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 UKRAINE: STILL HOPING FOR CHANGE

Expectations that sparked a revolution have not been met yet

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A boy takes part in a commemoration ceremony at the site where anti-Yanukovich protesters were killed during clashes in Kyiv, Ukraine, November 21, 2015. Ukrainians marked the second anniversary of Ukrainian pro-European Union (EU) mass protests which caused a change in the country's leadership and brought Ukraine closer to the EU. REUTERS/Gleb Garanich - RTX1V65Y©Reuters

A crowd gathered recently in cold rain on Kyiv's Maidan square to mark two years since street protests began that would end up toppling Ukraine's Moscow-backed government. The heady mood of late 2013 had been replaced by a sense of gloom.

"These are the tears of the Heavenly Hundred," said Tanya, a 38-year-old housewife, laying flowers to honour dozens of protesters killed by sniper fire in the final days of the protests that brought down President Viktor Yanukovich. "What's changed if they can't even bring to justice the people behind these murders? There's no war against corruption either. There's nothing."

Ukrainians may not be ready yet to return to the streets in large numbers. But two years after the Maidan protests, polls show many share a strong sense that the pro-western leadership they brought to power has failed to deliver on demonstrators' demands: a break from kleptocracy, higher living standards and the rule of law.

These ideals of cleaner, more effective government were intimately bound up with the historic shift towards the EU and away from domination by Moscow that the Kyiv revolution represented.

Thanks in part to Russia's aggressive response, they exacted a high price. Since the revolution, Ukrainians have watched as their economy shrank by 18 per cent, Russia annexed Crimea and a war with Moscow-backed separatists in the east claimed more than 9,000 lives.

The sense of disillusionment and anger was apparent during the November commemoration on Maidan square. Some in the crowd called for the removal of Petro Poroshenko, who replaced Mr Yanukovich as president.

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With government forces having largely halted the advance of rebels in the east and the recession bottoming out, the public's focus is shifting back to the battle against corruption. Above all, that means breaking the grip on the state of powerful vested interests, including Ukraine's handful of billionaire "oligarchs". Business clans and their allies in the political leadership and bureaucracy have long been able to manipulate the economic and legal system for their own profit.

"Pretty much nothing has changed in the country," one senior businessman with links to the top oligarchs told the Financial Times. On a piece of paper, the businessman sketched out a network of alleged kickbacks, bribery and rent-seeking that he estimates results in theft worth at least $4bn a year.

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"A hidden system is still in place where the main oligarch groups are feeding like parasites, in an unholy alliance between themselves and... the top echelons of government," he added.

Not all the businessman's allegations can be corroborated. But senior officials and anti-corruption watchdogs agree that corruption remains deeply entrenched. The failure to curb it and enforce the law threatens to rip apart the fragile ruling coalition.

Tension has burst into the open in the past 10 days, further fuelling public disillusionment, with farcical scenes in Kyiv. In a parliamentary debate, one lawmaker grabbed Arseniy Yatseniuk, prime minister, by the legs and tried to carry him from the podium as he defended his record. Then, in a leaked video, a minister was seen hurling a glass at Mikheil Saakashvili, the ex-president of Georgia who is now a regional governor in Ukraine, as each called the other a "thief" in a meeting of a presidential council on reform.

All this is creating unease in western capitals that have backed the government in the face of Russian hostility.

On a visit to Kyiv this month, Joe Biden, US vice-president, delivered a blunt message. "For Ukraine to continue to make progress and to keep the support of the international community, you have to do more," he said in a speech to parliament. Ukraine, he warned, faced perhaps its "last moment" to build a better future.
Claims of success
Western officials and government insiders insist Kyiv's post-revolution administration has notched up impressive achievements - even while grappling with the war in the Donbass region. One senior European official lists business deregulation, greater transparency of public finances, decentralisation, reform of the gas market - long seen as a hotbed of corruption - and "impressive" banking sector reform, as well as macroeconomic stabilisation.

