ANALYSIS: Ukraine: prospects for 1998 (01/25/98)

ANALYSIS

Ukraine: prospects for 1998

by Taras Kuzio

Political

The political landscape in Ukraine during the first half of 1998 will be dominated by the March parliamentary elections, while during the second half of the year two events will dominate the political scene. First, the Verkhovna Rada will undergo a process of re-structuring into factions and interest groups. Second, the presidential election campaign will be launched for October 1999.

The March 1998 elections will be the first to be held using a mixed election law, where 50 percent of candidates will be elected by majority vote and 50 percent of the seats will be allocated in proportion to the percentage of votes a political party receives above the 4 percent minimum barrier.

The 1994 elections had been held with an election law that was 100 percent majoritarian, which had produced a Verkhovna Rada with little political structure and one that possessed a large centrist lobby of varied interests and clans. It was difficult to pursue coherent policies or establish political majorities in favor of specific programs with such a Parliament.

The new Verkhovna Rada is unlikely to have a left-wing lobby larger than the current one-third of seats it holds, despite the grave socio-economic crisis. The elections also are likely to lead to a Parliament that will be quickly elected (unlike the previous term, when seats were still being filled into 1995). This is important because those who are the first to sit in the Verkhovna Rada will elect the chairman, a crucial position that is able to influence the agenda and voting of Parliament (the 1994-1998 Verkhovna Rada was led by the head of the Socialist Party, Oleksander Moroz).

In addition, a crisis could quickly erupt if Communist national deputies refuse to take the oath of loyalty to the Ukrainian state, as demanded by the 1996 Constitution. Upon refusing to take this oath, they will not be allowed to take their seats.

The 1998 Verkhovna Rada should be supportive of reform in view of the likelihood that the centrist "swamp," as it has been described, will be replaced by a far more structured Parliament with reformist election blocs providing factions in larger numbers. This is important also because the outcome of the parliamentary elections, together with the socio-economic situation, will influence the presidential elections the following year. The four declared candidates - Mr. Moroz, Yevhen Marchuk and Pavlo Lazarenko (both former prime ministers running on Social-Democratic platforms in the parliamentary elections), and President Leonid Kuchma - will be influenced in their choice of strategies and allies by the outcome of the 1998 elections. President Kuchma, currently completely trusted by only 10 percent of the population, is likely to be the front runner with Mr. Marchuk going into the second round.

Economic

Initial optimism expressed in the early part of 1997 about Ukrainian economic prospects has become decidedly more cautious. The International Monetary Fund had projected that the Ukrainian economy would continue to decline in 1997 with a fall of 3 percent in GDP, but then grow by 2 percent in 1998. This recovery now looks in doubt, although a 1 percent growth rate in 1998 may still be attainable.

By the middle of 1997 GDP was already some 7.5 percent lower than a year earlier. Ukraine has been unable to translate its macroeconomic stabilization into economic growth because of the slow pace of privatization and restructuring of industry, a growing trade deficit and problems of locating refinancing to cover current budget deficits and meet service payments on international debts. The slow pace of economic reform has led to greater pessimism within international financial institutions about Ukraine's ability, particularly during elections, to continue to push ahead with painful reform.

Social problems are another difficulty that will plague Ukraine during election year - wage arrears is at $2.6 billion and official unemployment continues to rise, now at 600,000. Only Russia and Kazakstan within the CIS have trade surpluses of exports over imports; Ukraine remains the country with the highest deficit ($3.7 billion). Russia provides approximately half of Ukraine's imports, a figure that has remained stable since the 1980s and reflects the dominance of energy transfers. If Ukraine is successful in establishing Azerbaijan as its main energy supplier, the projected income derived from transit charges to European customers of Azeri oil are likely to cover Ukraine's annual cost of imported energy and thereby have a major influence upon reducing Ukraine's trade deficit.

The Russian share of Ukraine's export market shows a different declining trend, having dropped by half in 1987-1997, now standing at only 30 percent. Ukraine's energetic search for new markets in Latin America, the Arab world and Southeast Asia is an attempt to find new markets for Ukrainian exports in the face of a decline in trade with the CIS, which is likely to continue.

Foreign and defense

The formal public presentation of the GUAM (Georgia, Ukraine, Azerbaijan, Moldova) group as a sub-group of the Commonwealth of Independent States is an example of the direction in which the CIS is headed. The CIS already had three other sub-groups - the Russian/Belarusian union, the quadripartite Customs Union (Russia, Belarus, Kazakstan, Kyrgyzstan) and the Central Asian union (all the Central Asian states, excluding Turkmenistan). The GUAM group represents those states that have always sought to maintain Russia at a distance and opposed CIS supra-national structures. It is not ruled out that Uzbekistan, which increasingly has drawn closer to Ukraine within the CIS in its criticism of Russia, could also join GUAM.

