Sunday, October 26, 2014


Ukraine

Promises, Promises: Moscow's Record Of Broken Aid Pledges

Russian President Vladimir Putin offered Ukrainian counterpart Viktor Yanukovych some sweeteners for closer ties when the two met on December 17, but will he deliver? (file photo)
Russian President Vladimir Putin offered Ukrainian counterpart Viktor Yanukovych some sweeteners for closer ties when the two met on December 17, but will he deliver? (file photo)
By Charles Recknagel
A loan to bail out Ukraine's troubled economy? A gas deal? Trade concessions?

Or perhaps all of the above?

When Russian President Vladimir Putin hosted his Ukrainian counterpart Viktor Yanukovych in Moscow on December 17, many believed he was likely to make some kind of aid pledge designed to shore up his embattled ally and keep Kyiv in the Kremlin's orbit.

With thousands of Ukrainians on the streets to protest Yanukovych's scuttling a landmark pact with the European Union in favor of closer ties with Moscow, and with Ukraine's economy on the brink of crisis, some analysts believed that a substantial offer from Putin was on the cards.

Sure enough, once the meeting was over, the Russian president announced that the state-owned energy giant Gazprom would sell gas to Kyiv at a much reduced rate. He also pledged to invest $15 billion in Ukrainian government securities. 

Ukraine, for its part, signed agreements with Russia "on the removal of trade limitations" and on industrial cooperation.

Despite Moscow's display of largesse, however, can it actually be counted upon to deliver the incentives it promises?

A quick review of some of the aid Russia has pledged to send countries when it seeks to influence them suggests there is no certainty.

Russia and Ukraine

Ukraine already has direct experience with broken Russian aid promises. Back in 2010, Moscow promised to lower gas prices in exchange for a renewal of its lease on naval facilities in Crimea.

In April of that year, the two sides signed the Kharkiv Pact by which Moscow agreed to reduce the price of natural gas sold to Ukraine by 30 percent and Kyiv agreed to extend Russia's lease of a major naval base in Sevastopol for an additional 25 years plus an additional 5-year renewal option.

The agreement was subsequently ratified by both countries' parliaments, but Moscow apparently didn't view the pact as binding. Vladimir Putin, then Russia's prime minister, appeared to telegraph this when the deal was just days old. "No military base in the world is worth that much money," he said, "We could build several such bases for that amount."

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Despite the Kharkiv Pact, Russia has continued to raise the price of gas to Ukraine annually. In August 2011, Moscow charged Ukraine $350 per 1,000 cubic meters; in November 2011, the price jumped to $400 per 1,000 cubic meters; and, in January 2013, it climbed to $430 per 1,000 cubic meters.

Russia has said that without the Kharkiv Pact, the gas price for Ukraine would have been even higher.

Russia and Serbia

Russia has actively sought to deepen economic ties with traditional Balkan ally Serbia, particularly in the energy sector. It has also used the carrot of aid and investment to keep Belgrade close to, and dependent upon, Moscow.

But while Moscow promises Serbia help, the aid usually flows at a painfully slow rate. Just one example is an accord between the two countries in 2011 to provide an aid package of some $1 billion to Belgrade. Of that money, $200 million was to help Belgrade offset its budget deficit, while $800 million was to go to help modernize Serbia's state-owned railway.

The smaller of those two amounts reached Belgrade, but Moscow has consistently put off providing the $800 million for the railroad. Moscow's rationale for the delays has consistently been the same: that Serbia does not yet have enough reliable projects to justify releasing the money for them, but the work will start soon.

Russia and Kyrgyzstan

When Moscow agreed to provide Bishkek with a $2-billion loan in February 2009, it was -- as with Ukraine today -- in the context of a dispute with the West. At that time, the third party was the United States, which was annoying Moscow by its use of the Manas air base outside Bishkek.

Kurmanbek Bakiev, then Kyrgyzstan's president, placated Moscow by announcing that the base would be closed and a Russian pledge to send Bishkek billions in aid was soon announced -- giving many the impression of a clear quid pro quo.

But the new Russian aid flow ended almost as soon as it began. Within a year -- after just some $450 million in grants had been delivered -- Moscow froze its cooperation amid a new quarrel. This time, the dispute was directly between the Kremlin and Bakiev as the Kyrgyz leader said he was negotiating with Washington to still let the U.S. military use Manas as a transit center.

Russia responded by terminating its promised aid to Bishkek amid allegations that the Bakiev family was pocketing some of the money by depositing it in a new bank headed by the president's son, Maksim, and loaning it out with interest. Neither Moscow nor Bishkek showed much good faith in trying to resolve their differences so the aid promises could still be honored.

Russia and Iceland

In what was perhaps Russia's strangest foreign aid offer of all, Moscow proposed a $5.4 billion bailout package for Iceland during the financial crash of its banking sector in 2008.

From the start, the offer seemed to have more showmanship than substance, coming at a time when even Iceland's traditional Western banking partners would not offer Reykjavik help.

Russia's ambassador to Iceland himself publicly expressed skepticism, suggesting lightheartedly on Russian television that Moscow must be hoping to be paid back not in money but with "the famous Icelandic herring, popular in Russia since Soviet times."

Still, as Moscow has repeatedly demonstrated, words can be as effective as actions. The promise to help Iceland captured world headlines and underscored the West's helplessness in the face of one of its own worst banking-sector crashes. The fact that Moscow never pursued its extraordinary offer later went unnoticed.

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