Tag: Ukraine
Ukraine isn’t over
With the G7 countries issuing a strongly worded statement yesterday against Russia’s annexation of Ukraine, optimists will want to go back to worrying about Malaysia Airlines flight 370. That would be a mistake. Despite President Putin’s disavowals, there is still serious risk to Ukraine from a Russian push into its southern provinces, perhaps as far as the Russian-occupied Transnistria area of Moldova:
Why? Let me count the gains to Moscow:
- Crimea would no longer be cut off from Russia proper.
- The southern provinces of Ukraine are home to heavy industries that cater in part to Russia’s military.
- Having annexed Crimea, pro-Russian political forces are unlikely in the future to win any national elections in Ukraine, so “protection” of Russian speakers requires their incorporation into Russia.
- Ukraine would be reduced to a landlocked remnant with little prospect of being more than a burden to the European Union and the United States.
- Rump Ukraine will find it necessary to make its peace with natural gas supplying Russia.
If thinking along these lines predominates in Moscow, it is hard to imagine anything the EU and US could or would do to prevent a Russian military move. The Ukrainian army is in no position to resist. Washington and Brussels imagine that Ukrainians would mount an insurgency against Russian occupation. That could be a sanguinary affair that could last a decade or more.
It is not easy to come up with reasonable policy options. Deployment of observers from the Organization for Security and Cooperation in Europe, which is already in progress, is a good idea. But if Putin decides to move, they will stand by to document how many tanks and armed personnel carriers have entered and where they are located.
Military options are out. Though the credibility of the Alliance is at stake, NATO has no obligation and few means with which to defend Ukraine, even though it is a member of Partnership for Peace. The Alliance will have its hands full protecting its Baltic and other easternmost neighbors. It may be able to provide some intelligence and logistical support to Ukraine, but that’s about it.
Thoughts fly to the money Kiev owes Moscow. Does it really have to pay its debts if Russia invades? Probably not, but it would then have to worry about where to find natural gas for heating next winter. There is no quick alternative available, so far as I know.
The ruble and the Russian stock market are already down, but that is likely to be a temporary response with no substantial long-term impact. Only if the EU and US come up with sanctions that really bite Russian banks hard is Moscow likely to pay attention. That’s unlikely, as the Europeans export too much to Russia and depend too much on Russian gas to get serious about financial sanctions anytime soon.
It looks as if we are in for a long-term response to the annexation of Crimea and whatever other parts of Ukraine Putin goes after. We’ve been in this situation before. We had no really good policy response to the Soviet occupation of the Baltics at the end of World War II, of Hungary in 1956 or of Czechoslovakia in 1968. Nor have we done anything substantial about South Ossetia and Abkhazia, which declared independence from Georgia in 2008.
What we had going for us during the Cold War was strategic patience. In the 1950s, I was taught in junior high school that the Baltics were “captive nations.” It seemed quixotic at the time to imagine that they would ever be free. But they were liberated at the end of the Cold War and have since become NATO and EU members.
We have wanted to believe that the ideological contest that gave us strategic patience is gone. Unfortunately, a new one appears to be taking its place. Autocrats like Putin are not relying any longer on state-controlled economies. They are not even pretending to read Marx or Engels. They are enjoying the fruits of at least partly free economies, under the control of their favored oligarchs. We may need even more patience than in the four decades or so of the Cold War in order to see the backs of Putin and his like.
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All deliberate speed, please
UN Secretary General Ban is marking the third anniversary of the Syrian uprising, which by my reckoning is March 15, by appealing to Russia and the US to revive peace talks. That’s his job, but prospects are not good.
The Asad regime continues to make slow progress on the battlefield. The opposition continues to insist that he step down to initiate a transition to democracy. There is no “zone of possible agreement.” Asad is preparing to conduct what he will call an election this spring to reconfirm his hold on power. The conditions in regime-controlled areas will not permit the election to be anything like free or fair. The conditions in liberated and contested areas won’t allow an election to occur at all. But Asad will claim legitimacy. Russia will concur.
