Ukraine Background — A Brief Overview

Policy Feature Issue: Ukraine Background – A Brief Overview 

Recent developments in Ukraine have caused political, economic, and military turmoil, leading to the collapse of President Viktor Yanukovych’s regime and the emergence of an interim government that appears supportive of necessary reforms and closer integration with the West.  Russian Federation forces have since entered Ukrainian sovereign territory in the Crimea region, threatening the new government’s security and stability and prompting threats of secession.  Most recently, Crimea’s Parliament overwhelmingly voted to hold a referendum on Crimea’s future on March 16, 2014.

Ukraine Since 1991

Ukraine gained independence from the Soviet Union in 1991 and from the mid-1990s until 2004, the country was led by President Leonid Kuchma and oligarchic “clans” that supported him.[1]  Kuchma’s leadership “was characterized by fitful economic reform, widespread corruption, and a deteriorating human rights record.”[2]  In 2004, the Presidential elections were rife with fraud, triggering mass protests that became known as the “Orange Revolution.”  Many hoped the movement would prompt anti-corruption reforms and stronger integration with the West.[3]  The demonstrations ultimately brought into power Viktor Yushchenko, a perceived pro-reform, pro-Western engagement figure.  However, infighting dominated his tenure, creating public disillusionment.  Viktor Yanukovych’swin as President in 2010 erased any remnants of Orange Revolution ideals.  His term was dominated by human rights abuses, particularly in targeting opposition leaders.  Yanukovych also aligned Ukraine’s interests more closely with Russia, causing friction with those who favored stronger relations with the West.

Participation in the International Community

Since obtaining independence in 1991, Ukraine’s economic and foreign policy agenda has “appear[ed] incoherent, as the contending forces pulled it in pro-Western or pro-Russia directions or simply neglected foreign policy as less important than domestic political combat . . . .”[4]  At times, the country has moved towards increased Western integration and cooperation—expressing hopes of joining the European Union (EU) and the North Atlantic Trade Organization (NATO)—but has not taken concrete steps to meet the standards set by these entities.[5]  Ukraine initiated formal relations with NATO in 1991, and in 1994, joined NATO’s Partnership for Peace.[6]  The 1997 Charter on a Distinctive Partnership is “the formal basis for NATO-Ukraine relations” and established a framework for cooperation between the Ukraine and NATO.[7]  In 2002, Ukraine cited NATO membership as an official foreign policy goal; but in 2010, then-President Yanukovych “formally rejected NATO membership for Ukraine.”[8]

Additionally, Yanukovych recently decided at the last-minute to suspend plans to sign an Association Agreement (AA) with the EU, which would have included a free trade zone, due to intense pressure from Russia.[9]  “In 2009, the EU launched the Eastern Partnership program, a regional approach to cooperation with the region that includes Ukraine, Belarus, Moldova, Georgia, Armenia, and Azerbaijan.”[10]  The AA is “the EU’s main instrument to promote European values in these countries and deepen economic ties with them.”[11]  Though Ukraine’s interim government seems supportive of closer relations with the EU, a decision on the AA will likely occur after the presidential elections in May 2014.

Economic Challenges

Ukraine has substantial economic potential due in part to its strategic location and rich soil.[12]  Yet, it has struggled to attract foreign investors who frequently “cite such issues as rampant corruption and serious shortcomings in the rule of law (including a weak judiciary) as key stumbling blocks to foreign investment.”[13]  Due in part to these shortcomings, the global economic crisis significantly impacted Ukraine’s economy and it has since struggled to recover.  Its foreign exchange reserves have fallen to dangerous levels, prompting concern “that Ukraine could default on its sovereign debt in 2014.”[14]

