The actions of the new government are increasingly raising doubts among Ukrainians—disappointment is growing, turning to irritation. Ukrainian citizens, especially those who stood on the winter Maidan and whose relatives perished, are outraged: nothing has changed in the country; things are getting worse every day, and new oligarchs have replaced some. Only the top brass has changed, while the entire old corrupt system continues to function as before.
The political and economic consequences of the overthrow of the Yanukovych regime and the arrival of the so-called democratic team are dire. Instead of stability and peace, Ukrainians are faced with the annexation of Crimea, war in the east, a sharp devaluation of the hryvnia, high inflation, and a very uncertain future. It is also clear that peace is not expected anytime soon. The conflict in Donbas and the adoption of the law granting special status to the Luhansk and Donetsk regions are merely a delay in the continuation of the war. The parties have taken a respite, but the forces are not equal. The EU and the US, upon whom the current authorities place such great hopes, are demonstrating their reluctance to become involved in the conflict between Ukraine and Russia. Sanctions against Russia may be having some effect. However, they are not enough to stop the Kremlin. Sooner or later, Ukraine will have to defend its borders again. This means more casualties. Ukrainians have demonstrated a high degree of patriotism, but they are not prepared to sacrifice their lives for the well-being of a few oligarchs and the regiments of corrupt officials around them.
The economic crisis is deepening, the population is becoming increasingly poor, solvency is declining, and many families are already on the brink of survival. And this is only the beginning. Today, every component of the economy is experiencing collapse and decline. The national currency has suffered the most, having devalued by almost 70% in six months, setting a record. Even in underdeveloped countries like Ghana and Argentina, their currencies have devalued by 62% and 43%, respectively. The government is using military action as a cover, but in reality, officials are blatantly lying. Of course, the conflict in the east has contributed to the hryvnia's sharp rise against the dollar. But we mustn't forget that the jump to 12 hryvnias per dollar occurred back in April, when there was no war in Donbas. The Cabinet of Ministers and the National Bank, as well as speculative bankers patronized at the highest levels, played a role in this.
The media has repeatedly reported on a scheme by which several banks—Mykola Lahuna's Delta Bank, Oleh Bakhmatyuk's VAB and Financial Initiative, and PrivatBank, owned by the well-known oligarch and current Dnipropetrovsk Oblast governor Ihor Kolomoisky—acquired billions in profits, leading to the devaluation of the hryvnia. They were essentially in cahoots with then-NBU head Stepan Kubiv, who made the decision on refinancing and allocated funds as part of a program to support the domestic banking sector. These banks received the largest refinancing, especially PrivatBank (the total refinancing amount for PrivatBank was $1,1 billion). The bankers invested this money in the foreign exchange market, leading to the collapse of the national currency. Kubiv was in on the deal for a billion-hryvnia kickback. A criminal case has been opened against him, and following the example of Yanukovych and Co., he left Ukraine. Although Kubiv was one of those who shouted loudly on the Maidan, denouncing the previous criminal regime and promising Ukrainians a bright future, he initially secured this bright and prosperous future for himself and several other friends and oligarchs. Incidentally, during Yanukovych's reign, Delta Bank siphoned off tens of billions of hryvnias of Naftogaz debt, bought up banks, and is known for its unprecedented asset growth. Kubiv likely hoped that, amid the hubbub of revolutionary changes, no one would discover that he had allocated budget funds to the "Family" banks.
Unlike Kubiv, Dnipropetrovsk Oblast Governor Ihor Kolomoisky feels very confident. He's so immersed in the role of the patriot who saved Ukraine from collapse that he's determined to profit from it to the fullest. Kolomoisky suffered significant losses due to the annexation of Crimea and the war in Donbas. Furthermore, all of his real estate and assets in Russia are at risk of seizure. So he's grabbing whatever's lying around. In the spring, he duped the NBU by using his Crimean property as collateral for refinancing. In other words, the state will never see this property; it's lost. Nevertheless, PrivatBank is currently awaiting the next refinancing tranche of 10 billion hryvnias. It's unlikely Kolomoisky will use it for its intended purpose, assuming, of course, he receives this tranche. It's possible that the money will either end up back on the currency market or be transferred to offshore accounts in Israel, Switzerland, or Cyprus. The bank will be artificially driven into bankruptcy. In short, it's a well-known scheme for generating large profits. An analytical note addressed to the current head of the NBU, Valeria Gontareva, recently published by the media, makes it clear that PrivatBank is practically bankrupt.