In the US, consciousness of the horrors occurring in Syria is growing. The recent reports of the Save the Children and UNICEF boosted the case for humanitarian relief. The US has already been generous, even to a fault, as it appears to be buying tolerance for the failure to bring about a political resolution of the conflict. Russia, more committed to realpolitik, continues to arm, finance and provide political support to the regime. The crisis in Crimea leaves little oxygen in Washington for Syria. There is an argument for replying to Putin’s moves in Ukraine by strengthening opposition efforts in Syria, but I am not seeing signs that it is winning the day.
Some key members of the Syrian Opposition Coalition (Etilaf) will be in DC next week making the case for more support, including to the more moderate fighters. What Etilaf needs to do is convince the Obama Administration that vital American interests are at risk in Syria. The two most striking are the risk of extremism putting down deep roots in Syria and the risk of state collapse, both of which would affect not only Syria but its neighbors, especially Lebanon, Iraq and Jordan. Perhaps eventually also Turkey and even Israel, whose boundary with Syria in occupied Golan could become hotter than it has been for many years.
Etilaf has not yet convinced Washington that it can be an effective bulwark against these threats. The Coalition has precious little control over even the relative moderates among the fighters. It has little to no capacity to counter Jabhat al Nusra or the Islamic State of Iraq and Syria (ISIS), the former the official al Qaeda franchisee and the latter its Iraq-based competitor. Etilaf favors preservation of the Syrian state, but with every passing day that becomes less likely. Nor has Etilaf demonstrated a lot of traction with the ad hoc administrative councils that pop up in liberated areas.
Where Etilaf showed itself to best advantage was at the Geneva 2 talks, where it outmaneuvered the Asad regime and scored lots of good points in favor of a managed transition and against the horrors of what Asad is doing. There is irony then in Etilaf emphasizing the limits of diplomacy, which is the arena in which it has done best.
That is not however a good reason to revive the talks, which really went nowhere. Nor can they be expected to, given what is happening on the battlefield. Until Iran and Russia are convinced that they risk more by continuing to support Asad rather than abandoning him, Tehran and Moscow will provide the edge he needs to continue to gain ground, albeit slowly. This is a formula for more war, not less.
A couple of weeks ago, the Obama Administration was thought to be looking at new options for Syria. There is no sign they have emerged from the “interagency” labyrinth. That’s not surprising. It took 3.5 years for something meaningful to emerge from the National Security Council in Bosnia, and depending on how you count at least that long in Kosovo. Only in Afghanistan and in Iraq have such decisions proved quick, mistakenly and disastrously so in Iraq.
Deliberation is wise. But if it takes too long, vital American interests in blocking extremists and maintaining the states of the Levant may suffer irreparable damage. Not to mention the harm to Syrians, who deserve better. All deliberate speed, please.
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Putin’s playbook
I wouldn’t want to impugn Russian President Putin’s originality, but his playbook does seem borrowed from Slobodan Milosevic. Ukraine is not really a country. Nor was Bosnia to Milosevic. The threat to Russian-speakers in Ukraine (and Georgia and Moldova) requires that they be protected. So too the Serbs in Croatia, Kosovo and Bosnia. Russia did not start what is happening in Ukraine–it was the West that chased President Yanukovich from Kiev. So, too, for Milosevic it was Croatian President Tudjman who precipitated things in Zagreb, Bosnian President Izetbegovic in Bosnia and of course rioting Albanians in Kosovo: “no one should dare to beat you again!”
There is of course some degree of truth–I won’t go into how much–in each of these allegations. In revolutionary situations, there are bound to be bad moments, bad actors, bad provocations. The playbook requires that you overreact: mobilize paramilitaries, occupy territory, saturate the airwaves with justification and crush any hint of violent response on the part of a far weaker enemy. This is Machiavelli, suggesting ways to seize control of territory as quickly and inexpensively as possible and ensuring by whatever means you can get away with that it remains yours.
