A forecast for Ukraine in 2020
What is in store for Ukraine in 2020? The scenarios will be shaped by global trends as never before. The pressure on Zelenskyy is likely to intensify both at home and abroad with focus on the peace process and the economy.
Ukraine: The European frontier – a blog curated by Valerii Pekar.
Ukraine is higher on the global agenda than ever before, so it is worth starting with a look at some international trends, including: high economic uncertainty, a shift in global economic leadership, increasing environmental challenges, tension in the global supply chain, growing social inequality and polarisation across the world, high mobility of Generation Y and the acceleration of technological innovations (uneven for industries and countries, following the principle of “the winner takes it all”). These global trends have a strong impact on Ukraine, which is a small open economy, highly dependent on external influence and unable to withstand global shocks.
Challenges and limitations
Scenarios for Ukraine in 2020 will be shaped by these global trends outlined above, combined with key challenges specific to Ukraine. These include:
- The Russian-Ukrainian war, a possible intensification or change in the policies of the presidents of Russia and Ukraine;
- The US presidential election and its potential impact on Ukrainian politics;
- A possible global economic downturn (it is quite probable, although it unlikely to be inevitable, there are too many uncertainties; in any case, it will start no earlier than the end of the year, so most likely will not affect Ukraine this year);
- Large payments on Ukraine’s public debt in 2020 (at present it seems that this will not be a problem, but with IMF support);
- A clear breakdown of the ruling elite into separate groups run from different centers;
- Already strong existing and growing tension between Ukraine’s active civil society and the ruling political regime.
The main factors limiting the ability to respond to these challenges are:
- Ukraine’s institutional weakness: weak executive power, while diplomacy, intelligence, etc. weakened even more over the last year;
- Lack of strategic vision on all key issues (war, economy, justice) and lack of a systematic plan for implementation of reforms;
- Weak economy, slow growth, insufficient investment;
- The state is too present in the economy: large number of state-owned enterprises, inefficient redistribution of funds through the budget;
- Confrontation between Ukrainian state institutions and oligarchs.
Global trends, Ukrainian challenges and local constraints are the stage where the events of 2020 and beyond will unfold.
Let’s start with the trends which will remain likely unchanged, so we can consider them as invariant processes, present in all scenarios:
- The peace process in Donbas is unlikely to have significant results in 2020. The keys to peace are in Moscow, and Russia has no reason to end the war: sanctions are painful, but tolerable, processes in international courts are slow, and Russia’s return to the club of great powers is already underway.
- Unfortunately, with the exception of slogans, Crimea will remain outside of the agenda, as it was in previous years.
- Most of the economic reforms that will be launched in 2020 will bring an economic effect only in 2021. This year they will just improve entrepreneurial expectations, which depend on changes in the rule of law.
- The ruling political regime will continue to break up into separate groups run by different centers, without a common vision and opposite to each other. There are at least four groups in the upper echelons of power: liberal supporters of reform; left-minded populists opposed to reform; friends of the president following him either way; and representatives of oligarchic groups. The disintegration process is already underway and cannot be reversed.
- The president’s rating will continue to decline gradually, as is always the case for the second year of the term. Successful media campaigns can only reduce the pace of the fall, not prevent it. Voters in 2019 wanted very different and sometimes impossible things from the president, so their frustration will continue.
- The practice of manual administration of justice is likely to continue. At least at the beginning of the year, there is no indication that the ruling elite has the desire or plans to begin to implement the independence of the judiciary and the rule of law in the actions of the prosecutor’s office and judges (in fact, institution building in the current government is not generally a priority).
Now let’s move on to the main forks, i.e. important variants that will shape the different scenarios.
First front: Russia
The first major fork is relations with Russia. As already stated, Russia has no reason to end the military conflict because it serves its strategic goals. It is important to understand that Russia has a number of strategies for Ukraine that are described in detail in this article. In short, Russia can rely either on the chaos in Ukraine, or on drawing Ukraine into the economic orbit of Russia (“Belarusianisation”).
If there is a bid for chaos and destabilisation, there are several scenarios here:
- Exacerbation of the conflict. Putin may decide to raise the stakes in the war. The most likely step is a complete blockade of the Azov Sea and the start of blockade operations in the Black Sea, which will negatively affect the mood of the inhabitants of the Ukrainian south as well as Ukrainian exports. Terrorist attacks are also possible in large cities to sow panic.
- Promoting peace on Russian terms. Ukraine needs peace, but the question is at what price. Attempting to exert international pressure on Ukraine to implement the Kremlin’s vision of Minsk arrangements (hold elections in the Donbas before Ukraine gaining control over the occupied territories and demilitarisation) almost inevitably leads to civil unrest. Another trigger for such unrest is the presidential version of decentralisation, which has already received severe criticism from both the local elite and civil society (they see hidden federalisation or even capitulation as well as concentration of power that actually reverses decentralisation reform). At present, the authorities are in the focus of constant criticism for attempts to reconcile with Russia on Russian terms, so that active steps in this direction are being monitored and will inevitably provoke great resistance.
- A media attack on President Zelenskyy. Another interesting twist, quite possible in the current environment, is the Kremlin’s transition to media attacks on the Ukrainian president and his entourage. At the moment when Vladimir Putin realises that he cannot get what he wants from Zelenskyy (no matter whether it is because of his own position or because of public pressure on him), he may decide that it is more profitable to use Zelenskyy’s weakness to spread chaos. The numerous mistakes made by the Ukrainian president and his entourage will provide sufficient grounds for this. Ukrainian voters are known to rapidly move from love to hatred. And for Russia, Zelenskyy is a threat; the democratic process of his coming to power contrasts with Russia’s political realities.
