Attachment_J.10c_-_Final_Ukraine_DRG_Assessment_Report_Public_Version.pdf

NOVEMBER 2015

This publication was produced for review by the United States Agency for International Development.

It was prepared by Tetra Tech ARD.

DEMOCRACY, HUMAN

RIGHTS, AND GOVERNANCE

ASSESSMENT OF UKRAINE

FINAL REPORT

This publication was produced for review by the United States Agency for International Development by Tetra Tech ARD, through a Task Order under the Analytical Services III Indefinite Quantity Contract Task Order No. AID-OAA-TO-12-00016.

This report was prepared by:

Tetra Tech ARD 159 Bank Street, Suite 300 Burlington, Vermont 05401 USA Telephone: (802) 495-0282 Fax: (802) 658-4247 E-Mail: international.development@tetratech.com

Tetra Tech ARD Contact:

Kelly Kimball, Project Manager Tel: (802) 495-0599 Email: kelly.kimball@tetratech.com

DEMOCRACY, HUMAN

RIGHTS, AND

GOVERNANCE

ASSESSMENT OF

UKRAINE

FINAL REPORT

NOVEMBER 2015

DISCLAIMER

The authors’ views expressed in this publication do not necessarily reflect the views of the United States Agency for International Development or the United States Government.

DEMOCRACY, HUMAN RIGHTS, AND GOVERNANCE ASSESSMENT OF UKRAINE i

TABLE OF CONTENTS

ACRONYMS, DEFINITIONS AND KEY PLAYERS ............................................III

ACRONYMS AND DEFINITIONS ....................................................................... III KEY PLAYERS ............................................................................................. IV

EXECUTIVE SUMMARY ................................................................................... VI

1.0 INTRODUCTION AND CONTEMPORARY CHALLENGES

1.1 INTRODUCTION AND METHODOLOGY

1.2 CURRENT SITUTATION AND CONTEMPORARY CHALLENGES

1.2.1 immediate challenges

1.3 CONTEXTUAL FACTORS

1.3.1 Geography and Natural Resources

1.3.2 Economic, and Social Factors

1.3.3 Historical Legacies

2.0 THE KEY DEMOCRACY, HUMAN RIGHTS, AND GOVERNANCE

CHALLENGES IN UKRAINE

2.1 CONSENSUS

2.2 INCLUSION

2.3 COMPETITION AND POLITICAL ACCOUNTABILITY

2.4 RULE OF LAW AND HUMAN RIGHTS

2.4.1 Rule of Law

2.4.2 Human Rights

2.4.3 Corruption

2.5 GOVERNMENT RESPONSIVENESS AND EFFECTIVENESS

2.5.1 E-governance

2.6 DISTILLING THE DRG PROBLEM

3.0 KEY ACTORS AND INSTITUTIONS

3.1 THE EXECUTIVE

3.2 THE LEGISLATURE

3.3 THE JUDICIARY AND LEGAL PROFESSIONALS

3.3.1 The Courts

3.3.2 The Prosecutors

3.3.3 The Police

3.4 NATIONAL HUMAN RIGHTS INSTITUTIONS

3.5 POLITICAL PARTIES

3.6 SECURITY SERVICES

3.7 MEDIA

3.8 CIVIL SOCIETY

3.9 LOCAL GOVERNMENT

3.10 OTHER NON-STATE ACTORS

3.11 DISTILLING THE ACTORS AND INSTITUTIONS

4.0 CONCLUSIONS AND PROGRAMMATIC RECOMMENDATIONS

4.1 ANALYTICAL OVERVIEW, DRG OBJECTIVE, AND DEVELOPMENT

HYPOTHESIS

4.2 U.S. GOVERNMENT ENGAGEMENT AND CURRENT USAID DRG

PROGRAMMING IN UKRAINE

4.2.1 U.S. Foreign Policy in the Ukraine

ii DEMOCRACY, HUMAN RIGHTS, AND GOVERNANCE ASSESSMENT OF UKRAINE

4.2.2 USAID’s DRG Current Program

4.2.3 USAID Resources

4.3 OTHER DONOR ACTIVITIES

4.4 PROGRAMMATIC RECOMMENDATIONS AND ILLUSTRATIVE ACTIVITIES ...38

DEMOCRACY, HUMAN RIGHTS, AND GOVERNANCE ASSESSMENT OF UKRAINE iii

ACRONYMS, DEFINITIONS

AND KEY PLAYERS

ACRONYMS AND DEFINITIONS

ATO Anti-Terrorist Operation; Ukrainian military and security operations in eastern

Ukraine since April 2014

CSO Civil Society Organization

DNR Donetsk People’s Republic separatist enclave

DoJ United States Department of Justice

DRG Democracy, Human Rights, and Governance

Eastern Partnership EU’s policy toward the former USSR with whom Ukraine negotiated (2007–2012) and signed the Association Agreement (2014), within which is included the Deep and Comprehensive Free Trade Agreement and Visa Free regime. The Association

Agreement offers European integration but not membership to Eastern Partnership members. Three of the six members of the Eastern Partnership (Ukraine, Georgia, Moldova) have signed the Association Agreement.

EU European Union

Frozen Conflict Crimea was invaded and annexed by Russia in March 2014 and constitutes a frozen conflict with no ongoing hostilities. The EU, U.S., Canada, and the majority of United Nations member states do not recognize the annexation.

