In Wartime

by Tim Judah

  Natalie Jaresko, Minister of Finance. Kiev, April 2015.

  The figures were dire. In 2014 industrial production declined by 21 percent and the hyrvnia had lost 69 percent of its value against the dollar. The country had lost territory, resources, industries, people and markets. Between 40 and 60 percent of economic activity is in the gray economy. In the first quarter of 2015 the economy was 17.6 percent smaller than a year before. The war, which was costing between $5 and $7 million a day, is being fought with guns, but securing the home front means saving the economy too. After twenty-three years of poor and often literally criminal management, refiring its engines, making sure that the country did not implode under the weight of its debts and generalized corruption was a responsibility which fell, out of the blue, onto Natalie’s shoulders.

  Natalie was born in 1965 in Chicago, and her progression from diaspora girl to minister was not obvious. When, after the general election of October 2014, she was asked to take the post, she recalled thinking that if she turned down the offer,

  if I had not tried to help, I would never have forgiven myself. This country has given me everything I have and my children fascinating lives. I had to give back. You need to take into account that we had a revolution, watched Crimea being stolen on live TV and then came the war. People are dying. I know people who died on the Maidan. My daughters sold their toys to help refugees! My grandparents told me stories of the war, but this is different, it is real. There are men who are going to fight and don’t come back to their families…I thought to myself, “If I don’t do this, how can I live with myself?”

  Raw emotion and finance ministers are not the most common of bedfellows, but in this case there is a straightforward biographical line that leads from a Chicago suburb to ministerial office. Natalie’s father was born in 1932, in the Poltava region in Soviet Ukraine, hence was a survivor from day one: he was born just as others in the family were dying of starvation in the Holodomor. Her mother was born in 1940 in Germany. Natalie’s grandmother, from western Ukraine, had been dispatched there to work by the Nazis, even though she was pregnant. She gave birth to a daughter, who was fostered by a German family. Five years later, the girl, who did not know she had “real” parents, was suddenly reclaimed by her mother, who arrived in a jeep with American GIs who had agreed to help her. Natalie’s father’s relatives fled as the Soviets returned to Ukraine, and both sides of the family ended up in a displaced persons’ camp in Germany. Sponsored by Ukrainians in the U.S., they were able to restart their lives in Chicago, and this is where her parents met.

  Natalie’s father became an electrical engineer and worked for an insurance company for his whole career. Her mother was a secretary. On the weekends Natalie and her brother and sister went to Ukrainian school and participated in the community’s church activities. At home they spoke English. They were raised to have respect for their Ukrainian traditions, but not to think that they would ever go back to the country. Indeed, Natalie’s father believed that, as they lived in the U.S., “we needed to succeed in that environment and everything else was secondary.” He insisted she study something “useful.” Somewhat reluctantly, because she really wanted to study political science, she settled for accounting at university, though she double-majored in political science, which her father discovered only when she graduated. For her master’s, she went to the Kennedy School of Government at Harvard, and her father really hated this. As a Reagan Republican, he disapproved of anything that smacked of government. But Natalie was now old enough to make her own decisions. Still, her father refused to come to her graduation. Next step was the State Department and then, in 1992, as a Ukrainian-speaker who by now had some experience in economic affairs in what had just become the former Soviet Union, she was invited to set up the economics section of the brand-new American embassy in Kiev. Very excited at the prospect, she called her husband, also a Ukrainian-American. He was skiing in Colorado and was underwhelmed by the idea. She told him: “I am going.” He was not happy, but he followed, at least for a while. Now she points out, quite apart from carrying the troubles of Ukraine on her shoulders, she is a single mother.

  When she arrived it was clear that Ukraine had already been in decline for years even before the post-Soviet economic nosedive that was now beginning. Referring to the main boulevard that leads to the Maidan in the center of Kiev, she said there were so few cars “you could cross Kreshchatyk with your eyes closed.” But, as the difficult period of settling in began to pass, she found herself becoming ever more excited about “the Ukraine that could be.” It was close to the rest of Europe, rich in various resources, had an educated population, ports and so on. “What more could you ask for?” In 1995 her time at the embassy was up. As she was a civil servant rather than a career diplomat, she faced the unappealing prospect of returning to a cubicle in an office in Washington, so, when an opportunity arose to stay in Ukraine, she grabbed it. USAID, the American government’s aid wing, asked her to help set up an investment fund for Ukraine, Moldova and Belarus. The idea was to invest in and encourage the growth of small and medium-sized enterprises. This, in turn, led to her starting her own investment house, called Horizon Capital, which was managing assets of more than $600 million when she sold her stake to take the job of Minister of Finance.

