Ben Aris in Moscow -
It should have been a great day in Ukraine's effort to transform itself into a modern liberal democracy in the EU mould. The freshly elected Ukrainian parliament held its first session on November 27, completing the process of political transition from the kleptocratic autocracy of Viktor Yanukovych to a transparent and democratically elected parliament filled with deputies chosen by the people. The session kicked off with a minute’s silence for those who died in the protests that ousted Yanukovych, followed by a rousing rendition of the national anthem and cries of "Glory to Ukraine! Glory to the heroes!" – the slogans of the Euromaidan protests.
The trouble is that the transformation seems to be incomplete. The opening session was marred by a crowd of demonstrators in Kyiv's Independence Square, or Maidan, that reassembled for the day to protest against the 64 deputies taking their places in the chamber that were also part of the corrupt Yanukovych administration.
Ukraine passed a lustration law that legally precludes anyone that served in the Yanukovych government from holding public office – and then promptly ignored it in several dozen cases, as the normal business of political horse trading and compromising principles took over as soon as the new leadership felt their power was secure.
“[The 64 deputies] voted for dictatorship laws on January 16,” one of the protesters told TASS, referring to a set of repressive laws introduced by Yankovych's proxy Party of Regions in January that restricted freedom of speech and the right to assemble that were drawn up as a pretext to forcefully clear the Maidan of its thousands of pro-EU protestors. If anything, the dictatorship laws, as they are known now, only inflamed the conflict and stiffened the resolve of the protestors to see their campaign through. The protestors have set up a “wall of shame” next to the Rada for anyone to leave messages to these deputies.
And this was no token protest. The new government felt sufficiently concerned that it ordered in nine armoured trucks and had 20 buses of police standing by – just in case, reported TASS.
So what is the problem? The West hailed the May election of Ukrainian President Petro Poroshenko and subsequent parliamentary elections on October 26 as the end of the country's transformation process. But for Ukrainians these two elections represented just the beginning.
bne IntelliNews ran a piece headlined "How the EU will lose Ukraine" on the day before the crucial Vilnius summit in November 2013, at which Yanukovych refused to sign off on the EU's free trade and association agreement that had taken seven years to negotiate, arguing Europe was simply not putting enough money on the table to see Ukraine through the transition. Ukraine is now teetering on the edge of total financial collapse, but the economic nightmare was entirely predictable. "It all comes down to money. Yanukovych is probably sincere when he says he sees Ukraine future as an integral part of Europe, but because he is facing an imminent economic meltdown, he needs money - and he needs it right now," bne IntelliNews wrote in November last year. "The trouble is the bulk of the EU's offer is shiny new ‘values’ and the promise of a brighter future, whereas Russia is offering cold, hard cash." The EU offered a paltry €1bn loan ahead of the Vilnius signing session, whereas the International Monetary Fund (IMF) and other donors have since had to come up with a $27bn bailout package for Ukraine.
The Ukrainian people find themselves in the same position: a lot of promises were made over the last year, but the fed-up protestors want to see the principles they fought and died for actually enacted. And they don’t entirely trust their new leaders. The Euromaidan protest was a popular movement, but the political leaders were not the driving force behind it.
Ukrainians are going to hold the government to account and are yet to be convinced the new cadre is any better than the old one. Poroshenko needs to smash the old oligarchic-client system of government, but the government has already shied away from jumping several fences on the course to an economic recovery. Several decisions made by the new government appear designed to benefit the old school oligarchs more than anyone else.
Even before the new parliament convened, the government had issued an order that limits foreign access to Ukraine's aviation market. Hungarian budget airline Wizzair has already threatened to pull out of Ukraine, saying the new regulations on the designation of Ukrainian carriers to international markets as the reason.
"The new regulations concern conditions that have to be satisfied by the air carriers operating in Ukraine. As an example, Section 2.2 states that the right to operate an international route from and to Ukraine requires that the Ukrainian citizens or the state control or own at least 50% of the airline. There are multiple qualifications to this rule and tons of technical details, but the bottom line is that the regulations are harmful to the competition in the Ukrainian airline industry and the passengers, and to the international reputation of the new government," Volodymyr Bilotkach, senior lecturer in economics at Newcastle University and a transport specialist, wrote in a blog.
What raises eyebrows is that the person who will gain most from these new rules is Ukrainian oligarch Ihor Kolomoisky, who was made governor of Dnipropetrovsk region earlier this year. The second richest man in the country, he is also a biggest player in Ukraine's aviation sector, controlling the Aerosvit, Dniprovia and Donbassaero airlines among other things. Previously, Kolomoisky was seen as close to former Ukrainian prime minister Yulia Tymoshenko and her protégé the current PM Arseniy Yatsenyuk (although the two have fallen out since).
A similar problem has surfaced in the telecommunications sector, where the intention is to offer a license for another 3G operator that would ensure competition and keep prices down.
