Meeting Report Vol. 3, No. 3, Feb. 14, 2001

On February 14, 2001 Carnegie Endowment Russian & Eurasian Program hosted a lunch meeting to discuss the current political situation in Ukraine. The panel of experts included Adrian Karatnycky, President of Freedom House as well as Carnegie Senior Associates Anders Aslund and Anatol Lieven. The meeting was moderated by Andrew Kuchins, Director of Russian & Eurasian Program. We provide below a summary of the panelists' remarks.

Introduction

Andrew Kuchins opened the meeting by briefly highlighting the recent developments in Ukraine. These included the September 2000 disappearance of prominent journalist Georgy Gongadze, who had worked for independent Ukrainian internet newspaper Ukrainska Pravda, the subsequent discovery of his body in Tarashcha and the investigation that ensued. Scandal broke out after a Verkhovna Rada presentation by deputy Alexander Moroz, revealing taped conversations, which allegedly linked Ukraine's President Leonid Kuchma and his ministers to Gongadze's disappearance. According to Moroz, the taping was done in the president's office by a bodyguard, Mykola Melnichenko, who went into hiding before the tapes became public. These revelations sparked mass protests under the umbrella of movement "Ukraine without Kuchma" on the streets of Kiev and other Ukrainian cities. Another political organization, "National Salvation Forum" was formed several days ago by Socialist Party deputy Alexander Moroz, former deputy Prime Minister Yulia Timoshenko and former Minister of Justice Serhyi Holovaty. President Kuchma, Prime Minister Viktor Yushchenko and Chairman of Verkhovna Rada Ivan Plyushch responded with a declaration, accusing "political losers" of destabilizing the country and using a human tragedy for their own motives. Yesterday Yulia Timoshenko was arrested and taken to prison on past corruption charges. In view of all these events, Andrew Kuchins stressed the timeliness of this meeting and encouraged the panelists to analyze the present situation in Ukraine as well as make predictions about the outcome of this crisis.

Political situation: "What do we know? When do we know it?"

President of Freedom House Adrian Karatnycky prefaced his remarks with a statement that Ukraine today is "a country in a moment of an extremely important test, a key moment in the evolution of Ukrainian institutions." The course that is chosen now will determine if Ukraine is still considered a democratizing nation or whether it moves closer to authoritarianism, with a more controlled environment and more constrained policy choices.

While reflecting on Kuchmagate and the alleged tapes, Karatnycky advised the audience to paraphrase the questions asked of Nixon administration: "What do we know? And when do we know it?" While some Ukrainian and Western media have already assumed the authenticity of the tapes, one has to keep in mind that high-level intelligence operations have the technical capability to manipulate digitally-recorded material. Thus, Karatnycky stressed the importance of going through the proper procedures for evaluating the evidence before rushing to judgment. However, the statements and actions of President Kuchma, his security forces and government officials suggest that they are not ready for an open discussion of the facts of this case. For example, after Freedom House announced that it would assist the International Press Institute in tape analysis, the Ukrainian tax inspectorate re-launched an investigation into the organization's Kiev branch.

"If true, the tapes suggest a high level of criminal activity -- suborning of judges, interference in investigations, discussion of harassment and intimidation of political opponents, which certainly inflames public passions." While the media have responded with varying degrees of objectivity and demagoguery to this crisis, Karatnycky sees the role of the West in this situation as "ensuring diligent efforts to look at the evidence and exerting pressure towards arrival at the truth."

Karatnycky then turned to assessing the performance of Ukrainian political actors and institutions through the prism of the current crisis. "Some characteristics of Ukraine, such as the dispersal of power and pluralism of opinions and approaches show that it is not an entirely monolithic society." And while there is obvious harassment of the media and demonstrators, "there is no heavy climate of fear." The major unfortunate consequences of Kuchmagate evident today are the disintegration of the relatively constructive parliamentary majority and the destabilization of administrative functions, which is discouraging potential Western investors.

Discussing oligarchic influences, Karatnycky noted that with the exception of Yulia Timoshenko's "Fatherland," all major oligarchic parties form a solid base of support for President Kuchma. However, this alliance may be transitory, as it is based more on tactics and convenience than on "deep-felt affinity to Kuchma and his cause." "Yabluko," a faction headed by small oligarch Mikhailo Brodsky, is considered to be in constructive opposition to the President. The bedrock of opposition belongs to center-right reform parties and leftist (mainly Socialist) factions. The stance of the Communist party is ambiguous, according to Karatnycky. While they were always opposed to a constructive tandem, a recent declaration of three former Prime Ministers called for a national unity government, which would include the Communists. The head of tax inspectorate, and thus one of the most influential people in Ukraine Mykola Azarov has endorsed this idea. "Azarov, if he is left standing after the current crisis, will present a major threat to Ukraine's democratic future," asserted Karatnycky.

