Challenges to Ukraine’s democracy

Despite its abundance of parties, Ukraine’s democracy has faced serious challenges from within:

  • Dysfunctional government due to conflicts between presidents and prime ministers.
  • Presidents and parliaments have not worked together effectively.
  • Corruption has been rampant. In 2004, a U.S. court convicted former Prime Minister Pavlo Lazarenko of money laundering, wire fraud, and 24 other charges. Lazarenko reportedly embezzled $114 million while in office.
  • Scores of opposition politicians and journalists have disappeared or died under suspicious circumstances. One longstanding unsolved case was the murder of journalist Georgy Gongadze, who disappeared in 2000. (Former President Kuchma was arrested in 2011 and charged with involvement in the murder, but released when a judge ruled the evidence inadmissible because it had been illegally obtained. In 2013, a former senior police officer was convicted of strangling and beheading Gongadze and sentenced to life in prison.  He said that he had committed the crime on the orders of then Interior Minister Kravchenko - who himself was found dead in 2005). More recently, Vladimir Goncharenko, editor of the environmental security newspaper EKO Bezpeka, was killed in 2012 but no arrests have been made.
  • Use of judicial means for political ends.
  • Involvement of organized crime in Ukrainian politics.
  • Regional divisions between east and west.
  • Attacks on journalists for their reporting or while covering the news.
Protesters hold a placard with the portrait of Ukrainian President Kuchma, dressed in prison overalls and with the inscription "Pakhan" (criminal boss) on his chest, Kyiv, Ukraine. Opposition supporters called for Kuchma's resignation or early elections. 12 October 2002 (©AP/Wide World Photo/Efrem Lukatsky)

Protesters hold a placard with the portrait of Ukrainian President Kuchma, dressed in prison overalls and with the inscription "Pakhan" (criminal boss) on his chest, Kyiv, Ukraine. Opposition supporters called for Kuchma's resignation or early elections. 12 October 2002 (©AP/Wide World Photo/Efrem Lukatsky)

From without, Russian intervention, propaganda, and political influence has impacted on political developments.

Energy and Economic Development

Ukraine's energy dependence on Russia has a direct impact on its economic development. The country currently imports Russian gas at $415 per 1,000 cubic meters.

Past bilateral negotiations determined the import price, which fell far below European prices. Over time the Ukraine fell behind in payments and even diverted gas intended for Europe for industrial consumption. In 2005, Gazprom informed the Ukrainian government that it was raising gas prices to match prices on the world market. The Ukrainian government responded by asking for additional payment in transit fees. (Two thirds of Gazprom's profit comes from gas sold to Europe that transits the Ukraine.) The two countries were unable to agree on a price, which resulted in Gazprom cutting its supplies to Europe mid-winter. Nevertheless due to contractual obligations and fear of being sued by European countries, Gazprom soon returned the supply to its normal delivery level.

A similar dispute over gas prices erupted again in 2009 and was resolved when Tymoshenko and Putin negotiated a 10-year agreement on gas prices.  Tymoshenko was later accused of abuse of office and sentenced to 7 years imprisonment due to this agreement.

Ukraine also has its own domestic natural gas reserves, which are approximately 1 trillion cubic meters, and are managed by the UkrGasProduction company. The company has the capacity to extract 15 billion cubic meters, which is worth $5.5 billion at current 2012 European gas prices. UkrGasProduction supplies heating to households at a subsidized rate of $90 per 1,000 cubic meters, which is four times lower than the Russian import price.

There has been no attempt by the Ukrainian government to end domestic subsidies and raise the fees for residential consumers. This is despite the fact that other unpopular social welfare reform policies have been implemented in the last five years. It is suspected that some of this domestic gas is being bought by corrupt government officials who then profit from its export to Europe at world market prices or its sale to internal industrial consumers.

In order to achieve true energy security, the Ukrainian government must reform the energy sector. This means charging citizens unsubsidized tariffs for energy consumption (with an exception for the truly vulnerable) and installing meters and a proper municipal billing system.  The increased revenue from fees for domestic energy consumption could be reinvested with the aim of increasing domestic extraction capacity or diversifying supply by investing in renewable energy and promoting an energy efficiency policy.

The annexation of Crimea and the possible secession of the eastern regions from Ukraine could have serious consequences for Ukraine’s economy and energy situation. The east and the south together have around 640bcm or 93 percent of Ukraine’s known remaining conventional gas reserves. This is equivalent to roughly 11 years of total gas consumption or 30 years of district heating and household gas consumption. Without its eastern regions, Ukraine would become even more dependent on Russian gas. Through a deal brokered by the EU, Russia resumes gas exports to Ukraine October 31, 2015. However, the issue of energy security remains a prominent barrier to development and continues to complicate the conflict between Ukraine and Russia. 

2014 Agreement with the IMF

The IMF board approved the $17.5 billion four-year loan under the Extended Fund Facility, of which Ukraine's $5 billion will come front-loaded. The bailout loan is based on a comprehensive economic reform program supported by the fund as well as by additional resources from the international community. According to IMF President Christine Lagarde, this new arrangement will "support immediate economic stabilization in Ukraine and a set of deep and wide-ranging policy reforms aimed at restoring robust growth over the medium term and improving living standards for the Ukrainian people." However, this agreement comes with severe restrictions. Ukraine will have to cut social spending sharply.  Prime Minister Yatsenyuk assessed that the gross domestic product will decline 3 percent with the new loans and reforms--but would drop 10 percent without them.