Archive for December, 2015

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Happy New Year – And a moment to acknowledge you all!

December 31, 2015

Customary it is appears to have become to regurgitate “most read” or “favourite” posts throughout 2015 as the year inevitably draws to a close – this blog won’t.

Instead this last entry of 2015 will take the opportunity to wish a Happy New Year each and every one of the 130,000 readers who either mistakenly (in all probability), or deliberately (rather flatteringly) took their time – or indeed wasted their time – rummaging around in the meandering ruminations presented here, coping heroically with the grammatical errors and limited vocabulary that provide proof, if needed, that little time or effort is given to the daily offerings published.

Of the 130,000 readers that visited more than once, then it is humbling – or perhaps a rather sad reflection that there is such a limited commentary upon Ukraine (and Odessa) in the English language that you were forced to return through lack of alternatives.

Further thanks must go to the politicians, local, national, and foreign, that have sought out this blog for the off the record chats during 2015 when passing through Odessa.  Likewise, the same thanks goes to the diplomats both domestic and foreign who form an often under-acknowledged front line for Ukraine.  The erudite and informative conversations are always something of a joy – even when they simply can’t be repeated.

To the publishers and editors that have requested (paid) essays from this blog after reading it, then a humble thank you (as well as thousands of words) is all that can be offered.  The blog was never intended as a “teaser” to attract work.

For those journalists whom will request interviews and “for the record” comment in 2016, the same answer to that of 2015 (and years previous) will apply – The answer remains “No”.

To the think-tanks, GONGOs, NGOs and civil society people who sought an exchange of views during 2015, and to those that jetted your author around Europe to take part in round-tables and to sit on panels full of people far more enlightened and erudite, sincere gratitude is all that can be expressed.  There is no better outcome than to leave such events with new ideas, thoughts to ponder, or perhaps most importantly new and intellectually challenging friends.

It is also time for a confession to all those that pressed the “Donate” button on the blog Home Page during 2015 and sent their hard earned money not really knowing how that money would be spent.

A pittance ($24.95) from the far larger grand total received was spent on a banner/logo – self indulgence.

The rest was given to various charities/NGOs and/or impromptu acts of kindness for the needy as witnessed when wandering aimlessly around Odessa – (such as selecting a random pensioner and buying food for a week when witnessing them weighing and pricing a single potato to stretch their meager pension that little further).

However, for those having somewhat blindly pressed “donate” and sent money, then hopefully some integrity is projected by the blog to earn such trust, and thus you will understand the morality of the author in “further donating” your hard earned money to causes and people far more in need (and far more deserving), even if it was meant for the betterment of the blog.  For those that pressed “donate” with intent of buying the author a beer, and are therefore disappointed that no beer was bought – apologies, your forgiveness is sought, but be assured that many a prayer has been offered for you by many pensioners in many Orthodox churches in Odessa for your (redirected (and perhaps unintended)) kindness.

2016 will not see the princely sum of $24.95 spent on more blog aesthetics, so in all probability all “donations” will be “further donated” ad hoc to various needy causes/people – for 2016 will remain a hard year for many in Odessa and Ukraine.

When it comes to thanks, it would be entirely remiss not to thank those largely unknown soldiers on the eastern front doing their duty, and all those volunteers that work anonymously and tirelessly to support them – and support the other areas of Ukrainian life where the State is failing.

Such people are a constant and perhaps troubling reminder of just how underutilised our time or abilities – or both – actually are in comparison.

With that, a Happy New Year for 2016 is wished to all – and for those that will continue to face seemingly unending fecklessness when dealing with the Ukrainian establishment and institutions, some wise words from a wise man that will continue to stand the test of time, and that will hopefully restore your constitution before dragging the feckless kicking and screaming into doing what is necessary – “When you wake up in the morning, tell yourself: The people I deal with today will be meddling, ungrateful, arrogant, dishonest, jealous, and surly. They are like this because they can’t tell good from evil. But I have seen the beauty of good, and the ugliness of evil, and have recognized that the wrongdoer has a nature related to my own.” – Marcus Aurelius.

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Normal service (such as it is) will resume in 2016, with the same aim of giving you something about Ukraine to read during your coffee break.

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Open ended deadlines? – Minsk II

December 30, 2015

As all are well aware, 31st December 2015 was the deadline set within the Minsk II Agreement for its complete implementation.

