By Iryna Terlecky
Ukrainian Thought

Optimism following debt deal shattered as blood flows again on the streets of Kyiv.

Jaresko pulls it off

Natalie Jaresko, Ukraine’s American-born finance minister, was hailed as a hero throughout social media as she succeeded in renegotiating Ukraine’s debt in a deal which saw a group of the largest creditors accept a 20% ‘haircut’ on $18 billion of Ukraine’s bonds and a four year freeze on debt repayments – thus averting a threatened default. 

The deal is estimated to save Ukraine around $11 billion in repayments over the period.

Although Jaresko herself said she was pleased with the deal, which followed months of intense negotiations, it is less than the 40% write-down that Ukraine originally wanted, and Ukraine will have to pay a higher interest rate on the remaining debt. 

Crucially, Russia, which is one of Ukraine’s biggest creditors, has already said that it will not be a party to the agreement. It has a $3bn bond repayment due in December which could still cause significant liquidity problems.  

Restructuring private debt was a vital condition for the International Monetary Fund to go ahead with a four-year financial support programme, totalling about $40 billion. 

There are some tentative signs that Ukraine’s economy could be starting to stabilise.

The hryvnia has stopped its steep decline, while inflation — which rose to over 60 per cent earlier this year due largely to utility price rises demanded by the IMF — is moderating. 

However, output is still falling and eastern Ukraine requires a larger proportion of government spending, both to finance the war against Russian-backed separatists and to alleviate the social hardship caused by around 1.5m displaced people. 

With Russia clearly having no interest in aiding Ukraine’s economic plight, the debt deal is, at best, a stopgap which provides some breathing space rather than a long term solution.

Between a rock and a hard place

Ukraine’s parliament debated on 31 August the first reading of a bill detailing changes to the Constitution which would allow for greater decentralisation, including in the eastern regions held by the Russian-backed separatists. 

President Poroshenko is widely regarded as needing to tread a fine line: the Minsk agreement requires greater decentralisation of power for eastern regions, and the EU, amongst others, is pressing the President to move faster with those reforms. 

On the other hand, there is a growing concern that decentralisation increases the threat to Ukraine’s territorial integrity, that Ukraine is simply bending to Russia’s will and is on the road to creating a frozen conflict that would remove any prospect of reasserting Ukrainian control of the east. 

At the same time, Russia and the separatists say that the decentralisation proposals are not in the spirit of the Minsk agreement and fall short of the greater ‘self-determination’ envisaged. 

Many commentators believe that Poroshenko has little room for manoevre.

While many on the more radical wing of Ukrainian politics call for more decisive military action in the east, the reality is that the constant flow of Russian weapons to the separatists are likely to make all-out conflict unwinnable. And following the huge military losses at Ilovaisk and Donetsk Airport, it is unlikely that the majority of Ukrainians would view further large-scale deaths as acceptable.

James Sherr, Associate Fellow of London-based Chatham House summarised the President’s dilemma in relation to international and domestic support:

“The accords (Minsk agreements) are full of ambiguities, baited hooks and traps… He [Poroshenko] knows that if he accepts Russia’s terms, the country will not. People have sacrificed too much. They will see it as a betrayal. Poroshenko will put his legitimacy at risk if he bows to all this pressure, and he knows it.”

Debate creates and breaks political alliances

The debate in parliament on decentralisation was both emotional and heated. 

Yuliya Tymoshenko said the proposals created ‘the illusion of peace’, while others from the Samopomich (Self-Help) party described them as ‘a cardiogram for death’.

Traditional party and government coalition alliances came under severe strain. 

Several members of the Poroshenko bloc, including journalist Mustafa Nayeem voted against the bill. Only five members of Samopomich voted for, all Batkivshchyna members voted against, while former Party of the Regions members voted in favour. 

Oleh Lyashko, leader of the Radical Party which has 22 seats in parliament, announced that the party was leaving the government coalition, saying that the vote was the result of a “conspiracy between the former Party of Regions and oligarchs” who have built an “anti-Ukrainian coalition”. 

The five members of Samopomich who voted in favour, including Hanna Hopko, were expelled from the party, although the party decided to stay within the coalition, to prevent parliamentary chaos during a time of war and social tension.

Bloodshed outside parliament

The turmoil within parliament was overshadowed by a demonstration which led to the deaths of three National Guardsmen and over a hundred serious injuries.

A few hundred activists – with Svoboda flags heavily in evidence – held a demonstration outside parliament for most of the day. 

After the vote, which passed the first reading of the decentralisation bill, skirmishes between demonstrators and police became more violent.  

According to an eyewitness account, the protestors began to beat up policemen, then smoke grenades were thrown. 

As the violence escalated, a grenade was thrown from the crowd. One National Guardsman, 25-year old Ihor Debrin, died at the scene from grenade shrapnel, while two others died later in intensive care.

The grenade-thrower, caught on video, has been arrested, along with several other members of the Svoboda party. 

Oleh Tyahnybok, leader of Svoboda, claimed that the violence was the fault of the police and was orchestrated by the government to provide a pretext for pushing through constitutional reform by force. 

Prime Minister Arseniy Yatseniuk and others have called for the protesters and those who encouraged and armed them to be punished.

Ukrainians in Kyiv were shocked by the escalation of violence and – a measure of how much has changed since Maidan – came to leave flowers where the young National Guardsman died. 

Oleksandra Matviychuk, one of the founders of Euromaidan SOS said that the demonstrators could not hide behind the memory of the Heavenly Hundred.

“People using grenades and weapons in a crowd have as much to do with the slain Maidan activists on Instytutska Street as the KGB Russian Patriarch Kyril has to do with the Christian Faith.“ 

In a statement to the nation, President Poroshenko sought to allay fears that the constitutional changes represented a sell-out, portraying it as an essential step on the road to both EU membership and peace. 

“Decentralization fundamentally changes the political system of Ukraine. It paves a way to the European model of self-governance, and it is also part of my peace plan. Today’s vote has been uneasy but a sound step toward peace.”

He warned that the alternative to constitutional change risked undermining European and US support for Ukraine’s reform programme and that if this happened, Ukraine would be left to face its Russian aggressor alone.

“What would happen if the Verkhovna Rada did not vote for constitutional amendments? The fate of a pro-Ukrainian international coalition would be significantly undermined. Potential extension of economic sanctions that hurt the aggressor would not be on the table. The grim picture of having Ukraine struggling against the aggressor alone would become a real threat.”

Poroshenko also condemned the violence outside parliament, saying that the politicians involved were taking a cynical and dangerous position.

“It was an anti-Ukrainian action for which all organisers, all representatives of political forces without any exception must carry full responsibility.”

The President’s view has been echoed by many journalists, including Miroslav Gai, who wrote on his Facebook page:

“It is easy to see who won from Monday’s events: Putin definitely; the former Party of the Regions; and Poroshenko who has shown the people whom he’s forced to deal with.  

“Everybody’s seen what would happen if Tyahnybok, or the leader of the Radical Party Oleh Lyashko came to power. 

“And who lost?  The slain National Guard man and those wounded, their parents, children, girlfriends, friends, etc. The Ukrainian people. After all, that grenade was thrown specifically at them.”

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