UNLESS YOU'VE BEEN hiding in a cave somewhere or posted to a UN humanitarian assistance project site in North Korea, you know that the latest contest in the U.S. election is over who can come up with the sexiest stimulus package for the economy. Both Obama and Clinton have put forth their own plans as part of campaign one-upmanship. Meanwhile, the Congress has proposed a bipartisan plan that would send checks to taxpayers to encourage extra spending and pump up the economy.
Increasing worries about the state of the U.S. economy dominated the sidebar conversations and media coverage of the annual World Economic Forum in Davos, Switzerland. The Davos event is this odd combination of a media free-for-all that includes appearances by Hollywood luminaries and famous musicians, speeches by world leaders, and--of course--the politician-turned-movie-maker and global warming doomsayer, Al Gore.
The usual coterie of Russian oligarchs were also at Davos this year, with about 2,000 different political and business leaders taking part in this year's event. Even since Soviet times the Russian presence at Davos was for the sole purpose of proving how much that country matters to the world economic community. This year the Russian delegation's specific mission was to inundate the attendees with statistics and slick presentations demonstrating the increasing control the Kremlin has over all major business in Russia and insisting that the lack of any real free market reforms is nothing for the West to be bothered about.
If Western capitals are not bothered, one of the nations that has to worry about Russia is its neighboring former republic, Ukraine. Russia has done its best to try and keep Ukraine from spinning out of Moscow's orbit and has a long history of engaging in dirty tricks in order to make sure the now-independent nation remains a vassal state.
Under Putin some rather extreme measures were taken to keep the current pro-western Ukrainian President, Viktor Yushchenko, from coming to power. This included an attempt to kill him during the 2004 election campaign with a highly concentrated (and normally fatal) dose of dioxin poisoning--a case that has yet to be solved.
Some questions remain as to who was the actual culprit--a Ukrainian agent acting on behalf of Moscow or the Russian Federal Security Service (FSB) itself. In any event the fact that the attempt failed is probably why the Russian secret services moved on to the much more lethal and radioactive material Polonium 210 when it came time to eliminate the London-based Putin critic Aleksandr Litvinenko.
What is Moscow's defense for murdering political candidates and its critics abroad? At the Davos forum First Deputy Prime Minister Dmitri Medvedev, heir-apparent to Russian President Putin, told the assembled delegates that "We are not trying to push anyone to love Russia. But we will not allow anyone to hurt Russia."
If actions as of late are any indicator, "hurting" Russia means anything that diminishes its influence in the post-Soviet space. This includes making sure that Russian troops remain on the soil of former republics even though they are now independent nations. In 1999 President Boris Yeltsin promised at an OSCE summit in Istanbul that all Russian troops would be withdrawn from their two bases in the Republic of Georgia by January 2004.
When this 2004 deadline finally arrived, the then-Russian Defense Minister, Sergei Ivanov, was offered by the Georgians another three years beyond the deadline to complete the withdrawal. Ivanov responded with the traditional spirit of accommodation and generosity Russia has historically demonstrated in these matters and stated he needed not three more years but 11.
The reason for Ivanov having demanded more than a decade to move was a complete mystery. The total number of troops at these two bases was just 4,500 men, and most were local contract soldiers who would have no reason to leave their homes in Georgia to relocate to Russia. The non-Georgian contingent that would actually have to move back to Mother Russia totaled no more than 200. In the meantime, Moscow was doing its best to try and move military equipment on those bases back to Russia even though by the terms of the treaty dissolving the USSR most of the equipment belonged to the Georgians.
The last Russian troops were finally removed in November 2007, but Russian peacekeeping troops still remain on the ground in the Georgian breakaway provinces of Abkhazia and South Ossetia. Russian Air Force aircraft also continue to violate Georgian air space and one occasion even dropped an unexploded Raduga Kh-58 (AS-11 Kilter) missile that landed near a village some 60km northwest of the capital Tbilisi.
