KYIV BLOG: Ukraine's European dream is dying

KYIV BLOG: Ukraine's European dream is dying
New resignation brings Ukraine reform hopes down to earth.
By Ben Aris in Moscow February 3, 2016

Another sign that Ukraine’s dream of becoming a normal European country is steadily dying came on February 3, when Ukrainian Economy Minister Aivaras Abromavicius quit his job in dramatic fashion. At a press conference, he lashed out at the administration of President Petro Poroshenko, saying he and his team would not serve “as cover for blatant corruption or as puppets for those who want old-style government control of public money flows”.

Added the minister: “I do not want to go to Davos to tell them about our successes, while behind our backs some issues are being resolved in the interests of individuals”.

I have known Abromavicius for about a decade and he was the real McCoy. A former fund manager at East Capital, Abromavicius was cut from the progressive liberal economic cloth found in the Baltics and would have been called a “young reformer” if he was working in Yeltsin’s government in the 1990s.

Together with US-born Finance Minister Natalie Jaresko, who was a former CEO  of Horizon Capital, Abromavicius was one of only a handful of “true” reformers in the Ukrainain government trying to remake a country that he loved into the place its people – who have thrown out blatantly corrupt governments not once, but twice in the last decade – deserved.

He gave up everything for this job. A true patriot in an adopted land, he is married to a Ukrainian and has been based in the country for years. As well as taking Ukrainian citizenship, he sold his shares in East Capital in the midst of a crisis that must have cost him dearly. He has spent years managing and advising companies in his portfolio to make them profitable and successful – including setting up a Ukrainian-dedicated private equity fund in wake of the Orange Revolution to capitalise and fund the promised transformation. He threw himself into the job of building the “Western-oriented” Ukraine that had been promised by the elites.

And he was making it happen. In an exclusive interview with bne IntelliNews last year before the annual European Bank for Reconstruction and Development (EBRD) meeting in Tbilisi, he told me that the going was hard, but he was making progress. In one of his first battles he went head to head with uber-oligarch Ihor Kolomoisky, who had captured the auctions to sell the state’s modest domestic oil production and was suspected of creaming off over $100mn a year by fixing the prices. Abromavicius won this fight by appointing himself head of the committee that determined who ran the auctions, but it took him six months to achieve.

Stable job

His next task was little short of cleaning the Augean stables: privatising over 1,000 state-owned assets, some of them potentially very valuable, in order to transform the economy. ”I believe a state with weak institutions, like Ukraine, is a bad owner of the assets. We can only make our economy more successful and dynamic by selling the assets to preferably Western investors, who will make them more dynamic and transparent,” Abromavicius said.

Last March he was still full of optimism as the glow of the Euromaidan revolution was still warm. “Finally, we have a critical mass of people that want to change the country in the government, in the parliament, in the presidential administration and on the streets, to ensure Ukraine finds the right path,” he said at the time.

But Euromaidan’s hopes have gone cold. The oligarchs and vested interests that stuff the halls of the Rada have quietly been reasserting themselves and attempting to grab back some of what they lost after the ousting of former president Viktor Yanukovych. Senior government figures are more intent on grabbing control of lucrative pieces of the Ukrainian economy than they are trying to remake the country in a European image. ”These people have names. And one of these names I will now announce: Ihor Kononenko,” Abromavicius told journalists at his press conference, referring to the first deputy chairman of the president’s parliamentary faction, the Petro Poroshenko Bloc.

In damning accusations, Abromavicius went on to claim that Kononenko was routinely lobbying for the appointments of stooges for the president and his inner circle at the head of key state-owned enterprises, rather than letting the minister get on with the business of restructuring them and getting them ready for sale – something Abromavicius with his fund manager background is eminently qualified to do. Finally, the presidential office tried to force a new deputy on Abromavicius, one of Kononenko’s people, at which point he quit.

Ukraine’s same old

What have the people got for their protests, change that they paid for in blood? They have got the same old corrupt government they have always had, according to Abromavicius. “As a representative of the political party that nominated me as minister, in recent years he has done a lot to block my work and the work of the ministry,” Abromavicius said about Kononenko at his press conference.

Ukraine is failing. The International Monetary Fund (IMF) has now put the government on notice since the passage of the new budget and will only pay out tranches of loans this year against proof of the implementation of reforms. That is not the programme of aid for a willing reformer like the Baltic republics in the 1990s.

Abromavicius’ claims mean it is now possible to reframe the Ukrainian story not as the inspiring tale of the underdog that shook off the oppression of a corrupt and aggressive Russia, but as the very same story that Russia and all the countries of Eastern Europe represent: a corrupt oligopoly where the top tycoons battle one another to steal the most and the president gets the biggest piece of the pie.

The Berlin-based corruption watchdog Transparency International just released its annual Corruption Perceptions Index and found that Ukraine only improved its score by 1 point to 27, leaving its ranking at 130 out of 168 countries in the world. That makes it the most corrupt country in Europe.

Russia, by comparison, made a shade more progress with Putin’s “de-offshorisation” battle against official corruption and money laundering, improving its score by 2 points to 29 and is now ranked at 119 ahead of everyone else in the former Soviet Union bar Belarus and the Baltic states – and 11 places ahead of Ukraine. 

At the end of last year, bne IntelliNews ran the story “Twilight of Ukraine’s oligarchs”, which concluded that all of the country’s oligarchs were in retreat and had lost money – all except Poroshenko that is. The president was the only Ukrainian oligarch to see his wealth increase and is now said to be worth close to  $1bn. He recently placed his Roshen chocolate company in trust rather than sell it as he promised to do, and kept hold of his TV5 television station. In fact, his business empire remains almost completely intact. Moreover, according to Abromavicius’ claims, Poroshenko is now actively trying to install people from his “team” into the top slots of Ukraine’s top state-owned companies, while attacking the empires of his fellow oligarchs – Kolomoisky first and foremost, the second most powerful oligarch in the country.

It is still possible to argue this is all being done for political reasons, not business, in order to consolidate the state’s authority after it had been subverted for years. But coupled with the government’s failure to undertake meaningful reform, that argument is wearing thin. Indeed, the facts better fit the oligopoly story than the “country inspired to change” narrative of the last two years.

All the reforms to transform Ukraine into a normal European country and adopt Western values (apart from those sponsored by Abromavicius and Jaresko) have been forced on the government by external pressure, Ivan Miklos, a former Slovak finance minister and an advisor to Jaresko, claimed in a scathing critique of the national leadership’s failure to fulfil the promise of reform, in a paper released in December entitled, “How (not) to reform Ukraine”.

memo of the Carnegie Endowment’s Ukraine reform monitor team reached a similar if flannelled conclusion in December: “The outcome of the reform process remains uncertain, and a broad consensus on key issues could prove elusive.” In other words, it’s still not working.

As bne IntelliNews argued a few weeks later, Ukraine needs to stop the rhetoric and “do a Romania” instead: Romania’s economy is doing reasonably well, but it has transformed its investment climate after appointing a real and effective National Anticorruption Directorate (DNA) that even accused a sitting prime minister and other top politicians of malfeasance. Romania used to have a reputation as one of the most corrupt countries in Europe, but not any more. Ukraine has now taken over that dubious title.