UkraineAlert

One should not have wild expectations for Ukraine this year. Although the country is more than a year away from the March 2019 presidential election, structural reforms won’t be a focus, international donors are getting impatient, and a large amount of debt is coming due.  

What should we expect and follow in Ukraine this year? How will the presidential campaign affect politics in 2018? Can the country repay its debt to avoid default? What might the war in the Donbas bring? We have identified the major developments we expect to shape 2018 and divided them into five categories: security, politics, foreign partners and reforms, economy, and culture, sport, and technology.

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In 2014, a 16-year-old Ukrainian, nicknamed Maley, watched the Euromaidan Revolution and Russian invasion on television and contacted his local army recruitment office to sign up. His calls went unanswered, so he took a train from the Carpathians to the front, armed with his grandfather’s hunting rifle and a brass plate bought by his mother taped to his chest as protection. He joined a volunteer militia.

“I went to save my country,” he told me in a 2015 interview from his bed in a Kyiv hospital. He was wounded after the army medic behind him stepped on a landmine and lost both her legs. “She wasn’t paying attention. I’m going back.”

If it wasn’t for Ukrainian farm boys, nurses, veterans, and grandfathers, the Russians would have swallowed half of Ukraine. In fact, this was the plan. The stage for invasion had been set by former Ukrainian President Viktor Yanukovych who consolidated his power, jailed opponents, rejected European Union membership, and gutted Ukraine’s army by selling off its best equipment. By 2014 Ukraine had only 6,000 combat-ready troops.

Unfortunately, 2018 is starting to shape up like 2013.

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On Ukraine’s Black Sea coast, the most active foreign actor is not Russia. It’s China.

On the Danube, Chinese investors are mulling buying a Ukrainian river shipping company that could insert Chinese products deep into Eastern Europe. At the two big ports flanking Odesa, China Harbor Engineering Company just finished dredging Yuzhny and now is bidding to dredge Chornomorsk and to build a rail-to-ferry terminal.

On land, one Chinese company starts work shortly on a 200-kilometer cement coastal highway, built to take the pounding of overladen grain trucks. At Mykolaiv, another Chinese company has built modern grain silos and port elevators. Further east, Chinese companies study dredging ports in Mariupol and Berdyansk.

And herein lies the geopolitical rub.

The two ports are on the Sea of Azov, a body of water that, after the 2014 annexation of Crimea, the Kremlin would like to turn into a Russian lake. If, as expected, a Chinese company wins the contracts, the Russians would have to watch Chinese dredgers sail under the new Russian bridge connecting Crimea with Russia’s mainland.

In Ukraine, China carefully avoids public conflict with its “strategic partner,” Russia.

Last month, when Ma Kai, a Chinese vice premier, visited Kyiv to review investment projects, his public statements were few and bland. Few people noticed when he announced $7 billion in Chinese investment projects for Ukraine.

Quietly but determinedly, China pursues its own interests in Ukraine.

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Last month Vladimir Putin reopened the door to the creation of a peacekeeping force in Eastern Ukraine. Deploying such a force, if done properly, could bring peace to a conflict that has dragged on for nearly four years. Without it, the conflict could return to a boil, jeopardizing Ukraine’s stability and destroying any basis for reducing tensions between Russia and the West.

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The holiday season ended abruptly on January 1 as Ukrainians learned about the murder of lawyer and human rights activist Iryna Nozdrovska. This is a gruesome start for 2018, even for a country at war. We stopped having regular New Year’s holidays years ago. Not many felt like celebrating while soldiers were dying in the fight against Russian aggression in the east.

The body of the thirty-eight-year old was found in a river on the outskirts of Kyiv, the Ukrainian capital, on the first day of 2018. She went missing on December 29 after a court hearing in the case of her sister’s 2015 murder. In 2017, Dmytro Rososhanskiy, the nephew of a local judge, was sentenced to seven years in prison for running over Nozdrovska’s sister with a car. But, pulling together resources and drawing on the influence of his family, Rososhanskiy got very close to a pardon. Nozdrovska worked hard to raise awareness of the case, and she received physical threats, but never reported them to the police.

Nozdrovska wasn’t a household name or a prominent lawyer. But her story strikes a chord with every Ukrainian. Her murder tells you everything you need to know about the unfinished business of Ukraine’s Maidan Revolution.

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On December 1, the European Union withheld payment of €600 million to Ukraine for falling short on four reforms. The deal is conditional, and this final tranche is on hold until Ukraine follows through on its commitments.

