|Author: Lubos Vesely|
“RUSSIAN DOMINANCE IN CIS REGION WILL BE MORE AFFECTED BY POLITICAL RATHER THEN ECONOMIC FACTORS”. INTERVIEW WITH VERONIKA MOVCHAN AND KATERYNA SHYNKARUK
Former Soviet republics, which gain the independence in 1991, are going, like a whole world, through deep economic and financial crisis. We would like to discuss the situation in Russia, Belarus and Ukraine because they represent something like different experimental fields where the crisis is proceeding in specific conditions. Russia can be an example of country in crisis depend on export of raw materials, a crisis in Belarus is proceeding in the authocratic regime of President A. Lukashenka and finally Ukraine is trying to resolve its problems in conditions of the permanent political crisis. What problems particulary Ukraine is facing now?
Veronika Movchan, Academic Director of Institute for Economic Research and Policy Consulting, Kyiv, Ukraine :
For Ukraine the origins of the crisis are both external and internal. As in the case of Russia, external factors are important as Ukraine in a small open economy with exports at around 50% of the GDP, and export flows are dominated by iron and steel, mostly of rather low-quality. These products are traded on the basis of short-term contracts making them highly volatile and pro-cyclical. The reduction of world price and demand for iron and steel seriously undermined the positions of Ukraine’s metal producers that are overwhelmingly export-oriented. Moreover, the metal industry suffers from low level of modernization and high energy-intensity that challenges its competitiveness.
As of domestic factors, high domestic demand growth – especially an expansion of private final consumption – was supported not only by the growth of incomes but also by strong credit expansion fuelled by excessive bank borrowings from abroad. That was a risky trend that could trigger the calamity by itself. De-facto fixed exchange rate regime further amplified non-adequate evaluation of foreign exchange risks in the country and increased risks.
Definitely, high political uncertainty further weaken the economy as a lot of important reforms were not conducted. Also, it impedes the adoption of actions needed to be taken to mitigate the crisis. The recovery of the Ukrainian economy will largely depend on the changes in the world economy. However, the political consensus would allow faster and more stable recovery in Ukraine.
Observing situation in Ukraine we can see that Prime Minister Yulia Tymoshenko is playing game to win time. She is trying to do her best to reach a start of presidential campaign (autumn 2009) before total crash of Ukrainian economy and financial system which she herself courts by her style of governance. Does she have any chance to survive until election? How much costs it for Ukraine?
I think that the Government headed by Yulia Tymoshenko will stay in power till the Presidential elections. According to the Institute for Economic Research and Policy Consulting macroeconomic forecast, some signs of economic activity revival could become visible in Ukraine in the end of 2009 assuming that the world economic situation improves. Thus, I cannot agree that ‘total crash of the Ukrainian economy and financial system’ should occur in the end of 2009. The deepest downturn is expected to be registered now, i.e. in the first half of 2009.
There is, concerning Tymoshenko, a riddle why does she not use her popularity to accept unpopular measures which could Ukraine help overcoming crisis. Instead it, by accepting new and new populistic steps, she is making a situation worse. Does she fear that she could be wrongly accepted and her career as a politician would be threaten or there can be another reason?
The political will of the Prime Minister is not sufficient to pass ‘unpopular’ measures as the most of changes require the Parliament’s approval and the President’s signature. As far as we don’t witness political consensus even within the parliamentary coalition, and the relations between the Prime Minster and the President are quite tense, it is difficult to expect prompt changes.
How crisis will affect Russian dominance in CIS? Will its role be strenghten or in opposite we can assume that it will be weakened?
It is difficult to assess now how the Russian dominance in the CIS will change due to the crisis, as the whole world is affected, and a lot will depend on deepness of crisis in different CIS countries, including Russia itself, and on the scope and conditions of financial support provided to the CIS countries by the USA, the EU, Japan, etc. and by Russia.
Most likely, we can observe higher share of the Russian ownership in the CIS countries. For instance, the Russian state bank Vnesheconombank purchased the Ukrainian PIB, one of the largest banks in the country.
Kateryna Shynkaruk, Researcher, Institute for Economic Research and Policy Consulting, Kyiv, Ukraine:
Russian dominance in CIS region will be more affected by political rather then economic factors caused by the global crisis. It is further development of Russia’s relations with the US and EU, as well as its international anti-crisis efforts that are more likely to impact its international position and hence Russia’s role in the CIS region. Although global crisis pushes CIS states to search for economic support mainly from Western institutions causing certain shift of priorities in their foreign policies, it is premature to assess its impact on Russia’s political influence in the region.
Russian representatives acknowledged about 6 millions unemployees and it is no secret that living standards, which was not too wealthy before the crisis, are falling down. Could such situation cause serious problems to government for example in form of social riots?
At present stage mass antigovernmental riots are unlikely to take place in Russia. There are no political leaders able to lead such protests and having resources of mass mobilisation (credible programmes, financial support and access to mass media) and no mass movement believing in the efficiency of such actions.
Although Russian trade unions have already expressed their readiness to support any social protests, they would only become an istrument for imitating „democratic dialogue”with the authorities, instead of genuine opposition to the state policy.
Moreover, the federal government is taking additional precautions laying all the responsibility for all the defects of current social policy on regional authorities, as well as strengthening measures against any attempts of sporadic antigovernmental protests either of social origin or by human rights activists.
Belarus, particulary President Lukashenka is solving a question where to go further. Lukashenka could continue cooperation with Russia but he knows price: Russia wants Belarusian strategical plants and pipelines. Other possibility is represented by European choice but it would mean to change political climate in the country. Which of these ways could be for Belarusian authocrat less dangerous?
Belarus is pushed towards cooperation with the EU by the need to lessen its dependence from Russia and support its economy crippled by the global crisis. However, the pro-European stance currently taken by Belarusian authorities is driven mainly by economic interests: the possibility to negotiate the lifting of economic sanctions against Belarus and to obtain internationals loans. In addition, it would bring the country out international isolation and broaden its opportunities of cooperation with other Western institutions, e.g. as PACE, European Parliament, OSCE etc.
Therefore, Belarusian authorities explain negotiations as to political and economic cooperation with the EU as a pragmatic step, which would require some surface liberalisation measures, but wouldn’t involve any deep changes in the political climate or democratic reforms. Especially given the ambivalence of public opinion, which is ideologically determined and rather reluctant to embrace European values.
Whereas the Eastern partnership initiative uniting CIS countries at quite different stages of democratic transformation (Belarus, Ukraine, Georgia, Azerbaijan, Moldova, Armenia) envisages quite a flexible framework that would permit Belarus to ‘rationalise’ its foreign policy by maintaining pragmatic cooperation both with Russia and the European institutions.