FTUU Federation of Trade Unions of Ukraine

Gas Lobby Term used to describe Ukraine’s oligarch clan with ties to the gas sector

GDP Gross Domestic Product

GIZ German Technical Cooperation Agency

GoU Government of Ukraine

IDP Internally Displaced Persons

IMF International Monetary Fund

INL U.S. Department of State’s Bureau of International Narcotics and Law

Enforcement

KPU Communist Party of Ukraine (since 1993)

LGBTI Lesbian, Gay, Bisexual, Transgender, and Intersex

LNR Luhansk People’s Republic separatist enclave

MEDT Ministry of Economic Development and Trade

MP Member of Parliament

NABU National Anti-Corruption Bureau

NAPC National Agency for the Prevention of Corruption iv DEMOCRACY, HUMAN RIGHTS, AND GOVERNANCE ASSESSMENT OF UKRAINE

NATO North Atlantic Treaty Organization

NGO Non-Governmental Organization

OPDAT Office of Overseas Prosecutorial Development Assistance and Training

Opposition Bloc Former leaders of the Party of Regions and allies of President Yanukovych elected into Parliament (2014)

PACE Parliamentary Assembly of the Council of Europe

PGO Prosecutor General’s Office

Political Projects Political parties funded by oligarchs, usually for election cycles

SBU Security Service of Ukraine

SIDA Swedish International Development Agency

Ukrainian Orthodox Church Official name of the Russian Orthodox Church in Ukraine

Unresolved Conflict Term used to describe the Donbas conflict, in which one side (the central government or the separatists) has not been defeated; Kyiv or Moscow has not achieved its objectives; and there is continued war. An unresolved conflict is different from the frozen conflicts in Moldova, Georgia, and Azerbaijan, where

Russian-backed separatists defeated the central governments in the early 1990s, the war ended, and the conflict was frozen in Moscow’s favor.

USAID United States Agency for International Development

USSR Union of Soviet Socialist Republics

Venice Commission Council of Europe’s European Commission for Democracy through Law

KEY PLAYERS

Renat Akhmetov: Donetsk oligarch and chairperson of Capital Systems Management; owner of TRK

Ukayina television channel; one of the top 50 wealthiest persons in the world (until 2014); financier of the

Party of Regions; close ally of Viktor Yanukovych (since mid-1990s)

Nikolai Azarov: Head of the State Tax Administration (1996–2002); Prime Minister (2010–2012, 2012–

2014); and leader of the Party of Regions (2000–2001, 2010–2014); fled to Russia (2014) and is wanted by Interpol

Dmytro Firtash: Unofficial leader of the “gas lobby.” The U.S. has requested his extradition from

Vienna on corruption charges, but the request was not upheld during the initial trial, and it is currently under appeal. He is also co-owner of the Inter television channel with Serhiy Lyovochkin, senior adviser to President Leonid Kuchma and President Yanukovych’s chief of staff (2010–2014).

Vitali Klitschko: Mayor of Kyiv (since 2014), leader of the UDAR (Ukrainian Democratic Alliance for

Reforms (since 2011), ally of Petro Poroshenko

Ihor Kolomoyskyi: Dnipropetrovsk-based oligarch and co-chairperson of the Pryvat group, governor of

Dnip’7 ropetrovsk (2014–2015), owner of 1+1 television channel

Leonid Kravchuk: President (1991–1994)

Leonid Kuchma: President (1996–2004)

Oleksandr Moroz: Chairperson of the Rada (1994–1998 and 2006–2007); leader of the Socialist Party of

Ukraine (1991–2010)

Viktor Pinchuk: Dnipropetrovsk-based oligarch and chairperson of the Interpipe group, owner of New

Channel, ICTV, and STB television channels

DEMOCRACY, HUMAN RIGHTS, AND GOVERNANCE ASSESSMENT OF UKRAINE v

Petro Poroshenko: Secretary of the National Security and Defense Council (2005), foreign minister

(2009–2010), minister of trade and economic development (2012–2013), president (since 2014), and leader of three Solidarity parties (1999–2000, 2002–2005, and 2013–2014)

Yulia Tymoshenko: Prime minister (2005, 2007–2010), imprisoned (2001, 2011–2014), leader of the

Batkivshchina (Fatherland) party (1999–2011, 2014–present)

Viktor Yushchenko: Prime minister (2000–2001) and president (2005–2010); leader of Our Ukraine

(since 2002)

Viktor Yanukovych: Prime minister (2002–2004, 2006–2007), president (2010–2014), and leader of the

Party of Regions (2002–2010); fled to Russia (2014) and is wanted by Interpol

Arseniy Yatsenyuk: Foreign minister (2007), Rada chairperson (2007–2008), and prime minister (2014– present); leader of Front for Change (2008–2011), Batkivshchina (2012–2014), and Popular Front (2014– present) vi DEMOCRACY, HUMAN RIGHTS, AND GOVERNANCE ASSESSMENT OF UKRAINE

EXECUTIVE SUMMARY

It would be hard to overstate the complexity and precariousness of the present situation in the Ukraine.

With sections of the country under the control of separatist militias supported by Russia; a potential threat to capture additional territory through the same kind of hybrid warfare; and an economy and financial system in acute crisis with massive debts, a devalued currency, large unemployment, and huge energy bills, the government has its hands full. It has also committed to major political and democratic reforms to address the longstanding grievances of citizens for a more just, equitable, transparent, and effective state.