Ihor Kolomoisky's currency market games are just a warm-up. During his tenure as Dnipropetrovsk Oblast governor, he carried out numerous dubious deals in the oil market. Flaunting his support for the Ukrainian army, the oligarch amassed billions. He siphoned 606 tons of industrial oil from a pipeline and refining it, then selling the resulting fuel through his network of gas stations, Ukrtatnafta, or to the military, but using market-based schemes. His company, Ukrnafta, auctioned off 320 tons of oil for UAH 540 million, a 15% discount. Kolomoisky sold the oil to himself: the Kremenchuk Oil Refinery, seeking to reap a profit from refining. Ukrnafta generates billions for Kolomoisky, but he siphons it off without any problems. For three years, the successful enterprise has not paid the state dividends—more than UAH 3 billion. It's no wonder that MP Oleh Lyashko accused Kolomoisky of looting. The owner of Privat Bank only pays lip service to the army, while in reality, he's making huge profits from it.
This is just a small part of what's been happening in the country since the winter coup. The Cabinet of Ministers is inactive across the board, with a staggering level of unprofessionalism. It seems as if the situation in the country would be better if the government were run by cooks. Back in the spring, the government claimed that IMF loan tranches would stabilize the economy and the hryvnia. Nothing of the sort has happened. The hryvnia is rising, banks are out of cash, but the black market is teeming with it—just like in the 90s, with money changers and scammers lurking near train stations and exchange offices. The banking system is on the brink of technical default, yet the Cabinet of Ministers and the National Bank of Ukraine are doing nothing, claiming that everything is on track: the hryvnia has been allowed to float freely, as the IMF demanded.
While the hryvnia is floating, prices for food and essential goods have risen by 20%. Gasoline and diesel fuel prices have risen by 50-60%, and the government is promising another excise tax increase to fill the budget. However, experts believe that the faster taxes rise, the faster the shadow economy grows. Therefore, the impact of the tax hike on the budget is negligible—14 million hryvnias. However, consumers are clearly feeling the impact, as prices are skyrocketing.
Ukraine truly has the cheapest gasoline in Europe. However, the average European salary buys over 2,000 liters, while the Ukrainian one only buys 200. As they say, feel the difference.
The new government is touting the signing of the Association Agreement with the EU as a victory. However, firstly, the document itself was drafted by its predecessors. Secondly, Ukraine won't see full association for almost another year and a half. The free trade zone was postponed at Russia's request until December 31, 2015. Experts believe there will be no positive effect on the domestic economy until the free trade zone agreement comes into effect. As Oleksandr Okhrimenko noted, the creation of the free trade zone entails the gradual abolition of import duties on Ukrainian goods to the EU and on European goods in Ukraine. As is well known, the EU unilaterally voluntarily abolished some duties on Ukrainian goods on May 15, 2014, and has now promised to extend them until October 1, 2015. However, by abolishing the duties, the EU did not lift quotas and restrictions on the supply of Ukrainian products. Ukraine has indeed increased its pig iron sales to the EU because it no longer has to pay the 1,7% duty. However, Ukraine cannot supply metal products to the EU because they do not meet European standards. The same applies to food products. Ukraine can supply corn, but cookies and other products cannot until they meet European standards.
Parliament reluctantly passed the lustration law, demanded by protesters, behind closed doors. However, it was not signed by President Petro Poroshenko, who claimed he had not seen the final version. The fact is that around 400 amendments were introduced to the bill before the vote, and few people had even seen the approved version. Even so, political analysts doubt the law will be effective, calling it populist and an election ploy. Incidentally, it does not apply to parliamentary deputies. The parliamentary campaign, announced by the president ostensibly to purge the Verkhovna Rada of fifth columnists and other traitors, is currently in full swing. In reality, it turns out that there won't be much of a purge: according to the Kyiv City Committee of Ukraine (KVU), only a quarter of the parliament will be renewed. This is hard to disagree with: former members of the Party of Regions are eager to become MPs in single-member constituencies. Among them are the brother of the fugitive former Secretary of the National Security and Defense Council Andriy Klyuev, Serhiy; Yanukovych's former "supply manager", the former head of the State Administration of Affairs, Andriy Kravets, Igor Shkyria, Vitaly Khomutynnyk, Oles Dovgy and many others.