Meanwhile, one week before, at the Eastern Partnership Summit, the EU agreed to provide Moldova with €100 million in macro-financial assistance. Unfortunately, it’s all too possible that the Moldovan government will travel along the same road that Kyiv has, loudly broadcasting its intention to enact deep and comprehensive reforms while in reality avoiding any significant changes that could prove painful to entrenched stakeholders.

After all, despite incentivizing positive actions, a government that is fundamentally unwilling to change will find a way to sabotage reforms while still receiving the funds. The process may be indefinitely prolonged through a variety of excuses that will drag reforms into a new electoral cycle, and then a new government has to start over.

This process is currently occurring in Moldova.

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One of the biggest challenges facing Ukraine today is how to transform its inefficient, overcentralized, and opaque defense industry into a leading supplier of weapons and equipment for its frontline troops and an engine for economic growth and foreign currency revenues. Both of these goals are within reach, but only if Ukraine’s leaders can summon the political will to carry out necessary reforms.

Ukraine has a well-developed defense industry—it was a crucial part of the Soviet Union’s military complex—and is blessed with extraordinary human capital: world-class engineers, designers, and top-notch universities that feed qualified science and engineering graduates into the job market. Given its nearly four-year war with Russia, Ukraine’s military also has unmatched real-life experience defending against Russia’s most modern equipment, from electronic signal jammers to thermobaric flamethrowers.

Executives at major US defense corporations see enormous potential in Ukraine’s defense industry and believe relatively modest investments in technology and industrial plant could reap significant payoffs. Unfortunately, those investments have not been forthcoming for three reasons.

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As Donald J. Trump took the oath of office in January 2017, there was a tangible sense of panic in Kyiv. Most analysts were extremely gloomy about the prospects for US-Ukrainian ties, with many predicting that Ukraine would be the primary victim of the Trump administration’s ambitious foreign policy. At the time, these grim forecasts seemed entirely reasonable. The incoming US president had made no secret of his desire to repair the recent rupture in relations with Vladimir Putin that began with the war in Ukraine, while there were also widespread fears of retribution for Ukraine’s perceived backing of Trump rival Hillary Clinton. Looking back at Trump’s first year with the benefit of hindsight, these concerns now appear to have been overblown. Indeed, there is a good case for arguing that the Trump administration has actually proven among the most pro-Ukrainian in modern US history.

The White House saved its most emphatic demonstration of support for Ukraine until the final weeks of 2017.

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In September 2017, Parliamentary Speaker Andriy Parubiy branded the new political season “the autumn of reforms.” His prediction was partly right and partly wrong. Parliament did deliver on some overdue issues; however, the recent attacks on anticorruption institutions overshadowed a number of positive achievements. As Ukraine enters 2018, a year which precedes the presidential and parliamentary elections, it is important to examine the results of 2017 and identify the areas where the international community can help Ukraine’s reformers secure tangible progress. We have identified nine priority areas.

1. Set up Anticorruption Court

Ukraine fell short on anticorruption reform in 2017. The National Agency for the Prevention of Corruption (NAPC) sabotaged the verification of officials’ electronic asset declarations, parliament dismissed the chairman of its anticorruption committee for political reasons, and the National Anticorruption Bureau of Ukraine (NABU) faced numerous attacks.

Ukraine is still waiting on the establishment of the High Anticorruption Court. The president’s bill contradicts the Venice Commission’s recommendations and may hamper the court’s independence.

Setting up this institution in 2018—which remains a key condition of international assistance—should be the highest priority.

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A year ago, I expressed my hope that “2017 should be the year when Ukraine’s economy takes off.” It should have been, but it was not. In the last quarter of 2016, Ukraine’s GDP grew by 4.8 percent. Alas, in each of the ensuing four quarters, the growth rate declined and GDP grew by only 2 percent in 2017, slightly less than the cautious official projections. Ukraine is actually growing more slowly than the EU economy, and certainly slower than the global economy. Therefore, it is difficult to be optimistic about Ukraine’s economic growth in 2018.

After a combined GDP fall of 17 percent in 2014-15, which was caused by Russian aggression, a swift recovery to 6-7 percent growth should have been natural. Instead, Ukraine is competing with Moldova for the title of Europe’s poorest country. In 2007, Ukraine’s GDP per capita in current US dollars was 160 percent larger than Moldova’s. Now it is only 8 percent larger according to IMF statistics, and Moldova is growing by 4 percent a year.

The worst part is that Ukraine’s economic shortcomings in 2017 were preventable.

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