Catch-22

Ukraine’s reform agenda and the conflict with Russia are interrelated. By putting them in separate intellectual silos, analysts and policy-makers will be blind to the Catch-22 that the new government faces.

The debate on Ukraine’s reform agenda and discussion of the conflict with Russia often seem to exist in parallel universes. On the one hand, there is a growing chorus of voices pushing for rapid structural change in Ukraine’s politics and economy. The purpose, as Western policy-makers and analysts often put it, is to “make Ukraine a success story” (a more optimistic spin) or to “avoid a failed state” (as the pessimists would have it). Some speak of the current period as Ukraine’s “Poland in 1990 moment”; i.e. we are on the precipice of a major successful reform wave. On the other hand, the same Western policy-makers and analysts will speak of Russian President Vladimir Putin’s aggression against Ukraine, determination to stoke conflict in the east, and uncompromising stance in negotiations on Ukraine’s geoeconomic and geopolitical orientation. There is merit to both of these strands of analysis. But for an accurate understanding of Ukraine’s options – a prerequisite for effective strategy – they need to be considered in relation to each other. The Chinese wall that has been erected between these two streams of analysis is bound to produce policy failure. The reason lies in what can be called Ukraine’s reform Catch 22.

It is certainly true that President Petro Poroshenko and the government that will be formed imminently will come under tremendous pressure to implement an ambitious structural reform agenda. The question of external financing looms large in this context: Ukraine’s fiscal and broader economic viability will soon come under serious strain unless the IMF and EU assistance packages are significantly augmented and accelerated. Without major steps forward on reform, this boost will not be possible. So the West has significant leverage to push on the government, and the reformers within the government have significant leverage to push on their opponents. Further, not only will Western governments and the IMF demand reform, but Ukraine’s activists, civic groups, and society at large will do so as well. Only 36% of Ukrainians polled in September believe that their country is heading in the right direction. The political elite is acutely aware of the potential for political and social unrest if they fail to provide a sense of hope about the future to their people.

The Catch 22 here relates to the “perils” of successful reform. If Poroshenko and the new government succeed in passing significant reforms, the taps of financial support from the West will be opened. Indeed, Ukraine is likely to receive ever closer integration with Western institutions in that case as well – not just billions more dollars and Euros.

How all these positive developments would be received in Moscow is fairly obvious: Putin will consider increased Western engagement with Ukraine in zero-sum terms. The reason is clear: his leverage over Kyiv’s decision-making will be diminished by a dramatic increase in Western support and integration for the Ukrainian government. If any lesson can be learned from Russian behavior in the past nine months, it is that Putin will act to increase his leverage over Ukraine when he feels that it has been diminished. In short, if Ukraine succeeds in its reforms, further Russian economic warfare or direct military intervention in the east will become much more likely. “Damned if you do” as the saying goes.

One might conclude that this cost of success might diminish the chances of reform dramatically. However, here we encounter the “damned if you don’t” aspect of Ukraine’s Catch 22. If Kyiv does not reform, it will not receive augmented Western assistance, and therefore it will be forced to strike a deal with Moscow to obtain subsidies from the Kremlin instead.

The terms of that deal would certainly rule out further Russian intervention and trade wars. However, the combination of no reform and a grand bargain with Moscow is a recipe for political instability in today’s Ukraine, given the high degree of political mobilization, radicalization and the state’s loss of the monopoly on the use of force.

The Ukrainian government and its friends in the West need to tear down the Chinese wall they have constructed in their minds between the reform narrative and Russian intervention analysis. Both must be considered holistically in order to forge a successful strategy for Ukraine in the medium term, specifically one that takes into account potential Russian reactions to reforms. The first step is acknowledging that reform cannot succeed if Russia is determined to make it fail. Ideally, this would lead Ukraine and the West to make a comprehensive settlement of the conflict a major and organic component of the reform push. Given the current climate of antagonism and mistrust, this ideal outcome is a low probability, and governments should prepare for worst cases. In that case, Ukraine, the EU and the US should have contingency plans ready in case of Russian efforts to undermine reform. These plans should entail efforts to “harden the target”: steps to make Ukraine more resilient to economic and conventional warfare. They should also involve efforts to maximize transparency so as to avoid misinterpretation of intentions, and, if the conflict escalates, to reassure through costly signals, such as reaffirmed commitment not to seek membership in NATO.