In Crimea, Digest, Ukraine

Introduction by website editors, March 24, 2014

Stephen Harper in Kiev March 22, 2014 with Ukraine Prime Minister Arseniy Yatsenyuk, from You Tube of the Office of Prime Minister HarperStephen Harper is talking tough on Russia, traveling to Kiev and to Brussels in the past two days to deliver a tough-guy message directed at Russian president Vladimir Putin. Toronto Star columnist Tim Harper writes from Brussels (full text of his column below): “Harper will continue to talk tough. It plays well at home. But his rhetoric will not play as well inside the summit meeting as it does with Ukrainian-Canadian voters.”

Meanwhile, from a dispatch from Kiev, we read this remarkable start to a Globe and Mail article (full article below): “[Prime Minister Arseniy Yatsenyuk] has been Ukraine’s Prime Minister for barely a month, but already he doubts anyone will vote for him again. That’s not surprising, given that his agenda includes raising taxes, slashing spending, cutting subsidies, stamping out corruption, and transforming nearly every government institution. And all while the economy stagnates and the country faces a possible military confrontation with Russia.”

Canada is also ‘talking tough’ to Venezuela. Air Canada has announced it is suspending its service between the two countries. In response, Venezuela President Nicholas Maduro says his country will sever all commercial ties with entities such as Air Canada that flout respectful standards of international commercial relations.

But back to Ukraine, enclosed are four news articles from today’s Canadian newspapers that help to demystify all the tough-guy rhetoric against  Russia coming from the likes of Stephen Harper. The news reports help to understand the large economic and political interests that are at play in Ukraine and the surrounding countries and republics and what we can expect in the days and months ahead. It’s a very different world from the last time that a big international gang-up against Russia and its neighbours was at play, during the Cold War that ended in the late 1980s.

Enclosed:

1. A test for Harper and G7 as well as Putin
By Tim Harper National Affairs Columnist, Toronto Star, March 24, 2014

2. Yatsenyuk’s precarious balancing act
By PAUL WALDIE, The Globe and Mail March 23, 201

3. Canadian firms in Russia fear fallout from sanctions
By Mark Mackinnon, The Globe and Mail, Mar. 24 201

4. Russia and Japan: Asia-Pacific: Crimea crisis puts Tokyo in a bind
By Chuck Chiang, Vancouver Sun columnist March 23, 2014

And here are links to two additional reports:
* The Ukraine economic crisis: Past, present & future
, by Jack Rasmus, ZNet, March 3, 2014
* Crimea crisis pushes Russian energy to China from Europe
By Rakteem Katakey, Bloomberg, March 24, 2014
… The Crimean crisis is poised to reshape the politics of oil by accelerating Russia’s drive to send more barrels to China, leaving Europe with pricier imports and boosting U.S. dependence on fuel from the Middle East.

* * *

1. A test for Harper and G7 as well as Putin

If the G7 cannot come together with a tough response to Vladimir Putin’s Crimean grab, it will hasten its slide to irrelevancy.

By Tim Harper National Affairs Columnist, Toronto Star, March 24, 2014

THE HAGUE, NETHERLANDS—And now begins the diplomatic dance. In this well-manicured, meticulously scrubbed European capital, seven of the most powerful world leaders gather Monday, 72 hours after Vladimir Putin formalized his annexation of Crimea in an elaborate ceremony in Moscow.

Russian troops put an exclamation point on that ceremony by using tanks to smash their way into Belbek airbase in Crimea Saturday, firing gunshots into the air and beating Ukrainian holdouts, sending them packing and on their way.

Ukrainian forces also abandoned a naval base and surrendered two vessels to Russian forces and pro-Russian protesters, capping a weekend in which the takeover was completed with both formality and force.

So what do Stephen Harper, Barack Obama and other G7 leaders, who meet in emergency session at the Nuclear Security Summit, plan to do about it?

The challenge for a U.S. president who holds far less sway in Europe than he did in the heady days of his first term and the disparate views of European leaders and their North American confreres more able to talk tough on Putin with the luxury of distance will together test the alliance as much as it will test Putin’s ambitions.

