Ukraine’s Survival Strategy for the Trump Era

(Bloomberg – bloomberg.com – Leonid Bershidsky – January 17, 2017)

For Ukraine, Jan. 20 is a scarier date than perhaps for any other country: It may be about to lose the U.S. support that has allowed it to stay afloat in the face of #Russian hostility and economic disaster.

The Ukrainian elite is divided between two competing strategies in response. One is all but unmentionable in public: concessions to Russia and a return to the previous policy of trying to build ties both with Russia and with the West. The other favors looking for ways to approach the new U.S. administration or at least keeping the support of traditional Republicans in the Congress and Senate. At the weekend, Joe Biden paid his last visit to Kiev as U.S. vice president. Biden was the Obama administration’s point man on Ukraine and intensely sympathetic to the current Ukrainian government’s cause — breaking free from Russian influence and joining Europe. He was instrumental in securing U.S. economic aid.

Biden has urged Ukraine to do more to fight corruption and to follow through on the Minks ceasefire agreement with Russia, which calls for elections to be held in eastern Ukraine, now held by Russian proxies. Poroshenko has done neither so far; and it’s no surprise that his desire for more military aid, including lethal weapons, never materialized. During his last official Kiev stop, on his way to Davos, Biden could only express the hope that the incoming administration would also support Ukraine — but also point out that “no one can do the hard work” for Ukrainians.

It’s unclear at this point whether the hope is justified. The sanctions against Russia for its actions in Ukraine are important to Poroshenko as the most tangible sign of Western support against Russian depredations. But judging by Trump’s recent statements, he sees them as possible bargaining chips in deals to be struck with President Vladimir Putin. Without U.S. political support — which has been weak lately anyway — disbursements from the International Monetary Fund have been hard to come by. Since adopting a four-year, $17.5 billion loan program for Ukraine in the spring of 2015, the IMF has released only three tranches of the package.

Ukrainskaya Pravda, the nation’s most popular news website, recently published what it claimed were details of an IMF memorandum laying down the terms of further cooperation. The tough conditions include a long-delayed reform that would allow a free market in land, gradual increases in the retirement age and the phasing out of tax breaks, including one for small businesses that has sustained much of the country’s burgeoning tech industry. If the leak is correct, the $5.5 billion Ukraine stands to receive this year may cost the Poroshenko administration more political capital than it has left after abolishing energy subsidies for households. Recent polls show Poroshenko’s popularity hovering under the 12 percent mark.

For a country whose economy shrank almost 10 percent in 2015 and grew about 1 percent in 2016, and whose government just nationalized the biggest bank without any guarantees that its former owners will pay back billions of dollars in related-party loans, Western support is critical. Russia has all but ceased trading with Ukraine. A resumption of economic relations would give the Ukrainian economy an immediate boost, but it’s politically a non-starter while Kiev is playing up the Russian military threat as the biggest factor affecting the country’s well-being.

Even in the context of the war in eastern Ukraine, the Kiev government’s biggest fight is with itself. Last week, the Ukrainian defense ministry released astonishing statistics from what it calls the “anti-terrorist operation” against Russian proxies in the east. In 2016, 211 Ukrainian servicemen were killed in action — and 256 more died from other causes, such as suicide, murder, traffic accidents, drug overdoses and alcohol poisonings or accidental shootings. The Ukrainian military faces the same deep-rooted problems as the rest of society, and Ukraine hasn’t gotten far in resolving them. That has resulted in a serious case of Ukraine fatigue among Kiev’s U.S. and European supporters, making all sorts of aid and encouragement less likely.

Viktor Pinchuk, one of Ukraine’s richest men and biggest philanthropists, proposed a remedy in an article published in The Wall Street Journal in late December. Pinchuk suggested that Ukraine should temporarily give up on its stated goals of European Union and North Atlantic Treaty Organization membership, stop beating the drum about the Russian annexation of Crimea and allow elections in eastern Ukraine before Kiev re-establishes control over the area. The article caused a storm of indignation in Ukraine (Pinchuk even apologized, blaming heavy edits and a provocative headline). In an official response to the Pinchuk article, Poroshenko’s deputy chief of staff, Kostyantin Yelisieiev, wrote:

“Compromises on Russia’s terms are the wrong policy. As one of the new U.S. administration’s heavyweights once said: ‘history teaches that weakness arouses evil.’ This has never led to sustainable peace nor saved lives. On the contrary, it has always fueled more aggression and human suffering.”

Far from showing flexibility, Ukraine has just sued Russia in the International Court of Justice, claiming its actions in Crimea and eastern Ukraine amounted to terrorism. Poroshenko has publicly argued that if Trump wants to make a deal with Russia, Moscow’s withdrawal from Ukraine should be part of that deal.

While “no compromise with Russia” remains the official line Kiev must look for allies in the U.S. who would support it on these terms. U.S. support is so important that the Poroshenko administration, facing huge budget constraints, agreed to a $50,000 monthly retainer for the services of the Republican-linked Washington lobbying firm BGR Government Affairs. It may face an uphill battle with the Trump administration, but it has a grateful audience among traditional Republicans such as Senators John McCain and Marco Rubio; they are already involved in a bipartisan effort to transform Obama’s executive sanctions on Russia into law.

The Ukrainian leader’s position is far from hopeless: His cause is a convenient vehicle for politicians seeking to bolster their credentials as champions of freedom and democracy. Poroshenko may also get more sympathy from European leaders riled at Trump’s contempt for the EU.

Poroshenko’s hope is that Putin will have little enough to offer to Trump that the deal-oriented approach will fail. Then these allies will help Ukraine recreate the special position it once held on a far friendlier U.S. administration’s agenda. If, however, some sort of grand Russian-U.S. bargain is achieved, Pinchuk and those in Ukraine who silently agree with him will suddenly become far more relevant than they are today.

Article ©2016 Bloomberg L.P. All Rights Reserved. Article also appeared at bloomberg.com/view/articles/2017-01-17/ukraine-has-a-survival-strategy-for-the-trump-era