As all are well aware, that deadline will pass without even a ceasefire worthy of the definition having come into effect, let alone the return of control of the Ukrainian border to the Ukrainians – or any of the other bullet points agreed that fall between ceasefire and restoration of territorial integrity.

Of course nobody actually expected that Minsk II would be fully implemented by 31st December 2015 as the agreement states, because in the absence of anything else, Minsk II is all there is – and therefore bumping and/or ignoring the deadline was obviously going to happen unless there was a severe “or else” as a consequence of failing to meet the 31st December deadline – and there wasn’t and isn’t an “or else” of any significants.

With no significant “or else” and a Kremlin currently projecting the appearance of being happy to take any sanctions pain, suggests negotiations will continue to be in bad faith.

Whatever the appointment of Boris Gryzlov as Russian representative at the “Contact Group” may signify (and he is surely too big a fish to be rotated into the mix to simply continue to obstruct and obfuscate – for lesser mortals have done an adequate job of doing that thus far), his appointment earlier this week signified a continuance of the process well into 2016 (and to be blunt, beyond) regardless of the obligated 2015 year end deadline.

Thus it remains for an officially recognised and announced extension of the process to occur.

On 28th December rumour circulated that there would be a “Normandy Four” leaders conference call on 30th December – 24 hours before the Minsk II deadline is due to pass far from implemented and killing the agreement.

On 29th December, those rumours were confirmed after the official disclosure of contact between Chancellor Merkel and President Poroshenko in preparation for the conference call.

“President of Ukraine Petro Poroshenko coordinated positions with Federal Chancellor of Germany Angela Merkel on the eve of the phone conversation in the Normandy format planned for December 30.

The parties discussed the fulfillment of the Minsk agreements and emphasized the necessity of their full implementation.

The President drew attention to the fact that pro-Russian militants violated the ceasefire regime more and more often and conducted open provocations, particularly the shelling of the OSCE Special Monitoring Mission.

Petro Poroshenko highly appreciated the EU’s joint decision on the continuation of sanctions against Russia until complete fulfillment of the Minsk agreements.

Angela Merkel confirmed the immutability of EU policy of non-recognition of Crimea’s annexation.”

Thus, in the absence of any other plan (viable or otherwise) for the foreseeable future, 30th December seems highly likely to see the official declaration of an extended deadline for Minsk II – albeit as it is a conference call and not a physical meeting of the Normandy Four leaders, it is perhaps questionable whether any signatures will be on any supplemental or amended agreement regarding any deadline extension – and in particular signatures to obligate to any future deadline set.

The penalty for The Kremlin failing to abide by (in any shape or form) a 2015 deadline it agreed to, is seemingly nothing more than extended existing sanctions.  It would appear unlikely that any specific additional penalty for absolutely no Kremlin attempt to meet the 31st December obligations is going to be forthcoming.

This raises the question of the significants of any future implementation deadline – if a future deadline for complete Minsk II implementation is agreed upon at all.

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Very few expect the Minsk II agreement to be fully implemented during 2016.  That being so, any 2016 deadline set that does not have a cast iron and significant “or else” attached will probably prove to be as useful as the deadline that expires on 31st December 2015.

On domestic Russian TV channels over recent weeks, assembled “experts” have been citing 3 – 5 years to fully implement Minsk II – creating amongst Russian society the perception that there is not going to be a fix in the foreseeable future in the occupied Donbas.   Those 3 – 5 years thus taking the current Kremlin regime through the Duma 2016 and Presidential 2018 elections without any requirement to change policy course in the occupied Donbas due to domestic public pressure.  The Russian public are being actively conditioned to accept Russian involvement in the occupied Donbas until 2018 at the earliest, or perhaps until 2020 – or beyond.

However, a deadline set for more than 12 months away provides no motivation for any significant progress during 2016 – and neither the German nor French leader will be keen to see the matter roll on into their respective 2017 domestic election years (though they will have no choice without a significant “or else” for failure during 2016).

Yet the complete absence of a deadline will see the same complete absence of Minsk II implementation.

Thus the deadline options in the absence of a significant and cast iron “or else” will be little more than hollow rhetoric agreed to by all parties, and then in bad faith each party will knowingly sell it to their peers and constituents, only to see another deadline come and go without consequences for those failing to fulfill their obligations.

