Ride that wave:

What is the like­li­hood that the gov­ern­ment and op­po­si­tion will take ad­van­tage of Ukraine’s eco­nomic re­cov­ery to im­prove their own po­si­tions and why does Ukraine need a qual­i­ta­tively new, pro-Ukrainian po­lit­i­cal class?

The Ukrainian Week - - CONTENTS - Olek­sandr Kra­mar

What hap­pens in Ukraine in 2017 will likely de­ter­mine the coun­try's fur­ther course for a num­ber of years ahead. Des­per­ate ef­forts by op­po­si­tion forces to in­crease the po­lit­i­cal tem­per­a­ture over 2016, es­pe­cially in the fall, will prob­a­bly be dra­mat­i­cally ex­tended in 2017. As the do­mes­tic econ­omy shows ever-clearer in­di­ca­tions of re­cov­ery, and of­fers op­por­tu­ni­ties to grad­u­ally im­prove the stan­dard of liv­ing of or­di­nary Ukraini­ans, the gov­ern­ment and the op­po­si­tion will be forced to com­pete for the right to ride this wave: to take ad­van­tage of the fruit of an ob­jec­tive process that they had lit­tle in­flu­ence over while pre­vent­ing their ri­vals from do­ing so.

ON THE PATH TO RE­COV­ERY

Signs of eco­nomic growth are get­ting stronger by the month. Over the first 11 months of 2016, the pro­cess­ing in­dus­try in­creased out­put by 3.4% com­pared to the same pe­riod of 2015, while the agri­cul­tural sec­tor im­proved 4.0%, re­tail trade grew 3.7%, trans­port 9.5%, and con­struc­tion 14.1%, with com­mer­cial build­ing up 19.6%. In QIV, ex­ports of goods also be­gan to climb: com­pared to the same pe­riod of 2015, growth was 7.4% in dol­lar terms and 9.0% in euro terms.

Busi­ness has seen its fi­nan­cial po­si­tion im­prove con­sid­er­ably, too. Specif­i­cally, over the first three quar­ters of 2016, large and medium en­ter­prises re­duced their losses from 44.2% in 2014 to 39.8% in 2015, and fur­ther to 32.8% in 2016. In the pro­cess­ing in­dus­tries this fig­ure was 27.7%, while in agri­cul­ture it was 12.2%. Prof­its in prof­itable com­pa­nies grew from UAH 233.2 bil­lion to UAH 270.5bn, while the losses of un­prof­itable busi­nesses went down from UAH 417.1bn to 188.5%, a re­duc­tion of nearly 70%. Over the first three quar­ters of 2016, US $3.8bn came to Ukraine as for­eign di­rect in­vest­ment, while US $0.46bn left the coun­try, com­pared to US $2.5bn and $0.53bn in the same pe­riod of 2015.

In 2016, fi­nan­cial sec­tor and cur­rency mar­kets also be­gan to sta­bi­lize. The dol­lar may have strength­ened sub­stan­tially against the hryv­nia, but that was partly a re­flec­tion of its stronger po­si­tion rel­a­tive to most world cur­ren­cies. Com­pared to the euro, for in­stance, the hryv­nia re­mained rel­a­tively sta­ble, with just a few mi­nor fluc­tu­a­tions here and there. Data on spe­cial­ized in­ter­net re­sources sug­gest that, in mid-Jan­uary 2017, the euro was go­ing for UAH 30.10-30.30 on the black mar­ket, com­pared to UAH 28.20-29.40 in mid-Jan­uary 2016, mean­ing that it had strength­ened less than 7% against the Ukrainian cur­rency. In the con­text of dou­ble-digit growth in prices and nom­i­nal house­hold in­comes among Ukraini­ans, this is quite mod­er­ate. More­over, at its peak in 2016, the euro was UAH 30.40, bot­tom­ing out dur­ing the sum­mer to a sea­sonal UAH 27.20.

