Post-Revolution Hangover

5 January 2015, 00:25

The next year (or even its beginning) promises to pose very difficult challenges for Ukraine’s social and political stability. The expected confluence of several negative factors suggests that the country is more than ever at risk of plunging into total chaos, the consequences of which are currently unpredictable, and the forces that might overcome it, uncertain.

The country is rapidly approaching a financial, economic and sociopolitical abyss, modern analogues of which may be found in the case of Argentina during the default of the early 2000s, or Greece in recent years. These crises arose out of problems that began at least in the last decade. Previous administrations have done nothing to remedy the situation—neither Tymoshenko’s Cabinet after the crisis of 2008-2009, nor Azarov’s in 2010-2014. On the contrary, each government tried to hand off the responsibility of addressing these problems to its successors: public debt increased rapidly in order to maintain an overvalued exchange rate for the hryvnia, and the populist holiday continued amidst growing deficits for the budget, the Pension Fund and Naftogaz, the state-owned monopolist gas supplier in Ukraine.

Ultimately, the margin of safety was crossed. Beginning in April 2011, more than USD 30bn out of USD 38bn in foreign reserves was spent to support the illusion of stability (according to estimates in December they will fall to USD 7.2-7.6bn). The Naftogaz deficit exceeded the astronomical sum of 100 billion hryvnias, despite a significant rise in gas prices for household consumers in the first half of the year. The fighting in the Donbas and permanent threat of Russian invasion triggered capital flight and a decline in foreign exchange earnings. This intensified problems that had been brewing for years and left the country without a safety net.

The devaluation of the hryvnia, whose rate has been impossible to stabilize at 11.5, then 12.95, then 15-16 to the dollar, naturally did not stop and will not stop. The official rate is already at least 10-15% lower than the prices of currency on the black market, though it is really only available there at 17-17,5 hryvnias/USD (the price grows constantly). Most experts and international agencies predicted further economic decline of at least 3-5% next year, along with rising unemployment and inflation, reduced real incomes for citizens and the state budget. It’s already no secret: in order to truly stabilize the situation in the monetary and financial sectors, the budget deficit must be reduced, from the state to Naftogaz and the Pension Fund.

To reduce the budget deficit to at least 3.7% of GDP, the Finance Ministry has required all ministries to cut spending by 25%. This inevitably means layoffs, reduced social benefits or long unpaid leaves. And this time the government is unlikely to avoid austerity measures. Indeed, the IMF will not continue lending to a country that does nothing to even come close to spending less than it earns. In January, without the IMF’s support, the level of reserves may fall to a critical USD 5.6bn and be completely exhausted by March or April, so a default surely awaits.

Among other things, this will mean the inability to draw loans to finance even the aforementioned deficit of 3.7% of GDP. Hence even greater restrictions will be placed on actual spending. These restrictions will either be nominal or through the large-scale printing of money by the NBU in order to cover the deficit, causing hyperinflation in a manner reminiscent of the early 1990s.

Unfair belt tightening

The decline of living standards is already very significant. The 21.8% year on year inflation rate recorded by the Ukrainian State Statistics Service in November is just the tip of the iceberg.

Most vulnerable social groups can expect a targeted support package, which will at least partly alleviate the impact of austerity for them. But the majority of citizens whose average incomes are higher than the long-inadequate living wage (1,176 hryvnia or around USD 70 at the current official exchange rate) are destined for further rapid deterioration of living standards. We can also expect a sharp increase in tax pressure on small and medium businesses to fill the revenue side, and new initiatives on taxation of ordinary citizens (such as the newly-introduced 30% personal consumption tax). By contrast, there is no evidence of the Government’s willingness to withdraw from the offshores or tax the multi-billion hryvnia income of oligarchs. Moreover, having influence over opposition and coalition political forces, the oligarchs will try to maintain and expand existing privileges and budget leaching operations through corruption schemes.

The oligarchs, as always, are selling goods produced in Ukraine to their offshore companies at prices often below cost. They use this as an excuse to complain about “losses” allegedly incurred by their businesses and prepare the ground for new tax and transport privileges. Their total monopoly continues to dominate the most profitable sectors of the economy. The country has lately seen countless scandals stirred by bribes in return for this or that lucrative government position, on which, of course, the candidates plan to earn a good yield.

The long talks by senior officials in the present government and the Tax Service regarding the hundreds of billions in damage caused to the state by corruption under the Yanukovych regime have not translated into savings for Ukraine. What’s more, to the naked eye, even without any noticeable calculations, it is clear that the share of state revenues that “vanished” has not only remained, but has even increased. For example, the hryvnia-denominated budget revenues are virtually the same as last year, but after the devaluation of the national currency by more than half, the volume of imports (which provides a significant portion of revenues to the treasury), exports and the production of goods and services have increased significantly, even considering the losses incurred in the Donbas.

