It may be the strategy of Russia to bleed Ukraine dry, says Dr Andrew Kuchins, an expert on Russia. Ukraine has had 5-6 per cent negative economic growth this year. He says even a 30 plus billion dollar package from the IMF and others may not be enough to put Ukraine back on its feet again.
The future of Ukraine does not lie in some kind of East or West choice. Ukraine cannot be a sustainable and sovereign country unless it is economically integrated both with Russia and the West, according to Dr Andrew Kuchins from the Center for Strategic and International Studies, Washington DC.
Delivering a talk on ""Putin’s plan for Russia" at Observer Research Foundation, Delhi on August 25, 2014, Dr Kuchins said the urban guerrilla warfare may lead to far more losses and damage in Donetsk and elsewhere and it would be great challenge for Ukraine to put the country back together.
Dr. Kutchins said it may be the strategy of Russia to bleed Ukraine dry. Ukraine has had 5-6 per cent negative economic growth this year. It only has about 16 billion dollars in foreign currency exchange reserves. Dr Kuchins felt that even a 30 plus billion dollar package from the IMF and others may not be enough to put Ukraine back on its feet again.
Dr Kuchins began his talk with with a brief overview of the Russian economy. In his opinion, the Russian economy has shown robust economic growth under President Putin. Russian economic growth averaged around 7 per cent per year between 1998 and 2008. Nobody had predicted the economic resurgence of Russia after the tremendous economic dislocation in the aftermath of the state collapse in 1991 and the default of 1998. This dramatic recovery can be attributed to the increase in the oil price which was a significant factor in Russia’s future, especially after 2003-04.
The global financial crisis of late 2008-09 also affected the Russian economy which was already showing signs of stagnation. Despite the incredible amount of oil revenue coming into the economy, Russia could no longer count on the increase in the price of oil or the easy monetary conditions that existed before the financial crisis. The Russian economy was showing almost zero growth rate even before the crisis in Ukraine began and sanctions came into the picture.
While demonstrating the economic crisis afflicting Russia, Dr Kuchins referred to the "Novosibirsk Report" which was published in 1983 and addressed the issue of economic crises in the erstwhile USSR. According to this report, Russia needed reforms that required eliminating the monopoly of the Communist Party of the Soviet Union, the glue that held the system together. A similar dilemma is faced by Putin as well.
Dr. Kuchins maintained that there was a major social mobilisation where hundreds and thousands of people gathered on the streets in December 2011 and early 2012 in response to the falsified Duma elections. Also, there were demonstrations after Putin’s return to power in 2012. Therefore, he said, the Kremlin had a choice to undertake reforms, try to co-opt the opposition into the system or choose not to do so. The government chose the latter.
Dr Kuchins explored the reasons for Putin’s popularity despite lack of significant progress on the economic reform agenda. Analysing the state of the Russian economy, he noted that capital outflows from Russia have been an issue of major concern because of the sanctions. According to Russian Central bank statistics, capital outflows in the country have been at an all time high, that is, 34 billion dollars in the first two months of this year. In the first quarter of this year, including March, before the sanctions came to be a major factor, there was already an outflow of 50 billion dollars. There has been significant depreciation of the Rouble and this could be because of economic sanctions.
However, Dr Kuchins disputed the fact that Russia was in a vulnerable position pointing out that it had strong foreign exchange currency reserves. Yet, he also contended that the Russian economy was susceptible to vicissitudes of external factors, principally oil prices which can impact the Russian economy considerably as compared to sanctions.
Returning to the question of Putin’s popularity, Dr Kuchins discussed the development of a nationalism in Russia today. The Kremlin has chosen to glorify orthodox and conservative Russian values as a new strategy to continue its hold on power. There has also been the projection of Russia as an assertive and great power like Putin’s take on Syria. Also, there is the "greater Russia project"in the form of the Eurasian Economic Union.
Dr Kuchins then focused on Putin’s foreign policy measures. He discussed Putin’s speech at the Munich Security Conference in February 2007 where he laid emphasis on multi-polarity and a major shift in the balance of power in the world. With the collapse of the Soviet Union, the emergence of Russia, China’s reforms taking off in the late 1970s, India’s reforms in the mid 1990s, Putin has indeed been right, according to Kuchins. Though Russia may still be a defender of the status quo internationally, regionally it is looking much more like a revisionist power and the case of Crimea looked like a revenge for Kosovo. The events of Eastern Ukraine looked like a revenge for Libya.
The talk was followed by an engaging question and answer session. While responding to questions on the impact and efficacy of the sanctions, Dr Kuchins said that the sanctions could be used as an excuse by the Putin government for the economic troubles being faced by Russia today. Moreover, Russia being the sixth largest economy in the world cannot be isolated through the mechanism of sanctions as its political-economy is much more resilient. Russian companies affected by sanctions can get a subsidy from the Kremlin. Sanctions may also escalate the process of de-dollarization and may create problems for the US.
Dr Kuchins summed up the talk by hinting at the outlines for a solution of the current Ukraine crisis. First, there has to be a ceasefire which should be monitored by international peacekeepers. Second, Ukraine should refrain from joining the NATO. Third, the issues around the constitutional arrangement for a federal structure of Ukraine should be worked out. The Ukrainian government needs to be committed to redressing the language, educational, cultural and minority rights of eastern and southern parts of the country.
He concluded by stressing that it is in the interest of all the parties that the Ukrainian crisis be resolved amicably. The need of the hour is political will on the part of Kiev, Moscow, Washington and other European countries, he said.
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