Kyiv's pro-western leaders have also pushed through painful austerity measures, including big increases in domestic gas prices, as part of a $40bn western bailout package.


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The big gap in their record, however, is the failure to establish a genuinely independent judiciary as well as prosecutors and investigators who can hold even senior businesspeople, officials and politicians properly to account.

Critics fear that Mr Poroshenko, himself a billionaire businessman, and Mr Yatseniuk may not be capable of reforming the system because they are too much products of it themselves. Both now routinely face accusations of having ties that are too close to networks of business interests.

Serhiy Leshchenko, an investigative journalist, has continued to probe high-level corruption since being elected to the post-Maidan parliament. One of his main targets has been Mykola Martynenko, a prominent businessman-politician in Mr Yatseniuk's People's Front party, the main coalition partner of Mr Poroshenko's bloc. Denying allegations linking him to a Swiss bribery probe, Mr Martynenko last month announced he would resign from parliament to preserve the coalition while he proved his innocence in court.

Mr Yatseniuk has denied any corrupt links and suggested allegations against him were smear tactics. But corruption scandals, the impact of the utility price increases imposed by the International Monetary Fund, and plunging living standards have eroded his approval ratings to nearly zero.

Voter support has halved for Mr Poroshenko, who owns Ukraine's largest chocolate company, media and machine-building assets. Domestic media have accused at least two businessmen of either abusing their links to the president or acting on his behalf in business dealings.

Mr Poroshenko has denied such links, and has said he put all his business interests under the control of an asset management company when he became head of state.

The president has come under pressure for refusing to fire Viktor Shokin, the chief prosecutor and a longtime Poroshenko loyalist. Mr Shokin has been criticised for failing to bring to justice the shadowy snipers who killed protesters, and for dragging his feet over investigating senior officials and businesspeople. Geoffrey Pyatt, the US ambassador to Ukraine, warned in a speech this autumn: "Rather than supporting Ukraine's reforms and working to root out corruption, corrupt actors within the prosecutor-general's office are making things worse by openly and aggressively undermining reform."

Apparently attempting to defuse such allegations, Mr Poroshenko unveiled a renewed anti-corruption campaign in October, with a number of arrests by the prosecutor's office. They included a former Yanukovich ally, plus an associate of the oligarch Igor Kolomoisky, who resigned as a regional governor this year after a stand-off with Mr Poroshenko over attempts to curb his influence over a state oil company.

But after the people detained were released on house arrest, and with prosecutors continuing to steer clear of other oligarchs, critics suggested the campaign amounted to political theatre, if not selective justice.

Last month, a selection commission, including former Maidan activists, appointed an independent anti-corruption prosecutor. It will take months for the institution to become fully operational alongside a new anti-corruption bureau. And few expect real progress on the rule of law until thousands of underpaid, corruption-prone judges are replaced.

One foreign adviser to Ukraine's government admits public opinion is "very bad" but says it is heavily influenced by oligarch-controlled television channels.

Established weaknesses

Vasyl Hrytsak, head of Ukraine's SBU state security service, alleges that some oligarchic groups are trying to strengthen their hand by using their influence to discredit the country's leadership, aiming to topple the ruling coalition and trigger early elections.

He and other officials warn this suits the plans of Moscow. Russia, suggests Mr Hrytsak, has changed tactics from its "hybrid blitzkrieg" of the separatist war in the east and is instead trying to exploit Kyiv's two main weaknesses of corruption and fragile political stability.

"We don't have strong enough political unity," he warns.

As 2015 draws to a close, the government faces potential challenges both from activists and parliament.

On December 1, activists and journalists who were prominent in the Maidan demonstrations wrote an open letter to Mr Poroshenko and Mr Yatseniuk. Among them were Mr Leshchenko and Mustafa Nayem, another journalist-turned-MP credited with starting the protests two years ago with a tweet after Mr Yanukovich pulled out of signing a EU integration deal. They urged Ukraine's leadership to end mere "imitation" of reforms and corruption crackdowns - or face a new Maidan.

