Crimean Property in Limbo

By Kateryna Dronova (Berekely, CA)

Two days before the historical Election Day in Ukraine Russian President Vladimir Putin announced at the St. Petersburg International Economic Forum that “Russia will respect the choice of Ukrainian people” and Kremlin “will work with the newly elected structure.” Shortly afterwards he made several remarks that this cooperation with the newly elected head of Ukraine will unavoidably deal with Ukraine’s $3.5 billion debt for natural gas. But the issue of who owes who and who owns what goes much, much deeper. It is particularly acute after Russian unlawful annexation of Crimea.

Poroshenko Elected Ukraine President

Putin Dodges Promise To 'Respect' Results

By Paul Gregory (Hoover Institution and University of Houston)

Ukraine’s 35.5 million voters gave Petro Poroshenko, the so-called Chocolate King, a rousing 56 percent of the votes from 21 candidates on the ballot. He will be Ukraine’s fifth president. These figures are based on two separate national exit polls. Two days before the election, Vladimir Putin publicly backtracked on his pledge to honor the results of the election. In the days and weeks that follow, it will become evident that he never meant to recognize the results of the Ukraine presidential election. Let’s see how the world reacts.

Six Reasons Why Putin Seems To Have Lost In Eastern Ukraine

By Paul Gregory (Hoover Institution and University of Houston)

There is a growing consensus that Vladimir Putin has abandoned his campaign to take control of east Ukraine. The fog of war, such as the killing of nearly 20 Ukrainian soldiers yesterday, is obscuring the distinct turn in the tide. Putin’s goal has changed from dismantling Ukraine as a united state to destabilizing Sunday’s presidential election in the east. Ukraine has a chance for a third lease on life. It cannot afford to blow this chance by returning to its old ways of governing. Ukraine’s third lease on life will likely be its last if wasted.

Elections in Ukraine

By Yuriy Gorodnichenko (UC Berkeley)

Results from exit polls [1, 2] show that Petro Poroshenko is elected the President of Ukraine. At the same time, dismal performance of candidates affiliated with Viktor Yanukovych and the Party of Regions, the former ruling party in Ukraine.

	All-Ukrainian TV exit-poll	National exit-poll
Poroshenko	57.3%	55.9%
Tymoshenko	12.4	12.9%
Lyashko	8.7%	8%
Grytsenko	6%	6.3%
Tygipko (former Party of Regions)	4.4%	4.7%
Dobkin (Party of Regions)	2.3%	2.1%

 

 Update: Yarosh, the leader of the Right Sector, got less than 1%. Epic fail of Russian propaganda.

Inflation target for Ukraine

By Yuriy Gorodnichenko (UC Berkeley)

In a recent report, IMF recommends that Ukraine switches to inflation targeting where the target range is 3 to 5 percent per year. Is this a reasonable regime for monetary policy in Ukraine? This blog reviews some issues related to this question.

An Unauthenticated Document Planning the Retreat of Russian Special Forces from East Ukraine

 

By Paul Gregory (Hoover Institution and University of Houston)

We have reason to believe that the self-appointed leaders of the self-proclaimed Peoples Republic of Donetsk (PRD) understood quite well the message of the May 11 referendum. Less than 12 hours after the polls closed, the PRD military commander, Colonel Strelkov alias Strelok (real name Girkin), purportedly issued alarmed instructions to a restive, unsupportive east Ukraine, beset by lawlessness and chaos, from which the Russian “volunteers” might have to flee.

Separatists May Be Exaggerating Ukraine Referendum Turnout By 300%

By Paul Gregory (Hoover Institution and University of Houston)

Separatists in Luhansk oblast have officially announced that 96 percent of eligible voters approved the referendum on independence (See: Ukrainska Pravda). According to the KyivPost election update, separatist officials are reporting 89 percent for seceding and 10 percent against in Donetsk Oblast. Donetsk and Luhansk make up the lion’s share of the contested Donbass region.

East Ukraine separatists are celebrating what they claim is a huge electoral victory in the May 11 referendum. These Crimean-scale election results are pure falsification.  I report here more believable results that show one third the turnout of the separatist claims and confirm earlier polling data that show 70 percent of East Ukrainians want to keep a united Ukraine.