As of De­cem­ber 29, the coun­try’s re­serves stood at US $15.6bn, com­pared to US $13.3bn

IT SEEMS THAT THE MOST CRIT­I­CAL PE­RIOD OF IN­TER­NAL TUR­BU­LENCE HAS PASSED. IN 2017, THERE IS EVERY REA­SON TO BE­LIEVE THAT THE DO­MES­TIC ECON­OMY WILL NOT ONLY CON­TINUE TO RE­COVER BUT BE­COME MORE DE­FINED

at the end of 2015 and US $5.6bn at their low­est in late Fe­bru­ary 2015, when the hottest phase of the armed con­flict in Don­bas be­gan to wind down. Even at the end of Fe­bru­ary 2014, when the Yanukovych regime was in col­lapse and Rus­sia be­gan its in­va­sion, re­serves were lower: US $15.46bn. Gross for­eign debt has also been re­duced: at the be­gin­ning of 2014, it stood at US $142.1bn; by early Oc­to­ber 2016, it was US $116.0bn

And so it seems that the most crit­i­cal pe­riod of in­ter­nal tur­bu­lence has passed. In 2017, there is every rea­son to be­lieve that the do­mes­tic econ­omy will not only con­tinue to re­cover but be­come more de­fined. One fac­tor that could po­ten­tially spoil this trend would be geopo­lit­i­cal in­sta­bil­ity or se­ri­ous es­ca­la­tion in the east—but this could ac­tu­ally play into the hands of those in power rather than their op­po­nents. Those who try to un­der­mine the sit­u­a­tion when things get crit­i­cal in the coun­try are­likely to find them­selves very un­pop­u­lar.

At the same time, in the ab­sence of se­ri­ous es­ca­la­tion, the cur­rent trend to­wards a tacit

frozen con­flict and very slowly but surely cur­tail­ing con­tact with the oc­cu­pied ter­ri­to­ries re­flects the mood among most of the rest of Ukrainian so­ci­ety. A Razumkov Cen­ter pub­lic opin­ion poll at the end of Novem­ber showed that, should a ref­er­en­dum be held, 53.6% of re­spon­dents would sup­port rec­og­niz­ing the oc­cu­pied ter­ri­to­ries as such and iso­lat­ing them un­til the Ukrainian gov­ern­ment re­gains con­trol over them. Only 29.6% fa­vored grant­ing them spe­cial sta­tus and hold­ing elec­tions prior to the restora­tion of Ukraine’s con­trol over the ter­ri­to­ries, and grant­ing the Rus­sian prox­ies an amnesty as per the Minsk Ac­cords.

THE STAN­DARD OF LIV­ING

In 2016, the liv­ing stan­dard re­mained low but, com­pared to 2015, it not only stopped de­clin­ing but be­gan, to one ex­tent or another, to re­cover af­ter a deep col­lapse over 2014-2015. This com­ing year, this trend should not only con­tinue but be­come much more de­fined for a slew of cat­e­gories of con­sumers.

Over May–De­cem­ber 2016, in­fla­tion was 12.4% com­pared to De­cem­ber 2015. Prices for food­stuffs grew a very mod­er­ate 3.2%. Some cat­e­gories con­tin­ued to rise strongly, such as dairy prod­ucts, at 20-30% and oil, at 9.4%, while veg­eta­bles be­came no­tice­ably cheaper, prices fall­ing 28.6%. Given that the euro grew 8.4% rel­a­tive to the hryv­nia over that same pe­riod, in euro terms, con­sumer prices grew only 3.7% in Ukraine, while most con­sumer goods be­came no­tice­ably cheaper—again, with the ex­cep­tion of dairy prod­ucts and oils.

Mean­while, of­fi­cial av­er­age wages in Novem­ber—to be spent by Ukraini­ans in De­cem­ber—grew 20.2% on an an­nual ba­sis, not just in hryv­nia terms, from UAH 4,498 to UAH 5,406: even in euro terms, it grew 10.9%. This is pos­si­bly the high­est pace across the con­ti­nent, de­spite its small nom­i­nal size. Among others, wages grew in the farm sec­tor by 24.2%, to UAH 4,193, or 14.6% in euro terms; in­dus­trial wages grew 23.4%, to UAH 6,206, or 13.9% in euro terms; and in the re­tail sec­tor, they grew 23.2%, to UA 6,073, 13.6% in

euro terms. In De­cem­ber, the min­i­mum pen­sion was up 16.1%, 7.1% in euro terms com­pared to De­cem­ber 2015.