The options then, a 2016 deadline that is as likely to see Minsk II implementation as that of the 2015 deadline, a deadline set further into the future that will then see little effort during 2016, the absence of a deadline – or finally arriving at an “or else” that will truly resonate in certain quarters.

Smart money will probably be put upon an equally weak 2016 deadline – due to no “or else” to concentrate minds.

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Yarosh signals the end of Right Sector – and not before time!

December 29, 2015

Many months ago an entry foretelling the end of Right Sector, as it is commonly perceived/recognised (particularly amongst a lazy mainstream media) was published – within it alluding to several reasons why the end was inevitable and on the immediate horizon – “Right Sector may be fashionable, but it is not an entity that will stand the test of time. Indeed, when talking about Right Sector as a brand, that is not to infer that all that call themselves, or identify with Right Sector have a standard ideology – or even a remotely shared ideology.  Whilst a shared ideology may have been somewhat true in late 2013 and throughout early 2014, by Autumn 2014 many of those that assumed the Right Sector brand were doing so for reasons of imagery or as a cover for more nefarious schemes – but not due to a shared ideology (probably to the ire of those with a far right ideology).”

In short, the original ranks of the ideologically driven far right/nationalists swiftly became diluted due to a lack of central control within the organisation, allowing pretenders that subsequently wallowed in the infamy/glory of the identity without any real belief in nationalism, and also becoming/providing a (perhaps unwitting) security blanket/organisation for those engaged in criminal activity knowing a weak State would not take on Right Sector “personnel” for want of Right Sector backlash from even the slightest hint of persecution.

The blame for such dilution clearly lies with the Right Sector leadership of the time – and it is the decisions made then that would, in part, ultimately result in the rot within the organisation that would bring it to a swift end.  Another reason was the lack of organisational planning and public projection (other than the lazy mainstream media reporting).

As an example, the far right (if we accept about 1 in 10 members having such an ideology) Azov Battalion grew in number due to its reputation as a fighting unit that was accomplished and disciplined, regardless of the unit’s core ideology.  It also moved into the State institutional “mainstream”, becoming an incorporated unit within the National Guard.  It is a mixture therefore of nationalists and of patriots – and there are distinct differences between the two.

“By “nationalism” I mean first of all the habit of assuming that human beings can be classified like insects and that whole blocks of millions or tens of millions of people can be confidently labeled “good” or “bad.” But secondly — and this is much more important — I mean the habit of identifying oneself with a single nation or other unit, placing it beyond good and evil and recognizing no other duty than that of advancing its interests. Nationalism is not to be confused with patriotism. Both words are normally used in so vague a way that any definition is liable to be challenged, but one must draw a distinction between them, since two different and even opposing ideas are involved. By “patriotism” I mean devotion to a particular place and a particular way of life, which one believes to be the best in the world but has no wish to force on other people. Patriotism is of its nature defensive, both militarily and culturally. Nationalism, on the other hand, is inseparable from the desire for power. The abiding purpose of every nationalist is to secure more power and more prestige, not for himself but for the nation or other unit in which he has chosen to sink his own individuality.” – Notes on Nationalism 1945 – George Orwell

Further, Azov projects itself among society in ways very similar to that of the Muslim Brotherhood by way of “outreach programmes”.

Right Sector remained outside of the State institutions and failed to form any kind of outreach projection, whilst allowing criminality within its ranks (for the most part, and disregarding its units on the eastern front) therefore operating both outside of the control of the State and also outside of the law.  It was thus doomed to a relatively short existence from the choices and decisions it made.

As democracy by its nature demands the greatest extent of tolerance and inclusion for those that remain within the law, but the exclusion of those that operate outside the law, Right Sector has no political future.  Any attempt to force a political future by threats of violence simply further disqualifies it and further alienates it at a ballot box where the far right is continuously eviscerated.

