Scenario analysis of Ukraine’s political framework (SIDE-NOTE)

Mr. Yanukovich presented an ambitious economic reform program in June 2010. In July 2010, he reached an agreement on a stabilization program with the IMF, backed by USD15 bn of credits. Impressively, Ukraine swiftly performed the required preliminary actions, such as tightening the state budget and raising gas prices for consumers. However, that fervor has recently wound down. In his annual address to the Parliament on April 7 2011, the President appeared to have given up on his reform bid, apart from insisting on privatization. Major pension and gas market reforms agreed with the IMF have been postponed, while grain export quotas have been maintained and tax reimbursements stalled. The question is: has hypocracy returned? With this in mind, our research below provides a scenario analysis of further developments. We highlight four scenarios (both more and less probable) that, we believe, may emerge in the coming years:

1. “Status quo” – lack of institutional reforms; bargaining between West and East; domination of populist rhetoric that focuses on slogans appeasing the public and rejects any strategic vision of development.
2. European style democracy – essential institutional changes; Ukraine may move towards European integration; this course may result either with public protests and subsequent change of regime, or with Mr. Yanukovich’s steady progress towards pro-democratic reforms.
3. Power centralization – further solidification of the entrenched political elite in power; low probability of institutional reforms; increasing share of foreign investment from the East; long-term chances for the dominant elite to change its strategy from rent-seeking to attracting investments.
4. Social unrest – violent anti-oligarch protests, similar to recent ones in some African states; the layout of further rebounding will depend on the political and economic strategy of new elite...