The rumors yesterday were true: Ukraine has signed a deal with its creditors that includes a 20 percent haircut on the face value of a debt that totaled almost $18 billion. In addition, the deal will extend the maturity of the debt by four years, with interest rates set at 7.75 percent. The deal was signed after weeks of tense negotiations between Ukraine’s Finance Minister Natalie Jaresko and representatives of various private bondholders, among whom the largest was Franklin Templeton.
Ukraine now gets some breathing room to sort out at least its looming obligation to Russia, to which it owes $3 billion by the end of December. But as we noted yesterday, the hole Kiev finds itself in appears to be too deep for this restructuring deal to make a material long-term difference. According to Bloomberg’s analysis, serious reform is the only way to get the country back on track.
And though Ukrainian President Petro Poroshenko has been touting progress on this front, it doesn’t look like much meaningful headway is being made. Taras Kuzio, writing at Foreign Policy’s Democracy Lab, paints a damning picture of Poroshenko’s record thus far. The article is very much worth reading in full, but here’s a taste:
Any effort to declaw Ukraine’s oligarchs has to start with the country’s notoriously corrupt energy sector, which has sucked billions from the budget. Perhaps the most visible of the country’s energy tycoons is Dmytro Firtash, who began trading gas in the 1990s with the support (as he admitted to the U.S. Ambassador to Ukraine) of mafia don Semyon Mogilevych, who is wanted by the FBI. Firtash and the other members of what has been called the “gas lobby” have successfully cultivated mutually profitable ties with all of Ukraine’s presidents (including Poroshenko), the prosecutors’ office, and the security services […]
In fact, Poroshenko has a long record of collaborating with Firtash that goes back to Leonid Kuchma’s presidency prior to the 2004 Orange Revolution. Less than a month after the Euromaidan revolution, Poroshenko travelled to Vienna with boxing champion (and now mayor of Kiev) Vitaliy Klitschko to seek political support from Firtash, who was awaiting trial there over U.S. demands to extradite him to face corruption charges. While they were in Vienna, Poroshenko and Klitschko struck a deal granting the leaders of the “gas lobby” (Firtash, former Energy Minister Yuriy Boyko, and Yanukovych’s Chief of Staff Serhiy Lyovochkin) immunity from prosecution in exchange for the oligarchs’ support — in the form of money, media, and connections — for their political ambitions. “We got what we wanted — Poroshenko as president and Klitschko as mayor,” Firtash bragged to the Viennese court.
Ordinary Ukrainians are no fools. Recent polls found that 72 percent of respondents think the country is heading in the wrong direction, and most strongly disapprove of Poroshenko’s handling of every portfolio apart from relations with the EU. The country’s “misery index”, calculated by combining inflation rates with unemployment, is second only to Venezuela’s, and most people just aren’t seeing the kinds of changes that make a difference in their lives.
Kuzio concludes by saying that if current trends continue, Ukraine’s Euromaidan revolution could easily be remembered in the same way as the Orange Revolution of more than a decade ago: a failure that allowed counterrevolutionary, pro-Russian politicians, represented at the time by the person of Viktor Yanukovych, to stage an electoral comeback. Some things are different this time around—open conflict is festering in Ukraine’s east, and there is evidence that a new Ukrainian pro-European national identity is slowly being born—but Kuzio’s point is worth considering. History never repeats itself exactly, but neither should those of us who wish the best for Ukraine be convinced that this time is altogether different.