Anders Aslund, the Swedish economist and senior fellow at the Atlantic Council, said Russia is not likely to rebound anytime soon from its string of bad fortune – including low oil prices, conflicts with other nations and President Vladimir Putin’s economic ignorance.
And Ukraine will benefit from this, Aslund told the Kyiv Post this week during his four-day visit to Kyiv.
“There are many things Putin doesn’t understand,” Aslund said in an interview. “He has no understanding of trade or sanctions or structural reforms…He is a convinced crony capitalist.”
In one example alone, Aslund noted that Russian state-controlled Gazprom – the world’s largest producer of natural gas – as recently as 2008, had a market capitalization of $369 billion and almost monopoly status as a gas supplier. Today, it’s worth $40 billion as world gas supplies increase. He also expects that Nord Stream II, a gas transit pipeline to bypass Ukraine, will fail for economic and political reasons.
“We are pursuing a campaign against it and we will stop it,” Aslund said, noting that only German Social Democrats, Holland and Austria support the venture. He expects German Chancellor Angela Merkel will also eventually come out against it.
Additionally, Aslund said, Putin was slow to catch on to Saudi Arabia’s success in undercutting the price of oil in Russia’s traditional markets, such as Poland.
Adding up all the factors, Aslund expects Russia’s economy to drop even sharper than most forecasts, which already put the nation in recession for 2016. Demand in Russia is falling faster than production, he said, and oil prices may still have not reached bottom.
And the good news for Ukraine, he said, is that its economy is less dependent on Russia and in fact, stands to benefit from a Russian downturn.
“Ukraine has an objective interest in the Russian economy doing poorly. Ukraine would not be dragged down by a poor Russian economy,” Aslund said. “Ukraine does not benefit from a Russian recovery, either, because it is not allowed to export, but it can benefit from a Russian decline.”
Ukraine previously sold to Russia in four major areas: armaments, steel, agriculture and chemical products.
“Most of this is disappearing,” Aslund said, mainly for political reasons.
Ukraine’s Motor Sich will continue to supply helicopter engines to Russia because it has no alternative.
Steel prices are low and Russia is capable of protecting its own domestic steel-making industry.
In agriculture, Aslund said Ukraine can find other customers to replace the lost Russian market.
And, he said, the chemical and fertilizer plants such as Azot in Severodonetsk and Stirol in Horlivka were viable only because of cheap Russian natural gas, which will never return.
Aslund also believes that Russia is finally looking for a way out of its war against Ukraine and that a peace agreement could be finalized and go into effect this year. One factor driving Russia is the elimination of Western sanctions.
He cited a Russian public survey that identified the main enemies of Russia first as Turkey, the U.S. as second, Ukraine third and ISIS (Islamic State) fourth.
He believes the poll reflects Putin’s desire “to forget about Ukraine” in one of two ways: a frozen conflict or simply passing on the “poisoned chalice” of governing a war-destroyed Donbas back to Ukraine.
But Ukraine could still falter on the domestic front if it doesn’t wage a war on corruption. For that to happen, he said President Petro Poroshenko and Prime Minister Arseniy Yatsenyuk will have to lead.
He said that they, not Ukraine’s oligarchs, have most of the powers.
“The oligarchs are beaten,” Aslund said, citing their drop in wealth and political influence. In recent years, Ukraine’s No. 1 oligarch, Rinat Akhmetov saw a drop in his wealth from $20 billion to $4.5 billion. Last year’s loss of $1.8 billion to Akhmetov’s System Capital Management “is the biggest loss any Ukrainian company has recorded.”
Politically, he said, Akhmetov blundered by trying to stay friendly with everyone – Ukraine, Russia and the Kremlin-backed separatists in the Donbas. “He tried to have good relations with everyone in a situation where you cannot,” he said.
“The problem is Poroshenko,” Aslund said, when asked to explain why the war against corruption is not being waged. He believes a combination of Western, civil society and other internal pressure will eventually force Poroshenko and Yatsenyuk to act.
Aslund does not expect the clean-up to include high-level lawbreakers going to prison.
“I don’t think they will be prosecuted,” Aslund said. “The Ukrainian state is not strong enough to prosecute people in high positions. I don’t believe at all in the anti-corruption bodies. They will simply be too weak.”
Activists hold banners as they stand in front of President Petro Poroshenko’s residence on Oct. 31 to demand the dismissal of Prosecutor General Viktor Shokin. (Volodymyr Petrov)
He cited the mismatch in resources, with the National Anti-Corruption Bureau getting only 70 investigators while the Security Service of Ukraine has 4,000 investigators who are supposed to be investigating corruption with no progress to show.
The key, Aslund said, is lustration. He believes Ukraine should start over and sack all 18,000 prosecutors, 10,000 judges and 4,000 investigators in the Security Service.
Poroshenko and Yatsenyuk need each other, Poroshenko said, and have become good at deflecting blame and creating the erroneous impression that they are at odds with each other.
“Since court reform is under Poroshenko, Yatsenyuk and (Interior Minister Arsen) Avakov will push for it because it’s not their responsibility. It’s an interesting dialectic. They always suggest reforms in the area of the other,” he said.
For all their faults, however, Aslund doesn’t see a better pair of leaders for Ukraine and believes it would also be a mistake to hold early parliamentary elections before 2017.
“You don’t want to have elections one and half to two years after a democratic breakthrough,” Aslund said. “That’s when you have the lowest mood.”
He detects a calmer mood among the public because the economy may have bottomed out.
He expects inflation to be at only 12 percent this year, which should eventually lead to lower interest rates and spur lending in the second half of 2016.
As for American policy, he doesn’t expect U.S. President Barack Obama to visit Ukraine during his last year in the White House.
“He has not got Ukraine right, so why should he come?” Aslund asks. “He has not been particularly interested in Ukraine.”
Kyiv Post chief editor Brian Bonner can be reached at [email protected]
