Key Issues Facing Ukraine in 2011

March 9, 2011

Introduction

Here follows an analysis of five important issues facing Ukraine as the Yanukovich administration embarks on its second year in office:

1) Ukraine’s economic reform agenda and agriculture’s transformative potential;

2) Ukraine and the challenge of Islamic activism in Crimea;

3) Safeguarding Ukraine’s national interest in Moldova and Pridnestrovie;

4) Achieving a “national accord” on the use of Russian and Ukrainian in Ukraine;

5) Ukraine’s interest in avoiding “entangling” military alliances.

There are a host of other issues facing Ukraine that, arguably, surpass these in immediate importance. These would include relations with Russia, the state of Ukrainian democracy, the status of efforts to root out, or, at least, drastically curtail, corruption, the politics of energy transit across Ukraine (and under the Black Sea), and Ukraine’s demographic crisis, among others.

AIU has treated these issues recently, or will in the near future.

In this paper we have sought to throw a spotlight on issues that are sometimes overlooked or improperly understood and yet which are vital to Ukraine’s national interests.

I The Ukrainian Economy: The Transformative Potential of Agriculture

In 2010, Ukraine achieved positive growth (4.5%), following a horrendous contraction of 15% in 2009. This occurred by means of a revival in the export sectors (metal products and cereals) whose collapse in 2008-9 gave rise to the 2009 contraction.

While Ukraine’s (modest) economic expansion is good news, it remains far off the pace of pre-crisis GDP growth and is largely due to statistical base effects. The country will remain vulnerable to external economic shocks unless and until the government pushes through reforms aimed at fiscal stabilization, diversifying the economy, and attracting more direct foreign investment.

In 2010, the government launched an ambitious series of reforms. In addition, the International Monetary Fund, which resumed lending in July of that year, mandated a reform program of its own. The reforms undertaken to date emphasize fiscal stabilization as the first step on the path to the nation’s economic transformation.

Cooperation between Ukraine and the IMF hit something of a speed bump in February 2011, when the parties failed to reach agreement on disbursement of the third “tranche” during an IMF “review mission” to Kiev.

The IMF are concerned to see progress towards meaningful pension reform by this March and to find fiscal-offsets for the government’s slower-than-expected phasing in of higher tariffs on domestic gas use.

In view of the importance of IMF lending to the government’s ability to borrow in international capital markets at reasonable rates, and in view of the absence of pressing electoral concerns, it is believed the government will meet the IMF’s requirements for release of the third “tranche.”

Nevertheless, Kiev is keenly aware of the potential political costs of meeting the IMF’s requirement that the fiscal deficit not exceed 3.5% of GDP. It remains to be seen how the willing the government will be to enact tough reforms when the political price begins to mount.

2. Forecast

The IMF and World Bank forecast continued moderate expansion of the Ukrainian economy in 2011 (3.5-4%) and 2012 (5%) with inflation of around 12%. Look for strong growth in the metallurgy sector as building projects ramp up for the UEFA 2012 soccer tournament being hosted by Ukraine and Poland, and as recovery gathers force in foreign export markets.

But the larger question for Ukraine remains its success in putting the economy on an entirely new footing so as to eliminate or at least reduce its vulnerability to external shocks. The reforms implemented thus far have had the vital but limited aim of fiscal stabilization.

Once that is achieved, the government must focus on improving the business climate and raising investor confidence. This will mean moving against corruption, which will entail taking on powerful, entrenched interests. It remains to be seen if the government has the stamina to stay the reform course.

3. How AIU Sees It

Fredrik Erixon, Director of the Brussels-based European Center for International Political Economy, has called Viktor Yanukovich's economic reforms "transformational," and says he "may soon become Europe's star economic liberalizer." That remains to be seen. The government retreated on its tax code legislation last December in the face of large-scale demonstrations.

Moreover, during the presidential campaign of 2010, Yanukovich took a populist line against pension reform and higher tariffs on heating oil for home use-making it hard to see Yanukovich as a committed economic liberal. Although he has taken a quasi-liberal path as president, one could well imagine his administration backtracking on reforms in the event they proved politically costly.

In any case, as noted above, the reforms put in place to date are aimed mainly at fiscal stability. They will not prove "transformational" (to use Mr. Erixon's word) in themselves. If it is transformation Kiev seeks (and it should) it is, in our view, to be found in the matter of agricultural land reform.

The world is experiencing a spike in agricultural commodity prices, which many experts predict will become a long-term trend owing to population growth, declining acreage under cultivation worldwide, and the changing dietary requirements of Asia's burgeoning middle class, among other factors. Ukraine, meanwhile, possesses 25% of the world's black earth (much of it underutilized), giving it the potential to emerge as the Saudi Arabia of farm produce.