There must be limits to tolerance after all – “Unlimited tolerance must lead to the disappearance of tolerance. If we extend unlimited tolerance even to those who are intolerant, if we are not prepared to defend a tolerant society against the onslaught of the intolerant, then the tolerant will be destroyed, and tolerance with them. – In this formulation, I do not imply, for instance, that we should always suppress the utterance of intolerant philosophies; as long as we can counter them by rational argument and keep them in check by public opinion, suppression would certainly be most unwise. But we should claim the right to suppress them if necessary even by force; for it may easily turn out that they are not prepared to meet us on the level of rational argument, but begin by denouncing all argument; they may forbid their followers to listen to rational argument, because it is deceptive, and teach them to answer arguments by the use of their fists or pistols. We should therefore claim, in the name of tolerance, the right not to tolerate the intolerant. We should claim that any movement preaching intolerance places itself outside the law, and we should consider incitement to intolerance and persecution as criminal, in the same way as we should consider incitement to murder, or to kidnapping, or to the revival of the slave trade, as criminal.” – Sir Karl Popper 

It has thus come to pass that Dmitry Yarosh, the now former leader of Right Sector and current parliamentarian, has announced that he and his team are leaving Right Sector – with Mr Yarosh alluding to some of the aforementioned “issues” for their departure from the organisation.

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I believe that today Right Sector as a revolutionary structure has fulfilled its mission and it has fulfilled it completely. My team and I withdraw from the national liberation movement “Right Sector”. We announce establishment of a new political movement, the founding congress of which is scheduled for February. We are now working on its development, concept of operations, program guidelines.”

Politically, having seen the far right in Ukraine decimated at both Verkhovna Rada and local government elections in 2014 and 2015 (with votes for the political parties of the far right so low as to make every EU nation envious). Mr Yarosh can clearly see that the Right Sector vehicle will take him no further in politics – and he would be correct.

First and foremost, and of particular importance to Ukraine and those within the Right Sector units holding the line on the eastern front with the occupied Donbas, they appear to remain with somewhat quasi-legitimacy when considering Mr Yarosh’s words – “Therefore, the 5th and 8th battalions of the Ukrainian Volunteer Corps and the Hospitallers Medical Battalion are being reorganized into a Ukrainian volunteer army. It will be one of the structures that will form our new movement. We are continuing to fight at the front line against the foreign aggressor and work at the home front to develop our country.”  Just how legitimately and seamlessly a “Ukrainian Volunteer Army” fits institutionally with the Ukrainian Armed Forces, and therefore what legal protections can be lawfully afforded to these units by the State, is somewhat unclear.  Likewise it is somewhat unclear just how much longer Ukraine (and its external supporters) can or will put up with armed entities that are not fully under the control of the State.

Let’s be quite blunt, whether the method of governance be dictatorship, autocracy or democracy, the State in all cases has control over, and the monopoly upon, violence.  Without it enforcing the rule of law, or indeed enforcing rule by law for the dictators and autocrats, becomes problematic.

Where then does that leave Right Sector without Mr Yarosh, his leadership team, and without the military units that will shed their skin and become part of the “Ukrainian Volunteer Army“?  A move which Mr Yarosh states is necessary for their development – “They need to grow and develop further, to move to a new level.

With the identifiably political and military elements moving on, that seems to leave only the pretenders, organised criminality and the uncontrollable liabilities of the truly clinically swivel-eyed behind – all of which could, and perhaps should, have been subjected to an internal cleansing long ago.

Indeed Mr Yarosh alludes to the necessity to leave those that any internal cleansing would have ejected, behind – “as was before, we do not abandon the revolutionary path, but we categorically reject pseudo-revolutionary activity that threatens the existence of Ukraine as a state and stains the reputation of the patriots.

We are in opposition to the incumbent government, but we do not consider blood shedding, doomed-to-failure revolts against it as an option. With all the above reasons, my team and I are leaving the Right Sector national liberation movement. We are initiating the creation of a new political movement whose founding congress is scheduled for February. We are now working on its development, the concept of our activity, programmatic guidelines.

Now it is time to concentrate on issues of national importance. Our movement has grown, become stronger, and is now entering a new stage of its development. Now we want to appear not as a movement that has narrow functions, but as a national patriotic one in order to unite all patriots of Ukraine. Without radicalism typical of peripheral social groups and without liberal empty rhetoric. Building an independent Ukrainian state remains our goal. We’ve got a dual task – to preserve the existing state as a springboard for building national statehood and to conduct revolutionary change in it to ensure the freedom, justice and well-being of the Ukrainian nation.”