While the tapes do not show Kuchma ordering the murder of Gongadze or being directly involved in high crimes, they do reveal "a web of corruption at the highest levels, especially in power ministries." Karatnycky disagreed with those who considered the dismissal of minister of security Leonid Derkach a first conciliatory step towards the opposition. Instead, he advised the audience to see it as Kuchma meting out punishment to those who had allowed the taping to go on. However, sooner or later Kuchma has to deal with the continuous official harassment of independent media, the abuse of tax inspection to prevent the functioning of civic institutions and the politically-motivated selective prosecutions. Karatnycky found it difficult to predict Kuchma's course of action. As the current crisis progressed, Kuchma often changed his strategy -- from talking through low-rank representatives, to stonewalling journalists, to the present dynamism and awareness, demonstrated by the recent "sensational and, in a sense, regrettable" declaration. In the latest developments, Karatnycky noticed several positive signs. First, the declaration hinted at a potential opening of a dialogue with constructive and lawful opposition. Second, Kuchma mentioned the possibility of turning to a referendum on confidence in the president. And finally, the backtracking of "Kostenko-Rukh" faction from joining the "Ukraine without Kuchma" movement showed their commitment to due process of law.

Karatnycky closed his remarks with an appeal to the West as well as Ukrainian citizens and institutions "to pressure and engage Ukraine to try to ascertain the truth and then allow the people to act within constitutional structures." And while, in Karatnycky's opinion, Kuchma himself does not have Lukashenka-type tendencies, some people in his inner circle do lean towards "application of power and violation of due process of law, which, in their opinions, would preserve the existing system of high corruption."

Economic Environment: "Oligarchy is falling apart and Ukrainian society is opening up"

Carnegie Endowment Senior Associate Anders Aslund gave a very positive assessment of Ukrainian economic environment in his presentation. He cited several indicators of the energetic economic growth that this country experienced last year. "In 2000, Ukraine's GDP increased by 6%, industrial output was up by 13% and the agricultural sector experienced a 7.6% growth." Several industries also expanded substantially, such as textiles, forestry, food processing and steel.

Common explanations for Russian economic growth do not apply to Ukraine. Unlike Russia, Ukraine has actually "suffered from higher oil prices; and while devaluation did occur, it does not explain Ukraine's growth." According to Aslund, the Ukrainian economy is benefiting from recent structural reforms. The private sector share of GDP has finally reached 60% in Ukraine, barter transactions are down, payment discipline has improved, and Ukraine is now facing harder budget constraints. The rise of the Russian economy, Ukraine's major export market, has also contributed to Ukraine's economic growth.

Another positive development was the changed relationships between Ukrainian oligarchs and the increased competition among them. When Aslund worked in Ukraine in 1994-1997, he noticed that politics were incomprehensible and unstructured, with constantly changing alliances and secret deals. "Before, oligarchs bribed two people in the Rada and no one knew who they were." Now, with four major oligarchic parties, there is a definite structure and clear responsibility. Also, there is property behind every Ukrainian oligarch today. "It is no longer just about division of rents for gas; oligarchs are now fighting with each other on the basis of their different business interests." Aslund attributed this positive change to "dirty" privatization deals of 1998, and asserted that "dirty privatization is better than no privatization." He also praised Prime Minister Yushchenko for co-opting Yulia Timoshenko, "the gas princess," to fight against other oligarchs. Timoshenko was known as "the only man in the cabinet," and it was the team of Yushchenko and Timoshenko, not Azarov, that brought barter down and drove tax collection up.

After the presidential elections of 1999 Kuchma turned to the security organs and alienated the oligarchs. Thus, in the beginning of the current crisis, it was remarkable to see that oligarchs were barely involved -- they mostly abstained from speaking, acting and even voting in support of Kuchma. Another problematic group for Kuchma is big businessmen, who are not involved in politics but do hold seats in the Rada and, for the most part, support Prime Minister Yushchenko.

Aslund went on to analyze the sensitive topic of Russian businessmen buying out Ukrainian companies in competitive, if not open privatization deals. The positive side of this phenomenon is that the Ukrainian enterprise environment has improved to the extent that it attracts Russian investment. The negative aspect is that the environment is not good enough for serious western investors. The reason Russian businessmen go into Ukraine is illustrated by a Russian oligarch's quote: "Ukraine is the same as Russia, but there are no specific Russian problems there." Companies like LUKoil and Tyumen-oil (TNK) enter Ukraine because "they are moving into what they know." They also have more money than Ukrainian oligarchs do. However, Aslund emphasized that these Russian businessmen should not be viewed as agents of the Russian state. "They don't act like that and they don't see themselves as such." And that is a definite improvement.

Aslund touched upon the Gongadze affair by saying that he was more shocked about Vadim Hetman's murder in April 1998, as Hetman was "a far more important political figure." However, the earlier incident had not attracted as much publicity as the current scandal. This proves that "Ukraine has moved far in both political and economic reform." As Aslund pointed out, scandals only happen in open societies, and thus they are good indicators of transparency and openness. The domestic power game is also made possible due to "a considerable sense of security." After the presidential elections of 1999, the Communist threat has disappeared. Also, Kuchma's administration has unified the country, so today there is no danger of national breakup of Ukraine. The economy is booming, and there is no real Russian threat. However, another consequence emerging from the last elections was Kuchma's clear responsibility for his administration. A master at the "blame game," he now has no one left to blame except himself. The president has already discredited himself this summer with attacks on Yushchenko for slow reforms.