Germany, for example, imports 40 per cent of its energy from Russia and would fear a Moscow counterpunch. The United Kingdom’s status as a global financial centre would be hobbled without Russian investment.

To hear Harper, nothing less than a complete reversal of the Crimean takeover is acceptable. But he is fast becoming an outlier because in reality the leaders must bridge their own sizeable divides and try to cobble together a package of penalties that will halt further Russian aggression. Crimea is gone.

More harsh rhetoric alone from the leaders will merely evaporate into the Dutch night. The goal is isolation of Russia on the world stage and possibly its expulsion from the G8, 16 years after it was welcomed into the club. In Moscow’s calculation, that would likely be a reasonable price to pay for the return of Crimea to the fold.

Some will argue anything short of a strong, substantive and enduring stand against Russia will merely push the G7 further into irrelevancy, its once muscular global standing already largely overtaken already by the more powerful, emergent economies represented at the larger G20 summits.

“It’s my view, my strong view, that we need to take strong action, we need to take co-ordinated action and that action needs to be in place and we need to be prepared to take that action for the long term,” Harper said after a meeting with interim Ukrainian Prime Minister Arseniy Yatsenyuk in Kyiv on Saturday.

But Harper is not alone. British Foreign Secretary William Hague, in an op-ed piece written for the Telegraph, said his European allies must not run in the face of Putin’s bullying. There must be a fundamental rethinking of relations with Russia, said Hague — the same message which came out of Washington Friday — meaning Russia be expelled from international organizations, face enduring restrictions on military co-operation and wield far less influence over the rest of Europe. And, Hague said, European must wean itself from dependence on Russian energy.

Putin was giving typically reassuring signals about his plans as the spotlight turned to the Dutch capital, but NATO’s top military commander suggested Sunday that the Russian president’s next target could by a separatist region of Moldova. U.S. air force Gen. Philip Breedlove, told a forum in Brussels that the troop buildup on Ukraine’s eastern border is large and well-trained and could easily move into the Russian-speaking enclave of Transdniester under the pretext of protecting Russian ethnic minorities in Moldova.

Civilian observers, including two Canadians, began arriving in Ukraine Saturday night under the auspices of the Organization of Security and Co-operation in Europe, but Putin notably barred them from Crimea.

First thing at Monday’s meeting, the G7 leaders will have to determine whether their actions so far are working. Stocks on the Russian market have lost about 10 per cent of their value and the Russian central banks has already spent more than $20 billion (U.S.) propping up a ruble hurt by foreign investors pulling out of the stock market.

Yet Sunday, Visa and MasterCard reversed course and agreed to resume payment service for its clients at Russia’s SMP bank, meaning western moves were — at best — taking two steps forward and one step back.

Harper will continue to talk tough. It plays well at home. But his rhetoric will not play as well inside the summit meeting as it does with Ukrainian-Canadian voters.

 

2. Yatsenyuk’s precarious balancing act

By PAUL WALDIE, The Globe and Mail March 23, 201

Kiev–He has been Ukraine’s Prime Minister for barely a month, but already Arseniy Yatsenyuk doubts anyone will vote for him again. That’s not surprising, given that his agenda includes raising taxes, slashing spending, cutting subsidies, stamping out corruption, and transforming nearly every government institution. And all while the economy stagnates and the country faces a possible military confrontation with Russia.

“Who is to vote for me after this?” Mr. Yatsenyuk said with a smile during an interview Friday. “Not sure about my wife, even.”

The 39-year old lawyer and economist took over as Prime Minister on Feb. 27, rushed into office by parliament just five days after President Viktor Yanukovych fled to Russia. Now it’s up to Mr. Yatsenyuk to lead a nation caught up in a crisis over Crimea and still reeling from a popular uprising that swept Mr. Yanukovych from power.

He was not a popular choice. Tall and lanky, the bespectacled Mr. Yatsenyuk has a reputation for being too cerebral, and his attempts to be fiery during the recent protest movement often fell flat. There were plenty of boos when he took the stage in Kiev’s Independence Square last month and told thousands of protesters that he was forming a new government.