The decision to hold a tender has already been taken, but the problem is the government is dragging its heels. Before the new parliament opened, the cabinet introduced a plan to increase the minimum cost of 3G mobile phone licenses to more than UAH3bn ($215m) and tighten the tendering process to make them more difficult to get. The person who stands to gain the most from any delay is Ukraine's richest man, Rinat Akhmetov, who is based in Donetsk and a big player in the mobile phone business.
"Yatsenyuk is personally blocking the signing of the tender documents [to sell 3G licenses] which we and the Cabinet are ready to do. The government is constantly coming up with new reasons not to sign off on the [tender] documents," says Tatyana Popov, chairwoman of Ukraine's Internet Association, reported the UNIAN press agency. "This is an oligarchic structure, which is lobbying for its interests, primarily financial."
The phone and plane scandals are the more obvious signs that the old system is at least still functioning, if not exactly flourishing as it did under Yanukovych. But further down the food chain there are many other examples that the new government is struggling to shrug off old habits.
A few weeks ago three regional prosecutors were sacked in Odessa under the lustration law, but amongst their replacements was Tatiana Viktorovnu Gornostaev, who is regarded as very young to hold such a senior position as one of the region's three top judicial jobs, having only graduated in 2005.
"She is, perhaps, indeed gifted in her chosen profession and no finer prosecutor could there be to fill the vacancy," wrote Nikolai Holmov in his widely read OdessaTalk blog. "Alternatively, and perish the thought, the 9-year career may very well have been ‘assisted’. Ms Gornostaev happens to be the daughter of the Deputy Prosecutor General of Ukraine - Viktor Shokin."
This is not an isolated case. "Poroshenko's own nepotism has led to numerous appointments of corrupt top-ranking officials, as alleged by [journalists and NGOs]," Zenon Zawadain, an analyst with Concorde Capital, wrote in a note ahead of the October elections. "Even Justice Minister Pavlo Petrenko, who led the bill's drafting, stands accused by investigative journalists of hatching a corrupt tender just this spring."
Holmov warns that even if the accusations of nepotism are wide of the mark, the government needs not only to be squeaky clean when it comes to making senior appointments, but also given the present situation it needs to be seen to be squeaky clean. "The political class in Kyiv need to tread very carefully with all new appointments. The ice upon which they skate is far thinner than it appears," warns Holmov, adding the lustration law could be easily be abused as a tool to sweep away the old guard but replace them with the same sort of insiders and snollygosters aligned with the new guard.
The government passed new anti-corruption laws on October 7 to tackle top-level government corruption, introduce income disclosures for officials and improve transparency, but the almost universal reaction to the new legislation seems to be: "Lets wait and see." The next big test will be whether the new government keeps to its promise of removing deputies’ immunity from prosecution.
Heavy political weather
The new government has had a mixed start. The IMF sent a team to inspect Ukraine at the end of November, but said that no new transfers of money are likely before the New Year. It took over a month to form a new coalition – time Ukraine doesn’t have to waste – because of infighting amongst the various factions. Poroshenko is said to be jockeying for power with Yatsenyuk and wants the constitution changed (for a third time) to transfer power back from the Rada to the president.
But there has also been some good news. The IMF visit clearly has had a positive impact, in that the national energy company Naftogaz announced domestic gas tariffs would be increased "radically" soon – a key IMF demand. Currently, the government heavily subsidizes gas used to heat homes, but prices need to be increased about four-fold to bring the price up to what the government pays for the Russian gas supplies.
Also snollygosters aside, the government has made some good appointments. The newly appointed head of mega-regulator State Fiscal Services, Igor Bilous, recently told bne that he will introduce sweeping tax reforms as soon as the new government is formed.
Investors were also cheered when Vladyslav Rashkovan was appointed acting deputy governor of the National Bank of Ukraine, who is widely seen as an able and energetic reformer. "Recently, he had been on the national bank council, and had been spearheading the banking restructuring process, and also administrative reform at the NBU. He comes from the private sector and is very switched on, and driven, and also a brilliant communicator," said Tim Ash, head of emerging markets research at Standard Bank, in a note to clients. "This move will be appreciated by the [international financial institutions] as it shows that the NBU leadership want to do this in the correct/transparent way."
Yet the government still has its work cut out to convince both the people and global institutions that it is serious about making deep, substantive changes. The only trouble is they don’t have the luxury of time to make this happen.
Graham Stack in Kyiv - Ukraine's largest lender PrivatBank has survived a stormy week of speculation over its future, but there are larger rocks ahead, with some market participants anticipating the ... more
Henry Kirby in London - Ukraine and Russia’s latest “Despair Index” scores suggest that the two struggling economies could finally be turning the corner, following nearly two years of steady ... more
bne IntelliNews - Erste Group Bank saw the continuing economic recovery across Central and Eastern Europe push its January-September financial results back into net profit of €764.2mn, the ... more