In place of a semi-authoritarian regime, the current government intends to establish and consolidate a democratic one under the rule of law and human rights. It also intends to guarantee basic political rights, such as the right to free speech and assembly, the right to participate in and oversee the state and its decisions, and the right to privacy. These changes require commensurate constituent changes in how the state is structured and how it operates. In particular, for Ukraine to live up to the promises of the

Revolution of Dignity, state institutions with their command-and-control authoritarian legacies must be transformed into genuinely democratic institutions.

As part of that new regime, the government has committed to condensing the size and scope of the state, reducing corruption and trimming the power and influence of Ukraine’s oligarchs with their clans and patronage networks. President Poroshenko has captured the reforms he intends to pursue in a single slogan of “four d’s”: deregulation, de-monopolization, decentralization, and “deoligarchization.”

Notwithstanding the continued support for the government and the Revolution of Dignity, many of the reforms necessary to deal with these challenges are painful. To maintain public support for this government and their reform agenda, the government will need to demonstrate tangible results quickly and continue to engage the public in the reform process.

In addition to the specific reforms in many economic and political sectors and subsectors, the government confronts several “crosscutting” challenges:

The war. In April 2014, separatists in parts of the Donetsk oblast and Luhansk oblast declared the secession, respectively, of the “Donetsk People’s Republic” (DNR) and the “Luhansk Peoples

Republic” (LNR). With direct military, financial, and economic support from Russia, they have sealed their borders with the rest of Ukraine, and so far successfully resisted attempts by the

Government of Ukraine to end the secession both by military and economic sanctions. The result of the protracted conflict has been thousands of military and civilian casualties, the devastation of these two enclaves, thousands of internally displaced persons, the suspension (and probable loss) of historic trading relations across the border with Russia, and substantial uncertainty throughout

Ukraine (but especially in the east) about the possibility of further direct or indirect military incursions by Russia with the possible loss of additional Ukrainian territory. The economic and humanitarian costs have been considerable, and the anxiety is palpable. The sheer financial cost of the war is estimated at U.S. $5 million to $7 million per day. Russia has actively sought to keep the levels of uncertainty and anxiety high by establishing a new base with offensive weapons near its border with Ukraine, by making regular statements supporting the separatists, by suggesting other possible border “adjustments,” and by producing constant propaganda and media pressure. The continuing conflict in the east is in addition to the re-annexation of Crimea by

Russia.

Economic and financial crisis. As noted, the government is confronting massive payments for debts contracted by the Yanukovych government and is footing the bill for the ongoing hybrid

DEMOCRACY, HUMAN RIGHTS, AND GOVERNANCE ASSESSMENT OF UKRAINE vii war in the Donbas—while the economy declines in part due to the hybrid war and loss of markets in Russia and Crimea. Unemployment has also soared.

Entrenched oligarchy. Ukraine’s oligarchs command political and economic monopolies that bring them enormous profits, prevent competition, hinder small- and medium-size businesses, and breed corruption. The oligarchs, who have much to lose in the reforms, will resist anything that threatens their entrenched interests.

Endemic corruption. Corruption was one of the primary grievances behind the Euromaidan and its metastasis across the country. Ukrainian citizens consistently rank corruption as a problem in polls, and they expect to see concrete action by the government to tackle it.

Public skepticism regarding reforms. Ukraine has been in a state of transition since 1991, when the Union of Soviet Socialist Republics (USSR) unexpectedly collapsed. Many opportunities to reform the political and economic system have been squandered. Ukrainians, with good reason, lack trust in their institutions and elected leaders. And while they are, in general, supportive of the need for reform, they are concerned that history not be repeated. While a majority of Ukrainians remain guardedly optimistic about the Euromaidan, their expectations are high for significant change for the better.

High expectations and waning patience. Patience with the pace and nature of the reforms is wearing thin. Many people complain, rightly or wrongly, that there have been insufficient reforms and that little has changed, as many people are in the same positions they held before the

Euromaidan. The government has been woefully inadequate in communicating its efforts and successes to the public, even to its own supporters. If it cannot better explain its accomplishments, manage expectations, and show tangible results, the reforms and reformers in general, and the current government in particular, are in danger of losing their support.

Five elements of analysis: Ukraine confronts challenges in each of the five elements of the democracy, human rights, and governance (DRG) analytical framework1 utilized for this assessment: consensus;

inclusion; competition and political accountability; rule of law and human rights; and government responsiveness and effectiveness.

First, ironically, the Russian aggression has solidified Ukrainians who were previously somewhat divided between Eurasia and Europe to coalesce to an unprecedented degree, creating favorable conditions for consensus that represent a fleeting window of opportunity. But language and ethnic differences may yet resurge if political consensus remains elusive.

Second, Ukraine has ratified all of the major international agreements preventing different forms of discrimination politically, socially, and economically. Still, the inclusion of women, youth, people with disabilities, certain ethnic groups, and lesbian, gay, bisexual, transgender, and intersex (LGBTI) people is limited in practice, and the challenge of inclusion only increases as new groups of vulnerable populations

[internally displaced persons (IDPs); anti-terrorist operation (ATO) participants] are created as a result of the crisis in the east and south of the country. The ability of the government to provide assistance/support to these vulnerable populations is weak and may become a source of new frustrations and tensions.