Going much farther than Karatnycky, Aslund predicted that "Kuchma is now obsolete, and there is no doubt that he will fall in less than a year." People who lack legitimacy do not survive in office. Kuchma will probably continue using "salami tactics" and fire one power minister after another. With Prosecutor General on forced vacation and Minister of Security already sacked, the next logical target is Minister of the Interior Yuri Kravchenko. If he goes, Kuchma will slip even further down the slope. When people adopt a revolutionary mindset, the constitutional details of impeachment would matter very little. Aslund maintained that Ukrainian institutions would steer this "mini-revolution" so that it does not become dangerous but "a sheer cleansing." Concluding his presentation, Aslund advised Western states to treat Kuchma in a manner similar to the ostracism of Austrian ex-president Kurt Waldheim, while at the same time engaging the Ukrainian state through international organizations.

Geopolitical Position: "Managing the problem of Ukraine"

The last presentation was delivered by Carnegie Endowment Senior Associate Anatol Lieven, who concentrated on Ukraine's geopolitical position and future direction. A journalist himself, Lieven was greatly saddened by Gongadze's disappearance and the content of the Melnichenko tapes. However, he was not surprised. With so much evidence of official harassment of media and political opposition, "did we really need the tapes to tell us that there is an extreme level of corruption in Ukraine's power ministries?" he wondered. Lieven also found bewildering the prevalence of "optimistic and clear-cut ideas about what would happen or not happen in the former Soviet Union." Political development does not consist solely of choices between democracy and authoritarianism, or free market and socialist planned economy. Lieven maintained that in many countries similar to Ukraine "history is not a staircase, but a spiral," with repeating patterns, seemingly fresh starts and possible reversals. "If there is progress, it is extremely slow." While agreeing with Aslund's figures for Ukraine's economic growth, Lieven argued that experience has shown that without far-reaching institutional reform "short-term economic growth does not necessarily lead to long-term economic stability or to truly stable democracy."

After these background remarks, Lieven addressed Ukraine's geopolitical position. While US policymakers have already made numerous statements about Ukraine's commitment to integration with the West, there is an obvious "yawning gap" between Ukraine (as well as other CIS countries) and those states that are on course to enter the European Union. Thus, according to Lieven, the question of Ukraine's full integration into western institutions has now "receded beyond the limits of policy debate." All the West can do for the foreseeable future is concentrate on management of Ukraine's problems and try to shape development there positively, albeit "conservatively," without illusions or too much optimism. Lieven also cautioned western policymakers against "picking specific Ukrainian individuals or parties to represent salvation."

Up to now, Ukraine's geopolitical position was somewhere between the West and Russia. While it has not joined western institutions, Ukraine has also not formed a formal military alliance with Russia. The question is whether this position can be maintained. The outbreak of the scandal and the decline in Kuchma's reputation have strengthened the position of Russia, if only temporarily. Unlike Aslund, Lieven suggested that the Russian state has played a role in helping Russian oligarchs to enter Ukrainian business space; strong Russian influence is also shown in the recent negotiations on electricity grid integration of Russia and Ukraine. However, both the ability and eagerness of Russia to force Ukraine into the position of Belarus are doubtful. According to Lieven, Russian leaders would be mistaken if they rely on Kuchma, as he is a "broken instrument." Given the deep-rooted unpopularity of a formal alliance with Russia among many Ukrainians, it would take a much stronger leader than Kuchma to achieve this. On the other hand, Russia does remain a "great economic engine" for Ukraine and other former Soviet republics, and the West cannot (and should not) try to block the Russian influence, as long as it does not present an immediate security threat to NATO or Baltic countries. Concurring with Aslund, Lieven affirmed that the threat of the secession of Russian-speaking areas of Ukraine, which seemed quite real in the early 1990s, has now disappeared for the time being. "Moscow had to choose whether they wanted influence over the country as a whole or whether they should try to split off pieces like Crimea and Donbass; and they chose the former path."

In the present situation, the West has one strong area of influence, and that is the issue of debt. While Russia can rightfully argue that it should get paid for gas deliveries to Ukraine, the West can link Russian behavior to its debtors to our own policy regarding Russia's debts to the West under the Paris Club. Lieven emphasized that "whatever the West does with respect to Ukraine, the U.S. and the EU have to work together," as the EU is likely to become Ukraine's border state in the near future. Summing up his remarks, Lieven asserted that what we are facing in Ukraine today is "neither a renewal of a triumphant march towards integration with the West nor a relapse into full union with Russia." The US and the EU should abandon hopes of integrating Ukraine into the West, and instead seek to shape developments there so that they do not lead to a destabilizing internal conflict.

Summary by Victoria Levin, Junior Fellow with the Russian and Eurasian Program.