Budget Balancing: due to the effects of the war in the Donbass as economic looting of Ukraine under the Yanukovych regime, the initial $17 billion bail out package from the International Monetary Fund (IMF) last year, will not be sufficient. Ukraine needs an estimated $15 billion more in 2015. Despite initial grumbling from the Europeans, Ukraine is making real progress towards raising this sum. The United States Congress approved $2 billion and the Canadians, despite having a smaller population than Ukraine, contributed another $200 million. North America’s “can do” attitude appeared to be all that Ukraine would have until last week when lobbying efforts by Prime Minister Yatsenyuk and Finance Minister Jaresko paid off. During Yatsenyuk’s trip to Germany, the German government announced $600 in loan guarantees. This was overshadowed by an announcement from the EU last week that they would add $2.1 billion for Ukraine (and just enough to outbid the Americans). That brings Ukraine’s fundraising tally to $4.9 billion or just under 1/3 of the needed sum. Importantly, that is more than enough to pay off the $3 billion loan to Russia which will be called in soon. Under the terms of the Faustian bargain struck by Yanukovych with the Russians shortly before he fled the country, Russia has the right to demand immediate payment of the $3 bilblion if Ukraine’s debt ratio exceeds 60% of the GDP. Moody’s estimated last week that Ukraine’s ratio is now at 72% and moving towards 83% by the end of 2015. The Russians wasted no time in stating that it was highly likely that they would demand the debt be repaid accordingly. This has been a consistent pattern for the Russians to immediately stake claims to the Ukrainian bailout funds. As soon as funds arrive from the West, Ukraine is forced to pass the money through to the Russians to pay for gas, debts, etc. In doing so, Russia has the luxury of hiding behind the “free market” while keeping Ukraine cash poor and mired in recession. In short, it’s a brutal but effective strategy. However, in addition to the nearly $5 billion already raised, it is anticipated that the Japanese, the Australians and/or other European countries will also contribute. That will likely leave a gap of less than $10 billion for the IMF to cover by refinancing and reworking the initial $17 billion loan plan. Plus, last week billionaire financier George Soros called on the West to give Ukraine $50 billion as a bailout, which at least raising the debate to a new level (even though he offered none of his own money as a down payment). Thus, while nothing ever seems easy for Ukraine, the new government is overcoming the odds and working its way out of the economic recession it inherited. Therefore, the Oracle of the Dnipro issues his ninth prediction for 2015 and puts the chance of Ukraine raising $15 billion in new money this year at 55%.
Peace Negotiations Primer: there have been four major proposed formats for peace negotiations In the Donbass including the Minsk, Normandy, Geneva, and the Weimar formats. After almost a year of conflict, Ukrainians would be willing to accept a Monaco or Maldives Format if either would bring a lasting peace that respects Ukraine’s territorial integrity. For those who are not professional diplomats and want to understand the process, here is a short primer:
Geneva Format: this format was used in April 2014 following the seizure of territory by Russian backed terrorists in the Donbass. The Geneva Format, name for the location where the meeting took place, consisted of Ukraine, Russia, the United States and European Union. Ukraine loves the Geneva Format but Russia has denounced it and said that the terms of Geneva were violated and thus, it is no longer useful or needed.
Trilateral Contact Group: following Poroshenko’s election in late May, a Trilateral Contact Group was set up consisting of Ukraine (represented by former President Kuchma), Russia (represented by Ambassador Zurabov), the OSCE (Organization for Security and Cooperation in Europe led by Ambassador Tagliavini) and the heads of the so-called Donetsk People’s Republic (Zakarchenko) and the Luhansk People’s Republics (Plotnytskiy). This composition was praised by Russia, however Kuchma proved he is still a shrewd negotiator and this group eventually formed the basis for the Minsk Agreement in early September.
Normandy Format: following the 70th anniversary of the greatest amphibious landing in military history (the American and British D-Day invasion of Normandy to liberate it from Nazi Germany), the President’s of Ukraine, Russia, France and Germany met to discuss a peaceful settlement in the Donbass. This format is now the preferred format for Ukraine and more recently Russia has agreed to future meetings in this framework.
Minsk Format: in late August when the ATO was at its high water mark, Belarussian President Lukashenko hosted peace talks in conjunction with the Customs Union Meeting in his capital. Kazakhstan President Nazarbayev endorsed the idea which led to negotiations among Ukraine, Russia, and the European Union under the auspices of the OSCE.
Minsk Agreements: this 12 step “peace plan” was negotiated by Ukraine, Russia, the OSCE and the representatives of the so-called Donetsk and Luhansk People’s Republics. Essentially it was a result of the Trilateral Contact Group following Russian regular forces openly entering the Donbass war and advancing towards Mariupol. The “peace plan” agreed to in Minsk has since been repeatedly violated and Kyiv has recently talked about withdrawing from parts of the agreement relating to local governance.
Weimar Format: last February, Poland, Sweden and Germany took part in negotiations between then President Yanukovych and the opposition leaders on Kyiv and was looseLy referred to as the Weimar Format. Ultimately the group forged a deal to hold early elections as a way out of the Euromaidan crisis only to have Yanukovych renege on the deals hours later and flee the country. Poland, hardly hiding its disdain for Russia, began proposing a new format for negotiations in November consisting of Ukraine, Russia, Germany, France and Poland. However, Russia refused and the “Old European” powers didn’t want to share the spotlight with the upstart Poles so they also declined.
Where does that leave the peace negotiations? As the warring pro-separatist factions in the Donbass now turn upon each other in an orgy of looting and lawlessness, Russia appears to be inching -at least symbolically- towards a settlement using the Normandy Format. On Monday , January 12 negotiations take place in Berlin using the Normandy composition (Ukraine, Russia, France and Germany) and will be repeated in Astana, Kazakhstan three days later as Nazarbayev smells an opportunity to play peacemaker and win goodwill in Western capitals. There has already been mention of “progress” being made and so Nazarbayev, the author of the 2009 “nuclear free world” campaign (aka public relations bonanza), may yet again emerge as a world beloved, man of peace. However, Nazarbayev would be wise to avoid the bad luck of umbrellas and signed peace pronouncements until the situation fully plays out. If not, he risks the fate of Neville Chamberlain in September 1938 who waved a signed treaty to proudly proclaim “peace for our time” – only a year before Hitler violated the agreement and launched the Second World War.
Dates to Watch:
January 12: Normandy format in Berlin, Germany:
January 13: Parliament is back in voting session.
January 15: Normandy format in Astana, Kazakhstan:
January 16: One year anniversary of the infamous “January 16 laws” that severely restricted free speech and expression at the height of Euromaidan. Had the laws been allowed to stand and enforced, Ukraine would now be on par with Russia and Belarus in terms of personal freedoms.
January 24: the deadline for the new Anti-Corruption Bureau to hire a director. Poroshenko has called on the bureau to hire a foreigner to fill the role.
February 20: the one year anniversary of the murder of 76 protestors on the Maidan by snipers between February 18-20, 2014. There is growing murmuring that if the case against the snipers is not brought to court by this time, that strong protests against the current government will take place.
October 2015: National Local Elections for Mayor and City Council