Foreign economic cooperation is one of the main tools that may help Ukraine emerge from the economic crisis. Without foreign capital, imported technologies and administration practices, and overseas markets, Ukraine will face serious challenges to maintain its financial and economic stability. Yet should Ukraine expand its economic ties with Russia? Answers to this question were sought during the public debate “Ukraine will not overcome the economic crisis without Russia”, organized by the Foundation for Effective Governance in partnership with the UK-based Intelligence Squared.

 

Natalya Izosimova, Director of the FEG, in her opening speech explained why this subject is so important. “One of the lessons the world learnt from the economic crisis is the importance of useful alliances. There is no exceptional solution for any particular state. All choices are of the global nature hence we should be very careful when choosing our future foreign partners”, she stressed. She maintained that historical production ties, common markets and joint scientific potential have made Russia Ukraine’s long-term strategic partner. However, global economic transformations create numerous new opportunities of successful cooperation with the Old World and rapidly growing economies.

 

There is no secret that the economic aspects of Ukrainian-Russian relations are driven by political antagonism rather than sound pragmatism today. Although there is little doubt about the necessity to strengthen economic relations between the two neighboring states, the practical steps and ideas of this cooperation – for instance, Ukraine’s joining the Single Economic Space or the Customs Union of Russia, Belorussia and Kazakhstan – are often met at dagger point. Kirill Dmitriev, President of Icon Private Equity and panelist for the motion at the debate, stated: “We have calculated that Ukraine’s membership in the Customs Union will increase its GDP by additional 3%-5%. Already next year, synergy from a single economic space with Russia will procure about $400 for every Ukrainian family, and this amount will grow tenfold by 2016. We may argue about the figures, but the fact remains: we need to view Russian-Ukrainian economic relations through the prism of economic pragmatism and not political myths”.

 

He was immediately opposed by Kost Bondarenko, Head of Kyiv Gorshenin Institute of Management Issues. “The advantages of the Customs Union are much spoken about. But how important are these advantages for us? The Customs Union will bring forth short-term dividends. But what are its benefits in the long-term, strategic perspective?” he asked. The political analyst continued that these alliances do not guarantee economic stability, of which the recent Russian-Belorussian oil conflict is merely a single example. Mr. Bondarenko also emphasized that the realization of economic megaprojects over the post-Soviet space may prove impossible mainly because of political differences among the former Soviet republics. “Why did the European Economic Area not succeed? It may be because it lacked a political superstructure, created on a fair basis and giving equal rights to different participants. This arrangement was unacceptable for Ukraine”, he summed up.

 

Andriy Shevchenko, First Deputy Head of the Verkhovna Rada Committee on Freedom of Speech and Information Policy, also presented his arguments against the economic alliance with Russia. He argued that there is no use in drafting future plans while previous agreements, aimed at strengthening economic partnership between the two countries, have not been realized. “A while ago, we signed a treaty on a free trade zone with Russia. However, for obvious reasons, this ambitious plan has remained on paper. Firstly, there immediately popped up several dozens of exceptions, most of which were introduced by the Russians. Secondly, this treaty did not include energy resources, disregarding the fact that they constitute about half of Russia’s export in Ukraine. Thirdly, there is an impressive bunch of so-called nontariff restrictions, which hamper commercial relations between the two countries. Among them are antidumping or phytosanitary regulations. We remember how along with Georgian wine the Russians waged war on Ukrainian dairy products. Moreover, in September 2009, Vice Premier Shuvalov issued a direct instruction to introduce new mechanisms of protecting the Russian market against Ukrainian goods.”

 

The Verkhovna Rada MP also reminded that in addition to market outlets, Ukraine needs financial resources and technologies to emerge from the economic crisis. In his opinion, we should not count on Russian finances, because whatever the Russian Government had managed to put aside for the country’s stabilization fund, it later spent on raising social standards, and is now seeking additional capitals in the IMF, the West, or China. As for hi-tech industries, such as space and military, aircraft building and nuclear energy, Russia strictly limits Ukraine’s access to these technologies”, he said.

 

The road map, developed by Mr. Shevchenko to pull Ukraine out of the economic crisis, may help Russia as well. According to Evgeny Gavrilenkov, Managing Director of Troika Dialogue Group, both countries feel the pressing need to expand their export markets. They also need international capital to finance their economies and diversify their export structures. In his opinion, closer cooperation and coordination of efforts in different economic sectors, e.g. machine-building, may help both countries achieve this goal (though it by no means guarantees success).

 

“Ukraine has numerous resources to handle the problematic situation, which unraveled during the years 2008-2009. However, to overcome the long period of recession, which followed the collapse of the Soviet Union, Kyiv should establish closer relations with its neighbors – not ubiquitous, but whenever there is economic expediency. This decision should be taken by business rather than government officials. Remarkably, the business has already made its choice”, noted Mr. Gavrilenkov.