Ukraine’s dead souls

Ukraine’s colourful politics drew the attention of the European media again this week. But the farcical failure of special forces to detain Mikheil Saakashvili — former president of Georgia, turned governor of Odessa, turned Ukraine oppositionist — in the centre of Kiev on 4 December was just a sideshow.

The main event has been taking place in the Rada, the single-chamber parliament that is dominated by President Petro Poroshenko and which has been engaged in an offensive against independent special anti-corruption body the National Anti-Corruption Bureau (Nabu).  A draft law, written by members of Poroshenko’s party, would give the Rada the power to dismiss the head of Nabu, a body established in 2015 and backed by the EU and the US.

Over the last year, Nabu has moved to arrest several members of parliament, publishing evidence of their alleged crimes, but the Rada has declined to approve the arrests. The new move to control Nabu looks to some like revenge. And eyebrows were raised further when the prosecutor-general and close Poroshenko ally, Yury Lutsenko, arrested a Nabu agent, accusing her of bribery, and taking the opportunity to search the Nabu offices.

The first response from the US was in diplomatic language. On 4 December, US secretary of state Rex Tillerson said: “It serves no purpose for Ukraine to fight for its body in Donbass, if it loses its soul to corruption. Anti-corruption institutions must be supported, resourced, and defended.” His comments were ignored and the draft law continued on its path.  But on 5 December, former US deputy assistant secretary of defense with responsibility for Russia, Michael Carpenter, said: “If the Rada votes to dismiss the head of the anti-corruption committee and the head of Nabu, I will recommend cutting all US government assistance to Ukraine, including security assistance. This is a disgrace.” Carpenter holds no position in President Donald Trump’s administration but his words struck home in Kiev although possibly not as hard as those of IMF managing director Christine Lagarde. The Rada has dropped the bill from the legislative agenda — for now — and Lagarde’s next statement made clear who wears the trousers in the IMF-Kiev relationship.

The scheming in Kiev has potential repercussions far beyond the fortunes — political and financial — of the ruling elite, not least for the energy industry. To start with, voting on draft laws to support gas production and reduce subsoil taxes was delayed because members of the Rada were too busy discussing how to control Nabu. Last night, they finally got around to approving the tax reduction.

But, more seriously, erosion of US and EU support for the government in the wake of the annexation of Crimea by Russia could have a serious and rapid impact on Ukraine’s economy. Russia’s planned Nord Stream 2 gas pipeline is designed to bypass Ukraine, depriving it of $2bn/yr of transit payments from Gazprom. This is huge money for Ukraine’s fragile economy, and that is why EU and US opposition to Nord Stream 2 has been very welcome in Kiev.

If the attacks on Nabu continue and are interpreted in Washington and Brussels as distancing Ukraine from the US, the IMF and EU, Poroshenko and his friends may lose their souls to corruption, as Tillerson warns. More importantly, the Ukrainian economy would be condemned to the mire.

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