Growth of Ukraine’s Economy

By Yuriy Gorodnichenko (UC Berkeley)

The IMF’s Staff report predicts that Ukraine’s economy is likely to grow at approximately 4 percent per year in the medium run. While this rate is respectable by the standards of developed economies (for example, the U.S. economy grew about 3 percent per year since World War II and only 1 percent since the start of the Great Recession), it is quite low when compared to the growth rate of transition and developing economies. For example, China’s economy has been growing 7 to 10 percent a year for several decades now. Poland’s economy has been growing  about 5 percent a year since mid 1990s. Why did these and similar economies grew so fast and what does it mean for Ukraine?

Putin's 'Human Rights Council' Accidentally Posts Real Crimean Election Results

By Paul Gregory (Hoover Institution and University of Houston)

As you may recall, the official Crimean election results, as reported widely in the Western press, showed a 97 percent vote in favor of annexation with a turnout of 83 percent. No international observers were allowed. The pro-Russia election pressure would have raised the already weak vote in favor of annexation, of course.

Yesterday, however, according to a major Ukrainian news site, TSN.ua, the website of the President of Russia’s Council on Civil Society and Human Rights (shortened to President’s Human Rights Council) posted a report that was quickly taken down as if it were toxic radioactive waste. According to this purported report about the March referendum to annex Crimea, the turnout of Crimean voters was only 30 percent. And of these, only half voted for the referendum–meaning only 15 percent of Crimean citizens voted for annexation.

Federalization Problem: Russia vs. Ukraine

by Kateryna Dronova (Berkeley, CA)

Shortly after Russia swallowed Crimea, its appetite grew even stronger: next day after March 16 Crimean referendum Russian Foreign Ministry called upon Ukrainian government to create a new constitution providing for “democratic federal state”. On April 17 Vladimir Putin questioned Ukrainian current borders and called its eastern and southern part “Novorossiya” (New Russia, Russian-speaking regions formerly controlled by Russia during the imperial times). By the end of the month federalization in Ukraine has become #1 issue in Russian-Ukrainian dialogue. Sergey Lavrov, Russian Minister of Foreign Affairs, in his interview stated that Russia must insist on federalization “not because we want this, but because it is a request of the southern and eastern regions.” Ukrainian Transitional Government strongly opposes the idea of creating a “federation” out of a unitary state and views Russian suggestion as an attempt to “dismember” a country. At the same time the idea of decentralization of power has acquired recognition and support from Ukrainian officials and is currently promoted to become central in the reforms package. Unexpectedly President of Belarus Alexander Lukashenko (old Russian ally) joined Ukrainian side and commented that federalization would "split the country" and “destroy the Ukrainian state.” This post makes humble attempt to distinguish between Russian “federalization strategy” and Ukrainian “decentralization ambition” and clarifies whether one should follow Mr. Lukashenko’s example.

Is Putin's New Type Of War In Ukraine Failing?

By Paul Gregory (Hoover Institution and University of Houston)

As the Kiev EuroMaidan demonstrations were gathering momentum in late February, Anne Applebaum prophetically wrote: "Putin doesn't need to invade Ukraine. He can destabilize it from the Kremlin." So far, Applebaum's insight has proven correct. What we have seen is a covert war of destabilization, rather than an invasion by conventional means. While we focus on the 40,000 troops amassed on the border, Putin has, all the while, been conducting a war of another kind in ten strategic cities and towns in eastern Ukraine.

UN's Report on the human rights situation in Ukraine: why is it important?

By Kateryna Dronova (Berkeley, CA)

On April 15, 2014 the UN Office of the High Commissioner for Human Rights (OHCHR) released “Report on the human rights situation in Ukraine”. This document provides a general overview on the problematic issues related to human rights protection is Ukraine and specifically highlights abuses related to Maidan protests and human rights challenges in Crimea. Russian Foreign Ministry Spokesman Alexander Lukashevich hastened to comment that this document “has one-sided, politicized and biased character and give no picture of the real situation in that country” and “was fabricated to fit prearranged conclusions to arrived at which there was no need to visit Ukraine.” Two days later France’s ambassador to the United Nations, Gerard Araud compared Russian behavior towards Ukraine to “fire-setting firefighter.” To clarify the validity of such claims this post suggests taking a closer look at the Report’s content and makes some conclusions on the nature of the document.

Ukraine’s path to oligarchy: Lessons for the U.S.?

