With President Viktor Yanukovych’s foreign policy wrecking chances for integration with the European Union and Russia, Ukraine risks isolation as its economy and people suffer. Meanwhile, the domestic actions are inspiring yet more groups to take up protest.
Regime angers Internet communities
On Jan. 31. the government attempted to take a stance on Internet piracy by shutting down the popular file-sharing website EX.ua on accusations of copyright infringement a militia raid was used to seize the company’s servers; as well some of their records and documents. The Ministry of Interior alleges that the case was initiated by a group of software developers, headed by Microsoft Ukraine, who accuse EX.ua of illegally distributing their software. Oddly the Ministry of Interior chose to pursue EX.ua for piracy, despite having previously openly admitted that 50% of the software used inside the Ministry itself is unlicensed).
The shutdown of the famous file-sharing portal provoked a rapid response from the Internet community: the websites of the Interior Ministry, the President, the Cabinet of Ministers and the Security Service disappeared from the Internet mere hours after EX.ua went dark. Over the next couple of days an online social movement entitled “Freedom for Ex.ua” gathered over 40 thousand users. It seems the regime has made itself an obstacle to Internet freedom in the eyes of Ukraine’s youth. After an apparent bow to public pressure Ex.ua reappeared with limited functionality; the Ministry of Interior inform that they will return the remainder of the EX.ua servers only after the company agrees to block certain users that the regime term aggressive – EX.ua have thus far held their ground and refused.
The conflict with the Internet community marks yet another public scandal for the regime. Pouring petrol on the flames, Kyiv district court, at the behest of an offended militia traffic officer, ordered the shut-down of Roadcontrol.org.ua – a site that tracks violations of the law by traffic officers(3). It almost seems that the government is determined to increase pressure on Ukraine’s Internet communities; perhaps they have underestimated the population’s capacity for response.
People First Comment: The political struggle between copyright enforcers and advocates of Internet freedom emerged as a central international hot-topic earlier this year, with protests, such as the January 18th Wikipedia blackout, bringing the issue firmly into the public domain. On the one side, big business, who claim acts such as SOPA in the US and ACTA in the European Parliament are essential to protecting industry revenues. On the other, millions of netizens (Internet Citizens), rallied by Freedom of Speech pressure groups, who refuse to allow the freedoms that have enabled the Internet to exist to be compromised.
The action against EX.ua must have seemed like a safe bet for Ukraine’s regime: please local companies by responding to their concerns whilst positioning themselves as tough on Internet Piracy – a tip of the hat to Western business. Had they done their research however, they might have noticed that the site they were targeting regularly accounts for up to 25% of Ukraine’s Internet traffic; EX.ua can practically be considered Ukraine’s (unofficial) central entertainment hub.
Now, whilst in most cases the government can rely on Ukraine’s youth to remain apathetic towards state actions, here they failed to realise that if you remove their entertainment, suddenly you have a vast, angry, Internet savvy generation left sitting by their computers with a lot of free time on their hands.
The result was online protest in the form of DDoS attacks – A Direct Denial of Service attack is actually far more benign than it might sound: it is effectively the equivalent of walking into fast-food outlet with a group of friends and collectively ordering cheeseburgers over and over again so that no members of the pubic are able to place an order – disruptive, certainly, but not quite as threatening as the term ‘cyber-attack’ implies.
The partial return of servers to EX.ua shows that the unexpected mobilisation of protest caught Ukraine’s regime completely off guard – perhaps they are worried that if Ukraine’s youth realise their collective power, it might be more than websites that get torn down.
Is Ukraine approaching financial isolation?
Speaking in an interview on Ukrainian TV, Philip Gordon, U.S. assistant secretary for European and Eurasian Affairs, mentioned that the International Monetary Fund may refuse any further cooperation with the country, in light of the degradation of Ukrainian democracy. The US diplomat also noted a number of obstacles to investment in Ukraine, including taxation, regulatory policy and the customs service. These factors may explain why the value of American exports to Ukraine has been locked at the level of 2 billion dollars, despite a huge potential for growth. This comes in long line of warnings from the West that unless Ukraine changes course – stepping away from authoritarianism and strengthened oligarchy – the result will be total economic and political isolation.
