Oleksandr Pavliuk
Ukraine’s Transition and Western Strategies
I. Geopolitics, Reforms and the Changing Dynamics of Ukraine-West Relations
Since Ukraine became independent back in 1991, there have been ups and downs both in the process of its complex transition and in its relations with the West. There has also been an intrinsic link between the pace and dynamics of Ukrainian reforms and Western policies towards Ukraine.
While achieving relatively easy recognition of its independence, Ukraine nonetheless found itself in virtual international isolation in 1992-93. The Western policy on the post-Soviet space was focused on Russia, while Ukraine was viewed chiefly as an obstacle in the way to nuclear disarmament and non-proliferation. Kyiv’s reluctance to get rid of nuclear weapons and unwillingness to launch meaningful reforms contributed to this isolation and to overall Western skepticism about Ukraine’s prospects. On the other hand, disappointed with the absence of Western support and understanding[1], Ukrainian policy makers did not have enough confidence to take difficult decisions on nuclear disarmament and economic reform.
The change in Western policy came only in 1994, largely as a result of the growing comprehension of Ukraine’s geo-political importance. Domestic instability in Russia, manifested in the results of December 1993 parliamentary elections, as well as Moscow’s subsequent shift to a more assertive foreign policy, forced the West to re-think its strategy vis-a- vis Ukraine. The beginning of a new policy was laid by the Trilateral agreement, signed by Ukraine, Russia and the USA in February 1994. After that, Ukraine became the first CIS country to join the NATO PfP program and to sign an Agreement on Partnership and Cooperation with the European Union.
Another important landmark in Ukraine’s relations with the West was the long-awaited program of economic reforms launched by President Kuchma in the fall of 1994, and Ukraine’s accession to the NPT in December of the same year. These decisions significantly helped crystallize the formulation of a new Western strategy toward Ukraine, prompting the increase in political support and financial assistance to Ukraine’s complex process of transformation. On the other hand, the decisions themselves reflected Kyiv’s response to the new Western attitude toward Ukraine. Kyiv needed Western assistance and paid particular attention to relations with those countries which “can really assist our independence”.[2]
The next two years -- 1995 and 1996 -- brought some promising progress and raised many hopes and expectations both within and outside Ukraine. Economic reforms resulted in relative macroeconomic stabilization (achieved largely through the strict monetary policies imposed by the Central Bank) and the introduction of a new currency in September 1996. Earlier the same year, in a spirit of political compromise independent Ukraine adopted its first democratic Constitution. In its foreign policy, Kyiv embarked on a general course of gradual joining Europe and declared future membership in the EU as its strategic goal. Departing from initial concerns and fears, Ukraine endorsed NATO's eastern enlargement and negotiated a Charter on Distinctive Partnership with the Alliance. In 1995-96, the situation in Ukraine looked particularly promising, given the persisting instability in Russia, authoritarian tendencies in Belarus and the lack of reforms in Romania and Bulgaria.
Under those circumstances, the sovereignty and stability of Ukraine was increasingly recognized by the West as “a crucial factor” and “a strategic pivot” of regional and European security. In the course of 1994-96, the EU approved three documents (the Common Position, Strategy, and the Action Plan) designed to support Ukraine’s independence and territorial integrity, its democratic reforms and economic transformation. The US-Ukrainian relations became particularly dynamic and were officially upgraded to the level of “strategic partnership”. A joint working commission chaired by President Kuchma and Vice President Gore was set up to discuss and solve various issues on the bilateral agenda. From 1991 through 1997, Ukraine received over $2 billionin bilateral assistance from the US government, and more than $4.6 billion from the EU (with about half of it provided by Germany). International financial institutions -- IMF, WB, and the EBRD -- were also actively involved in supporting Ukraine’s transition.
Yet, as became evident in the course of 1997 and the beginning of 1998, the high expectations and hopes for the pace of transition in Ukraine have largely failed to be delivered. Macroeconomic stabilization has not been supported with necessary microeconomic reforms, including enterprise and industry restructuring, comprehensive tax and administrative reforms, SME development and the acceleration of privatization. Moreover, since late spring 1997, reforms in Ukraine have actually been hampered again. As a result, the overall economic situation remains difficult, the decline of production continues, and the crisis of non-payments is growing, while neither foreign nor domestic investments are coming[3]. The country’s economy suffered a further blow in the first quarter of 1998, when the government increased its spending and ran up a large budget deficit prior to the March 29 parliamentary and local elections, raising the danger of a serious financial crisis.