By Yuriy Gorodnichenko (UC Berkeley)

Because countries’ political systems tend to develop only gradually, it can be difficult to draw a hard line that identifies country X as a particular regime. There have, however, been some instances in which countries have turned into oligarchies quickly and these unusually rapid evolutions can teach us about the workings of the process as well as symptoms. Ukraine, my home country, is a showcase in this respect.

South & East of Ukraine: Is it one country?

By Yuriy Gorodnichenko (UC Berkeley)

Results of a new survey were published in ZN.ua. The survey was conducted by a leading sociological institution in Ukraine: the Kyiv International Institute of Sociology. Since there are many myths and guesses about what the South and East of Ukraine want to be and want to do, the survey is really helpful. It was aimed to understand the aspirations of the people (rather than special groups such as individuals who occupy buildings) in these regions of Ukraine. Here is an overview some key results.

Instant Parsing: Does The Geneva Agreement Defuse The Ukrainian Crisis?

By Paul Gregory (Hoover Institution and University of Houston)

Today’s events constitute a surprise for me. I had expected a recalcitrant Russian negotiating stance that would deteriorate into a pointing of fingers of blame. The result, by all appearances was surprisingly positive, although the agreement was reached by ignoring or not spelling out the major points of contention.

Lustration in Ukraine: Is the work ever over?

by Kateryna Dronova (Berkeley, CA)

 

The new Ukrainian government is currently facing a growing public demand for lustration of the former government members and their supporters who are considered corrupt as well as allied with Russian agents. As a response to this demand in February, 2014 Lustration Committee headed by Egor Sobolev (leading Ukrainian opposition journalist and activist) has been established under the Cabinet of Ministers. This post aims to review the steps undertaken by committee towards its initial goals, as well as critiques of recently introduced “lustration” bills.

Putin Needs Victory

Anders Aslund (PIIE) argues that the West should stop the Russian aggression now. This is the time to act because:

1. Putin has nearly complete (if not all) control over political/military decision making in Russia. He faces no internal opposition and so one should not expect that anybody in Russia can stop him.
2. Putin wants to restore the Soviet Union in some form. Crimea was an "appetizer" and Putin will continue aggression and, in fact, it is happening now in the East of Ukraine. 
3. Sanctions imposed on Russia are laughable. West has probably less credibility with Putin than President Kennedy had with Soviet leader Nikita Khrushchev after their disastrous summit in Vienna in 1961. That debacle led to the Cuban missile crisis. After Russia’s war in Georgia in August 2008, the West made some noise, but soon it turned quiet, ignoring the Russian aggression. Clearly, Putin expects that to happen once again.

Aslund suggests that Russia, however, is in no position to rival the West and the Russian economy is  highly vulnerable. The popularity of Putin in built on the notion that he's a successful manager and there should be a limit to how much economic damage Putin can tolerate. The West needs to test this hypothesis by imposing a truly great cost upon him with a broad array of sanctions.  Sanctions should be as deep as the ones imposed on Iran. At the same time, the West should obviously also supply arms to Ukraine as fast as possible.

 

Aslund concludes that the West needs to recognize that it cannot afford not to stop Putin. The earlier and more effectively that is accomplished, the lower the cost will be. The obvious parallel is the West’s failure to stop Nazi Germany in time in 1938.

How many troops does Russia need to occupy Ukraine?

Prof. Motyl argues that

• In order to occupy Donetsk and Luhansk provinces alone, Russian would have to deploy somewhere between 26,702 and 133,514 troops.

• A “land bridge” from Crimea to Transnistria would mean occupying Kherson, Mykolaiv, and Odessa provinces—which would entail somewhere between 46,497 and 92,994 soldiers.

• Occupying all seven southeastern provinces would require between 118,536 (26,702 for Donetsk and Luhansk and 91,834 for the others) and 317,182 (133,514 for Donetsk and Luhansk and 183,668 for the others).

• If Russia decides to conquer all of Ukraine, it would need an additional 548,587 troops—for a grand total of 667,123 to 865,769 troops.

• Kyiv city and Kyiv Province alone would require 90,676 occupying soldiers.
• All of Ukraine = more than 500,000 soldiers

These calculations suggest that Russian troops concentrated next to the Ukrainian border may be not enough to occupy many oblasts in Ukraine. However, the current Russian forces could be enough to occupy one or two oblasts.