But since taking office, he has surprised many observers with his skillful handling of the job. He got kudos for taking on Russia’s UN ambassador during a recent Security Council meeting on Crimea, and he has been a near-constant presence in Brussels, pushing the European Union to take a tougher line with Moscow and organizing a financial package for Ukraine. Back home, he won points for travelling economy, selling government cars, and even showing flashes of humour. When Prime Minister Stephen Harper mused about kicking Russia out of the G8 during a press conference in Kiev on Saturday, Mr. Yatsenyuk jumped in and said: “If there is an empty seat at the G8, we’ll take it.” The line broke up many in the room, particularly Ukrainian journalists who were not used to seeing such lightheartedness from their leader.

Sitting in a boardroom near his office Friday evening, Mr. Yatsenyuk appeared to be relishing the many challenges facing his country. He was relaxed, talkative, and eager to offer his thoughts on a variety of topics, including Russian President Vladimir Putin, the dire state of Ukraine’s economy, and the tough remedies he has in store.

He has been on a whirlwind since taking office, travelling to Western Europe, New York, and Washington to meet President Barack Obama at the White House. In Kiev he has received a stream of diplomats including UN Secretary-General Ban Ki-moon. His job is a “huge responsibility,” he said, and he is lucky if he sees his wife and two daughters for 20 minutes a day.

“I saw a friend of mine in Brussels [last week] and he said a very outstanding thing, personally, for me,” Mr. Yatsenyuk said. “He said ‘You need to realize that you are a wartime prime minister.’ And he’s absolutely right.”

While not exactly outright war, Mr. Yatsenyuk and the country have been consumed with Russia’s annexation of Crimea and fears that Mr. Putin has designs on other parts of Ukraine. The Prime Minister has vowed to fight the Russians if they move into more regions, and he has admonished the international community for not imposing more sanctions on Russia. “This is my land and this is my country, not Putin’s,” he said emphatically.

He certainly knows what he’s up against. Mr. Yatsenyuk said he has met Mr. Putin several times and he described the Russian leader as a clever strategist, someone who knows when to pounce and when to ease back. He’s convinced Mr. Putin is interested in southern Ukraine, particularly in Odessa, the country’s main port. Losing Odessa would cut Ukraine off from the Black Sea and cripple the economy. “He is not friendly to Ukraine,” Mr. Yatsenyuk said, almost wincing. “And it seems to me that he is not friendly even to the entire globe, and to his people.”

Crimea, Russia, and Mr. Putin are just one set of troubles. Mr. Yatsenyuk also has to deal with a faltering economy, hit hard by years of recession and worn down by decades of corruption.

By some measures, around half of Ukraine’s economy operates in a so-called “shadow world,” underground and unreported. Corruption is so rampant that nearly every public servant expects a payoff, and departmental budgets include provisions for bribes. One cabinet minister recently said that cleaning up the justice system alone would involve firing 8,000 officials, bringing the courts to a standstill. How can you run any department if you fire all the corrupt staff, he wondered.

“We still have this so-called post-Soviet legacy or post-Soviet mentality, which is a corrupted one too,” Mr. Yatsenyuk said. “Every public servant has some kind of authority. If he has the authority, he has the chance to get something for executing his job.”

To tackle the problem, the government has brought in experts and set up an anti-corruption office. It’s also implementing a transparent system of awarding government contracts. But the only lasting solution, Mr. Yatsenyuk said, is to change the public’s mindset. “We need to ask people not to pay bribes.”

Widespread corruption and inefficiency have also left the government’s finances in a deplorable state. The treasury is so low on cash that the military had to ask for donations recently to pay for badly needed equipment. Several banks are in shaky condition as well, and the currency has been tanking.

Mr. Yatsenyuk believes there is more bad news ahead. Ukraine is dependent on Russia for most of its natural gas, and he’s convinced that the Russians will soon jack up the price. He’s also expecting them to slap tariffs on Ukrainian products, cutting off the country’s biggest export market.

None of that is going to stop Mr. Yatsenyuk from introducing sweeping changes that he believes are long overdue. While hardly a neoconservative, Mr. Yatsenyuk takes a practical approach to the economy, drawing on his experience in the banking world before joining government.