Third, a fundamental problem in Ukraine is that the centralization of power, lack of transparency, inadequate separation of powers, and complications arising from monopolistic practices in the economic sphere have undermined the development of checks and balances in the political system. Although there has been electoral competition in Ukraine since independence in 1991, Ukraine’s political scene continues to be dominated by short-term oligarch-funded political projects rather than political parties, contributing to low levels of trust. Similarly, Ukraine has five major television stations (from which most Ukrainians get their news), but oligarchs control all five. There are some small independent outlets, and social media

1 USAID. (2014 revised). “Conducting a Democracy, Human Rights, and Governance Assessment: A Framework for Strategy Development.”

viii DEMOCRACY, HUMAN RIGHTS, AND GOVERNANCE ASSESSMENT OF UKRAINE has made a difference, but the availability of unbiased information remains severely limited. Competition between oligarch-owned stations and media is robust, but each has its own bias and policy interests aligned with those of the oligarch patrons. Civil society is a bright spot and a strong advocate for the democratic reforms under way, and the government needs to continue to reach out to and tap into the energy and resources civil society brings.

Fourth, among the highest reform priorities is the rule of law and human rights, especially the courts, the prosecutors, and the police. Under the Soviet system, which continued in a modified form after independence, the law, the courts, the prosecutors, and the police were the political instruments of the

Communist Party and the state as a whole. The government intends to restore—more accurately, create— a state based on rule of law. Significant efforts are already under way to strengthen the independence and integrity of the judiciary, which in turn is supported by prosecutors and police who are of similar integrity and commitment. All of this is designed to create real rule of law and human rights—including, very importantly, the substantial reduction of corruption in society as a whole, especially among government officials.

Fifth, the government is being reformed to improve its responsiveness and effectiveness. Central ministries are being restructured and reduced to create a smaller state with fewer mandates but with improved performance. Decentralization will increase the resources and authorities of local levels of government: hromadas, rayons, and oblasts. Moreover, at both the central and local levels, e-governance is being introduced to increase efficiency, transparency, and accountability.

DRG programing should be guided by the following objectives:

Of highest priority is to strengthen democratic institutions to increase public trust and confidence in the rule of law and good governance by improving the performance of the state through the adoption and implementation of key reforms to substantially reduce corruption and increase transparency and accountability. Of secondary priority, depending on availability of funds, is to work on the demand side on improving the social foundations of democracy by strengthening independent media, an active civil society, and political parties accountable to voters.

A central thesis to emerge from this DRG Assessment is that highest priority must be given to transforming Ukraine’s governing structures into genuinely democratic institutions, whose very rules and procedures will shape incentives so that they promote accountability and transparency and discourage corruption.

I. Strengthening Democratic Institutions

1. Support effective, transparent, accountable rule of law to which the government is also subject

a) Assistance in the lustration of sitting judges. The mission should conduct a more thorough assessment to determine why the process has been so slow and whether (and under what conditions) assistance would be helpful and accepted.

b) Assistance to courts, especially the Supreme Court, the courts of appeal and the

Constitutional Court. The remolding of the courts and judges is perhaps the most important long-term element of this strategic objective.

c) Training of new and retained judges.

i. Assistance to the National School of Judges. The National School of Judges is redesigning the curriculum for new judges and mounting a formal retraining program for judges who will remain on the bench. The United States Agency for International

Development (USAID) should seriously explore the potential role of other (carefully vetted) legal education institutions to meet the coming onslaught of demand for updated training to meet a new judiciary’s professional requirements.

DEMOCRACY, HUMAN RIGHTS, AND GOVERNANCE ASSESSMENT OF UKRAINE ix

ii. Assistance to the High Council of Justice. Depending on its final disposition and mission, continued assistance should be offered to the High Council based on a full needs assessment with its leadership.

iii. Support to Verkhovna Rada committees dealing with the rule of law and human rights.

To the extent that they continue, these committees should get particular attention because of their engagement in developing policies and providing oversight of reforms in these key areas.

d) Assistance for any additional work by the Constitution Commission. Additional assistance, if requested, would be a high priority for the limited duration of the commission.

e) Oversight by civil society within the rule of law and human rights. As in other areas of assistance to the “state sector,” participation and some kind of oversight by the public will support the long-term goals of transparency, accountability, democracy, and the protection of human rights.

2. Support reforms to produce an effective, transparent, responsive, accountable government

a) Support improved central government ministries and presidential administration, procedural streamlining, and restructuring, including reductions of personnel and redefinition of roles and responsibilities.

b) Support e-governance. The government plans extensive implementation of e-governance at the national and, especially, at the local levels, holding the promise of greater efficiency, greater transparency, and lower levels of corruption.

c) Support for decentralization, with effective, transparent, and accountable oblast, rayon, and hromada governments. Decentralization is a major reform effort. The local governments will be assuming a much broader array of responsibilities for which they have had no experience.

This massive effort should be undertaken through donor coordination, perhaps a single multi-donor project or bilateral but coordinated projects.

i. Support effective merger of targeted rayon and hromada governments

ii. Support effective tax collection and financial managements of local revenues

iii. Support effective relations between oblast, rayon, and hromada governments

iv. Support effective local radas, particularly at the oblast level

d) Support an effective Verkhovna Rada. The Euromaidan has breathed new life into the Rada. It has undertaken serious debates about bills sent to it by the executive branch and has rejected some of them. Assistance to the Rada would be an investment in a critical institution of democracy, not only as a means to check the executive branch, but also as a means to ensure the Rada plays its proper function.

e) Support effective public communication and outreach primarily by the central government and secondarily by local governments. A much more effective internal or, if preferred, external (contracted, turn-key) public communications operation is critical to retain public support for reforms.

f) Support effective civil society monitoring of government, especially at the local level. Some limited assistance should be provided for civil society monitoring of government, but the costs and effort of monitoring should not overwhelm the costs and effort of doing the substantive work.

