Ukraine’s been front page news for all the wrong reasons so far this year, from the mistaken shootdown of its airliner over Iran to the star turn in President Trump’s impeachment.
Ukrainian President Volodymyr Zelensky’s understandable hesitance to clearly say he was shaken down by Trump is likely to persist tomorrow when U.S. Secretary of State Mike Pompeo visits. It was only on Friday that Pompeo refused to answer questions about Ukraine, shouting that Americans don’t care about it.
Ukraine’s image as an innocent victim of Trump’s snipe hunt for political dirt has been smudged more than a bit by the comically high profile of Lev Parnas and Igor Fruman, two wild and crazy Odessa guys turned friends of POTUS.
Fruman (left, above) furtively taped Trump ordering the firing of the U.S. ambassador to Ukraine, and both men allegedly donated money of Russian origin to pro-Trump political action committees. The fact that they acted against Ukraine’s interests and in no way at the behest of the Ukrainian government would be easy to miss even if Trump apologists weren’t working so hard to sow confusion.
The secret taping and, more broadly, the hijacking of national policy for personal gain, have revived talk that Washington is now merely a Kiev-on-the-Potomac, spelled the Russian way because who are we kidding.
Unauthorized surveillance has also lent some levity to Ukrainian politics of late. Ukrainian Prime Minister Oleksiy Honcharuk was heard on leaked tapes saying mildly unflattering things about Zelensky’s economic expertise. He tendered his resignation but was kept on.
Suspicion naturally fell on Zelensky’s patron Ihor Kolomoisky (above), who’s impatient to recover a bank rescued from insolvency by the central bank at the urging of the International Monetary Fund. Kolomoisky has paid protesters to besiege the offices of his former bank and has now won a related court case, suggesting the Ukrainian judiciary may be on the oligarch’s side as well. The ruling blocked the seizure of Kolomoisky properties listed as collateral on defaulted loans. Kolomoisky goes informally by ‘Benya,’ and is a far more dangerous man to cross than, say, a petty hoodlum like Benya Krik, the Jewish gangster from Isaac Babel’s Odessa Stories.
Krik was more on the level of Fruman, who once ran an Odessa joint called Mafia Rave, a name Babel would have loved. Fruman’s colorfully named friend Parnas must make do with Fraud Guarantee on his resume.
Zelensky has had a tough month too, notwithstanding visits to a luxury beach hotel in Oman and then to the rarified air of Davos. The unannounced Oman trip dredged up year-old criticism by Zelensky of his predecessor’s overseas beach vacation. Some critics wondered if Zelensky used the trip to hold secret talks about Russian-occupied Donbas, which they fear he’s prepared to legitimize.
Zelensky was still in Oman when flight 752 was shot down. He then faced criticism for taking nearly 24 hours to return home and for never publicly pushing Iran despite being shown evidence of a missile hit.
Then it was on to Davos where Zelensky decried an oddly arranged list of global ills, wondering whether “trade wars, redistribution of territories, rapid growth of military budgets, separatist movements, withdrawal of countries from previous international agreements undermine humanity's belief and make one think whether this world is falling into the abyss.”
The rest of it was a combination motivational talk (“we program ourselves for positive thinking, for ambitious tasks”) and a hard sell investment pitch (“My goal is to have Ukraine in the textbooks alongside the cases of Japan, South Korea, Singapore. So join us!”).
Prime Minister Honcharuk further amused the audience by introducing a hand-holding program for significant foreign investors, though calling the hand-holders nannies instead of concierges was likely a mistake. In fact, their very availability might seem a bit worrisome to the uninitiated in the extremely friendly investment climate that has left Ukraine the poorest country in Europe. The web site of the government agency promoting foreign investment seems similarly designed to dissuade the unwary, and an early test of the “nanny” request system from a corporate account outside Ukraine went unanswered for days.
Meanwhile, Ukrainian courts continue to do the bidding of the powerful and state security SWAT teams continue armed raids on private businesses large and small as a means of dispute resolution and racketeering.
Rather than a miracle worker, what Ukraine needs to become an economic success story is the dirty work of reining in the corrupt officials and judges who prey on entrepreneurs, wrote columnist Leonid Shvets to Zelensky’s Davos pitch. “If Ukraine were to assure elementary things like the rule of law and fair competition that would be the real miracle that could facilitate others,” Shvets wrote. “While dreaming of a grandiose renovation it wouldn’t hurt to find the energy to take the trash out on the regular.”
Not everything is bad. The Ukrainian economy has been one nonstop miracle for Rinat Akhmetov, who rose from a humble street soldier in Donetsk’s gang wars of the ‘80s and ‘90s to current status as Ukraine’s richest man. His business empire, mostly concentrated in heavy industry in eastern Ukraine but also incorporating media, finance, the country’s best soccer team and coal mines in the U.S., is now worth an estimated $6.7 billion.
News that Akhmetov has bought a villa on the French Riviera (above) for €200 million didn’t exactly fill his fellow Ukrainians with pride. “He can buy 20 villas; for me he’ll always be a bandit from the ‘90s, wrote one social media commenter. “My one regret is that I have to live at the same time in the same country.”
But seriously, not everything is bad. As the numbers at the bottom of this page suggest, Ukraine’s economy has stabilized over the last year and its government debt has garnered a lot of demand and momentum from foreign and domestic buyers alike. Monday’s launch of a €1.25 billion Eurobond issue generated auction bids totaling more than €7 billion, pushing the opening yield on the issue down to 4.375%, a market rate that which would have seemed impossibly low at just about any other point in Ukraine’s history.
Last year’s 14% appreciation of the hryvnia against the dollar has done wonders for Ukraine’s credit profile, reducing its ratio of debt to GDP to 50%, from 80% three years ago. That’s lifted expectations for credit ratings hikes this spring. The lower and increasingly negative yields for other euro-denominated debt have made Ukraine’s that much more attractive.
The World Bank pegs 2019 GDP growth at 3.6% and expects more of the same this year. Inflation likely dropped to 5% or so in 2019, from 43% in 2015 at the peak of the fighting in eastern Ukraine.
But the tight monetary policy used to squelch inflation last year and the resulting appreciation of the hryvnia have already undermined the competitiveness of exporters, according to a group of economic forecasters. At the same time, the central bank’s high interest rates have starved the economy of credit more generally, with banks opting to earn a safe margin on government bonds, they wrote.
By the numbers (as of 1/28)
UAH/USD: 24.72 (year ago: 27.82)
Overnight funds rate: 12% (year ago 16.4%)
5-year CDS: 324 (year ago: 640)
2032 7.375% Eurobond: 110.15 (year ago: 84.25)
PFTS stock index 504.86 (year ago: 550.44)