There is one play missing, so far: ethnic cleansing. So far as I am aware, the Russians are not, yet, expelling Tatars or Ukrainian speakers from Crimea. For the moment they are reported to be taking the soft power approach, trying to convince the Tatars to support them and arresting relatively few Ukrainian speakers and oppositionists, even as they box in or take over Ukrainian military installations. But that may change. With what I anticipate will be an overwhelming victory of the independence referendum in Crimea Sunday, Moscow may see the development of some real resistance to its plan to absorb Crimea into Russia as well as clashes in other parts of Ukraine between Russian and Ukrainian speakers. If it doesn’t happen spontaneously, Moscow can of course make it happen.
That’s when I would expect the next play. It is still early in the Ukraine saga. Things can get much worse and likely will. Crimea is more philo-Russian than other provinces in eastern and southern Ukraine. It already had autonomy and governed itself in many ways. It is not a great leap to independence, or to returning to the Russia from which it originated. The contestants will be more evenly matched in other provinces, requiring removal at least some of those who won’t cooperate.
Russian troops are said today to be massing and exercising near Ukraine’s eastern border. Success in Crimea could well embolden Putin further, tempting him to take a few more provinces piecemeal. If he does, his need to expel Ukrainian speakers and others who oppose Moscow’s rule will be greater than in Ukraine. We are far from the worst that can happen.
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The wrinkles in aid to Ukraine
Columbia University Financial Law Visiting Scholar Jeremy Pam, who did sovereign debt restructuring (including for Iraq) at Cleary Gottlieb and then went off to Baghdad for the Treasury Department and Kabul for the State Department, kindly offers some clarification of points I raised on Tuesday about assistance to Ukraine. He writes:
1. Here’s some insight on the accounting for loan guarantees generally, from an April 2013 CRS report on US Foreign Aid to Israel:
Since 1972, the United States has extended loan guarantees to Israel to assist with housing shortages, Israel’s absorption of new immigrants from the former Soviet Union and Ethiopia, and its economic recovery following the 2000-2003 recession that was sparked by a Palestinian uprising (known as the second intifada). Loan guarantees are a form of indirect U.S. assistance to Israel, since they enable Israel to borrow from commercial sources at lower rates. Congress directs that subsidies be set aside in a U.S. Treasury account for possible default. These subsidies, which are a percentage of the total loan (based in part on the credit rating of the borrowing country; in the case of the loan guarantees in the 1990s, the subsidy amount was 4.1%), have come from the U.S. or the Israeli government.
2. Here‘s a subtle discussion by Simon Johnson and Peter Boone on both the political and policy dynamics of IMF assistance to Ukraine and the larger problems caused by pressure on both the West and Russia to provide large, relatively unconditioned aid to Ukraine.
3. The questionable international law doctrine of “odious debt” seems unlikely to be of much help to Ukraine, particularly as given the numbers that Johnson and Boone provide about Ukraine’s concrete debts (to Russia and to other creditors) that have been coming due it seems reasonable to assume that Russia’s late-in-the-game subscription to $3 billion in Yanukovich-era sovereign bonds mostly went to keeping the ship of state afloat after the EU/IMF deal fell through.
4. Boone and Johnson do not suggest any easy solutions. A quick bailout will just defer needed reforms (they’d previously written here about the economic and political need for a more Western-oriented Ukraine to bite the bullet on ending the gas subsidies enabled by the agreement with Russia to discount gas — in part for the extension of the lease to Sevastopol! Putin described the gas bill discount for the naval base extension as “exorbitant”, saying “there’s no military base in the world that costs this much money.”
On the other hand, a “disorderly” debt default is always scary. The best solution implied might be what we used to call an “orderly” debt restructuring, but the problem with that is that there are not that many people around anymore (both inside the official sector and outside) with the skills and experience to do it well. This is what I take to be one of the real lessons of the Iraq debt deal — unless there is a new appreciation of the value of such skills and experience, we may not look upon its like again….
