Ukraine: New hopes for old partners

Oleksii Krysenko, Foreign Policy Council "Ukrainian Prism" (Ukraine, Kharkiv)

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Despite some extremely negative developments in the Ukrainian domestic policy in October, the current economic and political model is still demonstrating the consistent stability. The most positive moment of the month might have come when the laws on the pension and medical reforms were passed, as well as the law on the special self-governance in the certain areas of the Donetsk and Luhansk regions. With the discussions about the risks and benefits of these laws taken off the table, their very adoption demonstrated to both domestic and foreign observers that the Ukrainian Parliament has a majority able to pass the laws strategic for the state. Moreover, it is exactly this majority that implements a rather relevant cooperation with the Cabinet of Ministers and the President of Ukraine, which in its turn creates the institutional balance to continue the reforms.

Domestic Policy. Deeper divide and higher stakes

A tendency for a deeper divide in the camp of the national democrats and a status of the irreconcilable opposition given to some members of this camp (first and foremost, to Samopomich (Self-reliance), Batkivshchyna (Fatherland) and Movement of the New Forces) significantly complicate the political power configuration and destabilize the country’s political situation in general. Fighting for the symbolic palm of victory of the “Donbas liberation” not only disorganizes the work of the Verkhovna Rada, but also devaluates the Ukrainian influence on the foreign policy arenas. The minimal amount of MP votes needed to pass the law on the special self-governance in the certain areas of the Donetsk and Luhansk regions, as well as an acute conflict appearing when passing this law demonstrated that a similar one may not be passed in the future. And this becomes a certain moral risk for the country.

This month political culmination happened when the new protests took place at the building of the Parliament of Ukraine starting on 17, October with a political slogan of “To a big political reform!” and then transforming into a steady protest, which later took shape of a tent camp. The protests joined the opposition part of a national democratic camp into a long-term de-facto anti-presidential act. Mikhail Saakashvili raised the political stakes as high as possible organizing this protest and trying to get his “own political survival” and went for an all-or-nothing game: either the protest ends with the concessions made by the President and the ruling coalition or he is likely to be extradited to Georgia that has already happened to some of his followers.

The end of the month was marked by the Russian special forces intensifying their terror in regard to some Ukrainian public figures: on 25, October a murder attempt of MP Igor Moseichuk was made and on 30, October Amina Okueva, a famous public activist and an officer, was killed. These developments yet again point at the state of the legal system in the country and the efficiency of the general political management of its separate institutions (the Ministry of Internal Affairs, the National Security Service of Ukraine, the General Prosecutor’s Office etc.). A special place in this discussion belongs to the search and detention of Oleksandr Avakov, the son of the Ukraine’s Interior Minister Arsen Avakov, initiated by the National Anti-Corruption Bureau (NABU) with regard to a “backpack case”. The NABU believes Oleksandr Avakov to be a suspect in the corruption scheme on supplying the National Guard with the backpacks. This detention signified a domestic divide in the ruling coalition and probably confirmed the conflict between the President and the Interior Minister.

Economy. Growth continues

Despite certain risks in the politics, the Ukrainian economy is still steadily growing. Some economic growth corresponds to the higher social standards for the population. For instance, according to the pension reform adopted on 3, October the minimal pension in Ukraine increased to 1452 UAH ($53). 

Starting 1, October Ukraine got an opportunity to increase its duty-free export of the agricultural goods to the EU countries, since the EU three-year autonomic trade preferences for Ukraine entered into force; they include more duty-free quotas for those goods that are especially demanded by the Ukrainian exporters. It is also worth mentioning that Ukraine is one of the top ten agricultural suppliers to the European Union according to the results of the first 9 months of the year, that confirms a defined tendency of transforming Ukraine into the country of agricultural export.

Turkey became one of the Ukraine’s most influential foreign policy partners in the “southern direction”

The macroeconomic parameters and the conditions of the Ukrainian economy continue to improve against the previous period. Also, the Ukraine’s position in the international ratings became somewhat better. In the annual Doing Business Rating Ukraine went 4 points up and ranks 76th among 190 countries (comparing to the 2016 results Ukraine now sits the 80th place instead of the 83rd).