For him, fixing Ukraine’s economy involves higher taxes, less spending, and fewer public servants. It also means simplifying the tax system to encourage investment, eliminating costly subsidies, and curtailing the power of the superrich oligarchs who control much of the country’s economy. That will all be a tough sell. Cutting gas subsidies could send prices up by as much as 40 per cent, and there are already complaints that the government plans to hike taxes on cigarettes and alcohol.

“I am absolutely sure that I won’t hear applauses with this kind of austerity package, but someone has to do this. And someone has to take responsibility,” he said.

There’s a bigger problem. Mr. Yatsenyuk knows that every time he introduces some painful economic measure, the Russians will use it to whip up pro-Russian sentiment in Eastern Ukraine. “If I increase tariffs for households, if I increase the gas bill, if I increase the utility bill, they will say ‘look at these guys, this so called pro-Western government, they deteriorated your living standards. So it’s better to go to Russia,'” he said. The Russians have already said as much in Crimea, denouncing the Yatsenyuk government as illegal and puppets of the West while promising higher pay and pensions now that the territory is part of Russia.

He vows not to back down, no matter what the Russians do. “There is no other way out,” he said, adding that Ukraine should have lessened its dependency on Russia ages ago. Russia’s tactics might work in the short term, he added, “but in the long-term perspective, this is a disaster for every country, including Russia.”

There are plenty of risks, and the public could easily turn on him, just as it did on Mr. Yanukovych. “We can have another Maidan,” he said, referring to the name of the protest movement which means “square” because it was based largely in Independence Square. “If people will not accept that this country is in a very complicated stance, I will try to explain to every Ukrainian, ‘Look what we have done.'”

To be sure, Mr. Yatsenyuk has been underestimated before. Born into a family of academics in Chernivtsi, in Western Ukraine, Mr. Yatsenyuk was always a serious student, picking up university degrees in law, economics, and accounting. At law school, he earned extra money by setting up a law firm with a group of students, attracting clients and hiring lawyers to do the actual legal work. After three years as a bank executive, he joined the economics ministry in Crimea.

The experience gave him a taste for the tension to come in the territory. Almost entirely Russian-speaking, Crimea has a large ethnic-Russian population that has long felt neglected by Kiev. Few thought Mr. Yatsenyuk would have much success on the peninsula with his pro-Western European outlook and Ukrainian bias. But he won accolades for deftly pushing the Ukrainian language in the department and turning around the territory’s finances.

From Crimea, Mr. Yatsenyuk was given ever more senior positions, including foreign minister, economics minister and head of the central bank. He won a seat in parliament in 2007 and became leader of the largest opposition party, called Fatherland. During the uprising against Mr. Yanukovych, Mr. Yatsenyuk joined the other opposition party leaders in denouncing the president, but none of them were embraced by the protesters and many still want more radical change.

For now people seem to be giving Mr. Yatsenyuk the benefit of the doubt. “He’s a young guy who could change the situation in this country,” said Julia Aleksenko, an unemployed high-tech specialist.

Others are more cautious. “In my opinion there has been very slow movement and frankly they haven’t even started the reforms,” said Mykhailo Savolyuk, who lives in Vinnystia. “They have to understand that if reforms aren’t implemented in the very near future … we’ll be watching.”

 

3. Canadian firms in Russia fear fallout from sanctions

By Mark Mackinnon, The Globe and Mail, Mar. 24 201

MOSCOW–Leaders of Canadian companies operating in Russia are fearful that Western sanctions – and Ottawa’s overtly pro-Ukrainian position over Crimea – will lead to a worsening business environment for them here.

Canada has not only joined the United States and European Union in slapping sanctions on Russian officials following Moscow’s annexation of Crimea, Prime Minister Stephen Harper’s government has been more outspoken in its support for Kiev – and criticism of Moscow – than any other Western country.

Business leaders are hoping the political tension doesn’t quickly spread through the business community. Kerry Irwin, a Toronto native who heads the Moscow office of public relations giant Edelman, said that her firm’s clients had not yet felt a direct impact from the Western sanctions, which the Kremlin answered last week by banning nine top American officials from travelling to Russia. But she admitted she was personally growing concerned.

