Republican Reference - Area ( 603,550 - Population 45,134,707 - Capital Kiev - Currency Hryvnya (UAH) - President Viktor Yanukovych - Principal ethnic groups Ukrainians 72.7%, Russians 22.1%, Jews 0.9%.



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Books on Ukraine

Key Economic Data 
  2012 2009 2008 Ranking(2012)
Millions of US $ 176,309 180,354 180,354 52
GNI per capita
 US $ 3,500 3,210 3,210 136
Ranking is given out of 213 nations - (data from the World Bank)


Ukraine was the center of the first Slavic state, Kievan Rus, which during the 10th and 11th centuries was the largest and most powerful state in Europe. Weakened by internecine quarrels and Mongol invasions, Kievan Rus was incorporated into the Grand Duchy of Lithuania and eventually into the Polish-Lithuanian Commonwealth. The cultural and religious legacy of Kievan Rus laid the foundation for Ukrainian nationalism through subsequent centuries. A new Ukrainian state, the Cossack Hetmanate, was established during the mid-17th century after an uprising against the Poles. Despite continuous Muscovite pressure, the Hetmanate managed to remain autonomous for well over 100 years. During the latter part of the 18th century, most Ukrainian ethnographic territory was absorbed by the Russian Empire. Following the collapse of czarist Russia in 1917, Ukraine was able to bring about a short-lived period of independence (1917-1920), but was reconquered and forced to endure a brutal Soviet rule that engineered two artificial famines (1921-22 and 1932-33) in which over 8 million died. In World War II, German and Soviet armies were responsible for some 7 to 8 million more deaths. Although independence was achieved in 1991 with the dissolution of the USSR, true freedom remains elusive, as the legacy of state control has been difficult to throw off. Where state control has dissipated, endemic corruption has filled much of the resulting vacuum, stalling efforts at economic reform, privatization, and civil liberties.  The so called 'Orange revolution' of late 2004 seems to offer the prospect of Ukrainian government being less subservient to Russia and suggests some reduction in the power and influence of regional Oligarchs, and perhaps a reduction in corruption.



The conflict in Ukraine is now into its eleventh month and daily reports of casualties, diplomatic skirmishes and fierce rhetoric continue to make the headlines. Since April 2014, more than 5,300 people have died in the conflict, which pitches pro-Russian rebels in the country's east against the western oriented central government of Piotr Poroshenko. After lengthy negotiations between Russian President Vladimir Putin, Ukrainian President Petro Poroshenko, French President Francois Hollande and German Chancellor Angela Merkel. a ceasefire was agreed in Minsk on February 15, now known as the Minsk II agreement to replace its predecessor reached in September of last year, which did not live beyond a few days.

The new agreement, which appears, broadly, to be holding, would see the withdrawal of heavy weapons from the front line. The deal also contains political elements, namely that there would be some degree of decentralization for the rebel-controlled regions. The truce was not glowing with optimism when brokered, and subsequent complaints on both sides that it is being broken, have certainly had an effect on hopes for long term stability. Reporting on the conflict from the western media tends to paint Vladimir Putin in uncompromisingly negative terms, as a revanchist, hawkish authoritarian. Certainly the Russian President, since annexing Crimea in March last year, has made no secret of his belief that Russian-leaning regions in Ukraine (namely Donbass and Luhansk) should be supported in their attempts to break away.

The focus upon this in the press however has tended to somewhat obfuscate the complex political manoeuvres behind the origins of the crisis, in which western powers are in fact deeply implicated. As pointed out in an earlier New Nations report, the $5 billion the US State Department's Victoria Nuland famously admitted Washington had spent, on ‘democratising’ Ukraine, points to a US intervention in the fate of the country, without sufficient long-sightedness - as is typical of Neocon interventions- regarding the political and economic consequences.

The media continues to highlight Putin’s dangerously expansionist attitude. It has been reported that the Russian President was willing to put his forces on nuclear alert last year, in the immediate aftermath of the Crimea annexation. Rhetoric among western politicians consistently highlights the threat from Russian aggression. British Defence Secretary Michael Fallon recently described Russia as posing a ‘real and present danger’ to Estonia, Lithuania and Latvia. German Chancellor Angela Merkel, who has been key to negotiations between Western Europe and Russia said at the end of February that she hopes Moldova would not be the next target on Russia's list. The idea of Putin’s intentions reaching this far has gained traction with the raising of the Novorossiya interpretation of Putin’s moves, in which the President seeks to recreate a New Russia, which would constitute all of southern Ukraine past Odessa to Moldova. Also concerned about their sovereignty are the Baltic states: in February Estonia’s foreign minister accused the Kremlin of ‘trying to compensate its domestic shortages with aggressive behaviour beyond its territory,’ and called Russia an ‘arrogant, aggressive, and unpredictable regime,’ warning that it is a threat to all democracies. Lithuania apparently plans to reintroduce military service in order to steel itself against threats from its former imperial master. Whilst neighbouring countries bolster their defenses, the West has still shied away from the idea of sending any armed support to Ukraine. In Washington, there has been talk of sending military reinforcements to Ukraine from some of the more hawkish Republicans. At the start of February the Atlantic Council along with the Brookings Institution, recommended that Washington provide $3 billion in lethal and non-lethal aid, largely due to the setbacks the Ukrainian army has suffered in recent weeks. President Obama’s national security adviser, Susan Rice, has also begun to consider the idea seriously, as Russia continues to enhance its military muscle. Obama has however been resistant to these calls, offering instead support for the diplomatic initiatives in Europe undertaken principally by Germany, and focusing on non-lethal assistance. In February, the President agreed to provide Ukraine with $75 million of this form of aid.