3. Support reforms to reduce corruption

Anti-corruption is a flagship reform priority because of both its political and economic consequences and because it raises public levels of trust in state institutions and politicians. The government intends to reduce the number of regulations, to examine the economic and legal behavior of oligarchs, to prosecute those who have engaged in corruption, and to reduce their influence over political parties and electoral competition. It also intends to prosecute officials x DEMOCRACY, HUMAN RIGHTS, AND GOVERNANCE ASSESSMENT OF UKRAINE who engage in corruption. Assistance would cross the mission’s bureaucratic boundaries and calls for a mission-wide approach. For DRG, the focus should be:

a) Support an effective National Anti-Corruption Bureau (NABU) and National Agency for the

Prevention of Corruption (NAPC). Donors should closely coordinate collection, monitoring, and public availability of asset declarations to share the burden and prevent redundancies or working at cross-purposes.

b) Support effective restructuring and operation of the Office of the Prosecutor General (PGO)

—especially the special unit dedicated to the prosecution of corruption cases. While recognizing that this area is the primary responsibility of the U.S. Department of State’s

Bureau of International Narcotics and Law Enforcement (INL) and of the U.S. Department of

Justice’s (DoJ) Office of Overseas Prosecutorial Development Assistance and Training

(OPDAT), USAID should consider providing assistance if there are important areas that DoJ or INL are not covering or if there are areas in which USAID might be the better vehicle, again assuming political will for reform. At the least, the U.S. Government as a whole should provide this assistance through some mechanism:

i. Assistance to the Office of the Prosecutor General (PGO) in the recruitment, training (of new), and retraining (of retained) personnel, including on the core principles of the rule of law

ii. Assistance in oversight of operations, including asset declarations, competent management, and oversight of prosecutors, especially by the new, special unit of the

PGO for the prosecution of cases of corruption, including those recommended by

NABU

iii. Assistance in bringing evidence-based and non-politically motivated cases. Because such assistance is normally provided by OPDAT and not USAID, this should not be an integral component of a DRG program. No matter who provides it, any assistance to the

PGO and law enforcement in general should be coordinated with more general work on the rule of law, particularly with the courts.

II. Assistance to the non-state sector to hold democratic government and the judicial sector accountable and to participate in democratic processes

1. Support for free and fair elections

a) Support new electoral laws and implementation. The government plans to draft and send to the Rada new election laws, including laws governing the upcoming local elections. There are advantages and disadvantages to different election law regimes. If requested, support should be provided to help draft the laws that will structure future elections.

b) Support for creation and maturation of independent, organized, long-term, competitive political parties (or other organized forms of electoral contestation). Some analysts believe that there are no true political parties in Ukraine and that continued support, after years of

“failure,” is unlikely to produce any. However, there is ample evidence that wide public support exists for real political parties.

i. Support for the development of political parties committed to the democratic process and not captured by or instruments of particular oligarchs and business leaders should be provided for the next few years with attendant conditions and continued monitoring.

ii. The support should prioritize work with political parties that run on an articulated public policy agenda.

iii. The support should be provided only for, or at the very least prioritized for, political parties with mechanisms for internal accountability.

iv. Clear benchmarks should be established and monitored so that the next national elections are contested by at least some parties that propose policy alternatives, that are not the instruments of oligarchs, and that are accountable for the electoral outcomes.

c) Support for election observation. Assistance should prioritize domestic election observation.

DEMOCRACY, HUMAN RIGHTS, AND GOVERNANCE ASSESSMENT OF UKRAINE xi

2. Support for independent, competent media

The primary sources of information—let alone “analysis” for most Ukrainians—comes from the major television stations, which are owned by various oligarchs who are mostly inimical to reforms. Younger Ukrainians, especially those who are urban-based, are much more likely to have access to, and depend more upon, the Internet, including social media. Assistance should 1) provide increased access to independent sources for news, investigative reporting, and analysis, especially at the local level; 2) improve the capacity of journalists to monitor and report on government responsiveness and effectiveness, especially as it relates to the rule of law and human rights; and 3) assist media to support other aspects of DRG programming, not just as a standalone media program.

3. Support for civil society participation and oversight

The post Euromaidan government has encouraged the participation of civil society organizations

(CSOs) in its planning and implementation. Many new members of government (and the

Verkhovna Rada) come from civil society. Moreover, many CSOs have taken it upon themselves to participate in and monitor the operations of government. CSOs can continue to participate and monitor at a general level, but they will need to increase their expertise if they expect to participate productively or even to monitor the specialized functions of government. The need to monitor and engage effectively with government is greater at the local level than at the national level, especially as the decentralization reforms move forward. Moreover, local CSOs are fragile and dependent on donors for both organizational and financial support.

Over the longer term, USAID’s priorities may well shift away from the state sector and in the direction of civil society and media, which are the areas necessary to keep the reforms going, to deepen them, and to engage in elections or other activities to replenish state actors. In this period of major reform of the state, these are lower-priority programs compared with the rule of law, human rights, and government responsiveness and effectiveness. But, as noted, ideally they should begin now, albeit at a lower priority for the time being.