  I asked her if investing had been a frustrating and disappointing experience, given that the big story of Ukraine since independence is one of lost opportunities. We had talked of how road builders and other contractors stole vast amounts, leaving the country with third-world roads. We had talked of how few paid income tax. “It is a vicious circle. People say, ‘Why should I pay tax if the government does not provide me with good schools and hospitals as it is supposed to?’ And the government in turn does not have the money to provide them as they are not paying tax.” The answer was surprising. Yes, it had been frustrating but not disappointing because times had been exciting, she had had opportunities she would never have had in the U.S. and because her business philosophy had worked. This had been to pay her taxes, “fly under the radar,” invest in things like wine, chocolate and consumer goods that she understood and steer clear of privatizations, energy and natural resources, which is what those who would become Ukraine’s oligarchs were interested in. And there were good times too. From 2000 to 2008, Ukraine’s GDP grew by an average of 8 percent a year, she said. Her companies were also relatively small, thus avoiding the attention of predatory raiders and for the most part corrupt tax officials. Only once was she openly asked for a bribe to complete a deal. The man she was negotiating with said cheerily: “Only one more signature to go!” and opened an empty briefcase in front of her. He did not get the cash, but she still got the deal. “I always looked at the glass as half full,” she said.

  Though the business climate began to deteriorate during the Yanukovych period, until the moment he balked at signing the deals his government had been negotiating with the EU in November 2013, there was hope. The guidelines of the free trade agreement were, she says, seen as a “road map.” Once signed, “we’d be on the way.” When Yanukovych said he would not sign and demonstrations began, it was clear which side she was on. Discreetly she began to help the demonstrators and those camped out on the square. Her children’s nanny cooked up fatty meat stews to take to the men there, explaining that they needed the fat to protect them from the cold. Because she had been in Ukraine so long, Natalie knew not only many of the foreign diplomats but the political players too. She knew Petro Poroshenko, the man who would become president, for example, because she had invested in a competitor chocolate firm to his. Pupils at her children’s school would go to the Maidan when the day was done or even skip class to be there. She went with hers at the weekend and supported her office staff who took part in the protests.

  Then, nine months after they were over, she was visited by headhunters taken on by the incoming Ukrainian government. They asked her for suggestions of people who should be hired and asked her if she was interested in
a post in the government, to which she replied that the question was hypothetical as she had not been asked, and anyway she was not a Ukrainian citizen, which ruled her out. Within days she was offered the post of Minister of Finance and was granted citizenship when she took office. When she began work, one of her two assistants asked if they would be getting the usual cash bonus. It turned out that the minister was expected to bribe them not to accept bribes from others who were keen to find out the minister’s schedule and other interesting bits of information. As the answer was “no,” one left, but the other remained.

  Negotiating with the IMF and Ukraine’s debtors was one thing, but trying to get the system under her to work was quite another. Well, “that is twenty-three years of problems which have mounted up,” I ventured to suggest. “No,” she snapped, “it’s a hundred years of crap!” We were on to the subject of why it is so hard to reform. The Soviet-inherited system was designed, she said, so that the person at the top got to shoulder all the responsibility, so that absolutely no one lower down had to take any. Every day she is given files, which can contain literally thousands of documents, and she has to affix her signature to each file. But the civil servants are the ones who know what is in the files she is being asked to sign off on, and thus “they are in control.” The civil servants have been taught to check if anything that comes before them has a consequence for the budget, and if it is legal, but not how to solve problems. For example, when long-overdue laws concerning judicial reform came up, her ministry simply advised her to tell the president to veto them, because they foresee paying judges more in order that they may be less tempted to accept bribes. She refused and told them that their job was not to just say “no” but to “figure how we could do it.”

  Likewise, when duty was raised on beer, an uncontroversial measure, she signed on the dotted line and had been bogged down ever since trying to sort out the mess. To raise the tax, for an unknown reason the civil servants reclassified beer as a spirit like vodka, which instantly made most advertising illegal. “I had the prime minister of Denmark on the phone,” she sighed.

  A big part of the problem, she said, was that while the removal of subsidies was going to make gas and heating bills far more expensive for most people now, reforms will take years to affect people’s lives for the better. It was part of her job to come up with ideas which could make things better now, before people concluded that nothing was being done.

  On the plus side she believed that Ukraine had never been a more tolerant place. With irritation in her voice she recalled meeting the finance minister from an EU country—“I won’t say which one!”—who told her he wanted to talk about Ukraine’s “discrimination” against Russian-speakers. Turning to her colleague from the central bank, she asked her to tell him what the working language of the bank was. “Russian.” In her office, Russian, English and Ukrainian are used interchangeably and the prime minister employed all three languages “in one sentence.” At last, she said, “the definition of being a Ukrainian is being a member of this society and not being ethnically Ukrainian.” And this, having grown up as an American, is something she was very happy to see.

