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Vying for influence in Ukraine

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Oligarchs and Western experts are lining up to shape the future of Ukraine. But they're not all on the same side.

 

Fabian Burkhardt
13 March 2015

Berlin, Geneva, Paris, and Minsk. These are the places we usually associate with efforts to resolve the current confrontation between Ukraine and Russia, as well as Western countries and Russia in the wake of 2014.

As of October last year, Vienna has also joined the list, after an illustrious group of senior politicians and academics gathered in the Austrian capital’s lavish Hofburg Palace by invitation of Future Business Ukraine and the German-Ukrainian Forum. Given the location and attitude of the invitees, allusions to the Congress of Vienna which took place 200 years ago, defining the European order for decades to come, were made only half in jest.

‘New European Order’

Several months later in March 2015, it was reported that the Agency for the Modernisation of Ukraine (AMU), a body devoted to speedy reform in Ukraine, had been registered in Vienna. While founding members include French philosopher Bernard-Henri Lévy, British Conservative Lord Risby, and the German member of the Bundestag (CDU) Karl-Georg Wellman, the AMU also draws an advisory board of eight senior figures (Włodzimierz Cimoszewicz, Laurence Parisot, Bernard Kouchner, Lord Mandelson, Lord Macdonald, Peer Steinbrück, Günter Verheugen, and Rupert Scholz). The names are impressive, to say the least.

However, Evhen Vorobyov of Polish think-tank PISM was quick to denounce it as a ‘sham’. The agency, the Vienna conferences (four in total) and the advisory board, devoted to developing a reform agenda for Ukraine within 200 days, are funded by Ukrainian billionaire Dmytro Firtash. Currently residing in Vienna, Firtash is awaiting a verdict on possible extradition to the United States (to be announced by a Vienna district court on 30 April 2015). In March 2014, Firtash paid €125 million in bail after he had been arrested by Austrian authorities following charges of bribery by US law enforcement (related to India, not Ukraine).

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In Kyiv, some residents are dissatisfied with the progress made by the recently-elected government. (c) Nazar Furyk / Demotix.

Firtash was a key backer of Viktor Yanukovych’s presidential bid in 2010, and subsequently expanded his influence in Ukraine’s chemical and fertiliser industry. An investigation by Reuters convincingly demonstrated that Firtash profited in the 2000s from Gazprom gas sales well below market price; and portrayed him as an intermediary figure ‘representing Russia’s interests in Ukraine’. Consequently, Maidan activists turned Rada deputies such as Svitlana Zalishchuk and Sergei Leshchenko declared Firtash’s call for a European Marshall Plan worth 300 billion euros a PR stunt designed to whitewash his reputation in the West.

In fact, Firtash is not the only one to suggest a Marshall Plan for Ukraine. George Soros, the Hungarian-born financier and philanthropist, called for a $50 billion rescue package for Ukraine, which should be kicked off in the first quarter of 2015 by the EU. These two proposals are different in principal, and not only because Firtash pledges six times more funds. Soros has been arguing for a two-pronged approach, with sanctions against Russia as a necessary evil balanced by large-scale financial assistance for Ukraine. Firtash, on the contrary, described sanctions and the supply of non-lethal military equipment to Ukraine as ‘stupid’. Instead, he said, Russian investors should contribute equally to the financial package.

Missing the point

To focus solely on Firtash for assessing what impact AMU will have on reforms in Ukraine misses the point. The organisation and agenda of the four subsequent Vienna conferences paving the way for AMU were largely outsourced to the German-Ukrainian Forum (DUF).

A glance at DUF’s board will tell you that the forum is aligned with major non-governmental players in German-Russian relations. DUF’s chairman Rainer Lindner is also director of the Committee on Eastern European Economic Relations (Ostausschuss), a powerful business lobby and consistent critic of German Chancellor Angela Merkel’s sanctions policy. Another board member is Alexander Rahr, senior lobbyist for Wintershall and research director of the German-Russian Forum (DRF). Matthias Platzeck, DRF’s chairman stated it was ‘honourable’ to help rebuild Ukraine, and ‘oligarchs must also contribute a fair share’. Firtash announced that 25 per cent of the Marshall Plan for Ukraine should be contributed by Russian investors; and thus the institutional link to the Eastern Committee and DRF appears warranted from this angle.