Av­er­ages wages grew much less in 2016 in ed­u­ca­tion, 8.7% to UAH 3,723, and in health­care, 9.0% to UAH 3,453, which cut into the buy­ing power of those work­ing in these two sec­tors. How­ever, planned wage rises this win­ter should im­prove the sit­u­a­tion for those work­ing in the pub­lic sec­tor. Pre­sum­ably, these Ukraini­ans will find their dis­pos­able in­come sig­nif­i­cantly im­proved in Q1 2017. As of Jan­uary 2017, they will be 60-64% higher in hryv­nia terms than a year ago for ed­u­ca­tors and 44% higher for other pub­lic sec­tor em­ploy­ees. Should the euro ex­change rate re­main more-or-less where it is to­day, this means that av­er­age wages will have grown at least 35-50% in a year, even in the Euro­pean cur­rency.

In 2017, the stan­dard of liv­ing should im­prove even more markedly for the poor­est Ukraini­ans, who were paid a wage close to the of­fi­cial min­i­mum wage, UAH 1,400-2,000, in 2016. Even tak­ing in­fla­tion into ac­count, their real in­comes in 2017 should be at least 1.5-2 times higher than a year ago, thanks to the fact that the min­i­mum was raised 2.32 times in Jan­uary 2017, com­pared to Jan­uary 2016.

Although economists are am­bigu­ous about this gov­ern­ment ini­tia­tive and op­po­si­tion politi­cians are frankly crit­i­cal, or­di­nary Ukraini­ans have gen­er­ally been re­cep­tive to the de­ci­sion to raise the min­i­mum wage. The Razumkov poll showed that most of those sur­veyed be­lieved that ei­ther the in­crease would not re­flect on their ma­te­rial stand­ing, 44.1%, or it would af­fect it pos­i­tively, 33.9%. Only 13.1% were afraid that it would have neg­a­tive con­se­quences.

In­ci­den­tally, in 2017, the min­i­mum wage, even in euro terms, could sig­nif­i­cantly out­pace in­di­ca­tors recorded just be­fore the col­lapse of the Yanukovych regime and the start of Rus­sia’s ag­gres­sion, both of which led to the huge col­lapse in the stan­dard of liv­ing in Ukraine. In Fe­bru­ary 2014, the min­i­mum wage was UAH 1,218, which was around €100 at the ex­change rate then. For the av­er­age wage to re­turn, in euro terms, to the level at that time, UAH 3,200 or €263 at the ex­change rate in Fe­bru­ary 2014, it needs to reach UAH 8,000, which is quite pos­si­ble in 2017, although this is more likely to hap­pen to­wards the end of the year.

THE OP­PO­SI­TION'S FALSE START

Against this eco­nomic sta­bi­liza­tion and the start of a re­cov­ery in the stan­dard of liv­ing, the trend to­wards grow­ing disil­lu­sion with the gov­ern­ment stopped at the be­gin­ning of 2016. Ac­cord­ing to the Razumkov Cen­ter, the per­cent­age of Ukraini­ans who com­pletely or partly trust in the pres­i­dent, which was 24.3% by April and 24.4% in Novem­ber, has re­mained sta­ble, although, com­pared to March 2015, when it was 43.6%, let alone May 2014, when 54.0% of Ukraini­ans voted for Petro Poroshenko, these in­di­ca­tors are low. Trust in the Gov­ern­ment has been grow­ing bet­ter: by Novem­ber, it had risen to 17.5% from 15.8% in April, although it is still much lower than it was in March 2015, when it was 28.7%. To­gether with the bet­ter eco­nomic out­look, these in­di­ca­tors should con­tinue to im­prove.

As it turned out “un­af­ford­able” util­ity rates did not lead to desta­bi­liza­tion: there were no Maidans against them in Novem­ber, and there aren’t likely to be any in the spring, ei­ther. The Gov­ern­ment’s sub­sidy pro­gram is gen­er­ous to a fault and has pro­tected most of those for whom the new rates re­ally were un­af­ford­able. The Gov­ern­ment’s so­cial ini­tia­tives at the be­gin­ning of the present year should make a large por­tion of poorer Ukraini­ans feel a lot bet­ter, too.

Tra­di­tion­ally, the ma­jor­ity of Ukraini­ans have been un­happy with the di­rec­tion their coun­try is mov­ing in for a cou­ple of decades, and this trend is likely to stay at its cur­rently high level. Pos­si­bly it will even grow stronger. Still, the share of peo­ple ac­tu­ally pre­pared to take rad­i­cal ac­tion to change those in power is likely to go down.