The hopes of others that Ukraine’s European choice so forcefully pursued in its foreign policy, would provide the necessary additional impetus for further market-driven reforms, have by and large failed to materialize as well. Starting from the end of 1996 - the beginning of 1997, Ukraine’s situation has been looking particularly troublesome, given the broader positive changes in the region: the acceleration of internal transformation and efforts on European integration in Romania and Bulgaria; the end of the Chechen war and the new dynamics of economic reforms in Russia; the beginning of the first wave of NATO enlargement and the conclusion of the NATO-Russia Founding Act.
As a result, although still present, the factor of geo-politics in Ukraine’s relations with the West has ceased to be dominant. At the same time, the over-reliance on Ukraine’s “geopolitical importance” for the West and the belief that this “importance” should almost inevitably prompt Western assistance and forgive some failures, seemed to make a bad service for Ukrainian policy makers. This misperception is currently changing, and the realization is steadily growing that geopolitical factors are changeable and are not sufficient for the development of a long-term stable partnership, and therefore should be supplemented with economic and financial interests, including substantial investments. Yet the process of this re-thinking is slow and unpleasant for Ukrainian elites.
II. Current Perceptions, Concerns and Challenges
After 2.5 years of high expectations and many hopes on both sides, the current state of Ukraine’s relations with the West is by and large characterized by mutual disappointment, often frustration and even irritation, and -- to make things worse -- by the lack of clear vision of the future of this important relationship.
On one hand, the West seems to increasingly show its bitterness and impatience with the current state and prospects of transition in Ukraine, with its poor investment climate and slow pace of economic reforms. The lack of substantial progress with economic reforms and the inconsistency of economic policy of the Ukrainian government are the cause of particular upset. Ukrainian officials are often incapable or even unwilling (as it requires to break the whole system of governmental regulation, bureaucracy and corruption) to remove the existing barriers blocking foreign investments and creating constant problems for those who invested. It is increasingly believed that Ukraine’s problems have rather a political background: the government is ineffective, political institutions/parties are still weak and underdeveloped, and civil society is fragile, while tensions between the branches of power persist, the legal foundation is complicated and lacks transparency, and the state is overregulated and corporately closed. All this only facilitates the anti-state and anti-reform activities of the Leftists, while new concerns have been raised by the outcome of the last parliamentary elections: the Communists and other Leftists increased their presence in the Verkhovna Rada (Ukrainian parliament), although failed to get a majority.
Through 1997 and the beginning of 1998, all the above has been combined and complicated with a seemingly increasing lack of understanding in the West of what is actually going on in Ukraine and what should be done to change things. As was the case in 1993-94, Ukrainian prospects are once again viewed as gloomy,[4] and if nothing is changed, the country may actually face the danger of Western growing indifference and of finding itself at the margins of both European and American political elites’ thinking. The question has been periodically raised on the expediency of the current Western financial assistance to Ukraine, on the latter’s capacity to efficiently use it and to re-pay international loans, and/or on the need to cut this assistance down[5].
On the other hand, disappointment with the West (based on sometimes exaggerated expectations) is growing in Ukraine as well. Ukrainian leaders tend to blame the West for the lack of understanding of the complexity of Ukraine’s transition, for the Western unpreparedness to accept Ukraine, and especially for the unwillingness (of the EU in particular) to even consider Ukraine as a prospect for full membership in the key Western institutions in the future. Kyiv realizes that Ukraine is yet to go a long way to meet the necessary economic, political and legal requirements for membership. Yet the emerging “conceptual dividing line” which seems to assume that Europe ends where the CIS begins, adds to Ukraine’s frustration with the EU and its eastern policies. As increasingly believed in Kyiv, the EU does not have a clear and coherent inclusive strategy toward Ukraine[6].
Ukraine’s concerns in this regard are only exacerbated in view of the EU enlargement, when some of Ukraine’s neighbors to the West will soon become EU members. There is a growing realization in Ukraine, as well as in the region on the whole, that a new EU boundary could become a dividing line potentially more dangerous than security implications related to NATO extension. While NATO enlargement has by and large been an issue for political and foreign policy elites, EU enlargement directly affects people at large. With the introduction of new border regulations and rules of travel by those Central European countries which are joining the EU among the first (and especially in view of their accession to the Schengen agreement), trade and human contacts between them and their eastern neighbors are bound to be seriously hit, if a proper solution is not found beforehand. Ukraine is particularly concerned that any such changes will have an especially negative effect on Ukrainian-Polish relations. In the past few years, Poland has become the most open “western” country for Ukraine, while Ukrainian-Polish cooperation has become the most dynamic and promising in the region.