Mr. James Morton, founder and Director of CIM Investment, London, said recently that if Ukraine were to get agricultural land use and ownership laws right, "Ukraine's GDP per capita would double in short order."

Now that would be a "transformational" development. The key to Ukraine achieving this result is passage of a law reforming ownership of agricultural land. Ideally, provision would be made long term leasing of farm lands so that foreign and domestic investors would have an incentive to plough money into the building of grain elevators, new systems of irrigation, and the like. Barring significant reform in this area, Ukraine will miss the boat. Agricultural land reform must be at the top of the government's priority list.

II Islamic Activism in Crimea

1. Background

The history of Crimea, and specifically of the Crimean Tatars, is long and complex, lending itself to misrepresentation for political reasons. In the west, the mass Soviet deportation of the Crimean Tatars for alleged collaboration with the German invaders is held up not only as an example of indiscriminate communist repression but as part of a continuous persecution of “the indigenous people of Crimea” ever since the region’s annexation to the Russian Empire in 1783.

This one-sided propagandistic view fails to take into account that Orthodox Slavs were the majority of Crimea’s indigenous population even under the Crimean Khanate, when they were dhimmi (зимми) subjects of their Islamic masters. Under the Khanate, Crimea was a major slave-trading center, with the so-called “harvest of the steppe”—large numbers of Ukrainians, Russians, Poles, and other Christians seized by Tatar raiding parties, and shipped out from Fedosiya (Kefe) and other Crimean ports to the rest of the Ottoman Empire.

Modern depictions of Crimea as a uniquely Tatar and Muslim entity—as, for example, the Crimean People’s Republic of 1917-18—should be seen as an effort to restore the Islamic Ummah (“community” or “nation”) to its earlier status of dominance over Christian kuffar (“unbelievers”).

Given the support of western centers of influence for other movements purporting to “liberate” in Orthodox countries, such as Bosnian Muslims, Albanians (Kosovo), Sanjak in Serbia, and Chechens in Russia, such depictions should be viewed by Ukrainian authorities with suspicion. In those instances, what began as a western-supported, peaceful campaign aimed ostensibly at securing he secular, democratic rights of a Muslim community evolves over time into violent jihad with the aim of imposing Muslim domination.

In particular, the claim of the Mejlis (Меджлiс Кримськотатарського Народу)—the Crimean Tatar assembly—to represent the right of Crimean Tatars to national-state self-determination on their national territory” (“национально-государственное самоопределение на своей национальной территории”) must be understood as the creation of a state-within-the-state, and an objective incompatible with the lawful authority of Ukraine and the Autonomous Republic of Crimea.

2. Forecast

At present, Crimean Tatar activism does not constitute a great danger to Ukrainian national unity and internal stability. However, if allowed to drift, the situation in the Crimea, and in Ukraine generally, is likely to follow the path of Islamic activism in other regions.

Under the guise of "human rights" and "democracy," and with support from Western and Muslim countries, notably Turkey, within a few years, Ukraine and the Autonomous Republic of Crimea are likely to be subjected to demands to accommodate the Crimean Tatars' "right to self-determination" and to recognize the Mejlis as a "sovereign" structure, with threats of jihad violence if those demands are not met.

It can also be expected that such demands will coincide with rising Islamic consciousness in the Crimean Tatar community, including claiming the right to impose Sharia law on its members. For example, the U.S. State Department already has characterized as a violation of human rights the Ukrainian government’s policy of the wearing of hats and any other sort of headgear by people posing for passport photographs. This became an issue when a Crimean Tatar woman insisted on having her passport photo taken wearing hijab.

The broader implications of increased Islamic identity are reflected in the efforts Hizb-ut-Tahrir, the international Islamic party, to build support among Ukrainian Muslims for the reinstatement-supposedly through peaceful means-of the worldwide Islamic caliphate (Khilafah), of which the Crimean Khanate was a part.

As declared by the Ukrainian branch of Hizb-ut-Tahrir in 2009: "The aim of Hizb ut-Tahrir is to resume the Islamic way of life by establishing the Islamic State the Khilafah which will rule by laws of Islam [i.e., Sharia] and convey the Islamic da'wah [i.e., "invitation"] to the world for all mankind." Such agitation can be expected to intensify if left unchecked.

3. How AIU Sees It

No obstacle should be placed to the civil and legal rights of Crimean Tatars as equal citizens of Ukraine and the Autonomous Republic of Crimea, including the use of their language (in schools and media), the wearing of traditional costume (in non-official circumstances), the right to worship (but not to agitate for the imposition of Sharia), and the restoration of property in accordance with law.

