The Putinisation of Ukraine

By bne IntelliNews October 19, 2010

bne -

Here is the story: "The newly appointed president moves swiftly to concentrate power in the hands of the executive by rolling back democratic reforms and recentralising it. At the same time, the oligarchs, who have ruled the roost for the last few years by inserting themselves in almost every parliamentary office, are ousted from the corridors of power so mount a rearguard action, afraid of losing control of their empires. Some have already lost everything.

"The new administration takes some radical steps to put the economy back on its feet and the economy starts to show the first signs of life following the crisis of two years ago. The first issue it tackles is tax reform and a large-scale reform programme - that includes some of the most liberal reforms the country has ever seen - is promised for the following year. If the president can pull off half of what has been promised, the economy should boom."

This is the story of Ukrainian President Viktor Yanukovych's first six months in office. Thing is, it is also the same story of Vladimir Putin's first year as Russian president in 2000 - right down to the timings, the state of the economy inherited and even choosing tax as the first set-piece reform to tackle.

Of course, there are some differences. Yanukovych hasn't yet driven any of the oligarchs into exile and so far his power-grab is not quite so blatant as Putin's decision to eviscerate the upper house of parliament. The big hike in gas tariffs is also an aberration, which has already hurt his popularity badly. More importantly, Ukraine doesn't have much oil, which paid for Russia's 10% GDP growth in 2000 as prices recovered from the crash, though the country does have a steel industry, which will probably bring in enough money to pay for a more modest set of reforms. But still... to all intents and purposes, Yanukovych is attempting the "Putinisation" of Ukraine.

Two faced

Russia got a bad case of schizophrenia after Putin became president. There were two Putin's: the "Political Putin" (bad) who smothered civil society in its cot; and there was the "Economic Putin" (good) who orchestrated the start of a decade long boom.

Yanukovych is already looking like the same Dr Jekyll and Mr Hyde leader thanks to actually carrying out the gas tariff hikes at the IMF's insistence, but ramming through a return to the old 1996 constitution that returns all the real power in his own hands.

And the same thing is happening with the oligarchs. Putin famously called them all in for the "oligarch meeting" in July 2001 and told them: "keep what you've got, but no more stealing." Two corpses were figuratively thrown on the table at that meeting: Boris Berezovsky and Vladimir Gusinsky, who had both already fled into exile, never to return.

Likewise, Yanukovych has turned on Rinat Akhmetov, Ukraine's richest man, who is widely credited with providing the means to put him back into office. According to bne sources, Akhmetov has been cut off and while he remains in the Rada and the head of a strong parliamentary fraction, he no longer has access to Yanukovych, who is attempting to play off competing oligarchic interests and keep himself above the fray as kingmaker (something he would have learnt from Boris Yeltsin, not Putin).

The power of the oligarchs is probably the biggest difference between Russia circa 2000 and Ukraine today: in Russia, the oligarchs bought Duma deputies by financing their campaigns and paying big bribes; in Ukraine, the oligarchs are Rada deputies, so getting them out is going to be a lot tougher.

And Yanukovych might be headed for his first serious clash with an oligarch as soon as December. Although Akhmetov seems to be on the way out, the rules announced for the long-awaited privatisation of Ukrtelecom, the state-owned fixed-line monopoly, seem to be designed to exclude all the obvious bidders except Russia's Sistema and Akhmetov's System Capital Management. Is Yanukovych buying Akhmetov off with one last big bite at the apple, or (more likely) does Akhmetov still have enough clout to ensure the terms of the auction for the government's controlling stake favour his company? If the latter, then what is Yanukovych going to do about it, as a fixed auction will cost the budget billions of dollars in missed revenue?

Mixed blessing

Is "Putinasing" Ukraine a good thing? It depends on where you stand. For investors it is excellent news, as Putin delivered on 10-fold increases in nearly everything: incomes, size of the economy, stock market capitalisation, gross international reserves, growth rates. And let's face it: Ukraine could do with a bit of stability.

For the people and "democracy" it is clearly bad. Ukraine's advantage over Russia is that it starts with a reputation of actually being democratic, a point Russia has never reached, although Yanukovych himself probably starts off with a worse reputation than Putin did when he took over (simply because no one at first then who he was).

Imposing his control over politics is going to be a lot harder for Yanukovych, as Ukraine really is more democratic, in the sense that the Orange Revolution has radicalised the people, who actually care about politics in a way that Russians don't. Moreover, the Orange Revolution was actually fought against Yanukovych, who was prime minister under former president Leonid Kuchma at the time, which suggests that Yanukovych will never be allowed to go as far as Putin without quickly sparking popular protest. This is probably why the government announced in October a corruption case against the administration of former PM (and now opposition leader) Yulia Tymoshenko, as she is Yanukovych's biggest headache, rather than the oligarchs.

Indeed, while the plan maybe the same, the character of it will be very different. Investors say there are pluses and minuses to trying to "Putinise" Ukraine. The downside is that Yanukovych is not the subtle political player that Putin is. According to bne sources in Kyiv, the fear is that Yanukovych won't confine himself to manipulating courts to force uppity oligarchs into their places, but could choose to employ more direct methods, against the people too.

The upside is that Deputy PM Sergei Tigipko, who is in charge of the reform effort, is a lot more impressive than German Gref, the minister who oversaw Putin's reform programme. Unlike Gref, Tigipko is a real politician with his own 15%-strong voter base, who has both the political weight to push his ideas through and the clout to defend those same ideas against watering down by vested interests that surround the president. Tigipko has given a series of speeches recently where he promised to "do a Georgia" on the Ukrainian economy; if he achieves half of what is being promised, Ukraine will be rapidly transformed.

The contradictions are many, but maybe this is the ideal compromise. Putin's stability has brought many benefits to Russia, but his overweening control of everything is now starting to cause problems. Maybe Yanukovych's limit on power will create space for people like Tigipko to make a real difference, and the need to listen to other people as part of the power balancing exercise will end up leading to a real debate that could produce real results.

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