“Up until [Thursday, when the United States announced a second tranche of sanctions], I wasn’t that worried about it,” she said. “It’s becoming more of a tit-for-tat thing now. There’s no dialogue anymore.”

Canadian business people here say their Russian colleagues have taken notice of Ottawa’s “antagonistic” position, and are baffled by it. “They’re asking us ‘what’s next from Ottawa?’ and we say ‘We don’t know, they’re not consulting us,’” said one executive who has been doing business in Russia for decades and asked not to be named for fear of angering one of the governments. “Everybody’s nervous.”

Rumours of a blowback from the Russian side were flying at the Canada Eurasia Russia Business Association annual charity auction Friday night in Moscow’s historic Sovietsky Hotel.

As bidding proceeded at the $150-a-head affair, Canadian executives gathered in the lobby and worried aloud about what might happen next.

Business people passed around links to a story on a Russian news website that suggested Montreal’s Bombardier Inc. was cancelling a $3.4-billion (U.S.) aircraft deal to manufacture aircraft in the southern city of Ulyannovsk. Bombardier made it clear last week the plans have thus far only been delayed, not cancelled.

Another business official said he had heard Russia was preparing to tighten the rules for imports of Canadian pork.

Some Russian politicians have suggested nationalizing the assets of Western corporations that do business here, in retaliation for the sanctions imposed on Moscow. That’s a worrying prospect for any company with substantial operations here. Kinross Gold Corp., a Toronto-based miner, is the biggest foreign mining company operating in Russia, operating the massive Kupol gold project in the remote Chukotka region.

In addition to sanctions targeting 17 Russian and Crimean officials with travel bans and asset freezes, Ottawa recalled its ambassador from Moscow. “for consultations” on March 1 in protest at Russia’s interference in Ukraine. Canada has also suspended military co-operation with Russia, and pledged $220-million in aid to the new government in Kiev.

Mr. Harper and Foreign Affairs Minister John Baird have also raised eyebrows here by comparing Russia’s moves in Crimea to Nazi Germany’s 1938 annexation of Sudetenland.

No one at the CERBA event in the Sovietsky Hotel wanted to go on the record blaming Ottawa or Moscow for the chill. Everyone said they hoped diplomacy would somehow prevail, and quickly.

In a sign of the times, one of the prizes CERBA was auctioning Friday night was a dinner with John Kur, Canada’s absent ambassador to Russia. The prize made it clear the dinner might not happen for a while. “Before March 31, 2015,” was all that was promised. Several Canadian business people hinted they thought the ambassador’s recall was particularly rash.

(Ukraine is the only other country that has recalled its ambassador over the crisis. The last U.S. ambassador to Moscow, Michael McFaul, left his post shortly before the Crimea conflict began. He has not yet been replaced.)

“Countries which engage each other and maintain close, consultative relationships have a better chance of influencing each other than those that sever ties,” said Nathan Hunt, president of the Moscow chapter of CERBA.

It’s hard to see a quick end in sight. On Friday, Mr. Putin pushed ahead and signed the final documents making Crimea a formal part of Russia, and NATO’s top military commander warned Sunday of a “very, very sizable and very, very ready” Russian troop buildup along its border with Ukraine. Russia’s deputy defence minister denied there was any “undeclared military activity that would threaten the security of neighboring countries.”

Addressing the possibility of more sanctions from the West, a Kremlin spokesman said Russia would respond to each new round of economic punishments “with a mirror image.”

Sanctions have begun to nip at ordinary Russians in recent days as Visa and Mastercard cancelled their services with four Russian banks targeted by the U.S. for their alleged links to the Kremlin. On Saturday, Mr. Harper added one of those banks, Bank Rossiya, to Canada’s own sanctions list, meaning Canadians are prohibited from doing business with it.

In televised remarks, Mr. Putin professed that he knew little about Bank Rossiya, but promised to open an account there on Monday and start depositing his salary there.

Twenty-three years after the fall of the Soviet Union, two-way trade between Canada and Russia remains modest. At $2.7-billion a year, Russia is only Canada’s 19th largest trading partner.

