Peterson Institute publications
The Peterson Institute for International Economics is a private, nonprofit, nonpartisan
research institution devoted to the study of international economic policy. More › ›
RSS News Feed Search

Op-ed

Ukraine's Putin?

by Anders Aslund, Peterson Institute for International Economics

Op-ed in the Washington Post
May 2, 2011

© Washington Post


In February 2010, Viktor Yanukovych was freely and fairly elected president of Ukraine. It was not too surprising: The Ukrainian economy had contracted by 15 percent in 2009, and near political stalemate reigned in this fragile democracy. One year later, Yanukovych appears to be following the prescription of his political model, Russia’s Vladimir Putin, by swiftly concentrating power in his own hands and wealth among a small circle of associates.

In October, the Constitutional Court suspended the Ukrainian Constitution of 2004, returning to the 1996 constitution, which granted greater presidential powers. The country is no longer regarded as a democracy; Freedom House downgraded Ukraine to being only partially free, and Reporters Without Borders ranks Ukraine 131st out of 178 countries in press freedom. And local elections last October ended Ukraine’s string of free and fair elections.

The authorities defend their roughness as necessary to achieve reforms. Last summer, these statements had some credibility. In June, Yanukovych presented an ambitious economic reform program. In July, he reached agreement on a stabilization program with the International Monetary Fund, backed by $15 billion of credits. Impressively, Ukraine swiftly carried out the required early actions, such as tightening the state budget and raising gas prices for consumers.

The ensuing “reforms,” however, did not boost Ukraine’s competitiveness or market freedom but instead benefited a few businessmen close to the president. Yanukovych favors privatization, but the deals are neither transparent nor competitive. The national telecommunications company, Ukrtelecom, was sold to a single permitted buyer — an Austrian private-equity firm named EPIC — at the minimum price. More such deals are in the works. Last summer, Ukraine enacted a new law on government procurement, but major infrastructure projects connected with the Euro 2012 soccer championship were excluded from competition and appear reserved for a couple of the president’s closest associates.

Ukraine’s grain exports boomed in recent years, with domestic and international entrepreneurs stepping in. But last summer, Yanukovych ordered an embargo on exports, with quotas granted only to his associates. Food processing is declining as a result.

The key reform law was the tax code adopted last fall, but it cut taxes on big corporations while increasing the burden on small entrepreneurs, arousing protests all over Ukraine. In an apparent charade, Yanukovych vetoed the tax code, eliminating its worst aspects, but even so, big international auditing firms say the tax system has deteriorated, and many small businesses have closed.

In a brief annual address to parliament on April 7, Yanukovych appeared to have given up his reform pretenses, presenting platitudes, apart from insisting on privatization. Major pension and gas market reforms agreed to with the IMF have been postponed, while the grain export quotas have been maintained and tax reimbursements have stalled. As a result the IMF reforms have fallen apart.

The most sinister aspect of Yanukovych’s rule is the use of the judicial system to repress opponents and the media. In its recent human rights report, the State Department noted that prosecutors had brought charges against former prime minister Yulia Tymoshenko and other former high-level members of the government, and that the way the case was handled suggested it was politically motivated.

In March, prosecutors surprisingly charged former president Leonid Kuchma, a staunch Yanukovych supporter, with involvement in the murder of journalist Georgy Gongadze in 2000. Given Yanukovych’s attitude toward opposition media and his previous lack of interest in the case, the sudden concern does not seem plausible.

Yanukovych’s role in instigating the case has aroused online speculation in Ukraine about his motives. The media report that other Kuchma-era politicians are being investigated, notably the parliamentary speaker Volodymyr Lytvyn. Another hypothesis is that oligarchs allied with Yanukovych want to seize television stations or steelworks from Kuchma’s wealthy son-in-law, following the script of Russia’s prosecution of Mikhail Khodorkovsky. A third theory is that Yanukovych is taking revenge on Kuchma for not having ordered his security forces to shoot on the peaceful Orange Revolution protesters in 2004.

Meanwhile, economic growth was mediocre at 4 percent last year, and the same is expected this year. Transparency International reports rising corruption.

Can such misrule endure in today’s Europe? The spirit of the Orange Revolution lives on in multiple public protests against everything from unpaid wages to repression. In a year, the popularity of Yanukovych’s party has fallen by two-thirds, to 14 percent, and his approval rating has fallen to 17 percent. A large majority of Ukrainians, including in the Russian-dominated east, believe their country is going in the wrong direction.

Yanukovych does not seem to recognize what his Russian example does: To survive politically, even under light authoritarianism, requires remaining overwhelmingly popular.