Experts: Ukraine-Russia Deal Will Provide Little Relief

Significant problems with Ukrainian economy, corruption unaddressed

Pro-European Union activists in Kiev, Ukraine
Pro-European Union activists in Kiev, Ukraine / AP
January 15, 2014

Ukraine’s recent deal with Russia will only provide modest relief and still leaves significant problems with the country’s economy and corruption unaddressed, experts said on Tuesday at the Bipartisan Policy Center.

Ukrainian President Viktor Yanukovych has rejected a political and trade deal with the European Union (EU) and instead opted for an agreement with Russian President Vladimir Putin last month that included $15 billion in loans and sharply reduced natural gas imports. Putin had previously threatened to reduce vital trade with Ukraine and raise natural gas prices if it chose closer ties to the EU.

Experts on the region said at a Bipartisan Policy Center (BPC) event that Ukraine must still implement structural reforms to produce long-term economic growth—the kind of reforms that would have been accelerated by the EU deal. Ukraine faces almost $17 billion in debt payments over the next two years, according to Bloomberg.

Russia offered a stop-gap measure without strings attached while the EU presented a long-term solution, said Ryszard Schnepf, Poland’s ambassador to the United States.

"What President Putin offered to Ukraine is a rescue package or economic lifeline, which helps it survive today’s weaknesses without giving it a chance to modernize the country," he said.

Ukraine’s government has also rejected a bailout from the International Monetary Fund (IMF) that would require it to make changes such as raising energy prices. The government currently subsidizes domestic energy prices to such a low level that businesses are unable to make profits, the experts said.

Yaroslav Brisiuck, deputy chief of mission for Ukraine’s embassy in the United States, defended the Russian deal as "a temporary pause in the signing of the [EU] agreement" during a troubled economic time for Ukraine. The country faced some of the highest prices for gas imports in Europe and declining trade, he said, while the EU could have done more to help it implement the agreement.

"The deal that we reached with Russia helped us alleviate these problems, but that in no way changes the general course that Ukraine is taking," he said. "There’s no alternative to Ukraine’s course of [EU] integration, while at the same time being a close friend and partner of the Russian Federation."

"It doesn’t have to be a choice, either or, [between Russia and the EU]," he said later. "It doesn’t have to be a zero sum game."

However, recent events suggest Putin does not feel the same way.

The Russian president has sought to strengthen influence in the former Soviet territories as part of a strategy to bolster domestic support among conservative Russians, said Steven Pifer, former U.S. ambassador to Ukraine. Those efforts include the creation of the Eurasian Customs Union, Russia’s economically weaker alternative to the EU that has admitted Belarus and Kazakhstan as members. Ukraine has so far resisted membership.

Putin has also made increasingly bold moves on the international stage, including billions in arms transfers to Syrian President Bashar al-Assad and the stationing of nuclear-capable missiles near Poland and Lithuania.

Paula Dobriansky, former under secretary of state for democracy and global affairs in the George W. Bush administration, said it is important for the United States and Europe to assume leadership and provide a buffer to Russia’s efforts to extend its influence.

A permanently authoritarian Ukraine, one of Europe’s most populous countries, would be a bad outcome for both the United States and the region, she said.

"This is an area that if left to drift—if this direction does not get clarified—it could breed many significant problems for Ukraine and the entire neighborhood both East and West," she said.

Yanukovych’s rejection of the EU deal sparked hundreds of thousands of protesters to fill Kiev’s main square in a scene reminiscent of the "Orange Revolution" in 2004, which overturned an election won by Yanukovych that monitors said was rigged. Many of those protesting now are young Ukrainians who strongly favor integration with the EU and rooting out corruption.

However, those protests have dwindled in recent weeks, and Pifer said Yanukovych could be hoping that they fade away by the next election in 2015.

Ukraine’s Supreme Administrative Court also upheld a law on Monday that would appear to prevent famous boxing champion and opposition leader Vitali Klitschko from running for president.

"That [prospect] would and should trigger a very negative reaction from the West," Pifer said.

The U.S. Senate recently passed a resolution threatening to apply sanctions on Ukrainian officials, including visa bans and asset freezes, if further state violence was ordered against peaceful protesters.