Page 29 - BNE_magazine_10_2019 kolomoisky

bne October 2019 Cover Story I 29
The burning of the former governor to be done?” (After a pamphlet Lenin and almost a third (29%) of the popula-
tion were living in poverty. Ukraine has been suffering from a similar fate with unemployment at 9.2% in the second quarter, but poverty levels have been reduced to 4% as of the end of 2018 partly thanks to a 22% pension increase and a doubling of the minimum wage put in place by former president Petro Poroshenko.
Gross international reserves (GIR): Russia’s gross international reserves were down to about $7bn in the summer of 1998, not enough to cover two months of imports, versus the
of the National Bank of Ukraine
(NBU) Valeria Gontareva's dacha is proving to be a watershed moment for the new Ukrainian President Volodymyr Zelenskiy. Attention has been dramatically refocused from the high hopes of Zelenskiy’s radically anti-corruption and reformist legislative agenda to a single question: what is his relationship with his oligarchic backer Ihor Kolomoisky? Is Zelenskiy merely
a puppet?
A string of events have only added to the unease that accompanied Kolo- moisky’s role in the Zelenskiy story. The president’s chief of staff is Kolomoisky’s former lawyer. The state is proposing to pay Kolomoisky’s Ukraine International Airlines (UIA) compensation for losses incurred due to the Russian sanctions and most recently has suggested it will also compensate him for nationalising his PrivatBank in 2016. The escalating string of attacks on Gontareva prompted the NBU to tweet “STOP TERROR”
this week. Not to mention the fact that Kolomoisky blatantly stole $7bn from PrivatBank, but remains at liberty and free from investigation.
While the “Kolomoisky question” is currently front and centre, the problem is bigger than just one oligarch who seems to have manoeuvred himself into the heart of Ukrainian politics and is now extracting his revenge on his enemies with impunity, before he helps himself to billions of state dollars.
Ironically Zelenskiy faces exactly the same set of challenges as Russian President Vladimir Putin did when he took over in 2000. The Russian economy was a smoking wreck following the 1998 crisis, but the biggest danger to economic recovery and Putin’s political power was the oligarchs had more or less captured the state and riddled the apparatus with their corrupt placemen. Putin himself had been hand chosen, not by the ailing Boris Yeltsin, but the “Family” members, oligarch Roman Abramovich and Yeltsin’s daughter Tatiana Yumasheva.
The two most famous phrases in the Former Soviet Union (FSU) are “What’s
wrote.) and “Who is to blame?” (The basis on which the planned economy was run.) Today this could be better phrased as “What’s to be done with those who are to blame?”
Kolomoisky is riding high but the oligarchs are a cancer that has pervaded the entire body politic. Like in Russia, the basic business model of most oligarchs is to seek rents from the state and then later from the population. Zelenskiy needs to halt the attacks on Gontareva and hold Kolomoisky to account (if it is shown he is responsible), but more importantly, like
“Zelenskiy faces exactly the same set of challenges as Russian President Vladimir Putin did when he took over in 2000”
Putin, he needs to break up the oligarchs' control over the state. Worryingly from the impressive list of 500 legislative acts that Zelenskiy put on the docket for action before Christmas, anti-trust legislation is entirely missing.
Reading from Putin’s playbook
Much is made of Ukraine's turn to the west and EU aspirations, but the fact is that the situation Zelenskiy finds himself in today is very similar to what Putin had to cope with when he took over in 2000.
GDP crash: in 2000 Russia was just emerging from a debilitating crisis. The economy collapsed in 1998 suffering from a 7% contraction that destroyed the top tier of the banking sector. The Ukrainian economic contraction was worse: Ukraine’s economy contracted by 17% at is worst in 2015.
Devaluation: the ruble lost three quarters of its value on August 17, 1998. Ukraine’s hryvnia has devalued by about the same amount, falling from UAH8
to the dollar to UAH25.
Incomes and poverty: the crash cut Rus- sian incomes in half and poverty levels soared. Unemployment in 1998 was 10%
$528bn Russia has today. Here Ukraine is actually ahead of the game as its reserves fell to a low of $18bn, which
is just enough to cover three months
of imports, considered the minimum needed to keep the currency stable, but are up to $22bn now, a comfortable 3.4 months of import cover.
Putin is considered lucky as the economy was already on the mend when he took over. The beneficial effects of the devaluation quickly kicked in and the economy boomed, expanding by 10% in 2000 – a record that has never been beaten.
Both Poroshenko in 2014 and Yeltsin
in 1996 inherited economies that were going into crisis. If anything Zelens-
kiy has been even luckier than Putin. Ukraine’s economy expanded by an unexpectedly strong 4.8% in the second quarter, even before he took office. In Putin’s case it was not clear until well into 2001 that the Russian economy was bouncing back. Ukraine may not have oil but it does have grain and brought in
a record harvest this year and earned circa $25bn from grain exports – also worth circa 25% of GDP. If Russia’s post- 1998 devaluation experience is anything
www.bne.eu