The arrival of GUAM is significant because it signals that the CIS is, for all intents and purposes, a dying body badly in need of a life-support mechanism. The sixth anniversary of the CIS passed virtually unnoticed in the capitals of the CIS member-states. The man behind the creation of the CIS as an alternative to the USSR, former Ukrainian President Leonid Kravchuk, described it as a "shell. Its decisions mean nothing. This organization has no prospects." President Kuchma applauded its role in peacefully dissolving the former USSR, but he believes that currently it merely serves as a "consultative forum."

The decline of the CIS and the rise of GUAM is a reflection of the incompatibility of domestic state- and nation-building, which is being undertaken within most of the non-Russian states of the CIS, and attempts at close integration on the part of Russia and Belarus. Ukraine is de jure not even a member of the CIS, having never signed the charter. In December 1997 President Kuchma pointedly stated that "Every country has its own interests. Ours, for example, lie in Europe."

Without cutting off all ties to the CIS, Ukraine under President Kuchma seeks to accomplish three tasks. First, normalize relations with Russia. A major step was undertaken in this direction with the signing of the Russian-Ukrainian inter-state treaty in May 1997. But, both sides understand this treaty in different ways and Kyiv has not failed to notice that Russian President Boris Yeltsin only flew to Kyiv, shortly before the Madrid NATO summit, because Ukraine had successfully played the NATO card.

The Russian leadership sees the treaty as a way of both restraining Ukraine's westward drift to Europe, as well as a means to cement a military alliance. Both Moscow and Miensk would like to see Ukraine join their fledging pan-Slavic union. Ukraine, on the other hand, sees such a union or military alliance as leading to a new Cold War because both would inevitably be anti-Western and anti-NATO.

Consequently, even after the signing of the Russian-Ukrainian treaty, the majority of Ukrainian elites still regard Russia as the main threat to Ukrainian security. Under Mr. Yeltsin this threat will remain non-military, but this could rapidly change to a more serious threat in the post-Yeltsin era, which is likely to be upon us sooner rather than later. The Russian leadership remains torn between supporting geopolitical designs in countries such as Ukraine during the 1998 and 1999 elections or supporting democratic reforms, a conundrum faced in earlier eras, after all, by other great powers in Africa (France) and in Latin America (the U.S.). Ukraine's ideal relationship with Russia will therefore continue to remain "cooperative independence" - not "cooperative integration."

The second task is to continue the activist foreign policy in Ukraine's immediate "near abroad." This will entail the likelihood of Ukrainian membership in the Central Free Trade Association in 1998, providing an enhanced security role to the Black Sea Economic Cooperation Agreement and developing GUAM.

GUAM's members share common security concerns in the field of energy transportation from Azerbaijan and the lessening of energy dependency upon Russia as well as support for their territorial integrity (Ukraine is the only one of the four without a separatist region beyond the control of the central authorities). In the post-Yeltsin era a new Russian leadership could stir up Crimean separatism, as the Yeltsin leadership did in the other three members of GUAM. Ukraine has therefore backed the calls of other GUAM members for it to become involved in peacekeeping under U.N. and OSCE auspices in their separatist enclaves.

The third task is to continue the path of westward integration into Europe. President Kuchma has now stated that Ukraine belongs in the European Union and NATO. This "return to Europe" theme has gained considerable momentum under President Kuchma and now dominates the foreign policy-making community in Kyiv. Ukrainian Foreign Affairs Minister and President of the 52nd session of the U.N. General Assembly Hennadii Udovenko, for example, is running in the parliamentary elections as a Rukh candidate.

Unfortunately, Ukraine's ambitions to return to Europe look to be thwarted by the slow progress domestically on economic reform and institution building, without which any future membership in NATO or the EU will be impossible. Relations nevertheless will continue to be close between Ukraine and NATO, while remaining temperate with the EU. Ukraine and Hungary were the first countries to establish missions at NATO, reflecting the importance Kyiv attaches to NATO as a security insurance policy vis-à-vis a post-Yeltsin Russia (something reflected in the NATO-Ukraine Charter signed in July 1997).

In addition, the United States, the dominant country within NATO, is convinced of the strategic importance of Ukraine to its own and European security, as well as to the continued democratic transformation of Russia. NATO expansion therefore is not regarded in a negative light by the Ukrainian policy-making elites.

Relations with the European Union are more lukewarm because Ukraine is defined as Eurasian in light of its participation within the CIS, an ambivalent geographic position that it occupies with Turkey, which has sought to enter the EU since 1958. Ukraine is not one of the 10 countries with whom the EU is currently considering negotiating future membership. Associate membership and the creation of a free-trade regime between Ukraine and the EU is all that is currently on offer.

Taras Kuzio is a research fellow at the Center for Russian and East European Studies at the University of Birmingham and editor of Ukraine Business Review.

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