We are not really left to ponder to greatly whether Mr Yarosh deems Right Sector a brand that has no electoral hope of rehabilitation in the eyes of the Ukrainian constituency – his statement appears to suggest as much – but we are left to ponder whether he felt unable to purge the ranks of Right Sector from the pretenders, criminality, and simply too loony to control.

That the pretenders will disappear into nothingness as the Right Sector brand disintegrates will be no surprise.  Fashion is a fickle thing.

The more serious questions are what becomes of the organised criminality that has hidden itself within the Right Sector brand/cloak?  Can or will Mr Yarosh allow the authorities to take them down unhindered, whilst clinging to the Right Sector brand he once headed?  The same question of the truly swivel-eyed that bear the brand and are baying for further a revolt that Mr Yarosh pooh-poohs.

Is he a man capable of simply drawing down the shutter on Right Sector never to look back no matter how dysfunctional it will become in its death-throws?  Can he resist interceding for those remaining with the Right Sector brand when many will be subjected to the judicial due process before Right Sector completely evaporates?

Further, it is one thing to create a broader, less radical nationalist political movement – though one with a “Ukrainian Volunteer Army” as an appendix tests the limits of political inclusion in a democratic, rule of law, political system – but quite another to make it a politically viable party as the recent 2014 and 2015 national and regional elections make clear in Ukraine.  How will the messaging be different?  How much more “inclusive” – specifically how less nationalistic in rhetoric and appearance – will any new political movement be?

Nevertheless, the statement of Mr Yarosh without doubt signals the overdue end of the Right Sector brand – a brand that has long since lost its way internally.  The question will be whether he can build another nationalist entity that avoids suffering the same weak internal management and membership issues that caused the internal slow creeping cancer within Right Sector within a few months of its creation.

Perhaps the only things that can be expected, will be the continuing mainstream media hyperbole over a Ukrainian far right that has almost no voting constituency of note, and the swiftness of any new entity’s infiltration by the SBU and Kremlin alike.

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Yatseniuk to business – “Come out of the shadows”

December 28, 2015

The newly adopted tax code, upon which the 2016 budget is founded, reduces employers payroll tax from 41% to 22% – a radical reduction to a tax commitment of a tax that very few employers actually pay unless they are simply too big to avoid the tax radar.

Thus the SMEs and private entrepreneurs are being asked to pay a 22% tax that they generally don’t pay now – instead of a 41% tax they generally don’t pay now.  Of those that do pay it in an effort to be quasi-legitimate with the tax authorities, generally it is done based upon the minimum wage, paying employees the remainder of their salaries in cash in an envelope.

In short, the Prime Minister is stating – “Now I would like to appeal to entrepreneurs – radical reform requires your understanding, responsibility and position. We have reduced by half the tax – it gave you an extra life.  As a result, I ask each Ukrainian businessman to come out of the shadows and stop paying salaries in envelopes.

A rightful and correct appeal for responsible citizenry and business from a national leader (at least currently).  Readers may ponder whether the MPs of the Verkhovna Rada will also take their assistants and advisors “out of the shadows” too – for your author knows many of them, and they are also paid cash in envelopes more often than not.

The expectation hope therefore is that the Ukrainian business world will begin to pay the 22% tax they generally haven’t paid instead of the 41% tax they haven’t paid.

How best then for the SMEs and private entrepreneurs to employ the tax savings they have been offered (on the taxes they have never paid)?

The Prime Minister humbly suggests those tax savings be used to increase the generally untaxed (or taxed on the minimum wage) salaries of the employee.  (Naturally he was not so blunt as to suggest salary rises equal to the theoretically saved 19% tax – but salary increases he certainly did suggest as a result of the “tax saving”.)

In order to keep pace with the projected inflation for 2016, those salary increases would need to be 12% to retain current salary purchasing power.

However, there is the matter of employee tax to consider – most of whom have also not paid tax, for they do not appear on their employers pay roll – or if they do they officially earn the minimum wage from which any tax is paid, with the rest coming as cash in an envelope.

Thus every currently non-taxed “employee” or “minimum wage employee” would become taxed at 15% for the vast majority – 20% for a chosen few earning far beyond the average wage.  (A Deloitte overview here regarding the generalities of the new Tax Code.)

In effect, the request is to SMEs and private entrepreneurs to become solid, morally upstanding businesses/citizens – employers paying the 22% tax instead of the 41% tax avoided, and employees pay 15% tax instead of the zero contributions currently made.