On 19, October the UK Global Sourcing Association (GSA) named Ukraine the best country providing the outsourcing services in 2017. According to the GSA experts, the main advantages of Ukraine are the following: a great number of highly qualified developers, competitive prices, and IT-infrastructure that is developing quite fast.

Financial stability

The National currency of Ukraine hryvna went down 1.3% to US dollar in a month (as of 30, October). Among the main factors of the hryvna’s devaluating pressure there are the following: a smaller currency supply among the population and a growing demand for the foreign currency among the importing enterprises (that are the fuel and energy complex, pharmaceutical industry and others). Yet the current dynamic is more optimistic since last month hryvna devaluated 3.7% to US dollar, while on 26, October the Board of the National Bank of Ukraine went for a tougher monetary policy in order to prevent further inflation and raised the level of the discount rate by 1 p. p. to 13.5%.

The Ukraine’s balance of payments in September had a surplus of $637 mln. The net inflow to the financial account in September grew to $1.6 bn. Real wages in September, 2017 increased by 1.3% against August, 2017, and went up 17.3% against August, 2016.

The Ukraine’s international reserves made up $18.64 bn as of 1, October. Since the beginning of the year the Ukraine’s National Bank gold and foreign currency reserves went up 20% reaching a three-year maximum. As of 1, October the international reserves volume covers 3.7 months of the future import and is enough to fulfill the Ukraine’s obligations and the current operations of the government and the National Bank.

The IMF improved its forecast for the deficit of the current account of the Ukrainian balance for 2017 at the level of 3.3% GDP. Earlier in May the IMF made a forecast that this indicator would be 3.6% GDP.

Energy security

Within three quarters of 2017 gas transit through the Ukraine’s gas transportation system made up 70.4 bn of cubic meters, which is 23.5% more than the transit volume of 9 months in 2016 and is a record indicator for the previous nine years.

The total gas volume in the underground storage facilities made up almost 17 bn of cubic meters by the beginning of the heating season, which is 2 bn of cubic meters more than the maximum volume of gas at the beginning of the heating season previous year.

Natural gas extraction in Ukraine increased by 3.7% (or by 400 mln of cubic meters against the same period in 2016) according to the results after three quarters. Now 42 mln of cubic meters of gas are extracted every 24 hours in Ukraine.

Foreign Policy. Turkey as the most influential partner 

On 9, October the President of Turkey Recep Erdogan visited Kyiv. It is worth noting that the presidential meeting with Poroshenko lasted for more than three hours instead of 45 minutes planned. Nine interstate documents were signed, including those on avoiding the double taxation. Turkey became one of the Ukraine’s most influential foreign policy partners in the “southern direction”. Moreover, a further release of the Crimean political prisoners with Turkey’s decisive role in it confirms a rather deep level of the intergovernmental dialogue on the presidential level. The Ukrainian citizens Ilmi Umerov and Akhtem Chiygoz, the Crimean Tatar leaders and Mejlis representatives, who had been illegally detained in the occupied Crimea, were released and flown to Turkey on 25, October. In Ankara they were put on a plane to Kyiv.

One of the most unpleasant developments of the Ukraine’s foreign policy is its yet to be solved “language controversy” with Hungary. As a result, the Hungarian partners claim they are ready to veto any initiatives regarding Ukraine in the EU. On 27, October the Hungary’s Minister of Foreign Affairs stated that Hungary blocked the December meeting of Ukraine–NATO commission thus disconcertingly putting their bilateral relations in the Euroatlantic dimension. The “language conflict” needs to be resolved fast by seeking a mutually acceptable compromise. 

On 11, October the President of Ukraine Petro Poroshenko delivered an address at the session of the Parliamentary Assembly of the Council of Europe in the frames of his work visit to Strasbourg. This address had a very important symbolic significance for confirming the Ukraine’s status as a predictable European partner ready to seek the solutions both to its military confrontation with Russia and to any difficulties that might arise with the Ukraine’s neighbours.

On 17, October the President of Malta Marie-Louise Coleiro Preca paid a state visit to Kyiv following the Poroshenko’s visit to Malta. The return visit aimed to further strengthen the bilateral intergovernmental relations, which had no real political content up to this year.