The situation in the Kerch Strait sharply worsened on Sunday. Russia has detained naval ships of Ukraine, which has already served for Petro Poroshenko as a reason to impose martial law. Apparently, the Ukrainian president has found a way to stay in power, canceling the elections scheduled for the end of March 2019.
Experts note: Poroshenko today is in a stalemate and is trying at all costs to ‘prevent’ elections, which he will surely lose. The West is still gently, but already aggressively pushing Petro Poroshenko ‘to the exit’ in various ways, including with financial instruments. At the end of the year, they decided to reanimate Ukrainian economy through credit injections: the European Union agreed to render macro-financial assistance to Ukraine in the amount of one billion euros, and the next tranche of the International Monetary Fund is on the horizon.
There is one ‘but’: loans are made on such conditions that assuming of imposed obligations during the election period will be a political suicide for Poroshenko.
Ukraine is living beyond its means
The economy of Ukraine is one of the most unstable. According to the consulting company IHS Markit, it ranked first in terms of vulnerability among emerging markets and eighth in the world rankings. The situation is sad: there is a high annual inflation (above the limits set by the National Bank of the country), an imbalance in the exports/imports structure, and unsatisfactory GDP growth. Constantly growing public debt and the costs to secure it are spiraling the country into the economic pit.
Kyiv openly admits that the state keeps afloat only thanks to loans from Western partners and remittances from Ukrainian migrant workers. Ukraine has long been living beyond its means and got hooked on loans, which make possible fulfillment of basic social obligations and repayment of old debts. It is enough to recall the June situation, when a crisis with pension payments began due to lack of funds.
International partners are aware of the economic situation in Ukraine and are ready to support it. But, in their understanding, ‘helping’ does not mean endlessly. Each loan received is presented in the local media with great fanfare, and then used to patch holes in the budget and fulfill social obligations to pay pensions and salaries to public employees. At the same time, structural reforms, which are a condition for the provision of money, are either implemented in part or not carried out at all.
Loan suppliers set conditions
Foreign partners change the rules of the game in relations with Ukraine according to the well-known principle of putting horse before the cart. This means that the country will now have to first comply with all the agreed requirements of the EU and the IMF, and only then expect to receive funds. What are the requirements Kyiv faces?
- The International Monetary Fund requires the Ukrainian authorities to raise gas prices by almost 25%, balance the budget, conduct anti-corruption reform and reorganize the State Fiscal Service.
- The European Union’s macro-financial assistance program in the amount of 1 billion euros provides for 18 requirements, six of which must be met to receive the first tranche and 12 for the second. Among these requirements are the privatization of small state-owned enterprises, the reform of social and tax policy, the fight against corruption, etc.
- It is noteworthy that the EU directly linked its own assistance with the presence of the existing IMF program. Both of them give a chance to receive additional financing from the World Bank in the amount of 800 million euros. The idea is simple: non-fulfillment of even one of the requirements will by default freeze the rest of Western assistance.
International assistance is a time bomb
The country’s leadership was in a stalemate. On the one hand, new loans are needed, especially in order to pay off already accumulated debts. Otherwise, they will have to either spend gold reserves, or increase the budget expenditures on external debts at the expense of other items.
On the other hand, the authorities are not in a hurry to fulfill the strict requirements of Western lenders. The sticking point is the increase in utility tariffs, as well as the reduction of the budget deficit due to cuts in social spending. To go on such a shock therapy is tantamount to a political self-harm, and Kyiv understands this well. However, in a situation where one had to choose between a bad and a very bad option, the government had to take the first path.
So, recently, the Government nevertheless approved an increase in the price of gas for the population by 25 percent. The main political and electoral costs associated with dissatisfaction of citizens, by tradition, fell on the president. Poroshenko had to justify the unpopular decision by the need to fulfill the IMF requirements and to maintain “macrofinancial stability of the country”. It is unlikely that such explanations suit ordinary citizens of Ukraine, who now carry this extra financial burden.
It is symptomatic that foreign partners refused to relax requirements for the Ukrainian authorities. Their demands remain markedly firm, and no one intends to soften them. Thus, even though the president receives the necessary amount of money, this is more of a Pyrrhic victory: Poroshenko will bear the brunt of the consequences of meeting the conditions of international donors. This becomes a critical blow to his political rating and electoral prospects. By all indications, this situation is by no means a coincidence, but a conscious intention of the West. The European Union seriously intend to say goodbye Poroshenko and have already begun to prepare for change.
Understanding the situation, the Ukrainian president, foreseeing a trap, performs unconventional maneuvers before the elections, including imposition of martial law with difficult to predict and far-reaching consequences. However, there is a great risk that military adventures will further convince Western allies of the need to get rid of such an unpredictable politician.
The new Ukrainian government will get the opportunity to start from scratch
Last year, the European Parliamentary Research Service published a report in which it gave EU recommendations on how to promote electoral reforms in countries that have signed an association agreement with the European Union. Among them is Ukraine. One of the key problems is the inability of the country’s leadership to fulfill its obligations, as well as public discontent with the political elites who signed the document. Analysts believe that thus their “political renewal” is required.
To promote the change of elites in the post-Soviet countries, the European Parliament is invited to encourage the financing of organizations that provide flexible support for democracy, which help new power groups to overcome barriers to the entry into the political system. There is no particular doubt that Kyiv’s international partners are ready to inject money for these purposes without presenting a package of requirements.
Ukraine indeed occupies one of the first places in the list of countries, which need to refresh their elites. The continuing series of Poroshenko’s failures in domestic politics and his toxic status in the international arena discredit the country’s European path and thereby strengthen the opposition in the upcoming election battles, both presidential and parliamentary. For Brussels, the optimal solution is to exercise a controlled transfer of power.
There are other reasons for this. Poroshenko was initially considered as a transitional figure, who would bear all costs from the first years of reforms and the general consequences of the crisis. And so it happened: by the end of the first term, the president has become a symbol of disruption, rampant corruption, lawlessness and fighting in the Donbas. He like a political sponge absorbed all the negatives of recent years.
The European Union intends to renew the political faces of Ukraine, and the current tough measures in the credit policy are part of a long-term plan to replace power in the country. Understanding this, Poroshenko is in a hurry to use unconventional solutions to outgame, to find another reason to bring the West and Russia against each other, raise the tension and restart the sanctions flywheel, nullify the chances of his political opponents, but the main thing is to retain power in the country until he can agree with external and internal centers of influence on guarantees for the best conditions for himself. And only after that he can loosen the grip.
In an environment where all are ‘wrecking’ him, Poroshenko is not afraid to sacrifice a couple of used sea vessels.
