· Delivering Dollars from Davos: last week’s Davos Economic Forum delivered welcome news that the $15 billion dollars needed by Ukraine this year is now likely according to comments by IMF Managing Director Christine Lagarde. Prior to Davos, Premier Yatsenyuk and Finance Minister Jaresko successfully raised $5.3 billion in commitments from the US, Germany, Japan and Canada to ease the burden on the International Monetary Fund and increase the likelihood of new funding. In addition, President Poroshenko left Davos with pledges of $1.5 billion in foreign direct investment for Ukraine. For a President who has a 45-40% favorable/unfavorable rating (due to the need for unity during the war) but has a 70% disapproval rating on the economy (and that number was before the latest hryvna devaluation to almost 20 to the dollar), this is a solid step in the right direction. On the downside, Ukraine announced that it will renegotiate some debt obligations which could result in either a longer maturity or a financial haircut (a percentage that is subtracted from the market value of an asset used as collateral). However, it appears that the IMF will play “the bad guy” and set the terms for the renegotiations with creditors rather than putting Ukraine in the uncomfortable position in a time of war.
The West has made a decision to back Ukraine financially because the consequences of the country’s failure would be catastrophic economically and geopolitically. Russia, who is acutely aware of the West’s decision to back Ukraine, has successfully siphoning off much of the monetary assistance to date via gas and other debt payments. These “pass through” payment of Ukraine’s debts to Russia have resulted so far in little benefit for the average Ukrainian. However while the current situation is far from ideal, it should be noted that an estimated $32 billion in bailout money for Ukraine is a mere fraction of the $240 billion Euro (about $300 billion dollars) bailout for Greece. In addition, unlike Greece which has elected an anti-EU government, Ukraine has its most pro-EU government in history. Thus, this investment in Ukraine’s financial stability is an affordable risk for the West, with the added benefit of forcing long overdue economic and governmental reforms. Granted it’s the economic and political equivalent of a shotgun wedding, but such arrangements do not preclude a happy ending for everyone involved.
· Bye Bye Minsk Agreement: Putin is on the march again and the short term goal appears to be an abolishment of the Minsk Agreements reached last September. The Minsk Agreements were supposed to result in a cease fire but instead have failed to achieve their stated goals. The reality is that the agreement has been violated almost daily by the shelling of Ukrainian forces by Russian backed terrorists. Last week’s assault on the Donetsk airport’s new terminal resulted its collapse and forced Ukrainian forces to withdraw to the airport’s fire station and outer buildings. The weekend brought news of dozens of casualties in Mariupol following a new terrorist assault on the strategically situated city on the Azov Sea. Over the last two weeks, Ukrainian front line forces have been outraged over rumors of a Poroshenko-Putin deal to give the Russians a land bridge to Crimea. However, the rumors appear to be part of a clever Russian disinformation campaign designed to lower Ukrainian morale. The Donetsk Airport, the attack on Mariupol, the disinformation campaign and shelling of Ukrainian checkpoints and positions in northern Luhansk oblast all indicate that the holiday lull is over and Ukraine must remain ever vigilant to defend herself. At the moment, no peace talks are scheduled as the world community tries to console Ukraine with “concern” and other diplomatic generalities. While no one can predict Putin’s next move, it is safe to say that the Minsk Agreement is dead and Putin will push for a more favorable agreement for Russia (including a new federalization push for the Donbass) –whenever the next round of peace talks are held.
· Moldovan Coalition Momentum? The surprise announcement last week that the Democrats and Liberal Democrats would partner with the Communists to form the government is now materializing. The Liberal Democrats will apparently keep the Prime Minister’s post for incumbent Iure Leanca as well as the First Deputy Premier which will double as Foreign Minister. Well-regarded Nataliya Gherman will stay on as Foreign Minister and get groomed for a future Premiership of her own. Keeping Leanca as Premier and Gherman as Foreign Minister/First Deputy Premier are reassuring moves for the Europeans who fretted over the last two months that Moldovan oligarch Vlad Platihunic would insist on his godson, Adrian Candu, as the new Premier. Candu, who has done a decent job as Economics Minister, will instead serve as the new Speaker of Parliament. Candu’s career trajectory is also on the rise but the 39 year old has wisely decided to make his play for the Premiership at a later time. Candu received 59 votes in favor (out of 101) of his election as Speaker from the new governing majority of Democrats, Liberal Democrats and Communists. The Liberal Democrats and Communists also received one Deputy Speaker position each. Buoyed by the success of the coalition unity for the Speaker election, the coalition announced that the Liberal Democrats would hold ten Cabinet posts and the Democrats eight. The Communists would not hold any government posts but provide a situational majority in the Parliament. According to the agreement, the Liberal Democrats would receive the Ministries of Foreign Affairs, Finance, Interior, Justice, Defense, Agriculture, Environment, Education and Health. The Democrats received the Speakership and the Ministries of Economy (which doubles as Deputy Prime Minister), Reintegration (which also has Deputy Prime Minister status), Regional and Construction, Transport and Roads, Culture, Labor, Youth, ICT and Sports. The big loser in the coalition negotiations is the Liberal Party. Their apparent insistence on holding the Presidency despite their mere 10% share of the vote was a classic case of overreaching. The pro-Romanian Liberals are now exiled to the political wilderness since they hold no seats in government, but simultaneously can’t afford to vote against the government’s pro-European agenda in Parliament. That’s because to do so will drive a wedge between them and their base voters as well as appear as political pouting. Despite pundits’ predictions of political apocalypse, the new Moldovan situational majority has momentum and seems poised for a cautiously promising start.
Dates to Watch:
February 2: Parliamentary Session Resumes
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 angry protests against the current government will take place.
October 2015: National Local Elections for Mayor and City Council: look for any “new” Minsk Agreement (aka peace deal with Putin) to include provisions for holding elections in the Donbass. Given the farce elections held by the self proclaimed “republics” and immigration of almost all Donetsk elites to Kyiv, there is no real local government in the occupied territories. Settling this issue will be one of the goals of any peace deal in the Donbass – at least from Ukraine’s side.