Jose Manuel Pinto Teixeira, head of the EU Delegation to Ukraine, recently reported that the EU is suspending all financial aid for Ukraine’s administrative reform, as well as some other programmes. Officials report that the suspension is due to changes in the administrative law which contradict European standards; although unofficial sources claim that it is due to corruption in the allocation of the funds given so far. Ukraine’s inefficient policies, general deterioration of democracy and misuse of funds provided by the EU risks losing the country up to 1.5 billion UAH (160 mln. Euro) in 2012; this may be the final straw for Ukraine’s struggling economy).
People First Comment: Ask yourself a simple question… Would you lend money to this regime…and if you wouldn’t why should any body else? International banks and financial institutions only buy government bonds or provide finance to organizations that they can trust and whom they believe can and will repay the loan when it falls due. Now it is fair to say that Ukraine has never defaulted on a loan and has a good track record in international payments but that was before this regime took control.
Yanukovych has already admitted that on his watch some $7.5 billion has been stolen from the state budget… $7.5 billion must go down as one of the biggest thefts in European history and yet to date nobody has been caught… nobody has been prosecuted, nobody has gone to jail and no bills have been presented to parliament that close the loop holes that have enabled such wanton theft. Is it any wonder therefore that the IMF and World bank are reticent to continue lending after all the amount stolen is equal to almost 50 percent of the IMF standby credit loan designed to stabilize the country.
The regime have done a good job in raising the amount of tax revenue paid to the government even if their methods were universally deplored however there seems little point in filling the bucket if it has a $7.5 billion hole in the bottom which the regime has no intention of fixing.
Ukraine’s economy: running, just to stand still
According to experts from European Bank for Reconstruction and Development, Ukraine’s economy is one of the most fragile throughout the former USSR. Ukraine’s economy remains unstable due to its reliance upon exports of steel and chemical products. Other factors having a detrimental effect upon Ukraine’s economy include the ever-increasing state debt, the high amount of foreign currency in domestic circulation and the dependence on key export regions, namely Russia and the EU. Unsurprisingly, EBRD has lowered its predictions for Ukraine’s GPD growth in 2012 from 3.5% down to 2.5%.
Local analysts note that along with clear criticism from abroad, regarding the Ukrainian economy, Ukrainians themselves are feeling the impact of harsh policies such as the reduction of the minimum living wage. In July 2011 the minimum wage was set at Hr 1,180 UAH ($148) whilst already in 2012 it has fallen to Hr 1,073 or $134. Experts were quick to point out that a reduction in the minimum wage always costs the most vulnerable members of society: workers, retired citizens, students, large families, handicapped, veterans and others. As if the wage cut wasn’t enough, the level of inflation in Ukraine is on steady rise.
Ukrainian Prime Minister Mykola Azarov seems to have only one response to popular disapproval of the regime’s economic policy: blame the global financial crisis. Despite the criticism Azarov has been keen to stress the economic improvements that he has personally overseen; in particular he recently updated his Facebook page, praising the growth of the domestic market, general modernisation of the economy and several energy saving.
People First Comment: When the USA got into financial difficulties a few years ago the international financial community and especially the Chinese rallied round to limit the damage and maintain stability. When countries of the EU got into financial difficulties the EU Central bank and especially Germany rallied round and now the crisis would appear to be waning. When Russia hit hard times in 1998 they were able to fall back on their vast energy reserves and thus a meltdown was avoided.
