the critical question of whether to restructure private sector debt becomes an unusual one. The IMF made obvious mistakes in previous crisis countries such as Argentina and Greece, where debt restructurings were delayed until the situation had gone critical. This experience suggests a rapid early reduction in net present value, including a cut in face value if necessary, to tip debt dynamics towards stability. But where there is a large and completely uncontrollable risk that might instantly change the situation, there is a strong case for giving Ukraine medium-term breathing space rather than a once-and-for-all write-off. Read more

By Andrew Foxall of The Henry Jackson Society

Unwilling to go to war with Russia, the west’s main levers for persuading Vladimir Putin to back down over Ukraine are economic sanctions. Their importance was underscored last week, when the US announced new measures against 14 individuals and two entities. While the attention-grabbing name on the US list was Aleksandr Dugin, the academic-turned-policymaker whose musings on ‘Eurasianism’ has led some to refer to him as “Putin’s Brain”, another entity was the little-known Russian National Commercial Bank (RNCB). Read more

By Simon Saradzhyan

To hear Vladimir Putin say it, Russia is not at war with Ukraine. “I think that this apocalyptic scenario is highly unlikely, and I hope it never comes to that,” Putin said when asked on Russia’s Defender of the Fatherland Day whether his fellow citizens may “wake up one day to learn we are at war” with Ukraine. It can be inferred that the commander-in-chief of the Russian armed force believes (or wants us to believe) that there will be no war between Russia and Ukraine for as long as Moscow refuses to admit to its involvement in the conflict. But is there such a thing as a declared war any more? And how should other European nations respond if they become the target of an undeclared war? What can be done to prevent repetition of the Ukraine scenario elsewhere in Europe?

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Ukraine’s billionaires are losing their cash, especially those with significant assets in the Donbas, an area that has become a battlefield between pro-Russian rebels and units loyal to Kiev. According to Forbes’ 2015 billionaires list, Rinat Akhmetov, Ukraine’s richest man, has lost as much as $5.8bn over the past year.

The mining, steel-making, energy and heavy engineering units of Akhmetov’s SCM Group have been forced to halt operations or reduce their capacity in territories controlled by separatists or near the front line. The Group’s media, telecommunications and banking businesses are also feeling the effects of the rebellion. Read more

By Taras Kuzio of the University of Alberta

One of the most challenging tasks faced by journalists writing on international affairs is to compare and contrast language used by neo-Soviet authoritarians and western diplomats with reality on the ground.

Foremost is the Orwellian doublespeak habitually used by neo-Soviet leaders such as Russia’s Present Vladimir Putin and Ukraine’s ex-President Viktor Yanukovych. Testifying before the US Senate’s Foreign Relations Committee, for example, Secretary of State John Kerry said Russian officials had repeatedly lied to him and other western leaders over their country’s intervention in eastern Ukraine. Read more

By Vitalii Kravchuk, Institute for Economic Research and Policy Consulting

Mat O’Brien’s recent contribution to the Washington Post’s Wonkblog on hyperinflation in Ukraine has had a huge impact. Drawing on work by Johns Hopkins professor Steve Hanke, O’Brien argues that, although the official rate of inflation from the Ukrainian State Committee on Statistics (Ukrstat) is 28.5 per cent, in reality it is more like 272 per cent.

Hanke is famous for his research on Zimbabwean hyperinflation, where the government was unable to calculate inflation and an alternative method had to be used. The main argument of Hanke’s article and of O’Brien’s blog post is that when a country’s currency collapses, it pushes up the prices of imports, which spill over to other prices. In this situation, Hanke argues, the true inflation rate can be calculated using “a rather straightforward application of a standard, time-tested economic theory” in the form of purchasing power parity, based on the free-market exchange rate (often the black market rate). This formula has been bluntly used in the case of Ukraine. Read more

By David Clark of the Russia Foundation

For all the attention given to the fighting in Donetsk and Luhansk, it is clear that Ukraine cannot solve its problems by military means alone. If there is a route to national salvation it lies in the field of domestic reform and the quest to find a new model of internal development. It is only by emulating the achievement of neighbouring Poland and becoming a well-governed country with a strong, dynamic economy that Ukraine can hope to escape from its current predicament. As a ‘Slavic tiger’ it could provide a source of attraction strong enough to regain eventual control over the territories it has lost and perhaps even become a catalyst for change in Russia itself. Stuck in a post-Soviet rut of dysfunctional institutions and economic stagnation, it will remain weak and vulnerable to Putin’s policy of divide and rule. Read more

By Timothy Ash of Standard Bank

The crisis in Ukraine shows no sign of abating any time soon.

