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The Hijacking of Ukraine’s Democracy

October 17, 2012 - Jakub Parusinski - Bez kategorii

In downtown Kyiv smartly dressed businessmen and chic women brush past the teens distributing political pamphlets, speeding off to their appointments. Neither looks particularly enthusiastic. Summer has been replaced by the soggy greyness of autumn, and the elections – with all their generic billboards and empty promises – seem nothing but contrived.

Although keenly aware of how high the stakes are for Ukraine's upcoming parliamentary elections, scheduled for October 28th, most feel that little will change. Undecided voters make up 15 to 25 per cent of voters according to various polls, and a much greater amount feels the outcome will have little impact: the country will remain just as corrupt, come no closer to Europe, and the same people will continue to amass incalculable amounts of wealth.

The pessimism may not be entirely ungrounded, but the analysis is flawed. Indeed, the two-and-a-half years of Viktor Yanukovych's presidency have fundamentally changed the political and economic landscape of Ukraine, a legacy likely to persist past the current elections and perhaps even the presidential elections of 2015. Indeed, new centres of power – grouped around the presidential family and the so-called gas lobby – are likely to consolidate their power while traditional forces see their influence curtailed.

Rising stars

Ukraine's oligarchs remain a force to be reckoned with, wielding both power and wealth disproportionate to the country's size and economy. Although Ukraine's gross domestic product is less than that of Barcelona its foremost coal and steel tycoon, Rinat Akhmetov, is the world's 39th richest person at 16 billion dollars, according to Forbes (local experts put the figure even higher). Fellow magnate Victor Pinchuk also enjoys considerable influence in the West, reportedly funding both Poland's ex-presidential family, the Kwaśniewskis, as well as America's Clintons.

But while the oligarchs have clearly benefited from Yanukovych's presidency, cashing in on favourable privatisations and legislation, their gains have been relatively modest.

Meanwhile, others have seen stellar rises, chief among them Dmytro Firtash, a former co-owner of the notorious RosUkrEnergo, the gas-trading intermediary between Ukraine and Russia that was dismantled by Yulia Tymoshenko (and the reason she is in jail, if one trusts former Ukrainian Ambassador to the United States Yuriy Shcherbak). Leaked US diplomatic cables also show Firtash is a self-avowed collaborator with Russian crime overlord Semion Mogilevich.

According to the Ukraine weekly news magazine Korrespondent, Firtash has seen one of the world's fastest wealth accumulations in recent years: since 2009 his net worth grew by a jaw-dropping 540 per cent, from 354 million to 2.25 billion dollars, consolidating his grip on Ukraine's chemical, gas, and titanium sectors, among others. He has also managed to revive a RosUkrEnergo-type structure, a gas intermediary called Ostchem.

But Firtash is not alone to have seen a big boost to his career. Indeed, two partly overlapping groups to have secured the reins of power under Yanukovych, according to investigations by the Kyiv Post are the gas lobby and the “family”.

The former unites such figures as current Deputy Prime Minister Valeriy Khoroshkovsky, a former head of the security services and the nation's top media magnate, as well as head of the presidential administration Serhiy Lyovochkin and Energy Minister Yuriy Boyko. All have seen their influence and/or wealth grow dramatically in recent months and years – a fact dependent on sabotaging Ukraine's relations with the West and controlling key sectors of the economy, according to Shcherbak.

Arguably even more influential is a group of obscure civil servants close to Yanukovych's family, including head of the tax service Oleksandr Klymenko and central bank chief Serhiy Arbuzov. The banker was once the head of a relatively small bank owned by the president's son Oleksandr – an unknown dentist just several years ago, now valued at over 130 million dollars and allegedly one of the group's top figures.

According to Anders Åslund, senior fellow at the Washington D.C.-based Peterson Institute and long-time Ukraine watcher, the “family” has even superseded the oligarchs as the top economic and political strength in the country. Together with the gas lobby, it is seen as being the main driving force behind Ukraine's internal as well as external strategy.

Consolidation of power

The rise of the “family” and the gas lobby has been mirrored by a deterioration in relations with the West. Experts explain the latter as the logical consequence of the former and, in fact, the reason behind the biggest thorn in bilateral relations is the trial and imprisonment of former Prime Minister Yulia Tymoshenko.

Already a waning star at the time her Orange Revolution nemesis Viktor Yanukovych came to power, it is unlikely that Tymoshenko would have constituted a serious threat. While remaining a banner for parts of the enfeebled opposition to rally around, Tymoshenko had lost popular support, clashed with former allies, including fellow revolutionary leader and former President Viktor Yushchenko, and looked unlikely to exceed low double-digits in any election.

What her jailing did accomplish, however, was to ensure a time-out in Ukraine's European Union membership process. As a result, it seems to have been a case of killing two birds with one stone: retribution for damaging the business interests of rising Yanukovych ally Firtash, and securing a period of frozen relations with the EU, making the passage of controversial legislation all the easier.

This has certainly been the case, as a recent cascade of dubious bills illustrates. In recent weeks and months, new laws have fundamentally altered the way Ukraine will operate including, but not limited to: a law on state procurement that would move public spending into the shadows, a law on the depository and clearing systems of the stock market that goes against international practice by essentially nationalising critical elements of the country's financial system, and a law on the national electronic payment system that could see Visa and Mastercard have part of their business taken away and handed to a national entity.

According to deputy head of the Razumkov Center think tank Valeriy Chaly, all these laws are being lobbied by various interests before parliament changes and is no longer the present rubber stamp institution. Most of them, however, further the interests of either rising group.

In particular, the laws affecting the country's financial system would move greater power into the hands of the National Bank of Ukraine, controlled by Yanukovych loyalist Arbuzov. Meanwhile, a recent law on competition in the gas market is seen by experts as furthering the interests of Firtash, opening his companies to direct imports of Russian and Central Asian gas.

What comes next

At present experts point to two possible post-election scenarios. The first is moderate victory for the pro-presidential Party of Regions, which would re-enter into a coalition with the communists. In turn, the second has the opposition parties winning by a narrow margin – meaning a potential coalition of UDAR led by famed boxer Vitaliy Klitschko, the United Opposition under the co-regency of Tymoshenko and Arseniy Yatsenyuk, a former central bank head and current field leader of the opposition, as well as far-right party Svoboda.

This option, however, seems the less likely path at present. The opposition has no natural leader to put forth as a prime ministerial candidate and could easily succumb to internal divisions. Moreover, the previously used practice of tushki (flipping opposition candidates to join a ruling coalition after the elections) should ensure that the ruling Party of Regions form the new government, even if it is initially short of a few seats.

Yet even if the opposition manages to form a government, this does not mean it will be in power. Indeed, a presidential veto will be able to block any serious reforms or attempts to cancel prior acts, not to mention the hostile judiciary and executive branches, which lean towards Yanukovych.

Just in case that was not enough, several recent laws include a back-door escape hatch should things turn sour. The law on the depository system of Ukraine is perhaps the most striking example. The initial version of the law foresaw that, after having essentially nationalised the crucial financial institutions, these would be privatised – including to individuals – right around the time of the 2015 presidential elections. While this has been changed (the law now foresees privatisation within five years), the original intention appears clear.

According to political analyst Volodymyr Fesenko, head of the Penta think tank, this election is important not in terms of its potential outcome but rather because of the signal it will send. However, even a strong signal is unlikely to change anything. Perhaps Ukrainians are right to be despondent after all.

Jakub Parusinski is an editor at the English-language weekly Kyiv Post.

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