Un­der the cir­cum­stances, the Poroshenko Ad­min­is­tra­tion should put every ef­fort into avoid­ing a snap elec­tion and to show it­self in a pos­i­tive light to vot­ers, not just in the neg­a­tive one caused by the sharp de­cline in their stan­dard of liv­ing over the last few years. If it man­ages to hold on through 2017, the chances that the rul­ing polity will stay in power un­til the end of its term will im­prove con­sid­er­able. Any elec­tions prior to 2019 will be pos­si­ble only as the re­sult of some unpredictable force­ma­jeure sit­u­a­tion or at the gov­ern­ment’s own ini­tia­tive, should it get it into its head to de­cide that a pre-term elec­tion might be to its ad­van­tage.

By con­trast, for those po­lit­i­cal forces in op­po­si­tion, who ac­tu­ally have greater sup­port among their elec­torate than the par­ties that are cur­rently in power, it will be crit­i­cally im­por­tant to have a snap elec­tion called. Oth­er­wise, grow­ing im­prove­ment in the do­mes­tic econ­omy and the ap­pear­ance of new ri­vals will re­duce their chances of com­ing to power even

2017-18 WILL BRING OP­POR­TU­NI­TIES FOR NEW FORCES TO EMERGE. THIS MEANS A PARTY THAT WILL OF­FER A DEVEL­OP­MENT IDE­OL­OGY BASED ON UKRAINE'S OWN POWERSAND CON­SOL­I­DA­TION ON A UKRAINIAN CUL­TURAL FOUN­DA­TION

fur­ther. In­deed, they must get into gov­ern­ment at the right time—at the start of the re­cov­ery. This will of­fer them a real ad­van­tage in car­ry­ing out their own poli­cies, even if there is lit­tle in com­mon between the two phe­nom­ena.

For Ty­moshenko, Saakashvili and other ex­tra­parlia­men­tary op­po­si­tion groups, if there is no snap elec­tion in 2017, they will have ef­fec­tively run a false start. This fea­ture of Ukrainian pol­i­tics, with the chronic de­mand for new faces and ideas made fools of Arseniy Yat­se­niuk dur­ing the 2009-2010 pres­i­den­tial race and with Kl­itschko in 2013-2014. If elec­tions are held off un­til 2019, the risk is that they will face voter fa­tigue with plat­forms that were re­vealed too soon and the loss of sup­port in fa­vor of even newer projects that will be pro­moted closer to the ac­tual elec­tion. It’s thus im­por­tant for them to do what they can to pro­voke a re­set in the gov­ern­ment this year, be­cause later will be too late.

THE YOUNG UKRAINI­ANS

Given the like­li­hood of a false start for the pop­ulist op­po­si­tion, 2017-18 will bring op­por­tu­ni­ties for new po­lit­i­cal forces to emerge. Like the cur­rent gov­ern­ment, the cur­rent op­po­si­tion is all of­fer­ing the same old dis­course, which no longer ap­plies to the new re­al­i­ties of con­tem­po­rary Ukraine nor the goe­po­lit­i­cal and geoe­co­nomic chal­lenges that are more and more clearly be­ing shaped around the world. New “anti-cor­rup­tion” ini­tia­tives sim­ply come across as im­proved “add-ons” that sub­sti­tute means for goals. Af­ter all, com­bat­ing cor­rup­tion can­not be a goal in and of it­self, or even a long-term ob­jec­tive for a con­struc­tive, cre­ative po­lit­i­cal force or ide­ol­ogy. It is, at best, one of a set of mea­sures for un­block­ing the po­ten­tial of a so­ci­ety to reach se­ri­ous devel­op­ment goals.

And so the time is ripe for the po­lit­i­cal lime­light to shine on a mod­ern­iz­ing, young Ukrainian po­lit­i­cal force for whom the min­i­miza­tion of con­di­tions for cor­rup­tion to flour­ish, rather than com­bat­ing it, would be just one plank in a plat­form to build a new Ukraine. This means a po­lit­i­cal party that will of­fer a devel­op­ment ide­ol­ogy based on Ukraine’s own pow­ers, a cen­ter-right plat­form in the so­cio-eco­nomic di­men­sion and na­tional con­sol­i­da­tion on a Ukrainian cul­tural foun­da­tion. Although in­ter­na­tional re­alpoli­tik has ef­fec­tively killed eu­ro­ro­man­ti­cism, a clearly pro-western geopo­lit­i­cal ori­en­ta­tion is still nec­es­sary. Such a force would be ca­pa­ble of push­ing the rad­i­cals and nar­rowly eth­nic el­e­ments out of the con­scious por­tion of Ukrainian so­ci­ety, but would first of all stop the par­a­sitic oli­garchic “cam­paigns” aimed at the pa­tri­otic elec­torate and in­te­grate the “new pa­tri­ots,” born of the re­sis­tance to Rus­sian ag­gres­sion among those who once were in­dif­fer­ent to the na­tional idea, into its ranks.