DEMOCRACY, HUMAN RIGHTS, AND GOVERNANCE ASSESSMENT OF UKRAINE 1

1.0 INTRODUCTION AND

CONTEMPORARY

CHALLENGES

1.1 INTRODUCTION AND METHODOLOGY

USAID/Ukraine is in the process of reviewing its programming and undertaking strategic planning for its next five-year assistance strategy for Ukraine. As part of a periodic strategic planning process, USAID contracted an assessment team of international and local experts to conduct an assessment of how USAID can play a constructive role in engaging with Ukrainian partners to advance the post-Euromaidan reform agenda in the area of DRG.

The assessment was carried out using the methodology discussed in USAID’s 2014 revised version of

“Conducting a Democracy, Human Rights, and Governance Assessment: A Framework for Strategy

Development.” The full document is available on the USAID website at www.usaid.gov. This framework guides the political analysis of a country, helps frame program choices, and incorporates lessons from comparative experience. The fieldwork was conducted May 18–June 6, 2015, and in addition to interviews in Kyiv, the team split up and traveled to nine locations around the country.

Numerous developments since mid-June are not included in this report. But with the exception of the continued slowness of the reforms’ pace, most of them do not affect the basic analysis and conclusions of this report which, in any case, is geared toward the strategic level, not the tactical one. One glaring exception, however, is the increasing doubt about the political will and/or political capacity of the government to implement the reforms of the state institutions it promised. If that continues, it calls into serious question the priority and sequencing argument of this report. Those reforms cannot remain the top priorities if they are not going forward. Indeed, in that event, the entire Euromaidan transformation would be in serious doubt and jeopardy, with appropriate adjustments in the policies and priorities recommended in this report.

A team of consultants assembled by Tetra Tech ARD and a USAID staff member conducted the DRG assessment. The Tetra Tech ARD team consisted of: Gerald Hyman, director of the Hills Program, Center for Strategic and International Studies (CSIS); Taras Kuzio, senior associate at the Canadian Institute of

Ukrainian Studies at the University of Alberta; Andrij Meleshevich, dean of the law faculty, Kyiv Mohyla

Academy University; Larysa Magdyuk, human rights expert and independent consultant; and Kathy

Stermer, senior associate, Tetra Tech ARD. The USAID staff member was Stephanie Molina, USAID

Washington, DCHA/DRG.

1.2 CURRENT SITUTATION AND CONTEMPORARY CHALLENGES

It would be hard to overstate the complexity and precariousness of the present situation in Ukraine. With large sections of the country annexed by Russia or under the control of Russian-backed separatist militias, the future of the independent Ukrainian state—with the borders established on August 24, 1991—is under threat. Beyond external threats and a hybrid war in the east, the country’s leadership is also grappling with an economy and financial system in acute crisis, as well as the aftermath of a popular revolt http://www.usaid.gov/

2 DEMOCRACY, HUMAN RIGHTS, AND GOVERNANCE ASSESSMENT OF UKRAINE

requiring complicated, regime-altering changes. Ukraine’s president and parliament, elected in 2014, have major strategic challenges in balancing economic and financial stabilization, with structural reforms that have been repeatedly postponed for the last two decades. Some structural reforms, such as raising household utility prices, are electorally unpopular, while others in the field of the rule of law, human rights, and law enforcement will be widely supported. All of these reforms are interconnected, and are made exponentially more difficult by the continued conflict and humanitarian crisis in the Donbas; the occupation of Crimea; and uncertainty over Russian President Putin’s ultimate objectives toward Ukraine.

Given the dramatic happenings of the past 18 months and the tremendous impact this has on the country, it is worthwhile to look briefly at the events that started this crisis in motion.

The Revolution of Dignity

The Euromaidan Revolution of Dignity that began in November 2013 meant different things to different people. But for most Ukrainians, it represented a demand for change in the nature and role of the state and a change in how the rulers relate to the ruled. In place of a state in the service of oligarchs and their clans, the citizens of Ukraine clearly proclaimed their desire for the dignity of a state that serves the public to whom it is accountable. It also means the restoration of basic political rights, such as the right to free speech and assembly, the right to participate in and oversee the state and its decisions, the right to privacy, and the rule of law. These changes require commensurate, indeed, constituent changes in how the state is structured and how it operates. In particular, for Ukraine to live up to the promises of the

Revolution of Dignity, state institutions, with their command-and-control authoritarian legacies, must be transformed into genuinely democratic institutions. These are the changes that the current government—

President Poroshenko and Prime Minister Yatsenyuk—refer to as the “reforms.” They have set out an ambitious reform agenda and have led the Ukrainian public to expect tangible and beneficial results.

While the promise for a better future lies ahead, the pain of the post-Euromaidan reforms is now in acute evidence. First, there is the hybrid war in the east through Russian support for separatists, its own troops, and nationalist volunteers. Every day, news of casualties and fatalities from the DNR and the LNR—the two break-away separatist enclaves in the border region of the Donbas with Russia—dominates media coverage. There is the constant anxiety, especially in the east and the south, that Ukrainian separatists reinforced by Russian “volunteers”—and potentially Russian troops and tanks themselves—will move on additional Ukrainian territory.2 Second, the conflict and crisis has caused the economy to contract substantially. Trade and investment patterns have been shattered, especially those with Russia and

Crimea. As a result, employment, markets, investment, and trade built up over decades have been lost, leading GDP to decline, consumer prices to rise, and unemployment to grow. Currency devaluation has caused government debt to skyrocket; and pensions and social support payments are not being paid regularly by cash-strapped entities, and are devalued by the inflation when they are paid. Stringent economic reforms to address these myriad problems are urgently needed, but it remains to be seen whether this government, unlike the many that came before it, will have the political will to carry out these unpopular reforms.