On March 4, following the collapse of Yanukovych’s regime, the IMF sent a fact-finding mission to Ukraine to “conduct a review of the economy and discuss . . . the policy reforms that could form the basis of a Fund-supported program.”[15]  The mission—generally a first step in responding to a country’s request for assistance—will report its findings and IMF Management will propose a course of action to the IMF Executive Board.[16]  For its part, the U.S. has pledged $1 billion in loan guarantees “aimed at helping insulate vulnerable Ukrainians from the effects of reduced energy subsidies.”[17]  On March 6, the House passed Ukraine aid legislation that authorized funds to be used for loan guarantees in support of the Administration’s pledge.[18]

Energy Challenges

Other key challenges include Ukraine’s energy dependence on Russia.  “In the recent past, about 80% of its oil and natural gas . . . came from Russia.”[19]  Because of this, Russia has sought control of Ukraine’s natural gas infrastructure and has manipulated prices for political purposes.  “Underlining the political nature of Russia’s natural gas pricing policy, after Ukraine announced that it would not sign the [AA] with the EU, Russia announced . . . it would reduce its natural gas prices for Ukraine by one-third.”[20]  In light of this dynamic, legislation has been introduced in the House that would reduce Russia’s influence by fast tracking liquid natural gas (LNG) exports to our allies.[21]

[1] Stephen Woehrel, Ukraine: Current Issues and U.S. Policy, Congressional Research Service (Feb. 26, 2014) at 1.

[2] Id.

[3] Steven Woehrel, Ukraine’s Orange Revolution and U.S. Policy, Congressional Research Service (July 1, 2005) at Summary.

[4] CRS: Ukraine: Current Issues at 6.

[5] Id.

[6] NATO’s Relations with Ukraine, NATO (Feb. 28, 2014).  “The Partnership for Peace (PfP) is a programme of practical bilateral cooperation between individual Euro-Atlantic partner countries and NATO.  It allows partners to build up an individual relationship with NATO, choosing their own priorities for cooperation.”  The Partnership for Peace Programme, NATO (Mar. 10, 2014).

[7] NATO’s Relations with Ukraine, NATO (Feb. 28, 2014).

[8] Id. and CRS: Ukraine: Current Issues at 6.

[9] CRS: Ukraine: Current Issues at 2.  “In 2009, the EU launched the Eastern Partnership program, a regional approach to cooperation with the region that includes Ukraine, Belarus, Moldova, Georgia, Armenia, and Azerbaijan. . . .  The [AA] is the EU’s main instrument to promote European values in these countries and deepen economic ties with them.”  Id. at 6.

[10] Id.

[11] Id.

[12] Id. at 5.

[13] Id.

[14] Id.

[15] IMF Sends Fact-Finding Team to Ukraine, International Monetary Fund (Mar. 5, 2014).

[16] Id.

[17] Fact Sheet: International Support for Ukraine, White House (Mar. 4, 2014).

[18] Chairman Rogers Commends House Passage of Ukraine Aid Legislation, House Appropriations Committee (Mar. 6, 2014).  According to the House Foreign Affairs Committee, loan guarantees are a cost-effective way to leverage U.S. assistance to a country.  They consist of guarantees for the repayment of part or all of the principal and interest of a country’s sovereign borrowing.  The U.S. guarantee reduces the riskiness of the underlying asset.  It would be packaged with significant technical assistance focusing on four key areas: implementing critical economic reforms and mitigating their impact on vulnerable Ukrainians; conducting free, fair and inclusive elections, including the media and independent civil society; combating corruption and recovering stolen assets; and withstanding politically motivated trade actions by Russia.

[19] CRS: Ukraine: Current Issues at 9.

[20] Id.

[21] As White House Downplays Importance of LNG Exports, Eastern Europe Makes Plea for U.S. Natural Gas, House Energy and Commerce Committee (Mar. 10, 2014).  “In a recent letter the Visegrad 4 group, comprised of Poland, the Czech Republic, Hungary, and Slovakia, sent Congressional leaders a letter pleading for help from the [U.S.] to reduce their dependence on Russian energy supplies by removing bureaucratic hurdles to LNG exports.”  Id.