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Ukraine: Still under shackles

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ukraine-protests-map-k.epsLatest Developments: Critical negotiations between the embattled Ukrainian government and opposition leaders were unexpectedly stalled when President Viktor F. Yanukovych went on sick leave, complaining of a respiratory infection. The nature and timing of the President's illness raised immediate questions about his true motive when negotiations with the opposition were potentially bearing fruit. Some opposition figures speculated darkly that the move smacks of preparation for declaration of a state of emergency, a last-ditch measure that the protesters have been warning against, with the potential to ignite an all-out civil war. Others feel that the President is yielding to internal political pressures that could presage a coup d'état, while a few simply insist that it is yet another delay tactic to rob the protestors of their momentum. Mr. Yanukovych's sick leave took effect before he could sign a bill offering blanket amnesty for political protestors if they vacated occupied government buildings within 15 days and repealing anti-protest laws and harsh restrictions on freedom of speech and assembly that were enacted earlier this month. The bill was passed by Parliament with support from the pro-government Party of Regions, a significant concession to the opposition to defuse the crisis atmosphere but one that means little without the Presidential assent.

Background: Ukraine has been in turmoil since Nov. 21, 2013, when President Yanukovych refused to sign a trade deal for closer economic integration with the European Union and instead accepted a $15 billion loan package from Russia along with a 33 per cent price reduction in Russian gas exports that are critical for the Ukrainian economy. Protesting civilians have thronged the streets in huge numbers and have seized regional government buildings in several parts of the country. In Kiev, the capital, clashes between protesters and security forces have become violent, killing several people. Yanukovych is caught between the competing demands of popular domestic opposition and long-time ally Russia, which recently suspended the loan deal after disbursing only $3 billion. Russia wants Yanukovych to adopt a harder line against protestors in lieu of negotiations as it squares off against the European Union to maintain influence over Ukraine - a most coveted geopolitical prize in Eastern Europe. Russia's now suspended financial aid had helped Ukraine avoid defaulting on its foreign debts. It is an unequivocal message of Kremlin's displeasure with the negotiations in Ukraine to resolve the crisis by bringing the pro-Western opposition into a coalition government to replace Prime Minister Mykola Azarov's Cabinet.

Domestic Divisions: Ukraine is a country deeply divided by history, geography, ethnicity, language and politics. It is not a coherent national unit with common political and economic aspirations. 33 per cent of the populace speaks Russian and even more use it in daily activities. They are primarily concentrated in the fertile steppes of eastern and southern Ukraine and prefer to integrate with the Russian-dominated Eurasian Customs Union over the EU. The densely forested western Ukraine speaks Ukrainian and holds roughly 50 per cent of the population. This segment supports integration with EU over Russia. A poll conducted by the Kiev International Institute of Sociology found that 39 per cent of Ukrainians want to join the EU, while 37 per cent prefer closer ties with Russia. Therefore, popular opinion within Ukraine is highly divergent.

Ukraine_14.epsUkraine's importance for Russia: Deep cultural connections, shared history and 16 per cent ethnic Russian population of Ukraine make the nation a natural ally for neighbouring Russia. It is a source of food and a transit hub for Russian gas exports via pipelines, raising its economic and strategic importance for Moscow. Putin is heavily invested in the Eurasian Trade Union, regarding it as his legacy for rebuilding a 'Greater Russia'. Ukraine, the 2nd largest former Soviet Republic, will serve as an ideal cornerstone to consolidate it. Ukraine makes or breaks Russia's self-image as a great power that has suffered terminal decline since the fall of the Berlin Wall. Russia actively opposes Western intervention into any neighouring country, which it fears could be precedent for a similar and eventual attack on Russia. Thus, a Ukraine out of EU's orbit serves Russia as a defensive buffer.

Dilemma for the West: US and EU don't want to risk too aggressive an action against President Yanukovych in terms of economic sanctions or political boycott to resolve the crisis because it would be interpreted by Ukrainians as another heavy-handed attempt by foreign powers to manipulate their internal affairs, making them no better than Russia in the eyes of the Euromaidan protestors. The crisis has largely been precipitated by Ukraine's economic problems and crisis of national identity. While the former can be tackled by foreign powers like Russia, EU etc. the latter can only be resolved by the Ukrainians themselves.

Economic Crisis: After the fall of the Soviet Union, per capita income in Ukraine was about the same as in Latvia and Poland. Now incomes in those countries are more than twice those in Ukraine, as per the IMF. Ukrainian protesters will most likely chafe heavily under demands of EU in exchange for aid if Russia pulled the plug. The changes required to reach market-economy status for eventual EU membership would be painful for most Ukrainians. They currently enjoy cheap subsidized natural gas, generous social programs, and a currency that until recently was propped up by the central bank. While the EU wants closer ties with Ukraine, it offered a loan of only $834 million in 2013 as enticement to sign the trade agreement, compared to Russia's recent $15 billion lifeline. The pact would lift existing barriers between Ukraine and European markets, while requiring Kiev to adopt judicial and regulatory reforms and release political prisoners, such as opposition leader Yulia Tymoshenko. Credit agencies have slashed Ukraine's debt rating substantially below investment grade. Yields demanded by investors spiked to more than 20 per cent, effectively locking it out of bond markets before Russia's intervention of buying Ukraine's sovereign debt worth $3 billion as part of its now on-hold aid package. Ukraine has lost 50 per cent of its forex reserves for supporting the hryvnia since 2011. The central bank recently allowed it to slide 3 per cent, and an additional 15 per cent fall is in the offing. It will help exports but fuel inflation in an increasingly fragile economy.