In short, the “western world” of universal suffrage is part of the “European integration” and whilst it may apply to voting, it also indirectly applies to being taxed – the Ukrainian leadership appeals to each citizen to play his or her full part in that tax effort.

So be it – or probably not.

Unless and until serious efforts are made, and seen to produce, revenue from large scale tax avoidance from those within the Verkhovna Rada itself it is more than questionable regarding business and societal “buy-in”.  As has been written before, the current investigations into Boris Lozhkin (head of the Presidential Administration) and money stashed in Austria will not find any evidence of money laundering that the investigation is seeking to find – significant tax evasion however, is a different matter.  To be fair to Mr Lozhkin, his is a most recent case that leaked went public, yet he is an example of the norm within the Verkhovna Rada and Bankova – he is not the exception.

As the current leadership has spectacularly failed (deliberately) to jail any (in)famous personalities for the chronic corruption (for those convicted would sing songs about those in power and their corruption) despite tomes of evidence in the public domain (and heaven only knows what evidence is held privately) there will be a severe lack of constituency trust when it comes to bringing the multi-billion UAH tax avoiders to account either – whether their deeds be past, current or future.

To encourage the Ukrainian constituency to pay its taxes, the Ukrainian constituency will want to see that the elite are paying theirs – and held accountable for avoiding doing so.

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What are the chances of that when Verkhovna Rada aides and assistants are paid with cash in envelopes and it is possible to tie hundreds of Verkhovna Rada MPs to hundreds of off-shore companies?

All of that said, the Government of Ukraine has to start somewhere and clearly it believes that 22% employers tax is the place to start – though it would help considerably if they would set the example too.

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Gryzlov appointed as The Kremlin’s Contact Group Rep

December 27, 2015

For the first time since the “Contact Group” started meeting regarding the “issues” and “solutions” in the occupied Donbas, The Kremlin has appointed a real decision maker.  A man who has made decisions about Ukraine that have led to historic outcomes before – albeit those historic outcomes where then entirely wasted.

Boris Gryzlov, long time chum of Vladislav Surkov who remains overseer of the “Ukraine issue” for the Kremlin, is a man who in 2004. agreed with having another round of presidential elections that saw Viktor Yanukovych eventually beaten by Viktor Yushenko.

Mr Gryzlov is also a permanent member of the Russian Security Council.

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In short he is a big name with significant political clout and possessing direct access to The Kremlin and its innermost (and ever-shrinking) decision making conclave.

Some may indeed interpret his appointment, being a Surkov ally, as Surkov currently getting the better of Deputy Prime Minister Volodin within The Kremlin when it comes to matters within the occupied Donbas.

It will be like old times for both former-President Kuchma and Boris Gryzlov – both sat together again around a table discussing outcomes that the Kremlin really doesn’t like, and Kremlin interference that Ukraine robustly rallies against.

However, it is one thing to communicate and arrive at mutually agreed and acceptable outcomes – it is another to communicate for the sake of communicating with the aim of obstructing mutually agreed and acceptable outcomes by obfuscation – and yet another to have the gravitas to deliver ultimatums that are immediately understood.

The “why Gryzlov”, and “why now” questions naturally arise.

The appointment of Mr Gryzlov would seem unnecessary simply to continue the obstructionism and obfuscation – thus far two lesser mortals (Zurabov, and then  Kulmuhametov) have been tasked and adequately accomplished such “bad will” talks effectively – so which of the other options?

Having charged the “nationalist” sentiment within Russia, upped the “fortress Russia” rhetoric, and projected the image domestically of return as a “global power”, is it feasible to believe that any genuine desire to fulfill Minsk II obligations will be forthcoming with Duma elections in 2016 (regardless of rigged results)?  A serious change of policy either before or immediately after those elections seems rather unlikely – nevertheless it cannot be ruled out now that Mr Gryzlov has been appointed.

Perhaps Mr Gryzlov has been appointed to “impress” not Ukraine with his political weight/name recognition – but the Kremlin proxies.  Time will swiftly tell.

Indeed the chances of a serious change in policy prior to the Russian presidential elections in 2018 seem somewhat unlikely too for the same reasons as those in the above paragraph – although if as is said, 24 hours is a long time in politics, just over 2 years is a metaphorical is a lifetime for a Kremlin dealing with the consequences of poor policy decisions both home and abroad in both ever greater quantity and scale.