But neither Ukraine nor the Autonomous Republic of Crimea should confer any recognition on this group as any sort of sovereign community with the right of self-determination. The activities and finances of the Mejlis and other Islamic organizations, and of their leadership, should be carefully and continuously monitored by the relevant national and republican authorities, especially for connections with western governments and NGOs, with governments of Muslim countries, and with international Islamic groups such as Hizb-ut-Tahrir. Activities that are found to be in violation of existing law should be curtailed and, if necessary, the offending organizations dissolved.

III Moldova and Pridnestrovie

1. Forecast

As described by AIU in January 2011, Kiev has missed an opportunity to help influence the formation of a new government in Moldova following elections in November of 2010, and to counter the active efforts of Poland, Sweden, and Germany to encourage a "pro-European" coalition.

The result is a dysfunctional coalition unable to elect a president, which promises to prolong the political stalemate that has already been going on for two years. Even worse, Kiev's inaction allows greater opportunity for extreme nationalist elements in Moldova to push their program of pro-Romanian irredentism, which threatens Ukrainian interests and territorial integrity. This program has received renewed support from Washington in the form of a February report from Senate Republicans calling for Pridnestrovie to submit to rule from Kishinev.

2. Forecast

Unless and until Kiev adopts a more pro-active approach to development on its southwest border, instability and the potential for unrest will only increase.

3. How AIU Sees it

As suggested in an AIU Backgrounder, Ukraine's primary interests on its southwestern border are the maintenance of an open-ended status quo in Pridnestrovie, the encouragement of Moldova's equidistance between the West and Russia, and a more effective countering of Romanian nationalist agitation in Kishinev, with its inherently irredentist agenda vis-à-vis Ukraine.

Kiev should seek an end to foreign interference in Moldova's domestic politics - which clearly seeks to produce an outcome conducive to Romania's interests-and thus detrimental to Ukraine's.

Kiev should take active steps to ensure that Washington, Bucharest and Brussels are under no illusion that Pridnestrovie's status can be resolved without the agreement of Ukraine, as well as of Russia. In addition, Kiev should take the initiative on gas pricing, grain sales, and transport arrangements between Ukraine and Moldova, and between Ukraine and Pridnestrovie. Ukraine should also consider its own diplomatic initiative for a negotiated Pridnestrovie settlement that does not rest on coercion and pressure on Tiraspol to submit to Kishinev.

IV Status of Russian language in Ukraine

1. Background

In 2010, as in all his previous campaigns for office, Viktor Yanukovich ran on a promise to elevate Russian to a second official language along with Ukrainian. Last year, the Verkhovna Rada took action on legislation to allow use of documentation in Russian or other "regional" languages, if the number of its speakers in a region exceeds 10%. The law also provides that the share of TV and radio broadcasts in Russian should not be less than 20%, and that students and advertisers should be able to choose between Russian and Ukrainian.

In general, the new law-which is being implemented slowly and unevenly-is a step forward for people living in areas where Russian is the most widely spoken language, in many cases the only language in common use. The law is consistent with Article 10 of the Constitution, which reads: "In Ukraine, the free development, use and protection of Russian, and other languages of national minorities of Ukraine, is guaranteed". Although the new law was promoted demonstrations on the part of the those who saw it as the first step towards the disestablishment of Ukrainian as the sole official state language, and a threat to the very survival of the language, its falls far short of President Yanukovich's campaign promise.

2. Forecast

While a step in the right direction for democratic accountability in Russian-speaking areas of Ukraine, the 2010 law is problematic for Ukraine as a whole.

First, increased use of Russian solely as a "regional" language of a "national minority" is absurd: a very large number, perhaps a majority, of Russian-speakers in Ukraine do not consider themselves ethnic Russians but ethnic Ukrainians.

Second, increased use of Russian only as a regional, "minority" language raises the prospect of what is referred to as "parallel monolingualism," where speakers of Ukrainian and Russian-and maybe of other languages, like Romanian or Tatar-opt for increased use of their preferred language, and only that language. This, combined with the growing tendency of young Ukrainian-speakers not to learn Russian, can lead to greater divisiveness in Ukraine, such as we see between speakers of French and Flemish in Belgium.

3. How AIU Sees It

President Yanukovich should keep his promise to make Russian a second official national language on a par with Ukrainian. The legal and constitutional difficulties in doing so are no excuse for inaction. The best thing would be for all Russian-speakers to become proficient in Ukrainian, and for all Ukrainian-speakers to be proficient in Russian.