In the last few years of con­fronting Rus­sia’s ag­gres­sion, the is­sue of threats to Ukrainian cul­tural and lin­guis­tic iden­tity was pushed into the back­ground in po­lit­i­cal dis­course. This led to dan­ger­ous ar­gu­ments that that ac­tive ukraini­an­iza­tion was ir­rel­e­vant and a ta­boo on rais­ing lan­guage and other “sen­si­tive” is­sues. All this has done is to grad­u­ally place a time bomb un­der the long-term prospects for a Ukrainian state and iden­tity.

The undis­puted pres­ence of Rus­sian speak­ers in the homes of Ukrainian pa­tri­ots has made overly pop­u­lar a poi­sonous no­tion about the need to in­def­i­nitely post­pone the process of con­sol­i­dat­ing so­ci­ety based on the Ukrainian lan­guage and derus­si­fy­ing the coun­try. In fact, a truly pro-Ukrainian, and not just an­tiPutin, mood is ev­i­dent among Rus­sian speak­ers in the daily lives of Ukraini­ans, re­gard­less of their eth­nic ori­gins, and these Ukraini­ans ac­tu­ally have no qualms about the need to ukraini­an­ize and prop­erly derus­sify Ukraine.

In­di­vid­u­als and po­lit­i­cal forces for whom this is a “sen­si­tive” is­sue are, in fact, ei­ther in­dif­fer­ent to the Ukrainian idea or more-or­less hos­tile to it. And so their re­sis­tance is not

Over the first three quar­ters of 2016, large and medium en­ter­prises re­duced their losses from 44.2% in 2014 to 39.8% in 2015, and fur­ther to 32.8% in 2016. In the pro­cess­ing in­dus­tries this fig­ure was 27.7%, while in agri­cul­ture it was 12.2%

worth us­ing as a counter-ar­gu­ment to the need for a Ukrainian foun­da­tion to na­tional con­sol­i­da­tion. Oth­er­wise this con­sol­i­da­tion risks go­ing down a path as dan­ger­ous as Rus­sia’s oc­cu­pa­tion: turn­ing Ukraine into a “dif­fer­ent, nicer, more demo­cratic, pro-Euro­pean, lib­eral, and mar­ket-ori­ented” lit­tle Rus­sia.

As long as ORDiLO and Crimea are not rein­te­grated, pro-Rus­sian, re­ac­tionary forces are un­likely to make any kind of come­back in Ukraine. Still, the risk that the coun­try will be stuck in the mud is very real, and that it will sim­ply re­spond to in­ter­nal and ex­ter­nal events with­out ev­i­dence of a real na­tional iden­tity or a strate­gic devel­op­ment goal with a plan for reach­ing it. Such an out­come is the most dan­ger­ous one, both for Ukraine’s devel­op­ment and in view of its vul­ner­a­bil­ity to Rus­sian or any other ma­nip­u­la­tion.

The coun­try sim­ply needs a con­sol­i­dat­ing idea and a pro-ac­tive gov­ern­ment that will both mod­ern­ize do­mes­ti­cally and carry out its own sub­jec­tive poli­cies in the in­ter­na­tional arena. For Ukraine to agree to be a mere ob­ject of geopol­i­tics, to get caught up in do­mes­tic pol­i­tics and squab­bling over the re­dis­tri­bu­tion of as­sets and cozy pub­lic posts as its pri­mary goals rather than as a means to carry out trans­form­ing poli­cies threat­ens to turn the coun­try into a semi-colo­nial ter­ri­tory in an in­evitable spi­ral of so­cio-eco­nomic de­cline.

A failed protest. Pro-Rus­sian forces place their bets on so­cial frus­tra­tion. But their cause is go­ing no fur­ther than paid-for ral­lies

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