The annual Yalta European Strategy conference, now relocated to Kiev until further notice, is a good place to take the political temperature of Ukraine. Last weekend’s gathering saw the country’s ruling elite, from President Petro Poroshenko down, out in force and keen to talk. What regular attendees noted most was the change of mood since last year: less appetite for apportioning blame and more focus on what Ukraine can do to rebuild itself. There was even room for guarded optimism. A snap poll showed that most participants expect to see Ukraine to be stable, growing and with its conflict in the East frozen, if not solved, within three years.
There are certainly reasons to argue that Ukraine is beginning to turn the corner. Its currency has stabilised, the renegotiation of its sovereign debt has strengthened its fiscal outlook and a return to growth is widely anticipated. The government’s economic programme recently earned praise from Christine Lagarde, the IMF’s managing director. The problem is that while it is possible to detect an improvement in Ukraine’s macroeconomic position, it will take longer for this to feed through into anything resembling a feel good factor in the country as a whole.
As the violent protests of August 31 showed, public disillusionment is growing. Prices continue to rise and an increasing number of Ukrainians are unable to cover the costs of their basic needs, such as food, rent and heating. In the minds of many, personal hardship goes hand in hand with national humiliation as one-sided pressure to implement the Minsk Agreement begins to make it look less like a peace deal and more like an unconditional surrender.
Against this background, many politicians are finding it difficult to resist the populist temptation. Two of the parties that formed the reformist five-party coalition last year – Samopomich and the Radicals – have withdrawn in recent weeks. A third – the party of former prime minister Yulia Tymoshenko – remains part of the coalition in name alone. With local elections coming up next month, they now see advantage in distancing themselves from the hard choices that go with governing in a crisis.
With rising anger and a slender majority, the government faces a series of challenges over the next few months. The first comes tomorrow when parliament votes to accept or reject the debt restructuring package negotiated with bondholders at the end of August. Those voting know perfectly well that a better deal is not on offer. Rejection would lead to default, the loss of international good will and doubts about the continuation of the IMF bailout programme. Market uncertainty would threaten the return of financial instability and the unravelling of everything that has been achieved over the past year. Yet this is what many Ukrainian politicians appear willing to consider, as they seek to outbid each other in a populist auction to demand the impossible.
An even bigger hurdle presents itself later this year when parliament will be asked to give final approval to a constitutional amendment that acknowledges special status for the separatist enclaves in Donetsk and Luhansk, as envisaged in Minsk. The measure was passed with 265 votes last month but requires 300 to secure a constitutional majority next time. Failure could lead to a collapse of the government and new parliamentary elections, casting doubt on the reform programme and Ukraine’s future direction. As things stand, the amendment will fall.
The international community must accept a share of responsibility for this. Disenchantment has grown as Ukraine’s fear of abandonment has become more acute. Few will have failed to note the $95bn bailout package offered to Greece a month ago – four times the level of support Ukraine has received for a country a quarter of the size. Manoeuvrings over Iran and now Syria are the subject of open speculation that the fate of Ukraine will be traded to secure western interests in the Middle East. Ukrainians are being asked to make enormous sacrifices and they are beginning to ask what it’s all for. They need to know that the west is willing to stand by them in the long term.
Ukraine will therefore need clearer signals of international support if it is to get through the difficult winter months ahead. IMF and western backing will be needed to see off Russian demands to repay $3bn in bilateral debt due in December. The EU and US should make it clear that Ukraine is entitled to withhold repayment in lieu of reparations for Russia’s seizure of Crimea and its destruction of Donbass. Measures should be put in place to ensure that Ukraine has adequate energy supplies to get through the winter heating season. Instead of talking to Russia about Nord Stream 2 the EU should be creating additional reverse flow capacity to bring gas from west to east. There should also be a tough message on sanctions. Freezing the conflict is not enough. Sanctions should only be lifted when Russia implements the Minsk Agreement in full, including the withdrawal of all military assets and the restoration of Ukraine’s control over its own border.
There are green shoots of recovery in Ukraine but all will be put at risk if it is allowed to succumb to a winter of discontent. It is time for the west to step up, not step back.
David Clark is chair of the Russia Foundation.
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