It will be interesting to see not only how Mr Gryzlov changes the dynamic of the “Contact Group”, but why he has been specifically chosen (to do so) now.

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Firtash/Ostchem repays UAH 3 billion to Naftogaz

December 26, 2015

According to Prime Minister Yatseniuk, Dmitry Firtash, or more precisely one of his companies, Ostchem, has paid a due debt from 2010 of UAH 3 billion.

Jolly good.

A bad debt that should not have been written off – and wasn’t – has been paid, and in full.

That it took the arrest of some of Mr Firtash’s assets in Ukraine to accomplish it was no doubt necessary.  Presumably those assets are no longer subject to arrest now that the debt has been paid – or at least those assets arrested specifically in connection with this particular debt have presumably been released.

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A particularly robust and forceful method of credit control and debt recovery has seemingly paid off – Bravo.

However, Prime Minister Yatseniuk is attempting to frame the matter as part of the deoligarchisation of Ukraine and part of the fight against corruption.

Quite how the recovery of a bad debt contributes to the deoligarchisation of Ukraine is somewhat unclear.

The percentage of national GDP controlled by the oligarchy has not reduced due to the repayment of this debt.  The percentage of national employment within oligarch controlled companies has not reduced by the payment of this debt.  The political influence and interference within national politics has not reduced with the payment of this debt.  The “limited access” Ukrainian market place has not become a “free market” with the payment of this debt.

Indeed with the payment of this debt, presuming all arrested assets specifically arrested in connection with this debt will/should now lawfully be returned to the control of Mr Firtash.  Those arrested assets therefore returning to oligarchical control.

There is no denying that the oligarchy have for decades gorged at the public trough through subsidies, recapitalisation of state enterprises in which they hold minority shares, and through bad debt write-offs for debts they created and never intended to pay (knowing there would be State funded recapitilisation and bad debt write-offs).

To be charitable, at a stretch it can be argued that because this debt was not written off (as historically would be the norm), it is a token (and perhaps genuine) gesture toward fighting corruption – against an oligarch that finds himself marooned in Austria due to US desires to subject him to due process over other alleged corrupt activities.

Quite what corruption this has fought (is failing to pay a debt corruption?) and whether the signal it sends will prevent any further corruption amongst the oligarchy or any of the Ukrainian elite remains to be seen.  It is even less clear how Mr Firtash’s Ostchem repaying the debt to release Firtash assets back to his control in any way “deoligarchs” Ukraine.

It is hard to see this as anything more than simply hard-nosed credit control and debt collection of legitimate debt (leaving aside any possible/probable perceived political motivation/persecution, for the debt was indeed due regardless).

To deoligarch Ukraine requires an open free market with numerous competing entities in every market sector, market transparency, a level business and legal playing field – thus ultimately reducing the oligarchy percentage of GDP and national employment to a point where they are simply no longer dominant – but there is no requirement that they be necessarily destroyed for the sake of destruction and remove them from the market place.  It also requires an end to subsidies of State owned companies – indeed it requires the privatising of State owned companies to as many foreign buyers (not shells or fronts) as possible simply to diversify and dilute the national GDP contributers.  Deoligarchisation also requires restrictions upon their odious interference and influence within politics.  Has any of that been accomplished by Ostchem paying a UAH 3 billion debt?

However, deoligarchisation aside, will Naftogaz now go after the other UAH billions that it is owed by numerous other debtors with the same vigorous credit control/debt recovery determination  shown when dealing with Ostchem and Mr Firtash?  Many of those debtors are not oligarch owned entities – but are debtors nonetheless.

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Trade reciprocity and circumvention – Ukraine & the neighbourhood

December 25, 2015

Looking away from the usual “last minute legislation” expected from the Verkhovna Rada when it comes to facilitating its domestic and international obligations, most recently the tax and budget laws for 2016, the Verkhovna Rada also passed legislation allowing the Ukrainian government the ability for reciprocity when The Kremlin trade embargo with Ukraine commences on 1st January 2016.

A Kremlin inspired embargo (in all but name) is timed to commence simultaneously with the full implementation of the EU DCFTA with Ukraine.  In short the Government of Ukraine may now apply the same rules of the game to Russian produce as The Kremlin will do to that of Ukraine.  The Ukrainian law passed on 24th December with 291 votes in favour from the 420 deputies registered in the chamber.  (226 votes were required to pass the law).