Eyewitness To The Kharkiv Demonstrations: Going Against The Putin Machine

By Paul Gregory (Hoover Institution and University of Houston)

Eyewitness Account of the events on April 6 in Kharkiv, Ukraine supplied to me by a colleague who vouches for the veracity of the writer.

Ukraine's Path To Justice Leads To Strasbourg

by Kateryna Dronova (Berkeley, CA)

 

In 2013, Ukrainians filed 13,152 complaints to the European Court of Human Rights (ECHR) which constituted 13.3% of all claims in the ECHR and put Ukraine in #3 position. The large protests in Kyiv and subsequent escalation leading to the Crimean crisis resulted in numerous human rights violations in Ukraine. Notably, attempts to address these grave breaches of the European Convention on Human Rights were undertaken not only by Ukrainian citizens, but also by the government of Ukraine in proceedings against Russia. This post suggests a brief review of the filed complaints and examines whether ECHR’s willingness to provide redress for the alleged breaches necessarily results in effectiveness of these decisions.

Putin's Attack On Ukraine Began Today: What This Means For Europe And The US

By Paul Gregory (Hoover Institution and University of Houston)

Vladimir Putin had to act before the Ukrainian presidential election of May 25, at which time his narrative of neo-Nazis and nationalist extremists in charge of Ukraine would vanish into thin air.  Even Putin’s genius spin meisters could not portray a President Poroshenko from ex-boxer Klitschko’s UDAR party as a wild eyed extremist, nor could they whitewash the trivial vote for rightist candidates, although they would try.

Putin’s anti-Ukraine propaganda juggernaut rests squarely on the single fiction of a neo-Nazi, Jew-hating, extreme nationalist government in Kiev. If Putin waits out the election, his anti-Ukraine disinformation campaign directed to his Russian, southeastern Ukrainian, and Western audiences loses its credibility, even in receptive leftist quarters in the West.

True to expectations, Putin began today a coordinated attack on Eastern Ukraine and parts of Moldavia.

Can State Language Policies Distort Students’ Demand for Education?

 

 

By Alexander Muravyev (IZA and St. Petersburg University GSOM) and Oleksandr Talavera (University of Sheffield)

With territory larger than Metropolitan France, and population over 45 million people, Ukraine is characterized by considerable ethnic diversity. Ukrainians are by far the largest ethnic group constituting 77.8% of the population. Russians are the second largest ethnic group amounting to 17.3% of the population. The other large minorities include Belarusians, Moldovans, Crimean Tatars, Bulgarians, Hungarians, Romanians, Poles, and Jews. An interesting feature of the country is a disproportional use of Russian by ethnic Ukrainians and other ethnic minorities, a heritage of the explicit and implicit Russification which occurred over most of the 19^th and 20^th centuries. In particular, numerous surveys in Ukraine in the early 2000s revealed that only half of ethnic Ukrainians chose Ukrainian as language of interview, 17.9% were indifferent between Ukrainian and Russian and 32.0% preferred Russian. Strong preference for Russian is also documented among other ethnic groups.

Empathizing With The Devil: How Germany's Putin-Verstehers Shield Russia

By Paul Gregory (Hoover Institution and University of Houston)

In the days of the cold war, the Soviet Union and East Germany infiltrated their spies into the Bundestag, the federal bureaucracy, and even the chancellor’s (Willy Brandt’s) inner circle. The Federal Republic of Germany was Russia’s most spectacular espionage success, made possible by the common lineage of German communists and the Social Democrats (SPD), who alternated in power with rival Christian Democrats throughout the postwar era.

A quarter century after the end of the cold war, the German social democrats are still providing ideological cover for the Russian Bear along with their cast-out brethren – the ex-communists of Die Linke party. These prominent German Putin-Empathizers (from Versteher or, literally “understander” in German) serve as Putin’s first line of defense against meaningful European sanctions for the Anschluss of Crimea.

