Europe

Four Uncomfortable Truths About Ukraine


Prime Minister of Ukraine Arseniy Yatsenyuk (R) and ministers attend the cabinet meetings in Kiev on March 16

Photograph by Yury Kirnichny/AFP via Getty Images

Prime Minister of Ukraine Arseniy Yatsenyuk (R) and ministers attend the cabinet meetings in Kiev on March 16

As Russia tightens its grip on Crimea, the European Union and the U.S. are poised to hand over billions in aid to Ukraine’s new leadership.

The interim government in Kiev, led by Prime Minister Arseniy Yatsenyuk and acting President Oleksandr Turchynov, has promised, in Yatsenyuk’s words, to pursue “real reforms to stabilize the Ukrainian economy” while strengthening ties with the country’s European neighbors.

Will they deliver? Here are four unpleasant truths about Ukraine and the people now running it.

1. Many of the new leaders helped shape policies that turned Ukraine into an economic basket case.
Yatsenyuk, Turchynov, Finance Minister Oleksandr Shlapak, and others in the interim government served in key roles under former President Viktor Yushchenko and former Prime Minister Yulia Tymoshenko. Their post-Orange Revolution regime prolonged the country’s disastrous track record on economic management.

Like their post-Soviet predecessors, they failed to curb rampant corruption and tackle economic inefficiency, while propping up the hryvnia currency and doling out crowd-pleasing increases in social spending, leaving the state with massive budgetary and trade deficits. Ukraine, a country of 45 million people with rich agricultural land and a large industrial base, is now Eastern Europe’s poorest country, apart from tiny Moldova.

2. Ukraine has squandered a staggering amount of foreign aid.
The EU has provided Ukraine with €13.8 billion ($19.1 billion) in grants and loans since 1991. Aid from the International Monetary Fund, and from individual governments that include the U.S., pushes the total well over $30 billion. On top of that, Ukraine has received massive aid from Russia in the form of discounted natural gas—a subsidy totaling $200 billion to $300 billion since 1991, says Emily Holland, a specialist on energy policy in the region who is a visiting fellow at the European Council on Foreign Relations in Berlin. Add it all up, and Ukraine has gotten far more aid than any country in the former Soviet Union, she says. And where has it gone? “Into the pockets of an incredibly corrupt political elite and oligarchs,” says Holland. The EU and IMF say that any new assistance will be conditioned on strict adherence to a reform program. But a previous IMF bailout was derailed after Ukraine failed to follow through with reforms. As for the oligarchs? The new regime has appointed some of them to key regional government posts in eastern Ukraine.

3. The new government is a fragile coalition that includes some pretty scary elements.
When Vladimir Putin says there are far-right extremists running Ukraine, he isn’t completely wrong. It’s true that Tymoshenko’s Fatherland party, the mainstream opposition to former President Viktor Yanukovych, is the largest single bloc in the new government. But politicians from Svoboda, an ultra-nationalist party with ugly neofascist tendencies, also got important jobs, including deputy prime minister and chief of national security. Some other, smaller parties are even more extreme. Even if they tone down their rhetoric, Svoboda and its allies are strongly populist and are likely to bail out of the coalition if it inflicts economic sacrifices demanded by Western donors, says analyst Lilit Gevorgyan of IHS (IHS) in London. Public unhappiness with painful reform measures could spark social unrest, which could even lead some parts of eastern Ukraine to seek union with Russia, Gevorgyan says. “The Russians can just sit on the side and watch as it unravels,” she says.

4. Ukraine needs Russia.
Even as it seeks closer ties with Europe, Ukraine can’t afford to turn its back on its huge eastern neighbor. For starters, it gets more than half its natural gas from Russia. The EU couldn’t help much if Moscow turned off the tap—though it’s unlikely to do so, since Russia ships gas to Western Europe via Ukrainian pipelines. Nor can the EU suddenly absorb the $15 billion in iron, steel, grain, and other products that Ukraine annually sells Russia, its biggest trade partner. And for all the anti-Moscow rhetoric heard during the recent protests, the two countries have deep historical and cultural ties. Some 8.3 million Ukrainians, almost one-fifth of the population, described themselves in the country’s last census as ethnic Russians, while some 1.9 million of Russia’s citizens say they are ethnic Ukrainian.

Ukrainians, in their conflict with Russia, “are almost universally seen as the good guys,” Bloomberg News commentator Leonid Bershidsky writes.

In the West as well as in Russia, black-and-white depictions of the conflict make it harder to resolve, he says. “Putin is now fighting a public relations war against the entire West, and Ukrainians are developing a siege mentality that undermines democratic governance and fills media with as much virulent propaganda and disinformation as Kremlin-controlled Russian TV carries.”

Matlack is a Paris correspondent for Bloomberg Businessweek.

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