The perils of Ukraine are even greater than in Georgia, but more subtle. The stakes have now become higher with the accession to the Prime Minister's job of the controversial politician Yulia Tymoshenko. When Yushchenko first took office in Kiev in January 2005, Tymoshenko was his choice as PM. It seemed a logical choice at the time since she and her party had been his stalwart partners in the Orange Revolution that brought him to power.
Seven months later she was dismissed after a mixed record in the position that included some dubious economic measures, the most famous of which was an overnight change in the exchange rates in Ukraine that raised the value of the local currency, the Hyrvna, against all foreign currencies by 15 percent. This was a great "gift" for the population, which now had more buying power, but a disaster for the country's ability to attract foreign investment. If you were a multinational preparing to invest $5 million in a business project you now needed $6.5 million.
This and other ill-advised decisions sent prices for most commodities in Ukraine--especially real estate--soaring. No one wanted to use the "h" word (hyperinflation), but in 2006--according to the world cities cost of living index compiled by Mercer Consulting--Kiev jumped 33 positions from 54th most expensive city in the world in 2005 to the 21st--one of the largest one-year increases in the scale's history.
Now Tymoshenko is back in the PM's job with a slim two-vote majority in the Ukrainian parliament, the Rada. In the interim period, continuous creeping inflation made Kiev one of the most expensive cities in all of Europe. This, combined with a carnivorous Customs Service that makes some African kleptocracies appear tame by comparison, has made prices in Kiev for a bottle of imported red wine, a jar of Barilla pasta sauce, or most other foreign commodities, equivalent to "robbery without a gun." This is all about to get worse as Tymoshenko has just decided to do her best to discourage foreign business and tourism by telling the customs service and tax police that they need to triple their income in the next 6 months. This is like telling these two institutions that they now have a green light to steal, rob and otherwise make off with whatever they can from those trying to import goods into the country or run a business inside of its borders.
But there is more. Earlier this month the new PM began a program to compensate Ukrainian citizens for the losses they incurred when the USSR dissolved and the fall in the value of their Soviet-era ruble-denominated bank accounts evaporated. Many people had bank balances of 10,000 roubles or more (which had about the same value as $10,000 in the economy of that day) and saw these life savings wiped out in the 1990's.
Now many Ukrainians will receive payments from the central government to supposedly recoup some of these losses, but the amounts are little more than symbolic. The maximum that Ukrainians can receive is 1000 Hyrvna (about $200), but the program will pay out $26 billion over the next several years, with $1.2 billion being distributed this year.
Anton Struchenevsky, an economic analyst from Troika Dialog, criticised this as a populist move that "can destabilise the economy and lead to hyperinflation." Official Ukrainian state budget estimates (which are known to downplay any negative forecasts) have projected that 2008 inflation will be 9.6 percent, but independent analysts state that 15 percent or more is far more realistic. At a time when most of the rest of the world is trying to stimulate its economies and keep a lid on inflation, Ukraine seems to be doing the complete opposite.
The real fear is that if prices rise much higher beyond their already stratospheric levels, support for Yushchenko and Tymoshenko's pro-western policies could evaporate. If so, when the presidential election in Ukraine takes place in early 2009 the candidate favored by Moscow in the 2004 election, Party of the Regions leader Viktor Yanukovich, can waltz into the president's job and Russia will have achieved complete proxy control neighbor.
Some would argue that this takeover may already be under way. On January 17, Aleksandr Galaka, the head of the Ukraine Military Intelligence Service, was removed from his position without so much as a by-your-leave. Galaka was one of the real heroes of the Orange Revolution and was instrumental in making sure the popular revolt did not turn into a Tiananmen Square-type massacre.
Removing Galaka, a pro-western military official who has done more than perhaps any one of his colleagues to move Ukraine closer to NATO cooperation and keep Russian influences from turning his country into a puppet state, seems ill-advised in the extreme given the situation at present.
About this time next year people may very well be asking "who lost Ukraine," by which time the train will have left the station a long time back, so to speak. American and EU officials need to be spending time worrying about--and acting on--this issue now, rather than listening to the happy talk of the Russian delegation from Davos.
Reuben F. Johnson is a regular contributor to THE DAILY STANDARD.