In terms of concrete action against Russia, the salient feature of the West's approach remains sanctions. Sanctions have had an undeniable effect on the Russian economy, partly because they have come accompanied by a drop in oil prices. The result has been near catastrophic for Russia’s finances. The value of the ruble has almost halved against the dollar since last April. Capital flight, often taken as an indicator of confidence in the economy, doubled between June and December from a trend rate of about $50 billion to about $100 billion. GDP is expected to shrink by 4.5-4.8% in 2015. Prices of basic foodstuffs, such as the ubiquitous buckwheat, have risen by as much as 70%, meaning that citizens’ everyday lives are affected. It was recently reported that food price inflation has rocketing from 10% to as much as 150%. Comparisons with 1998, when the ruble was devalued, have been abundant. Sanctions have indisputably had a major effect on Russia’s economy, and have snowballed dramatically with the drop in the price of oil. What they have not done however it appears, is to change Putin’s attitude towards Ukraine.

Are sanctions alone therefore, really having the desired impact upon the political situation in Ukraine and Russia?

Global financier, philanthropist and ‘seer’ George Soros, is among those who fear that sanctions will dangerously undermine the global economy, without in fact going any way towards assisting Ukraine. He notes, in a recent article in the New York Review of Books that, 'a Russian default could cause considerable disruption in the global financial system, with the euro area being particularly vulnerable'. Pushing Russia towards default would see western banks write off more loans and investments. In the meantime the Ukrainian economy, which is also in a disastrous state, continues to lurch towards collapse. The conflict in the east costs Kiev $8 million a day, according to the country’s president, Petro Poroshenko and the country’s economy shrank by 7.5% last year. The head of Ukraine’s Central Bank called it the most “difficult year since at least the second world war.”

Soros argues that financial assistance to Ukraine should be half of a two-pronged approach (the other being the 'necessary evil' of sanctions), in order to pull the state out of the crisis. Ukraine's economy, he suggests, is undergoing 'a more or less classical balance of payments crisis that has morphed into a public debt and banking crisis'. The possibilities of Europe helping Ukraine are thwarted by the dilatory pace of the EU's bureaucratic system and by a tendency to fall back on conventional readings of the financial turmoil in Ukraine, and thus conventional responses. Soros argues that, post-Maidan, the situation can no long be considered in such terms and that extra measures must be taken, and a new dynamic approach deployed, in order to make the most of the country's reformist, voluntarist enthusiasm for change. The bureaucratic approach needs to be replaced by a political one, and extra financial measures taken to buttress this stratagem.

What Soros proposes involves making the most of untapped sources within Europe. He has identified the Balance of Payments Assistance facility (used for Hungary and Romania) as a potential source, as it apparently has unused funds of $47.5 billion, along with the European Financial Stability Mechanism (used for Portugal and Ireland) which has about $15.8 billion of unused funds. The problem lies in the fact these sources are currently limited to EU member states, but could be used to support Ukraine, if the European Commission proposes such a move, and it is then agreed on by a majority, which would lead to the modification of their regulations. Soros notes that if the EU were to increase its financial assistance, the IMF could accordingly elevate its contributions. He recommends converting the current Stand-By Agreement used for financial emergencies into a longer-term Extended Fund Facility program. Whilst some fear that this would increase IMF assistance to a dramatically large sum - fifteen times Ukraine's current IMF quota - this is not without precedent since the Fund has already undertaken such a policy with Ireland.

One of the main strands of Ukrainian-Russian tensions since 2009's infamous gas war, has been the issue of Ukrainian reliance upon Russian gas, and European reliance upon Ukrainian transit. To counter this, Soros also suggests changes to improve the energy infrastructure of the country with European Investment Bank project bonds, to improve the nation's energy efficiency and also reduce European dependence on Russian gas. He argues that the 2009 Vienna Initiative for Eastern Europe should be extended to include Ukraine, as a way of reducing capital flight and stabilizing the banking system. There is also the matter of a $3 billion bond issued by the Russian government to Ukraine coming due this year. He suggests that Russia might reschedule payments in exchange for the prospect of easing sanctions.

Sanctions, Soros believes, should remain in place until Putin shows concrete evidence of a commitment to restabilizing Ukraine. However, he feels what is equally important is that of offering active, radical assistance to Ukraine, in which the maximum resources possible are drawn upon by international actors, rather than the minimum. In Soros' conceptualization of the problem, 'assisting Ukraine should also be considered as defence expenditure by the EU countries', who consider themselves under threat from Russia. Without such, he sees little hope that a 'new Ukraine' will emerge.

In February the International Monetary Fund announced that it would offer a $17.5 billion loan to Ukraine to stave off bankruptcy. The deal replaces another $17 billion loan program announced by the IMF in April, of which $4.5 billion was distributed, bringing the IMF’s total financing to $22 billion. This falls greatly short of what Soros proposes!

The IMF chief Christine Lagarde did not demonstrate particular confidence in the success of their program, noting it was risk-laden, but hoped that “with continued firm implementation, there is a reasonably strong prospect of success.”

The situation remains perilous for Ukraine, Russia and Europe in financial and political terms. Soros’ proposition that radical action be undertaken seems entirely fitting, not merely in the sense that previous measures, be they ceasefires or loans, have not only so far proved relatively ineffective in the long term. But also in the sense that the West’s interventions in the political settlement in Ukraine need to be matched with an intervention in its consequences. In the absence of this, instability in Ukraine seems likely to continue unchecked.

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