Democratic Accountability in Ukraine #2

June 8, 2010
Report No. 2

The American Institute in Ukraine continues its analytical series reviewing the Yanukovich Administration’s performance measured against promises made during the election campaign. We have selected three areas for review and grading:

  • III - Foreign policy
  • III - Economy
  • III - Social initiatives

Specific categories within these three areas are examined as circumstances warrant.

NoMain points (brief description)Status of fulfillment /evaluation
IFOREIGN POLICY 
1.1Ukraine’s Nonaligned status

Grade: 5

In a comprehensive foreign policy bill, President Yanukovich outlined a “non-bloc policy, which means not participating in military-political alliances.” This effectively abandons the nation’s efforts to join NATO - a prospect that had been wavering in recent weeks, but is now finally closed. In our last report card, we suggested the best way for the President to uphold his campaign promise was to codify Kiev’s non-aligned status in law. This he has now done.

1.2 Relations with Russia

Grade: 5

Russian President Dmitry Medvedev’s first official visit to Ukraine since the new Yanukovich Administration assumed power proved fruitful in efforts to bring the two neighbors closer together. Along with a gas subsidy/Russian Black Sea Fleet agreement, the leaders signed accords on border demarcation and satellite navigation, and noted that “more economic agreements, including in the nuclear and energy industries, were in the pipeline.”

1.3Strategic partnership with USA, EU, G20 states

Grade: 4

President Yanukovich’s new foreign policy bill rejecting military alliances identifies EU membership as a key goal of his administration (however unlikely it is to be realized in the foreseeable future.) Kiev has also made it clear that its rejection of NATO membership does not mean it will not engage in joint military exercises with NATO. Thus, Ukraine appears to be moving towards implementation of a multi-vector foreign policy.

IIECONOMICS 
2.1Finances and investments

Grade: 4

On the heels of a Russian gas subsidy agreement, the Standard & Poor’s raised Ukraine’s credit ratings from a B-/C to a B/B, and raised its local currency rating from a B/B to a B+/B. It is thought that the ratings jumps were largely due to increased cooperation with Russia, and will likely continue to improve provided the country remains politically stable. A positive adjustment in any country’s S&P rating is highly notable given the downward trends elsewhere.

Among the factors leading to S&P upgrade: Export-led economic growth surged to 5% of GDP on the quarter, revenues have increased 19% on the year, and tax collection are up 36% in the period. Meanwhile, the government’s budget forecasts a deficit amounting to 5.3% of GDP. This is within the IMF’s 6% maximum criterion for further lending. These are positive developments. Nevertheless, there is evidence the IMF looks skeptically at the government’s deficit forecast. Many analysts feel it is unrealistic and may come in at upwards of 10% of GDP. In order to meet IMF criteria, President Yanukovich may have to reconsider campaign promises on domestic gas tariffs and pensions. The IMF would like to see the tariffs increase and the retirement age for particular groups raised—measures Yanukovich opposed on the campaign trail. As the aim of this report card is to monitor compliance with campaign promises, and not assesses the wisdom of those promises, we cannot give the President low marks for adhering to policies he promised to implement as a candidate. Nevertheless, candidate Yanukovich did promise an economic resurgence, and any policies that impede that goal must be taken into account; we will be watching his performance in this area closely.

2.2Stimulation of small and medium-size enterprises

Grade: 4

In May, Vice Premier Sergiy Tigipko, declared that a system of automatic VAT (value added tax) refund will be introduced starting in August of this year. Said Tigipko: “Settlement of question on restructurings of old debts was a little bit dragged out, but this decree will be issued in the nearest future. It will be helpful to our exporters in the first place.” Tigipko says that Mykola Azarov, prime minister of Ukraine, has already stipulated transition to automatic VAT refund in August. While final implementation of this initiative will merit a “5” from AIU, for now we give it a “4” pending completion of an initiative that will be very helpful to all enterprises in Ukraine.

IIISOCIAL INITIATIVES 
3.1 Languages

Grade: 4

In fulfillment of the Council of Europe’s Charter for Regional or Minority languages, and in furtherance of his campaign promise to protect Russian language rights, President Yanukovich voiced support for a new languages bill introduced in the Rada. He said “after [the bill] has been adopted, the Russian language, which is the native language of many Ukrainian citizens, will take its proper place in the life of our society.” There are hopes the bill will be passed before the end of the current parliamentary session. However, this still falls short of elevating Russian to a second official language on a par with Ukrainian, which Mr. Yanukovich promised during the campaign. AIU has endorsed Russia’s elevation to official status, based on the experience of democratic bi-lingual countries such as Canada, Finland, Belgium, and many others. Until Mr. Yanukovich has delivered on that promise, a “5” will not be awarded on this point.

3.2 Family Support

Grade: Incomplete

(see NOTE below).

3.3 Affordable Housing

Grade: Incomplete

(see NOTE below).

3.4 State Pension

Grade: Incomplete

(see NOTE below).

NOTE on Social Initiatives 3.2 “Family Support,” 3.3 “Affordable Housing,” and 3.4 “State Pension”: In our previous report card, AIU noted that the Administration had not yet acted on important campaign promises in the areas of family support, affordable housing, and reform of state pensions. As the Administration was still young, we gave a grade of “incomplete” in these areas. However, if we do not see evidence of action in the near future, we will have to consider giving failing grades. Arguably, Ukraine’s greatest long-term problem is declining demographics. The administration must give priority to effective policies in support of families and to progress towards Mr. Yanukovich’s pledge of 50 million Ukrainians.