Not surprisingly that on the whole, Ukraine’s cooperation with NATO has been developing more successfully than with the EU. It has proven easier for Ukraine to adjust to the political and military requirements of the NATO Alliance than to make the deep economic transformation necessary to approach EU standards. In addition, U.S. leadership as a supporter of Ukraine within NATO has not been replicated by any leading member state of the EU. Ukraine’s many hopes on the eve of its independence that Germany will assume such a role vis-a-vis Ukraine in Europe have not become a reality. Furthermore, Western strategy towards Ukraine has by and large been marked by an absense of a coherent joint U.S./EU approach. Despite the recent efforts to come up with such a strategy and to coordinate their “Ukrainian” policies[7], many differences still exist in U.S.’ and EU’s approaches to, perceptions and comprehension of Ukraine (starting from understanding of its current situation to the country’s future aspirations).
To make things worse, Ukraine still lacks a stable national consensus, a charismatic leader, and domestic constituencies strong enough and capable to effectively argue and promote both domestic market reforms and Ukraine’s “return” to Europe. Even today - six years after independence - Ukrainian society as well as elites (although the latter to a lesser degree) remain divided.
Theoretically, the most consistent proponents of Ukraine’s transition and integration into Europe should have been national-democratic forces and the new class of entrepreneurs. Yet, the national-democratic forces which have played an important role in combating communism and in Ukraine’s distancing from Russia, have actually failed to develop realistic and appealing economic, socio-political and foreign policy programs, and do not demonstrate much practical ability to drive the country towards Europe. Ideologically and psychologically, they remain remote from the West, and are limited to ties with Ukrainian Diaspora or at best with intellectuals from the neighboring Slavic nations (mostly Polish).[8]
Ukrainian entrepreneurs are also quite specific. The ablest and most active among them are closely connected to the government or operate in the shadow economy, and thus lack either necessary freedom or political will to pursue any public policy initiatives[9]. While in Russia economic elite has become an important, influential and at least semi-independent reality and political force, Ukrainian business elite is still to assume this role. It has been even less successful in anchoring Ukraine in all-European economic processes, remaining financially and economically tied to the markets (first of all, energy markets) in the East. Paradoxically, but so far big business in Ukraine, while showing much interest in foreign investment, has in practice often been opposed to such investment. In part, this is due to the fear of competition; on the other hand, large Western companies for their part tend to ignore their Ukrainian counterparts, are suspicious of their “shadow economy” roots, and do not treat them as equal and reliable partners, preferring to deal with the government. As for Ukraine’s future middle class -- small and medium entrepreneurs, as well as numerous cross-border traders, involved in a “shuttle trade” with Ukraine’s Central European neighbors, -- this group remains weak, disorganized and lacking in political influence.
III. Present Tasks and Prospects for the Future
Despite all the difficulties and shortcomings, the past several years have proved that Western understanding and assistance have been of considerable importance to Ukraine’s transition, both as an incentive for reform and as an additional guarantee of the country’s security. Those years have also proved that the final success of Ukraine’s transition is in the interests of regional stability, Russia’s transformation, and the process of European integration and enlargement. Given the fact that in the next several years Ukraine will become an immediate neighbor of NATO and the EU, its relationship with the West is almost certain to become even more important for Ukraine as well as for the West. In many ways, the next 1,5 years will be crucial both for transition in Ukraine and for Ukraine’s partnership with the West, while the challenges are daunting.
At present Ukraine is entering another transitional period. A lot will depend on the ability of the centrist forces in the new parliament to unite their efforts and promote necessary reforms. However, in view of the mounting domestic political tensions in advance of October 1999 presidential elections, it is difficult to expect significant progress in economic transformation, although President Kuchma stated his serious intention to push reforms forward.[10] Given the forthcoming elections, it is more likely that Kuchma will try to avoid the painful policy choices necessary to re-energize the pace of economic reforms. Even if the President displays the so much needed resolution and political will, the fate of reforms will still be uncertain considering the leftist opposition in the parliament, persistent resistance of the state bureaucracy, and the likely resistance of at least some powerful domestic financial and political clans which are unwilling to see the strengthening of Kuchma’s positions on the eve of the elections.
Looking for the ways to increase budget revenues, the Ukrainian government seems to place certain hopes in an acceleration of the process of large-scale privatization. But, while privatization is a desirable goal in itself, the current lack of transparency in the Ukrainian economy and the understandable reluctance of Western investors to participate in the process give little chance that the large-scale privatization would lead to further reforms reaching beyond the immediate self-interest of the current political and associated economic elite.
At the same time, the fact that the last elections were held, for the first time in Ukraine, under a mixed electoral system (with fifty percent of the candidates on party lists and fifty percent in single-mandate districts), should facilitate the formation of a more structured parliament and society, and in the longer run should help to develop and consolidate political parties and to increase their (as well as political elite’s on the whole) sense of responsibility. The next 18 months are likely to be the period of further consolidation of the pro-market, democratic, and pro-European forces, with the struggle to determine Ukraine’s future in the 21st century being hopefully resolved in the next presidential elections.