Yet, Russia also has a completely different and quite plausible strategy: economic integration amid frozen conflict or a gradual movement towards reconciliation. The Ukrainian president wants peace, the Russian president could give it piece by piece on Russian terms, so as not to upset Ukrainian society. Thus, a scenario of gradual economic rapprochement between Ukraine and Russia (a kind of Belarusianisation) could be realised. In the meantime, the military and political situation will remain frozen, although there may also be options for substantial peace deals by Russia to accelerate economic integration, or vice versa, with a slight exacerbation of pressure. If this scenario is implemented, the government will be replaced by a more flexible and pro-Russian one (a number of candidates are already being discussed; their background proves that they are well prepared for integration with Russia), parliament will remove some legislative safeguards, Russian money will penetrate into privatisation and the land market (possibly through Ukrainian oligarchs). Of course, the signs of such a scenario will provoke resistance from civil society, but it is unlikely that such a creeping process will cause civil unrest, because it is much more difficult to track it comparing to concessions in the military and political spheres.
Thus, Russia has at least four strategies to choose from.
Second front: The oligarchs
The second big fork is the relations between the authorities and the oligarchs. This fork could be either liberal reforms or power sharing with the oligarchs:
- Fast liberal reforms with strong support of non-oligarchic Ukrainian business, civil society and the West. As a result, the role of the oligarchs is diminished by de-monopolisation of markets and introduction of equal rules.
- Increasing the influence of oligarchs to preserve the rating and political influence of the president through oligarchic money and media.
In the first case, liberal economic reforms will take place during the year with large-scale privatisation and concession of state property, opening of the land market, deregulation, liberalisation of labour legislation, the increasing capacity of the Antimonopoly Committee, pilot projects of subsidised investment loans and, likely, stimulating tax innovations. In this case Ukraine can receive support from the IMF. At the moment, it is likely, but the risk of non-compliance with the IMF’s conditions for diminishing oligarchic influence remains (such was the case with Privatbank).
The most important issue is the rule of law. Successful steps towards judicial reform would lead to the strengthening of the presidential power (without the need to share it with the oligarchs), to reassure civil society, to accelerate economic development and to increase international support.
In the second case, the oligarchs are gradually increasing their influence through the change of government and (possibly) parliament. The resignation of the government is very likely in this scenario, but there are options when it happens, in the spring or the fall, and what the government has time to do until then. The next government will be neither professional nor monolithic, and the very idea of a technocratic government will be called into question, so the next government will be much worse and will consist of people representing oligarchic interests, and possibly Russian ones as well.
Early parliamentary elections are possible if the presidential influence on his one-party majority would be lost, but his high rating would be maintained. Nevertheless, it will not be possible to repeat the victory of 2019, so the next parliament will be a coalition as well as the government it will form. In this case, the oligarchic groups will exert their influence and the local elites can regain some of their lost power. The pro-Russian political forces also will improve their standing, taking back voters who voted for Zelenskyy in 2019. It is important to emphasise that the increased influence of the oligarchs can occur both in the situation of increasing Russian influence and in the situation of maintaining the current frozen status of the conflict.
It is important to note that legal and media attacks on the veteran and volunteer community (the most active part of civil society) and the political opposition will not improve the president’s rating, but will significantly increase social tension, possibly to the level of street protests.
Two of the most important forks, along with the threats of civil unrest, form the four main scenarios listed in order of decreasing probability:
- Oligarchic status quo (most likely scenario). In this scenario there is a return to the traditional oligarchic trajectory of development (one might say, oligarchic revenge). Reforms that are disadvantageous to the oligarchs will be curtailed or implemented in a way that strengthens their influence. The government and the parliament become coalition in the process of gradual or sharp dispersal of power. The president’s influence diminishes. Oligarchic wars are possible with some growing at the expense of others.
- The Russian orbit: gradual economic integration against the backdrop of sluggish public resistance (a very likely scenario). As already mentioned, Russia can realise its interest in Ukraine via different means. Economic integration with Russia is possible both with strong oligarchs (they can be used to bring money) and with weak ones and a strong pro-Russian government.
- Destabilisation (less likely scenario). This scenario sees civil unrest caused by military or political concessions to Russia and/or active attacks on the volunteer-veteran community. This is a pretty desirable scenario for Putin.
- De-oligarchisation (the least likely scenario). Here would see a decrease of influence of the oligarchs amid a frozen conflict with Russia or (even less likely) by reaching a new consensus with them (a New Deal) towards the open economy and politics: liberal reforms, improvement of rule of law, coercion to disclose ownership structure of their business groups in exchange for promises of equal rights and equal rules for all, tax amnesty and refusal to review privatisation results.
Thus, during 2020 Ukraine either gradually returns to the traditional oligarchic trajectory, or begins economic reintegration with Russia, or moves to unmanaged social destabilisation, or enters the trajectory of rapid development.
Critical points for observation include the passage of liberal reforms through the parliament, the possible resignation of the government and early parliamentary elections, the course of negotiations with Russia,
and ongoing cases in international and local courts (including Privatbank and cases against members of the volunteer-veteran community).
Valerii Pekar is a co-founder of the Nova Kraina Civic Platform, a lecturer at the Kyiv-Mohyla Business School and a former member of the National Reform Council. He curates a blog on New Eastern Europe titled Ukraine: The European frontier.