1.2.1 IMMEDIATE CHALLENGES

To address the key challenges facing the country, President Poroshenko’s bundle of reforms is captured under his alliterative “Four D’s” package: deregulation, decentralization, demonopolization, and

“deoligarchization.”3 Each of the elements in this package represents a very ambitious set of reforms, 2 “Tanks don’t need visas,” said the Russian deputy prime minister in charge of the defense industry, Dmitry Rogozin, in a TV interview in response to a question about the Arctic but with clear implications for Ukraine. May 27, 2015;

http://thediplomat.com/2015/05/meet-the-russian-politician-who-thinks-that-tanks-dont-need-visas/.

3 In his annual address, President Poroshenko announced a “4-D” program: “deoligarchization,” deregulation, decentralization, and demonopolization. In his June annual address, Poroshenko is quoted: “[The tasks are] to keep up the course of deoligarchization, deregulation, and decentralization; to start demonopolization,” Interfax news agency quoted Poroshenko as http://thediplomat.com/2015/05/meet-the-russian-politician-who-thinks-that-tanks-dont-need-visas/

DEMOCRACY, HUMAN RIGHTS, AND GOVERNANCE ASSESSMENT OF UKRAINE 3

which face vested interests and realistically could take years to implement. However, this government does not have years to deliver on the promised reforms, and there are a number of key challenges the current government must immediately confront as it undertakes its unprecedented reform agenda.

Economic, Financial, and Humanitarian Crisis. Crimea’s annexation, an extremely large number of internally displaced persons, and the war in the Donbas have had a major impact on Ukraine’s economy, with the massive destruction of infrastructure and property and the loss of a territory that produced 10 percent of Ukraine’s GDP and 15 percent of its industrial production. Output in the Donbas has declined by two-thirds, accounting for a major proportion of the economic decline in Ukraine.4 Coupled with this dramatic economic decline is the huge strain on budgetary resources of building, supplying, and financing new de facto armed forces.

Entrenched Oligarchy. Well-known economist Anders Aslund wrote that “big businessmen have captured the state in Ukraine, more than any other post-communist country” and therefore “[t]he power of the oligarchs has to be broken.” Ukraine’s oligarchs command political, economic, and media monopolies that prevent newcomers from entering the economic and political system and prevent the development of small- and medium-size businesses. They have outlasted every government to date, they outlasted the

Orange Revolution, and they intend to outlast this one. Conversely, the public’s expectation is that the government will take on the oligarchs directly. Each of the dozen or so major (but competing) oligarchs controls a conglomerate based, at least initially, on control of a single commodity and industry (most often purchased at such steep discounts as to constitute theft from the state) by virtue of their networks within the nomenklatura as the Soviet state collapsed. No matter where they began, all of the oligarchs have become financiers and, in effect, monopolists or oligopolists through their personal conglomerates.

Each is the patron of a widespread network of economic, political, and social clients or clans. Each has financed political contenders through which the oligarchs seek to influence local and national politics.

Between them, they control the major TV stations and many smaller ones, from which they influence elections, monopolize media coverage, and prevent level playing fields from which genuine political party competitors can emerge. Because these networks are so broad, so multifaceted, and so entrenched, this will be the fiercest and most defining contest of the promised reforms. President Poroshenko, himself a minor oligarch—based on chocolate manufacturing initially but like the others now multifaceted and international—has set a watchword, a slogan, for his administration: “deoligarchization.” The most direct way to undermine the oligarchs is by dissolving their monopolies or oligopolies, but it remains to be seen whether the government has the political will to stay the course. If successful, it will be the key to other reforms.

Endemic Corruption. Corruption was one of the primary grievances behind the Euromaidan and its metastasis across the country. Ukrainian citizens are constantly confronted with demands for bribes, and feel that without them they will receive no state services. Many know firsthand about the lavish lifestyles of state officials, prosecutors, and judges which could never be supported by their meager salaries (which most Ukrainians admit are too low). They know, too, about the grand corruption that accompanied the collapse of the Soviet Union and the enrichment of the oligarchs at their expense and that of the state.

saying. “Poroshenko gives Ukraine ‘4 Ds’ in annual address,” Bne ItaliNews, June 4, 2015.

http://www.bne.eu/content/story/poroshenko-gives-ukraine-4-ds-annual-address.

Demonoplization and “deoligarchization” are closely linked. If the state can break up the monopolies and oligopolies, including those of the media, it will also break the hold of the oligarchs. They will be forced to compete, and as the economic history of most capitalist states demonstrates, competition usually results not just in better goods and services at lower prices but in changes of wealth overall. Of course, the oligarchs still have major fortunes abroad, and so far, beyond the reach of the Ukrainian state. Those fortunes can still be used to buy influence, support political parties, purchase important Ukrainian assets, and the like. So even a more competitive market would still not fully result in deoligarchization.

