January 23, 2014 Stanislav Tkachenko, special to Russian Beyond The
Headlines
Ukrainian President Viktor Yanukovich set off a fresh crisis in his
country in fall 2013, when he rejected a trade deal offered by the European
Union in favor of closer ties with Russia.
Thousands of Ukrainian citizens took to the streets in protest, and
clashes with riot police resulted in injuries.
What are we to make of these events?
Understanding the choice before Ukraine and the motives of Yanukovich
and Russian President Vladimir Putin requires a nuanced appreciation of the
economic history of the post-Soviet landscape.
Ukraine: What's behind the
protests
Opinion: What's behind the protests in Ukraine
The break-up of a single economy that resulted from the collapse of the
USSR had harsh economic consequences that are still playing out in the region.
In the 1990s, Russia’s economy contracted 40 percent, and Ukraine’s
economy fell as much as 60 percent. The Soviet economic system was destroyed,
and new types of co-operation between countries are only just beginning to
emerge. This is by no means an easy process.
In the Soviet era, Ukraine was the most economically and technologically
advanced republic in the USSR. But as a sovereign state today, Ukraine is one
of Europe’s poorest countries.
The EU and the U.S. began to compete with Russia for influence over Kiev
soon after the breakup of the Soviet Union. But their actions lack strategic
vision and are currently not backed by economic resources.
Not so long ago, Ukraine was the third largest recipient of U.S. aid,
after Israel and Egypt. The EU too has implemented numerous reform assistance
programs for Ukraine.
But the scale of that support was far from meeting Ukraine’s needs. The
2008 crisis had a devastating effect on its economy.
A $16.4 billion agreement with the IMF signed in November 2008, and a
follow-up $15.1 billion agreement in August 2010 were only able to slow down
the country’s slide into an economic abyss.
Vox Pop: What is the future of
Russian-Ukrainian relations?
Vox Pop: What is the future of Russian-Ukrainian relations?
There were also difficult social consequences, showing the country’s
leadership that the path of ultraliberal reforms would be dangerous for social
stability. It was at that period of uncertainty that Russia joined in the
politico-economic rivalry over Ukraine.
When inviting Kiev to sign an association agreement in November 2013,
the European Union in effect agreed that the task of improving Ukraine’s
situation lay fully on the Ukrainian authorities and people. The EU, after all,
had its own financial and economic crisis to deal with first.
Kiev had expected Brussels to come up with a modern version of the
Marshall Plan, and those expectations were dashed. In effect, Ukraine was being
invited to join a Eurocentric model as one of its periphery states.
By contrast, Russian leaders believe that becoming “a second-rate
European country” is not what Ukraine deserves. The Kremlin is offering Ukraine
a more attractive short-term development path as a partner in the Moscow-led
integration bloc called the Eurasian Union.
The aid package that Russia offered to Ukraine in December 2013 (a $15
billion loan; a considerable price cut on Russian gas; joint technological
projects) prevented a default and provided some breathing room to develop plans
for saving the Ukrainian economy.
Champions of integration within the Eurasian Union say one should not
overestimate the destructive consequences of the collapse of the unified Soviet
economy.
Much of the shared Soviet legacy has indeed been preserved. For
instance, Russia and Ukraine still have massive trade in goods and services
($55.5 billion in 2012), visa-free travel and free movement of labor, an
integrated gas transportation and power system and military-industrial
cooperation.
Russia still has its naval base in the Crimea, Ukraine. In political
economics, relations like these are termed “interdependence” and they are an
important condition for economic integration.
But it is doubtful whether the model proposed by Russia will remain
sustainable in the long term. Experts are well aware that the effective
functioning of a modern state depends on such institutions as strong property
rights and market sophistication.
Related:
Russia to invest $15 bln in Ukrainian government securities - Putin
Russians aware of loan to Ukraine, say it can preserve friendship - poll
A divided Ukraine: Between Russia and the EU
Property rights protection in Russia is poor, institutions of the
required quality have not yet been created and the country’s authorities are
not doing anything to create them. What the Russian economy needs is not
micromanagement from the Kremlin, but reforms that could ensure the operation
of the economic institutions of a modern state.
If Russia’s next move after involving Ukraine in a process of
reintegration is to carry out the kinds of radical institutional reforms that
economists have been urging for the past 10 years, then the protests in Kiev’s
Independence Square and the unexpected rapprochement between Russia and Ukraine
could have long-term positive consequences for both countries.
Russia and Ukraine are united in that their future prosperity lies in
developing European-type democratic societies. Yet Russia also aspires to
become an independent center of gravity in world politics. Its current efforts
are aimed at attracting Ukraine into its own integration project, which runs
counter to the interests of the EU and the U.S.
The need to deepen cooperation with Ukraine within an integration
project will hopefully spur reforms both in Russia and Ukraine, leading to the
creation of a window of opportunity for a real modernization of the
politico-economic system in both countries.
But in the meantime, Russia is unlikely to adopt a policy that
reconciles itself to passively watching Ukraine develop as a peripheral member
of the European Union.
Leaders of the countries that once constituted the Soviet Union share
certain similarities in their worldview. One is that they tend to downplay the
concept of ”values” as a motivating factor for national policy, preferring
instead to focus on “interests,” both national and personal.
Ukraine’s economic lifeline: What's in it for Russia? Ukraine’s economic
lifeline: What's in it for Russia?
Russian leaders are convinced that international relations within the
Commonwealth of Independent States (as the loose-knit organization of former
Soviet states is known) is a zero-sum game territory. That means every defeat
suffered by a partner from outside the region translates into a victory for
Russia. Such outsiders would include the U.S. and China, as well as the EU.
Any attempt to understand the economic consequences of the current
events around Ukraine without taking into account this worldview of the
regional elites is bound to fail.
Stanislav Tkachenko is an associate professor of International Relations
at St. Petersburg State University.