Minsk I and II have failed to bring a real ceasefire or to provide a basis for negotiations over a lasting settlement. Indeed, Minsk II appears likely to follow the script from Minsk I, bringing only a temporary lull in fighting, as the two sides tactically re-position on the ground and in the international diplomatic scene before recommitting to the battle to ensure delivery on their longer term strategic objectives. Read more

By Taras Kuzio of the University of Alberta

Victory over Ukrainian forces at Debaltseve last week was the best present that Vladimir Putin, Russia’s president, could have hoped for on the first anniversary of the Euromaidan – a victory won with the increasingly open involvement of Russian military forces.

As European leaders marched with Ukrainian President Petro Poroshenko in Kiev, a terrorist attack on another march of dignity in Kharkiv killed two and wounded many more. Ukraine’s security service foiled further bomb attacks in Kharkiv and Odessa.

Why did it happen? Read more

By Alex Clackson, Global Political Insight

The peace agreement signed in Minsk, Belarus, last week regarding eastern Ukraine is undoubtedly welcome. Though fragile, the ceasefire provides some longed-for relief for the population of Donbass. A moment of relative tranquility on its territory is certainly something Ukraine needed desperately for two main reasons. The conflict was a huge drain on the Ukrainian economy. The currency is collapsing and inflation is growing rapidly. Secondly, President Petro Poroshenko’s popularity is diminishing.

According to a survey conducted by Kiev-based R&B Group, Poroshenko’s approval rating has fallen below 50 per cent for the first time. But despite the ceasefire, the Ukrainian leader will be left less satisfied with the final agreement than his Russian counterpart, President Vladimir Putin. Read more

By Dalibor Rohac of the Cato Institute

Are things finally turning around for Ukraine? In the space of a few hours on Thursday, a cease-fire with the Kremlin-sponsored separatists was agreed in Minsk, and the International Monetary Fund (IMF) pledged $17.5bn in financial assistance to the government as part of a package from various donors totalling $40bn.

The events on Kiev’s Maidan last year opened a window of opportunity to stop the economic, social and human devastation of Ukraine by its own political elites. The popular will to stop corruption and fix the country’s political and economic institutions was palpable. Two successive governments of Prime Minister Arseniy Yatsenyuk have included a number of promising reformists, raising hopes that this time might be different. Read more

By Taras Kuzio of the University of Alberta

European leaders desperate to avoid going down an Iranian-style route of economic and financial sanctions and to dissuade the US from sending weapons signed a second agreement to end the fighting in Ukraine on Thursday in the Belarus capital, Minsk. But it will be as unworkable as the first Minsk agreement signed in September 2014. The new agreement has weaknesses similar to those of its predecessor and will unravel in the next few months. Read more

By Simon Quijano-Evans of Commerzbank

Today’s surprise visit by President François Hollande and Chancellor Angela Merkel to Moscow must be seen as the final attempt to find peace in Ukraine. This can only be brought about through: 1) full coordination between the EU and Russia at all levels, with clear pledges from the Ukrainian government and separatist forces to do the same and 2) the presence of a meaningful international peacekeeping force to secure the agreed-on buffer zone in eastern Ukraine. Indeed, as we hear from the US debate on providing arms to Ukraine, the alternative to peace would be full escalation and definitely not a “frozen” conflict, given that Russia’s military doctrine sees Nato as one of the main threats to national security. Read more

By Taras Kuzio of the University of Alberta

Russia, despite its repeated denials, is sending large quantities of military equipment to the Donbas region of eastern Ukraine along with 9,000 of its troops. Movement of Russian forces, including the Pantsir-S1 missile system, are being tracked by think tanks and western intelligence agencies. Only Russian professional (not conscript) troops and intelligence officers can operate highly sophisticated Russian military equipment – not irregular separatist forces. Read more

Fighting between pro-Russian separatists and Kiev’s military units in south-eastern Ukraine has inflicted a painful blow upon Ukraine’s steel industry, which contributed about 15 per cent of economic output in the pre-crisis period.

Many factories in the Donbas, the industrial heartland of the country, have been closed or have been running with diminished production capacity. China’s aggressive export policy and Russia’s measures to defend its steel producers have exacerbated the disappointment for Ukraine’s steelmakers. Read more