Ukraine’s rich should give governance a hand

The presence of former US president Bill Clinton, sprinkling his special brand of political stardust, could not dispel the pessimism about Ukraine’s immediate political, and longer term economic, prospects at a high-level conference in Yalta last week (29-30 June).

Viktor Pinchuk, the Ukrainian oligarch who finances the Yalta European Strategy organisation, the pro-EU accession lobby group which organised the meeting at the Livadia Palace - site of the famous Yalta conference in 1945 - was one who made his doubts clear. He is not confident that the Ukrainian elections, scheduled for 30 September, will resolve the political paralysis that has gripped the country for much of the period since the Orange Revolution of 2004-05.

Earlier this week (2 July) senior European Commission officials were back in Kiev for the fourth round of negotiations on an enhanced EU-Ukraine co-operation agreement. With the completion of Ukraine’s negotiations on its long-delayed membership of the World Trade Organization possibly only weeks away, the EU-Ukraine talks are expected now to lead, inter alia, to a detailed examination of how to create a ‘deep’ EU-Ukraine free trade zone.

So, although the Union may be suffering from enlargement fatigue, this is not stopping the Commission, with backing from the Council of Ministers, from pushing ahead as quickly as it can in the circumstances, with initiatives designed to draw Ukraine closer to the EU. In the latest of a series of steps aimed at deepening their ties, the EU and Ukraine signed last month (18 June) a visa facilitation deal. This determined but cautious engagement by Brussels is testimony not only to the strategic importance of Ukraine and to the EU’s aim of containing Russian influence in its former vassal state, but also to fear of the threat which a more lawless and decaying Ukraine, a neighbour with over 47 million people, could pose.

The Ukrainian economy is enjoying the backwash from Europe’s economic recovery, Russia’s oil-fired boom and high commodity prices. Another year of close-to-7% growth is on the cards. But the affluence of central Kiev is casting a deceptive veneer of prosperity over a poverty- stricken nation.

For beneath the surface, lethal currents still flow. The assassination attempt on President Viktor Yushchenko, in September 2004, before the half-baked revolution, was not an isolated attack. It is symptomatic of an enduring political culture.

Advisers to Ukraine’s top politicians still mutter about continuing threats to their bosses’ safety - and their own. One EU official describes events involving Ukrainian politicians which sound more like scenes from The Godfather than from Capitol Hill or the House of Commons. He points out that half the members of the Ukraine parliament have mysteriously become millionaires. Anders Aslund, an academic expert on eastern Europe, supports his belief that hundreds of millions of dollars are changing hands to persuade "elected" politicians to change party. At the Yalta conference last week, a podium speaker said that businesses wanting speedily to secure certain refunds of value-added tax have to surrender to specific finance ministry officials some 20% of what they are owed.

Ironically, Ukrainian billionaires, some of whom have either helped to maintain the kleptocracy which passes for ‘government’ in their country or done too little to combat it, are now hedging their bets.

On 20 June the 33-year-old Kostyantyn Zhevago sold 25% of the shares in his iron ore exporting company Ferrexpo on the London Stock Exchange for €310 million. Rinat Akhmetov, a member of the Ukraine parliament, and reputedly the richest of Ukraine’s oligarchs, is said to be polishing up both his companies and his own image in advance of a London float. Pinchuk says he is also planning an international share flotation in order to diversify out of steel and out of Ukraine.

Once, some Ukrainian oligarchs were said to want their country to cosy up to mother Russia. Now they are finding London’s markets and its rule of law, and the more dynamic European and Asian economies, quite irresistible. They do not want to fall prey to Russia’s unpredictable political and business elites. Politicians linked to them are also changing their tunes.

On Monday (2 July) in Brussels, the World Bank presented a new report on government finances in Eastern Europe and Central Asia. A key conclusion, says Cheryl Gray, one of the authors, is that good governance is vital if government spending is to promote growth. The clear implication for Ukraine is that growth would be even higher now and more sustainable in the future if its government was not driven by corruption at every level.

More of Ukraine’s oligarchs are said to be following Pinchuk’s lead and pouring millions into philanthropy. Nobody can know their exact motivations. The Centre for Economic Policy Research, Europe’s top economic research network, has just released a study which states that philanthropic acts do not necessarily reduce inequality. Cruel as it may sound, what these rich people are or are not doing to improve the quality of political life and governance in their homeland is just as important as how much they are donating to tackle HIV-Aids or rampant tuberculosis.

• Stewart Fleming is a freelance journalist based in Brussels.

The presence of former US president Bill Clinton, sprinkling his special brand of political stardust, could not dispel the pessimism about Ukraine’s immediate political, and longer term economic, prospects at a high-level conference in Yalta last week (29-30 June).