So be it.  Trade between Ukraine and Russia has plummeted following the illegal annexation of Crimea and the occupation of parts of The Donbas in the east.  With a further $900 million reduction anticipated from The Kremlin applied embargo to Ukrainian products, there is really little further damage of significants any Ukrainian instigated trade warfare with Russia will do to its own economy.

Indeed Ukrainian trade will expand with China, the EU, Turkey, Israel and several MENA nations.  Most economists predict economic growth of about 2% in Ukraine during 2016.  They may be right, depending upon the scale of Kremlin designed and controlled hostilities in eastern Ukraine that will undoubtedly continue throughout 2016 – and beyond.

The issue for Ukraine is not returning to growth in 2016 – the issue is maintaining that growth in 2017, for that will require market reforms that thus far have been glacial in coming.

However, necessity is the mother of invention – or perhaps better stated, the mother of circumvention.

Belarus

Just as it is possible to purchase Belorussian (EU produced repackaged) seafood products in supermarkets in Moscow – Belarus being that entirely landlocked nation renowned for its seafaring abilities (not) – it seems highly likely it will be possible to buy Kazakh produce (that it doesn’t produce – Ukrainian products repackaged) in Moscow supermarkets too.

Indeed it is of note that since The Kremlin’s actions against Ukraine, fellow CIS and EurAsian Union (EEU) nations Belarus and Kazakhstan  have hardly been swift in publicly supporting Moscow.  An inherent problem with allies being coerced or bought off by The Kremlin in order to earn the title of “Kremlin ally”.

Kazakhstan has recently seemed to have taken, if not a more anti-Kremlin stance, then certainly a stance that is so pro-Kazakh – that will be perceived as somewhat anti-Kremlin.  Despite the supposed trade rules of the EEU, Kazakhstan went ahead and signed a political and trade agreement with the EU on 21st December.

Kaz

Perhaps understandable, for Kazakhstan and Ukraine have some commonalities within The Kremlin – President Putin has inferred publicly that both are not truly sovereign/real States over the past few years.  It may thus be felt in Astana that whilst The Kremlin distracted by busily making poor decisions over Ukraine, Syria, Turkey (and eventually it will with Iran too) – notwithstanding even worse domestic decisions –  now is the time to act and prudently insure its essential place in a Sino-European trade route now.

That said, Astana will be more than aware that President Putin looks set to remain in power for at the very least (discounting ill-health) a few more years yet – and the “collective Putin” even longer.  Some delicate decoupling is required, together with a swift coupling with Chinese and European interests to avoid any gaps, and thus weaknesses, that can be exploited if and when the Kremlin’s Eye of Mordor fall upon Kazakhstan.

Kazakhstan is also receiving more than 10 times the Chinese FDI than Russia currently – much “Silk” related.  Indeed due to the Chinese Silk Road/Iron Rail/Silk Belt projects, Kazakhstan and Turkmenistan particularly in Central Asia, are looking east to China and also west to Europe along these trade routes – no doubt Turkey and perhaps Iran eventually will too.  What is becoming painfully obvious is that it looks far less to Moscow, instead is turning a cool (if not cold) shoulder.

It comes then as little surprise that Kazakhstan has apparently reached agreement with Ukraine over continuing trade that appears to simply ignore The Kremlin imposed trade embargo with Ukraine – an embargo that theoretically should effect all EEU members.  Some may opine that such an agreement simply underlines the hollowness of the EEU project – and certainly when not all EEU members are WTO members, then any trade block/major economy to trade block negotiations will not go very far at all.

Furthermore, Kazakhstan and Ukraine have apparently agreed an intensified industrial cooperation too – and having mentioned Turkmenistan, Ukrainian – Turkmen relations appear fairly warm.  A recognition perhaps that Ukraine may ultimately be the final central/northern spur into Europe for the Chinese “Silk” projects, whilst Turkey services the southern European entry – all of which deliberately avoid the territory of Russian Federation entirely.

The relationship between Ukraine and Kazakhstan may well be something worth keeping an eye upon, for it will say as much about the Kazakh intent in the neighbourhood as it will of that of Ukraine.

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