Russia-West relationship: The Long Telegram revisited

By Yuriy Gorodnichenko (UC Berkeley)


The Russian invasion into Crimea sent the Russia-West relationship to the lowest point in a long time and many commentators talk about the return of the Cold War: although Russian media talked about turning America into radioactive dust, few want to have a military conflict in Europe and yet the Russian aggression has to be stopped (the UN resolution on Ukraine’s sovereignty and territorial integrity strongly indicates that the world condemns the invasion). Almost 70 years ago, George Kennan—the author of the long telegram which was further elaborated in The Sources of Soviet Conduct (1947)—outlined the policy of containment of the Soviet Union. Surprisingly, many of the points he made are still relevant. This post briefly reviews some of the key points in The Sources of Soviet Conduct.

Russian language minority in Ukraine: To the rescue?

by Kateryna Dronova (Berkeley, CA)

 

On the numerous occasions, the Russian government declared that the primary reason for the invasion of Russian troops into Crimea was protection of Russian-speaking population subjected to alleged persecution and oppression. This post aims to probe this claim and overviews compliance of Ukraine with its obligations to protect the Russian-speaking minority.

 

IMF’s program in Ukraine: How to create a new Greece

By Yuriy Gorodnichenko (UC Berkeley)

More information came in about the deal between the IMF and the new government in Ukraine. While some conditions (e.g., switch hryvnya (Ukraine’s currency) to a floating exchange rate regime and depreciate to correct external imbalances) appear reasonable, others appear to be surprising given the experience of the Great Recession.

Specifically, the fiscal position of the government in Ukraine is weak with a deficit of 5 to 9 percent of GDP—the exact magnitude depends on how one treats “off-balance sheet” liabilities (e.g. state owned enterprises). Clearly, a fiscal consolidation is needed. The IMF demanded that the government raise taxes (about 2 percent of GDP), cut spending (about 3 percent of GDP), remove energy subsidies to population (1 percent of GDP), and freeze minimum wages. The government agreed to raise energy prices charged by utilities by 50 percent starting May 1, 2014. The program envisions a gradual expenditure-led fiscal adjustment—proceeding at a pace commensurate with the speed of economic recovery and protecting the vulnerable—aiming to reduce the fiscal deficit to around 2½ percent of GDP by 2016. In short, the IMF wants Ukraine to implement a massive, front-loaded fiscal contraction.

This is a bad idea. First, many commentators observed a strong negative correlation between fiscal consolidation and GDP growth in Eurozone countries during the Great Recession (see Figure 1). While the IMF demonstrated more flexibility with respect to fiscal reforms in these countries, it was still far too aggressive on forcing countries to keep balanced budgets. PIGS countries had to implement large fiscal consolidation, they had deep recessions, and even now they have weak economic growth.   



Figure 1: Austerity in the Euro area; source: Paul Krugman’s blog.



Second, recent research has converged on the consensus that fiscal multipliers may be particularly large during recessions ([1], [2]) and financial crises ([3]) so that fiscal consolidations could be particularly painful when economies are weak. Even IMF economists acknowledge that fiscal multipliers could be larger than the IMF thought. That is, the IMF consistently underestimated the negative effects of fiscal contraction during the Great Recession (see Figure 2). Olivier Blanchard, the chief economist of the IMF, argues that the timing for fiscal consolidation should be “less now, more later.” In other words, fiscal consolidation should be done when economies are doing well rather than when they are depressed.

Figure 2.  Growth Forecast Errors vs. Fiscal Consolidation Forecasts in Europe.
Figure plots forecast error for real GDP growth in 2010 and 2011 relative to forecasts made in the spring of 2010 on forecasts of fiscal consolidation for 2010 and 2011 made in spring of year 2010; and regression line. Source.

One may argue that fiscal consolidations should be front-loaded because i) a crisis may be the only time when politicians can do reforms, ii) a fiscal consolidation may restore confidence and resume economic growth, iii) fiscal consolidation could be the only feasible option to balance the budget. While these could be good arguments, I believe that none of them applies to Ukraine: i) Ukraine is going to implement wide-ranging reform as a part of its association agreement with the EU anyway; ii) given a very low income per capita, Ukraine is likely to grow fast in the medium run (fighting corruption is by far more important in restoring confidence); iii) many countries committed to loan vast resources to Ukraine and so it can weather short-run difficulties.

In summary, fiscal consolidations in weak economic conditions could be a kiss of death. One could have expected that the IMF is going to learn from its mistakes but the program between the IMF and Ukraine suggests otherwise. At this rate, the IMF can turn Ukraine into Greece, a country with deep and prolonged economic contraction and continued political instability. Is this what the IMF wants to achieve?