What's important is that the so-called democratic parties are backed by former associates of Yanukovych. His former chief of staff, Serhiy Lyovochkin, directly or indirectly influences UDAR, Lyashko's Radical Party, and the Civil Position Party. Anatoly GritsenkoHe is increasingly being called the new power broker, close to Petro Poroshenko. After an unsuccessful attempt to run for parliament in a single-member constituency in Mykolaiv (local residents opposed him), Lyovochkin will run as candidate number 12 on the Opposition Bloc list. This is a joint project between him and another oligarch, Rinat Akhmetov, which includes remnants of the Party of Regions.
Therefore, there will be no real lustration. They will fire middle management, as Viktor Yushchenko once did, thereby further emasculating the vertical power structure. They will replace the dismissed officials with people close to them. Ukrainians went through this ten years ago and remember how it all ended. But back then, the country was at peace. Now, the government is increasingly tightening the screws on ordinary Ukrainians, masquerading it as reform. In the past six months, our citizens have seen no other "positive" changes, other than tariff increases, price cuts, hot water and electricity outages, and the prospect of cold radiators in winter. One after another, instances of abuse of power by the new "Kermanychivs" are surfacing. First, there was Kubiv, then the former Prosecutor General. Oleg Makhnitsky, who, according to media reports, earned his initial capital through bank loan scams. After heading the Prosecutor General's Office, he engaged in self-promotion, simultaneously trading prosecutorial positions and closing scandalous cases, of course, for a fee. One of these cases involved the "Boyko rigs" (former Deputy Prime Minister of Ukraine, associate of oligarch Dmytro Firtash and Serhiy Lyovochkin). The Prosecutor General's Office found everyone innocent. However, it is known that a company controlled by oligarch Dmytro Firtash sold the drilling rigs at an inflated price to state-owned Chornomornaftogaz. The profit amounted to approximately $300 million. Now, Makhnitsky, having purchased expensive real estate in London, is planning to leave Ukraine.
Interior Minister Arsen Avakov was accused of involvement in a murder in the mid-90s and was also implicated in numerous illegal transactions and frauds involving state property. He is currently planning a "reform" of law enforcement agencies, which would involve renaming them the police, cutting staff, and siphoning off funds from the state budget.
The government is silent about the whereabouts of the money Yanukovych stole and which it promised to return. Last winter, standing on the Maidan, the current leaders accused Yanukovych of theft, of allegedly having two budgets: one regular, one shadow, promising that there would be no more theft. Six months have passed, and if all the budget funds are there, why isn't it visible, while the Cabinet of Ministers talks about an empty state coffers? Where is the second budget, stolen by the fugitive president, and who has pocketed it now?
Oleksandr Savchenko, rector of the International Institute of Business and former deputy head of the National Bank of Ukraine, is convinced that Ukraine's "elite" is incapable of reform, not only during a war, but in principle.
"Our 'elite' is capable of power struggles, populism, betrayal. In short, anything but reform," he told Liga.net. He believes there are several reasons for this. First, people who hover among the powers that be, politically, and economically lack the necessary knowledge and therefore don't understand the essence of radical economic and social reforms. They don't have the time to develop and implement reforms—they're caught up in a political struggle.
Most importantly, due to an inferiority complex, they are mentally unable to delegate the rights and responsibilities for implementing reforms to someone who understands what needs to be done and knows how. Furthermore, there is a fear of losing control.
The second reason is rampant populism. Economic reforms require dozens of non-populist decisions—such as cutting ministry staff; reducing the number of government officials not by half, but by three to four times, primarily in the presidential administration and the Cabinet of Ministers. Reforms also require cutting the number of students and public universities by roughly half, and much more. With this approach, true reformers and their patrons have no chance of being re-elected or maintaining their positions of power.
Moreover, Ukrainians are a conservative nation and will be dissatisfied with the initial stages of reforms, so there is a high probability of social protests, which under the current circumstances will be massive and destructive.
However, history cannot be turned back, and the dollar will no longer be at 8.
There are many questions about the current government. Six months have passed since the Revolution of Dignity, and there's been no improvement; things are getting worse every day. It's surprising that the authorities are either ignoring the growing outrage, or are simply pretending not to. Civic activists have already begun to deal with dishonest officials and politicians in their own way, shoving them into trash bins. If the situation doesn't change, social unrest, this time armed, will not be long in coming. And it will be far bloodier and more violent than last winter.
Special correspondent
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