So if I understand correctly, the Congress prefers loan guarantees because only a small fraction shows up on the books. It is not clear to me yet whether guarantees are really an effective way of producing more money for Ukraine, though I suppose without them no one would ante up. Little of the aid is likely to arrive quickly, especially if the EU and US insist on needed reforms. Debt reduction will be difficult because a lot of the money is owed to Russia, putting the West in the awkward position of getting Putin his money. Default could make a messy situation worse. Lots of wrinkles in aid to Ukraine.
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Grading assistance to Ukraine
Larry Summers, not my favorite public persona but a savvy economist to be sure, offers sage advice on aid for Ukraine. But he fails to consider how we are likely to measure up to his “lessons for the design of support programs,” so here are my guesstimates (the proposals in bold are his, the rest is mine):
1. Immediate impact is essential. While Congress has acted quickly to approve $1 billion in loan guarantees and the European Union has in principle approved $15 billion, the International Monetary Fund has not yet acted. Odds are it will take time, not only for the IMF to extract reform promises from Ukraine but also for the bureaucratic arrangements to be made by the EU and US. And the total amount is likely to fall far short of the $35 billion Ukraine says it needs.
2. Avoid “Potemkin money.” I wonder if loan guarantees fall in the category of Potemkin money, as I imagine it is difficult to know how much new money they make available. Perhaps a reader or two who are expert can enlighten me. EU money is rarely quick in my experience. IMF money is real but takes time to get approved. Months rather than weeks before they write a check. Potemkin-like in the meanwhile.
3. Be realistic about debts. Summers wants us to consider rescheduling or restructuring, which is something often done after a revolution (but never quick–it often takes years). Relief from official and private sector debt is often in the 35-60% range. Uniquely Iraq got 80% off its official debt at the Paris Club. Post-Communist Poland got 40% off. But of course much of Ukraine’s debt is owed to Russia, which is unlikely to be cooperative in any effort to reduce, reschedule or restructure. The usual consensus is not likely to be available, unless we strike a deal with Moscow that is likely to be inimical to Ukraine’s interest in Crimea.
4. Honest management is as important as prudent policy. We don’t want the Ukrainians stealing the money we send them, and we should want to recover as much as possible from past abuse. Lots of luck on the latter. Yanukovich and his cronies will have squirreled away a lot of money in difficult to trace places. Some of Ukraine’s wealthy tycoons are prominent supporters of the post-Yanukovich regime. It will not be easy to prevent problems in the future either, as Ukraine clearly lacks the mechanisms required for serious transparency and accountability. Sure we should insist, but it will take legislation and courage to put them in place. Recovery of ill-gotten gains takes years, as does establishment of institutions designed to prevent theft.
5. Countries need to pursue broad polices in a way that benefits Ukraine. There is a pretty good chance the Obama administration will do the right things on the IMF and on energy policy by building the Keystone pipeline and approving natural gas exports. Europe is also likely to do at least some of the right things: continue to pay for the gas it receives through Ukraine, so long as the Russians continue to send it, and help Ukraine develop alternative energy sources for its own use, reducing its dependency on Russia.
The big problems are with immediacy and impact. Ukraine needs a lot of money quickly, much faster than it will get honest management or debt reduction. Washington and Brussels look likely to have won the tug of war for Kiev and any other parts of Ukraine that remain attached to it. They need to do everything they can to avoid financial implosion of their prize.
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Peace Picks March 10 – 14
1. Ukraine on the Brink: A Conversation With Yevgeny Kiselyev
Monday, March 10 | 2:15pm – 4pm
Carnegie Endowment, 1779 Massachusetts Ave NW
The situation in Ukraine remains extremely tense. Each day brings dramatic developments from the region and a marked deterioration in Russia’s relations with the United States and other Western governments.
Renowned television journalist and political analyst Yevgeny Kiselyev will discuss the ongoing crisis in Ukraine. Kiselyev has been a preeminent voice in Russian and Ukrainian media and political circles for more than two decades. Carnegie’s Andrew S. Weiss will moderate the discussion. Read more
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