4 http://wiiw.ac.at/economic-consequences-of-the-ukraine-conflict-dlp-3381.pdf

4 DEMOCRACY, HUMAN RIGHTS, AND GOVERNANCE ASSESSMENT OF UKRAINE

With the flight of Yanukovych, Ukrainians were able to peer into the world of the ultra-corrupt for the first time, as his residence, Mezhyhirya, became open to the public with its Spanish galleon, private zoo, and luxury car collection. Ukrainians, therefore, do not need to consult scorecards and indices as evidence of corruption, nor do they need to be persuaded by them. Nevertheless, on Transparency International’s

Corruption Perceptions Index in 2014, Ukraine ranked 142nd out of 175 countries, the same as Uganda and just slightly better than Bangladesh. In 2013, it scored the same, and in 2012 it scored virtually identically, 144th out of 174. In a recent poll by the International Republican Institute, 87 percent of responding Ukrainians replied that corruption is a significant problem or somewhat of a problem.5 For these reasons, in addition to the inherent economic impacts, the Poroshenko-Yatsenyuk coalition knows full well that it must reduce corruption quickly, dramatically, and visibly.

Having been disappointed with previous efforts after the Orange Revolution, it will probably take some high profile, politically and economically difficult cases to convince Ukrainians that the government is serious in these endeavors. While efforts so far have yielded limited results in targeting some high-ranking officials from the Yanukovych government (most of whom have fled the country), the convincing evidence will come if and when the government brings charges against entrenched oligarchs and some of its own high-ranking officials. Civil society and the international community are watching these efforts closely to gauge the seriousness of the current government to fight corruption. When the public says there have been no reforms, they often point to the persistence of corruption, the failure to prosecute any of the oligarchs or major offenders, the failure of the courts to convict them, and the simultaneous high lifestyle of the relevant but poorly paid state officials. As Poroshenko, Yatsenyuk, and the other reformers have stressed, corruption eats away at the economy of the country—but perhaps more importantly, it eats away at the moral fiber and legitimacy of state institutions.

Public Skepticism Regarding Reforms. Ukraine has been in a state of transition since 1991, when the

USSR unexpectedly collapsed. However, as is frequently noted, Ukraine has yet to successfully complete the fundamental reforms upon which it set out to undertake in 1991. Ukraine’s road to a market economy and democracy has been twisted by the endemic corruption noted above and by the powerful grip of oligarchs controlling the political and economic path of the country, which is mainly why 24 years later it is still very much in transition and a hybrid post-Soviet political economy. In addition, geopolitical factors have stymied the transition to a democratic political system and economy. Ukraine is strategically located at the crossroads between Europe and Eurasia, existing in constant tension between two competing forces, the United States/Europe and Russia. Since independence, Ukraine’s leadership has adopted multi-vector foreign policies seeking a balance between Russia and the West. This has skewed the pace and nature of internal reforms, and has been used by the political-economic elite in the country for its own gain.

Recent historical events also contribute to skepticism. The November 2013 protests were not the first on the Maidan. In November 2004, exactly nine years earlier, a parallel set of demonstrations were called to protest the fraudulent election results that would have resulted in the victory of Viktor Yanukovych instead of Viktor Yushchenko. The 2004 government composed of Viktor Yushchenko as president and

Yulia Tymoshenko as prime minister also promised many fundamental reforms and a path toward

European Union (EU) and North Atlantic Treaty Organization (NATO) membership, but it squandered its mandate and its opportunity through squabbling and corruption. Ukrainians have not forgotten the earlier

Maidan and the betrayal of their hopes and aspirations that led to the 2010 election of Yanukovych, his authoritarian rule, and the return of Ukraine to the Russian sphere of influence.6

The Euromaidan provides Ukraine with a second opportunity to break from the impasse. However, as a result of their disappointment with the outcome of the Orange Revolution, as well as 20-plus years of

5 International Republican Institute Survey, “Ukrainian Municipal Survey, March 2–20, 2015,” May 19, 2015;

http://www.iri.org/sites/default/files/wysiwyg/2015-05-19_ukraine_national_municipal_survey_march_2-20_2015.pdf; p. 7-8

6 RFERL. (June 17, 2015). “Unloved but unbowed, Ukraine's Viktor Yushchenko leaves office,”;

http://www.rferl.org/content/Unloved_But_Unbpwed_Ukraines_Viktor,Yushchenko_Leaves_Office/1967436.html

DEMOCRACY, HUMAN RIGHTS, AND GOVERNANCE ASSESSMENT OF UKRAINE 5

transition, Ukrainians, with good reason, lack trust in their institutions and elected leaders. Indeed, as past

DRG assessments have accurately pointed out, Ukraine’s state structures must undergo some significant changes to become democratic institutions.

High Expectations and Waning Patience. It was clear from the interviews conducted by the assessment team that patience with the pace and nature of the reforms undertaken since the new government took office a year ago is wearing thin. The results of several opinion polls converge around similar results on the public’s patience for reforms, with about 25 percent of the public believing that the proposed reforms will not work; 25 percent opposing the reforms; 40 percent giving the government 1–2 years to show results; and 10 percent prepared to stay the course indefinitely.7 Universally, the people the team interviewed outside the Ukrainian and U.S. Government complained, rightly or wrongly, that there have been no or insufficient reforms, and that little has changed—or in fact that things have gotten worse.

People and organizations pointed to many people holding the same positions they held before the

Euromaidan, a lack of any real prosecutions for corruption, and a focus on passing laws but either sabotaging them in the details or not implementing them. As this report will document, myriad reforms have been adopted or are in process, but they are either not evident to the public or are not the reforms the public has been expecting.