"Two years ago it was hard for us to imagine that bureaucrats and businessmen close to leadership would still be robbing the country," they wrote.

"The people see this. The people are on the edge."

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Parliament, meanwhile, is threatening a no-confidence motion in the government. This could, in theory, provide an opening for a more radical and controversial figure to step on to Ukraine's national political stage: Mr Saakashvili.

In his two terms as president following Georgia's "Rose" revolution in 2003, Mr Saakashvili made sweeping reforms that took the ex-Soviet republic into the top 10 of the World Bank's Ease of Doing Business rankings. He was voted out after his government was accused of bending the rules too often, and faces what he says are politically motivated corruption charges in Georgia.

Appointed governor of Odessa in May by Mr Poroshenko, with whom he studied in Kyiv in the 1990s, Mr Saakashvili is seen by many Ukrainians as a forceful outsider who might just be able to break the grip of corruption and vested interests. "We have a shadow government and oligarchy that runs Ukraine like its personal joint stock company," Mr Saakashvili told the FT in an interview.

Mr Saakashvili played down speculation that he might become Ukraine's prime minister, saying his corruption allegations had upset too many people. But he warned that a new premier and government were needed quickly, or Mr Poroshenko's support could crumble.

Without decisive action, unrest threatens to spread, including among fighters returning from the east. At last month's Maidan commemoration, one camouflage-clad fighter, nicknamed Yarmol, warned with a gesture at government offices: "If nothing changes soon, we will start firing at them."

Such comments worry Volodymyr Gonsky, who rallied protesters from a stage on Kyiv's square two years ago.

"It's true that our country is still in the hands of the oligarchs, while our enemy is attacking us," he told an impatient crowd at last month's anniversary. But he warned a new revolution would play into the Kremlin's hands.

"How many times in history have we lost our country?" he said. "We can't let that happen again. We need to suffer a bit more. Things will get better with time. This is our fate."

Corruption: Shareholders in a shadow economy

Ukraine's endemic corruption is likened by some experts to a form of joint stock company. Politicians and business patrons to whom they often have close but shadowy links sit on top of an institutionalised, vertical system of graft. They act like executives on a corporate board - yet instead of collecting legal bonuses, they are the principal recipients of bribes and kickbacks from a huge and deeply entrenched shadow economy.

Bribes collected across the economy range from small-time payments passed to tax inspectors to encourage them to ignore tax evasion, to large-scale rent-seeking from state enterprises. Much of these illicit proceeds are said to be passed up to the high echelons of influence. From there, the pie gets divided.

Where sums involve millions or billions of dollars between oligarchs and middlemen who funnel payments to politicians and political parties, they often go into complex webs of offshore shell companies.

At lower levels, cash is passed up and down administrative hierarchies. Lower-level state employees funnel bribes upwards to superiors, say corruption experts, while bureaucrats often preserve subordinates' loyalty by supplementing their meagre salaries with cash in envelopes.

Many companies pay large portions of salaries under the table to circumvent a complicated and often corrupt tax administration - or just avoid paying taxes altogether.

The recipe to crack this system is "prevent, publicise and punish", according to Andy Hunder, president of the American Chamber of Commerce in Ukraine. "In terms of prevention, you need to increase salaries of public servants," he says, referring to monthly wages which are typically between $150 and $300.

One idea is to use foreign support to boost civil service salaries temporarily, says Mr Hunder. This would reduce the predilection for corruption and improve governance, until tax reform and economic growth boost budget revenues. "But the question is where will the money come from and how will it be administered in a transparent and legal manner," he says.

"In terms of publicising, there is a strong civil society and journalists that are naming and shaming corrupt individuals," adds Mr Hunder. "In terms of punishment, very little is being done

... the criminals aren't going to jail."

By Roman Olearchyk and Neil Buckley, Financial Times

 
 
 
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