On the face of it, this looks like a conciliatory gesture, or part of a face-saving exit option for Russia. But actually, it is unclear how a country that has failed to modernise its own economy should facilitate Ukraine’s ‘modernisation’. Moreover, researchers like Margarita Balmaceda point out that Russia has previously used Ukraine’s energy dependency as a form of patronage to corrupt the country’s economic and political elite.

Moreover, in 2013-2014, Russia introduced economic sanctions against Ukraine. Given the intertwining of political and economic actors in Russia, it remains unclear how the ‘carrot and stick’ policy could suddenly be turned around into a modernisation agenda. It could be argued that, instead of investment and credit, Russia should pay reparations for war damages inflicted on eastern Ukraine.

At the same time, DRF’s increasing engagement with Russian railway tycoon Vladimir Yakunin’s Dialogue of Civilizations annual public forum in Rhodes (the organisation is registered in Vienna, and has former Austrian chancellor Alfred Gusenbauer as co-chairman) does not seem to bode well for Ukraine. At a DRF conference in Berlin, Yakunin – already on the US sanctions list – accused the West of ‘vulgar ethno-fascism’, and the annual conference in Rhodes is mostly about geopolitics in a multipolar world. Günther Verheugen, deputy chairman of the DUF and one of AMU’s senior advisors, not only served as an EU Commissioner for Enlargement and for Enterprise and Industry, but is also a major proponent of Social Democratic Ostpolitik usually associated with appeasement towards Russia.

It is unclear how a country that has failed to modernise its own economy should facilitate Ukraine’s ‘modernisation’.

Setting the agenda

The AMU advisory board is just beginning its work, but the two memoranda published on the DUF website after the October and November Vienna conferences clearly signal its general direction.

The first memorandum contains the framework within which the eight senior advisers will develop their policy recommendations for integration, economy, trade, constitutional reform, police and justice, health, anti-corruption, public finances and taxes. Among the overarching theses are: a political solution to the Ukraine crisis via the Minsk agreements; credit lines for Ukraine from the EU and Russia (with both creditors having equal rights); a common economic space from Lisbon to Vladivostok negotiated by the EU and the Eurasian Union; a non-aligned military status for Ukraine; modernisation of Ukraine’s gas transportation system led by a trilateral consortium (EU, Russia, Ukraine); and the federalisation of Ukraine.

Federalisation, in particular, is a paramount issue, and was vehemently propagated by Rupert Scholz, a German expert on constitutional law. In 2012, Scholz criticised the EU for its ‘surprising and unfounded carping’ with regard to Hungary’s constitutional reform, insisting on national sovereignty.

The list, of course, goes on. But its final items are also worth noting: a gradual revocation of sanctions against Russia, and a Russian-Ukrainian commission to decide difficult political and historical questions. Many of these recommendations resonate with what Firtash has publicly declared, and which happen to chime with the position of the German Eastern Committee, and to a large degree, the position of the Russian government.

At the same time, while these stated goals might be noble in intent, there are at least three broader issues to be taken into account.

The Austrian government and the German chancellery were far from pleased with the emergence of AMU.

Best intentions

First of all, both the Austrian government and the German chancellery were far from pleased with the emergence of AMU. A German government source declared that it would have preferred an advisory board initiated by the Ukrainian government rather than an oligarch.

Moreover, due to its broader policy of fiscal austerity, the German government is sceptical about pumping money into Ukraine. Erich Vad, a former security advisrr to Chancellor Merkel, explained to a Munich audience recently that, in his view, the ‘Greek experience’ demonstrated that the benefit of financial aid is marginal if the institutional framework is not capable of absorbing it appropriately.

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The Azov volunteer battalion prepares to send repaired vehicles to the frontline in Donbas. (c) Oleksandr Khomenko / Demotix.

On a more abstract level, AMU also calls into question the realist assumption that international relations are mainly about states and governments. In other words, as a transnational non-governmental coalition, AMU and its independent agenda of economic diplomacy essentially challenges the prerogative of the French, German or Ukrainian governments.