Ukraine is now heading in the same direction but nobody is going to man or even launch the lifeboats as nobody cares if Ukraine fails. This regime has no friends, no disposable assets and little financial acumen. It is not trusted or respected and as a result of the failure of successive governments to build a sound financial model the nation has no basis for further borrowing at interest rates that the nation can afford. Corruption and wanton theft are now endemic. The regime have taxed the nation to death resulting in an unprecedented decline in the SME sector and now even world commodity prices are on the decline which will hit Ukraine very hard indeed. The international ratings agencies are already downgrading Ukrainian sovereign debt therefore the outlook for Ukraine in financial terms is not good at all as isolation is a real possibility.
Financial meltdown is now a real possibility as the current account is in deficit to the tune of over $9 billion, the foreign exchange reserves are seriously depleted and Ukraine has external liabilities of $52 billion that fall due next year. The regime hopes that they will be able to cover the short fall in a forthcoming Eurobond auction but this is now looking less likely as Western Banks are growing wary of being associated with questionable regimes, Belarus being the prime example. If or when a meltdown happens poverty will get appreciably worse, unemployment will rise dramatically, banks will fail, inflation will run out of control, food will go into short supply and those who can will seek to emigrate. Not a pretty scenario but as other nations in default have found the price of greed and government incompetence is very heavy indeed. Is there a solution, certainly but in order to make it happen the Ukrainian people need to understand that with independence also comes the responsibility of nationhood and nation building, something that is sadly lacking in this introspective society.
Ukraine: sitting on fence annoys both neighbors
The foreign policy blunders of Ukraine’s regime have backed the country into a corner where it must make a concrete decision between either the Eurasian Union with Russia, or the Free Trade Area with the EU. So far the regime has used delaying tactics to try to find some way of getting the benefits of both unions, without taking on the political costs of either. This is evident in Azarov’s suggestion for Ukraine to join the Eurasian Union on a 3+1 basis; Moscow has stuck to its all or nothing offer. Azarov remains hopeful that entering further into the Russian fold will not harm Ukraine’s chances for European integration.
Similar to Russia, the EU are less than satisfied with Ukraine’s erratic foreign policy behaviour. Jose Manuel Pinto Teixeira, Head of the EU Delegation to Ukraine, recently reaffirmed that the EU’s offer of a Free Trade Area and the Customs Union with Russia are mutually exclusive; he added that, with negotiations over the free trade area completed and a respective treaty on the table, the extent to which Ukraine keeps delaying is ridiculous(10). Russia has also commented publicly on Ukraine’s foreign policy: Sergey Govorukhin, chief of Putin’s election staff, has been quoted as claiming that Ukraine’s refusal to join the Eurasian Union will be the end of Yanukovych and his Administration; noting that the responsibility for the worsening of Ukraine-Russia relations lies with the current President of Ukraine.
The regime is running out of space in which to manoeuvre; the time has surely come to mark the choice between Russia and Europe with action; otherwise Ukraine risks losing both, slipping further into geopolitical insignificance and away from economic prosperity.
People First Comment: Ukraine’s foreign policy can at best be described as metronomic in that it predictably swings from East to West and back to the East depending on what the regime believes is in its best interests irrespective of the will and interests of the Ukrainian people. The EU has clearly defined their terms for a Free Trade Agreement. These terms are very advantageous to the Ukrainian people but would mean that the regime will have to make fundamental changes which seriously undermine the way they operate. Russia too has made its terms abundantly clear which no amount of creative suggestions are likely to change as they are very much in the Russia’s interests. The regime promised the EU the earth and then failed to deliver so often that the EU has now suspended all communication with the President. Prime Minister Putin has made his feelings toward the current regime abundantly clear and these too are not complimentary thus the regime is now stuck between a rock and hard place. Either way they lose. If they side with Russia then it will be against the will of the people and this will cost Party of Regions and later the President in the elections. If they side with the EU then the cost of energy is likely to skyrocket as Russia will take the decision as a personal affront. Sadly this is however exactly what happens when amateur politicians seek to play Russia and the EU off against each other.
Viktor Tkachuk is chief executive officer of the People First Foundation, which seeks to strengthen Ukrainian democracy. The organization’s website is: www.peoplefirst.org.ua and the e-mail address is: [email protected]