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The phantom of total chaos

Amid the impoverishment of the majority of Ukraine’s population, including those who recently joined the ranks of the middle class, attempts to further tighten the noose on their necks objectively spells social instability. Not only due to “austerity” itself (though it could be less rigid if corruption schemes and tax loopholes for oligarchs were eliminated), but also because of the psychological factor – an acute sense of injustice. After all, it will signal that corruption loopholes in the budget remain unfixed, and oligarchs and most big businesses that are associated with the ruling parties continue their tax evasion practices.

Since the Revolution of Dignity was a struggle against injustice (and not a change from one government to another), the populace will quickly develop an appetite for continued revolution. However, under the present circumstances it is unlikely to be organized on a national scale given the lack of political power—or at least a civil movement—that is capable of taking on such tasks. The Maidan parties that came to Parliament are not only dependent on the oligarchy but are chained to the ruling coalition. The Opposition Bloc, a club of former Party of Regions MPs, and the Communist Party would not be suitable conduits for revolution as they have lost any respect or authority in the country, and Svoboda party has been trying to take advantage of popular discontent but has discredited and marginalized itself not only at the national level, but also among its regional “base”, where it long controlled the local government but did not live up to expectations.

Under these circumstances, it would be simple for a variety of players to exploit the high potential for explosive protests among a disappointed population that is even more aggressive toward the new government than it was toward the old. Those who might try to lead these uprisings are not likely to be able to control them for long. And they themselves will risk becoming victims of the movement as the populist spiral unravels. The latest rally in Vinnytsia offers a good example (on December 6, protesters stormed the Oblast Council premises trying to prevent it from holding the session and holding a vote to dismiss the head of the oblast council. Eight people were injured in clashes between the protesters and the police – Ed.).  

On the one hand, such events are a result of the current leadership’s inability to bring members of the former regime to justice and remove them from governing bodies. On the other hand, these actions are not much different from the seizing of power and the conduct of local deputies and mayors in Sevastopol, the Donbas, Kharkiv and Odesa in the spring of this year. The rally in Vinnytsia was a gathering of 150-200 people, most of whom are hardly citizens of Vinnytsia. Leading the protest were local leaders from Oleh Tyahnybok’s Svoboda and Yulia Tymoshenko’s Batkivshchyna parties–who together garnered only about 10% of the vote in the latest parliamentary elections. In fact, Svoboda took only 4.25% in the general elections in Vinnytsia Oblast, while Batkivshchyna took just 6.6%. In the city of Vinnytsia, they garnered 6.2% and 5.4%, respectively. Even if successful, this kind of seizure of power is doomed because it will not be able to positively resolve any problems for the locals, though it may generate new ones instead.

A similar problem arose nationwide following the Maidan, and is now no less acute. In our modern reality, popular uprisings can overthrow this or that regime relatively easily, although they do not offer a decent alternative. As a result, a few representatives of the ruling class dependent on oligarchy or big business simply take the place of others.

A war of each against all

Meanwhile, a war of ‘each against all’ (whose contours have been outlined in recent days) is brewing within this ruling class against the backdrop of social and economic destabilization. The main political parties now seem to be hoping to successfully maneuver within the environment of worsening socio-economic and sociopolitical destabilization, keeping afloat and continuing to loot the country for as long as possible (by distributing corrupt posts, carving up the budget and taking control of the remnants of state property).

The situation is further complicated by the lack of a clear picture of Ukrainian politics in its current state. There is no political force to which dissatisfied citizens can turn with their concerns. Most of the current parties have plenty of patriotic and/or pro-European-minded people who understand the challenges facing the country and the need for real reforms, not lip service. But politicians who came to power to “solve” business issues for themselves or their sponsors and to earn back what they spent on campaigns prevail and determine policies.  

At the same time, political parties are unprecedentedly diverse. They all have groups of people who have much more in common in terms of their view of Ukraine’s future with their peers from other parties, than with their party fellows. This applies to those who are seeking to preserve the status quo or even return to “pre-revolutionary practices”, as well as reformers calling for a true liquidation of the oligarchic-monopolistic model and a war on corruption.

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The coalition in the format of a constitutional majority (currently 305-308 MPs including the presidium) opens broad opportunities for intra-faction games and the snubbing of not only party members, but of entire partner-factions. The leitmotif of parliamentary life will be that whoever sets up his opponent on a particular problem and unite with others to solve it in the most beneficial way will be the winner. This atmosphere can quickly result in a predominance of absolute distrust and thus unpredictable actions by the ruling coalition, aggravated internal struggles, blaming of mistakes on others and tug-o-war games.

In fact, the parliament will be left without a governing coalition and decision-making will rely on situational alliances, including those involving non-coalition parties. This situation can be tolerable in a presidential-parliamentary republic during a relatively stable time. However, it adds another factor of destabilization in the crisis-ridden country where the parliament has more powers than the president.