This would mean the end of a nationalist agenda under which Russian is viewed with suspicion and as an undesirable "minority," or even "foreign," language. Making Russian the second official language is necessary for a balanced policy leading to a "national accord" on language, whereby people in all regions of Ukraine honestly undertake acquiring proficiency in the "other" official language - the one they don't speak, or at least are not comfortable with.

Not only would such a policy open the path to greater unity of a truly bilingual Ukraine, but also would strengthen its role as a bridge between the former Soviet Union and the rest of Europe.

V Ukraine and NATO

1. Background

There’s been a lot of water under the bridge since the Ukrainian government nixed NATO membership, opting for non-aligned status instead. In doing so, Kiev triggered significant progress towards rapprochement between East and West—the very thing Europe has needed most since the fall of the Berlin Wall—and put paid to efforts to strategically encircle Russia. This rapprochement has taken the form of the (fledgling) efforts of France, Germany and Russia to create a new zone of security and economic cooperation in Europe (outside of NATO), accelerated German capital investment in Russia and markedly improved Russo-Polish relations.

Meanwhile, NATO appears to have run aground in Afghanistan, as efforts to bring democracy and modernity to Moslem nations at gunpoint seem oddly superfluous in view of recent events in Egypt, Tunisia and elsewhere in the Middle East and North Africa. With real democracy tantalizingly within reach in North Africa, the US is not so sure it likes what it sees. If new Arab regimes wind up rejecting Camp David and the War on Terror, the US could come to rue its democracy campaign, and NATO could find itself fatally compromised and with no plausible raison d’etre.

In view of the challenge to America’s position in the Arab world and China’s growing threat to its military dominance in East Asia, NATO, already anachronistic before these events, could well become a very expensive fossil.

2. Forecast

While NATO claims to respect Ukraine's choice of non-aligned status, it is forever at pains to emphasize that the door to membership remains open. According to NATO, even though Ukraine's "current government" is "not presently seeking" admission, this has had "no practical impact" on Ukraine's relations with the Alliance (then why join at all?). Clearly, NATO wants to keep open the option of strategically surrounding Russia, the only reason it has any use for Ukraine, and is waiting out Viktor Yanukovich's term of office.

Meanwhile, Ukraine appears content to cooperate with NATO: last November, Ukraine participated in NATO's operation "Active Endeavor"; on February 2, 2011, Kiev announced it would host a series of international military exercises with the United States and other countries, including Russia.

The inclusion of Russia is wise. If Ukraine feels it really must continue to play ball with NATO, it should do so in such a way that no daylight opens up between it and Moscow. The Kiev-Moscow axis is vital to strategic and economic stability (including energy security) in Europe, and to Ukrainian economic prosperity, and national cohesion. It is the very basis for the post-Cold War settlement in Europe that seemed within grasp following the fall of the Berlin Wall, but soon succumbed to Washington's ill-starred push for global strategic predominance.

Thus, in 2011, expect NATO to continue to entice Kiev to join, and Kiev, in pursuit of its "multi-vector" foreign policy, to continue coyly playing along, to no definitive conclusion.

3. How AIU Sees It

Yanukovich should put an end to all ambiguity in Kiev's relationship with NATO. He should insist that NATO retract the letter issued at the Bucharest summit in 2008 in which it invited Ukraine to take steps towards membership.

If Ukraine feels it must continue cooperating with NATO, annulment of the Bucharest letter would at least allow such cooperation to proceed without any implication Kiev might be willing to re-visit the matter of membership. By the same token, Kiev should balance any cooperation with the Atlantic Alliance, by applying for observer status in the Collective Security Treaty Organization [Организация Договора о Коллективной Безопасности)] (CSTO), headquartered in Moscow.

Kiev needs to be very clear and firm with the West on the matter of NATO. Recent European and world events testify to the wisdom of Ukraine's rejection of membership in the Alliance: Ukraine opened up a path towards a pan-European settlement that is very much in its national interest, even while jumping clear of the impending train wreck that is NATO.

No matter how you slice it, America's bid for global strategic predominance is in a world of hurt; its fiscal bankruptcy hardly makes matters any easier. Will the US retrench (as it should do), or will it seek other soft targets to demonstrate to the world (and, not least, to itself) that it is still a power to be reckoned with? If the latter, Washington could renew efforts to enlist Ukraine as a club with which to beat Russia. That is a fate Ukraine must avoid-for its own sake. In doing so, it would also be doing the United States a very good turn as we desperately need to be weaned away from our obsessive and destructive concern with abroad.