Secondly, AMU is different from other initiatives committed to reform programmes for Ukraine, such as the formidable Reanimation Package for Reform. This body is a broad Ukrainian reform coalition which came into being on Maidan, and has a comprehensive reform agenda to turn into legislation. Likewise, one might also consider the ‘political decentralisation initiative’, a debate launched in February 2014 by Roger B. Myerson, the 2007 Nobel Prize winner in Economics, together with economist Tymofiy Mylovanov. The platform Vox Ukraine, a loose network of Western-trained economists of Ukrainian descent, also springs to mind, as well as the Nestor group consisting of Ukrainian academics, civil society activists, and policy advisers. Finally, the first Yatsenyuk government engaged four high-level voluntary advisers (Daron Acemoglu, Anders Aslund, Oleh Havrylyshyn, and Basil Kalymon) to assist with cutting government spending.

AMU is different in several respects. It is less academic, less grounded in the domestic Ukrainian debate, and less internally coherent in terms of the world views of the members. A striking example of AMU’s disparate views was Bernard-Henri Lévy’s statement during the first conference in Vienna that ‘the discussion about linguistic nationalism is a crazy discussion in which the intellectuals of Europe should not have entered’, while the first memorandum states that the ‘Russian-language population’ needs to be protected by the Ukrainian government from ‘radical groups’.

Among the senior advisers, Lord Mandelson is conversant with Russian oligarchs such as Oleg Deripaska whereas the former president of the French employers association Laurence Parisot called for ‘Europe to unite behind Ukraine against Russian aspirations’. Meanwhile, AMU is highly profitable for its staff (the eight senior advisers receive a four-digit daily euro salary), and is closer to the vested interests of Western big business, and the Ukrainian and Russian oligarchy.

Thirdly, for the reform programme of the AMU to be successful within Ukraine, a broad coalition of Ukrainian actors including oligarchs (Wellmann and Bernard-Henri Lévy tend to refer to Firtash as head of Ukraine’s employer association) is essential. Initially, AMU was presented as a joint effort of the oligarchs Dmytro Firtash, Rinat Akhmetov, and Viktor Pinchuk. Akhmetov and Pinchuk, however, were quick to publicly withdraw their support. The press release published by Akhmetov’s holding System Capital Management stated that he would be merely interested in the ‘reconstruction of the Donbas’. This attitude would make sense as Akhmetov made his fortune there; and Viktor Yanukovych’s and the Party of Regions built their power base in Donetsk.

Though initially Akhmetov used separatism in Donetsk as a bargaining chip with the new interim government in Kyiv, the oligarch was central in preserving governmental control of Mariupol on the Azov coast. With the so-called Donetsk People’s Republic exerting de-facto control over its territory, Akhmetov lost control over certain assets. But Akhmetov continues to play a central role in delivering humanitarian aid there.

Oligarch Viktor Pinchuk, son-in-law of Ukraine’s second president Leonid Kuchma (and a philanthropist known for the Art Center in Kyiv), called the new government reformist and pro-European in an op-ed. (By contrast, Firtash thinks the government is bad). But Pinchuk asked the international community to demonstrate ’tough love’ by applying conditions to IMF loans, binding them to actual deeds instead of relying on faith in the goodwill of the government. Judging by Pinchuk’s op-ed it is hard to see what role Russia could play in this conditional approach.

Igor Kolomoisky, governor of Dnipropetrovsk, showed from the very beginning he was hostile to AMU by spreading fake PR releases discrediting the endeavour. Kolomoisky sponsors private battalions fighting in the Donbas, and is, allegedly, a financial beneficiary of Ukraine’s war budget.

Partnership and alienation

Firtash’s position as the main backer of AMU alienated potential key stakeholders which, even if the advisory board with its impressive set of experts produced valuable recommendations, does not bode well for the future ‘modernisation’ of Ukraine. In fact, the whole endeavour could turn into a ‘partnership for neo-patrimonialisation’.

It is likely that the newly-founded Agency for the Modernisation of Ukraine will have to be renamed into the Agency for the Federalisation of Ukraine and the Abolition of Sanctions against Russia. To paraphrase Thomas Carothers, the mission is critical, but sometimes the missionaries are flawed.

Standfirst: Vienna's Hofburg palace. Image by Peter Gerstbach via Wikipedia. 

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