Take, for example, a vote on a resolution to elect heads, deputy heads, secretaries and members of parliamentary committees. Only 249 deputies voted “for” the resolution, of which 228 were from the coalition. Thus, the resolution might not have passed without the five unaffiliated votes (former Party of Regions members Andriy Klyuyev, Serhiy Kivalov, Eduard Matviychuk, Oleksandr Feldman, and Oleksandr Suprunenko) and 15 votes it received from Ihor Yeremeyev’s Will of the People group. Andriy Pyvovarskyi, Minister of Infrastructure in the new government, was a top manager of the Continuum, a group Yeremeyev co-founded. This is further evidence of the fact that Will of the People participates in the coalition, although this participation is informal since the fact that its members voted for the draconian January 16 laws under the Yanukovych presidency compromised them, and would compromise the ruling coalition today.

In this format, the coalition comprises almost 330 MPs. This means it is able to pass decisions even without the support of a hundred of its official members (this is the combined number of the People’s Front and Oleh Lyashko’s Radical Party, or the People’s Front and Batkivshchyna representatives in the coalition).  Poroshenko’s Bloc currently has 150 deputies, while the People’s Front has 83, Andriy Savodyi’s Samopomich (Self-Help) has 33, Oleh Lyashko’s Radical Party has 22, and Batkivshchyna has 20. Ihor Yeremeyev’s Will of the People group has 20 votes.

Other solid groups include the Economic Development group led by the Party of Regions’ Vitaliy Khomytynnik and Yevgeniy Geller (19 members), the Opposition Bloc (40), a group of Svoboda party members (7; Svoboda failed to cross the 5% threshold in the latest general elections but some of its members were elected as first-past-the-post candidates), a new association called the Ukrainian Opposition, which includes 5 MPs (Dmytro Yarosh, Borys Filatov, Andriy Biletskyi, Boryslav Bereza, and Volodymyr Parasiuk) and Viktor Baloha’s United Centre (whose council also includes two of Baloha’s brothers and a cousin).

The opposition

A reactionary opposition force composed of former Party of Regions members is now taking shape. At the same time, the majority of the new Opposition Bloc’s 40 parliamentary members and the 19 members belonging to the Economic Development group (which is saturated with former Party of Regions members from southeastern regions) have a common position.

Their representatives are increasingly critical of the current government and have a good chance to gain absolute victory (at least in most southeastern regions) in the next local or even early parliamentary elections, which their speakers have already threatened to initiate. Paradoxically, this opposition is currently seen as the major beneficiary of the growing dissatisfaction among citizens of the southeastern regions where living standards have rapidly deteriorated, although it was this group that is responsible for the country’s critical situation in the first place.

At the same time, the line of confrontation between Ihor Kolomoyskyi and Petro Poroshenko is becoming more obvious. The latter seems to be trying to use parliamentary groups of Rinat Akhmetov, Dmytro Firtash and Serhiy Liovochkin to balance Kolomoiskyi’s influence in the southeast. If this is so, then Poroshenko is repeating the same mistake that Viktor Yushchenko once made, when he saw Yanukovych and the Party of Regions as a foil to Tymoshenko. It was a mistake for him to think that they might be any less dangerous to him.

Kolomoyskyi has put his eggs in different baskets. His people are present in the People’s Front, Samopomich, and in Poroshenko’s Bloc. However, his main stake is now in the newly created unaffiliated Ukrainian Opposition (UkrOp), which includes the famous Maidan captain Volodymyr Parasiuk, two deputies from the Right Sector (Dmytro Yarosh and Boryslav Bereza), the commander of the volunteer regiment Azov Andriy Biletskyi, and Kolomoyskyi’s former deputy in the Dnipropetrovsk Oblast Administration Borys Filatov, who is considered the unofficial supervisor of the oligarch’s creation in parliament.

The group is expecting Svoboda to possibly join them along with some other MPs as well—in particular, those that are members of other coalition factions. After all, it must have at least 18 people in order to become an official group in the parliament. According to Filatov, UkrOp is betting that “there is so much arguing within this parliament, and the major factions are resorting to such Byzantine measures that we will soon see major changes”.

UkrOp actively bills itself as the main alternative to the Opposition Bloc and Economic Development for the many people dissatisfied with the country’s development, especially in the Centre and West. Its representatives have publicly and sharply criticized President Poroshenko himself (Borys Filatov) and his speaker Groysman (Volodymyr Parasiuk). With Kolomoyskyi’s powerful media resources, this group can communicate its position to broader masses of dissatisfied citizens.

In the absence of organized political forces or a broad popular movement able to take responsibility for the country’s development and for fundamental transformation rather than imitation, the oligarchs will use the population’s appetite for populism to strengthen their positions. Oligarch projects will over and over again achieve popularity positioning themselves as new political forces, and acquire a certain number of seats in the parliament and government, continuing to act within the oligarchic matrix until replaced with new ones. The only way out is a true grassroots re-organizing of Ukrainian society from below. However, the conditions for this do not yet exist, and the citizens continue to simply assume that they can punish politicians who fall short of their expectations by voting for others in the next election.

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