Political ties are standoffish as well. Mr. Harper has never made an official bilateral visit to Moscow since first winning office in 2006. In his 15 years as president or prime minister of Russia, Vladimir Putin has only been to Canada once, for a G8 summit in 2002.

Hockey legend Vladislav Tretiak, who attended the CERBA soiree, dodged political questions in a brief interview with The Globe and Mail. He said he just wanted the dispute to end quickly. “Russia and Canada must be friends, we must do business,” said Mr. Tretiak, who is now a parliamentary deputy in Mr. Putin’s United Russia party. “I hope that there won’t be problems between Russia and Canada, and that the people at the top can resolve this. Our only conflict should be in hockey.”

 

4. Russia and Japan: Asia-Pacific: Crimea crisis puts Tokyo in a bind

By Chuck Chiang, Vancouver Sun columnist March 23, 2014

Tensions between the Kremlin and the West over the fate of Crimea have become a full-blown global diplomatic standoff. Just as Russia sees no need to heed Western warnings on annexing Crimea from Ukraine, the West sees no recourse but to level economic sanctions in a move of solidarity with the pro-EU government in Kiev.

Tensions haven’t been this thick since the Cold War ended more than two decades ago. And while the escalating row between Moscow and Washington is geographically nowhere near the Pacific, the ripples of the dispute has reached the Far East — namely, it has thrown a giant monkey wrench into the middle of what was a rapidly warming relationship between Japan and Russia.

Last Tuesday, Japan joined the West in imposing sanctions on Russia, including the suspension of negotiations on investment and space exploration treaties, as well as an easing of exiting visa rules.

Officials also reiterated that Tokyo does not recognize Crimea’s referendum vote to join the Russian Federation. Japan called Russia’s manoeuvres in Crimea “regrettable” and “legally invalid.”

Ironically, the annual Japan-Russia Investment Forum, featuring high-ranking government officials from both sides, took place as scheduled last Wednesday in the Japanese capital, not too far away from where the sanctions announcement was made less than 24 hours prior. The Wall Street Journal reported that a statement from Japanese Prime Minister Shinzo Abe at the forum praised “the recent momentum of strengthening economic ties between Japan and Russia” and encouraged further economic cooperation.

The surprising fact is that in recent years, Russia may have been Japan’s friendliest neighbour. In addition to being next door to despotic and isolationist North Korea, Tokyo’s recent relationship with China and South Korea have both reached new, icy depths due to a variety of issues. Meanwhile, Abe has met with Russian leader Vladimir Putin five times in the past year, and some observers had been hopeful the two countries could finally reach a permanent peace treaty.

Yes, that’s right. As unbelievably as it sounds, despite the end of Second World War almost 70 years ago, Japan and Russia have never signed a permanent peace treaty. The main point of contention? Four islands just off the coast of Hokkaido in northern Japan, which were occupied by the Russians at the end of the war and remain the subject of a territorial dispute to this day.

The name of the islands — just like others disputed bits of land in East Asia — is a delicate subject. Japan calls the islands the Northern Territories, while Russia regards them as a part of the Kuril Islands. The name usage is of crucial importance in this particular case because the Allies agreed at Yalta in 1945 that the Kuril Islands should be returned to the Soviet Union after the Second World War, but Japan maintains the four islands were never part of the Kurils and were forcibly taken by Russia. Incidentally, Washington has agreed with Tokyo’s position since the San Francisco peace treaty in 1951, and the Cold War further entrenched the positions on both sides.

In Japan, the Crimea dispute puts Tokyo in an awkward bind: Having to choose between forgoing a new, budding friendship that could end in a permanent peace treaty and/or the resolution of a long-standing territorial dispute, or angering a trusted ally in the United States who remains one of the key guarantors of Japan’s regional security.

*****

EDITOR’S NOTE: We remind our readers that publication of articles on our site does not mean that we agree with what is written. Our policy is to publish anything which we consider of interest, so as to assist our readers in forming their opinions. Sometimes we even publish articles with which we totally disagree, since we believe it is important for our readers to be informed on as wide a spectrum of views as possible.

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