  As she poured a final glass of wine, she said her task was actually quite simple. It was to “steer us out of this hole.” If she could do that, then the exhilaration—and exhaustion—of this period of her life would all have been worth it. Out of the gathering gloom, Lady, the spaniel, came snuffling about hoping for tidbits. Her reputation was all she had, said Natalie, and so far no one had come to her office looking for similar easy pickings. Lady got nothing.

  During the parliamentary election campaign of October 2012 I met Leonid Kozhara, the urbane spokesman of Viktor Yanukovych’s Party of Regions. At this point Yanukovych and his party were saying that there was no dilemma: they were on the path to Europe, away from Ukraine’s traditional subservience to Russia. During our lunch Leonid tugged the sleeve of his jacket. For Russia, he said dismissively, the other former Soviet republics were just like its buttons, but “we,” meaning Ukraine, “are the sleeve.” The man who would be Yanukovych’s foreign minister in the next, doomed government, went on to tell a story to explain why Ukraine did not want to join Russia, Kazakhstan and Belarus in Putin’s Customs Union, which was officially due to become the Eurasian Union on January 1, 2015. Some colleagues from Kazakhstan had told him a cautionary tale. They said that in a meeting to discuss plans over a certain issue, the Russians had explained what they wanted to do. When the Kazakhs began to put forward their ideas, the Russians told them they were not interested because they had just explained to them what would be done, whether they liked it or not.

  In the Verkhovna Rada, I met Yurii Miroshnychenko, Yanukovych’s representative to Parliament, who said: “We are fully aware of the price we will have to pay for this decision, yet we are ready to make this decision as a strategic one.” In retrospect it seems hard to imagine that a party so firmly based in the east, as the Party of Regions was, was then so determined to take the country westward.

  This chapter ended, however, when Yanukovych, after pressure from Vladimir Putin, announced he was not signing the EU deals, sparking off the Maidan revolution. As it began I met Stefan Fule, then the EU’s enlargement commissioner in Brussels. A Czech, he was one of the last generation of eastern European politicians and diplomats to have studied in Moscow, so he knew the Russians very well and understood that Putin was set on re-creating a circle of countries around Russia which would bend to its will. In a bustling Brussels bistro he told me that for Russia, Ukraine had always been part of a geostrategic game but that the EU had struggled to decide to what extent it should play geostrategy too, as opposed to relying solely “on our values and principles.” The Russian tactic was “bullying, bullying, bullying and being brutal,” but “our mistake is only ever having been half serious about the transformation of that part of Europe and not clearly offering them membership in the long run.”

  In Odessa, just before the revolution I met Hanna Shelest, then a thirty-three-year-old researcher at the National Institute for Strategic Studies. We talked about how many people were ambivalent about the proposed EU deals because they simply did not understand what they meant. Ukrainian media funded from Russian sources had, she said, given people the impression that if Ukraine chose Russia over the EU, “then everything will be cheaper, such as gas, and that if we go toward the EU normal marriages will not exist, only gay marriages.” Russia was presenting itself as “the big brother who will tell us what to do,” and a pro-Russian choice would mean that “we will live happily ever after and won’t have to read that complicated EU agreement.” As we ate pizza her friend Irina Yakovleva, aged twenty-nine, then a journalist, said many of her friends thought that Ukraine’s own politicians had “spoiled everything” and were “not real leaders.” Some of those friends who leaned toward Russia were not so much “pro-Russian” but said they liked Putin “because he is a leader…Even in the EU there are no big figures. They say: ‘I like that guy, that is why I support him.’ ”

  A year after the beginning of the war all this talk felt as though it had taken place much, much longer ago. But now a new phase was beginning. Novorossiya, whose ideologues had dreamed they would take all of Ukraine’s Black Sea coast and most of its south and southeast, remained penned into relatively small, albeit before the war economically important, areas. Mariupol on the coast had not fallen, and Crimea remained without a land connection to Russia. The two Minsk cease-fires foresaw some form of autonomy and reintegration of the eastern territories into Ukraine, but none of this appeared very realistic. When I met Fule he said that given the way Putin had begun fighting for Ukraine—and this was before Crimea was stripped from Ukraine and a single shot fired in the east—he seemed “like a dog with its teeth clamped into a man’s neck.” A year later it seemed rather that the dog had its teeth clamped onto Ukraine’s leg. Ukraine could not shake its bleeding leg free, but the dog, unable to do more harm, still would not let go.r />
  Ukrainian army, artillery practice. Urzuf, March 2015.

  In this new phase the question was endurance. Ukraine needed money and foreign investment to stabilize its economy, but investment especially would not come as long as there was war. Heavy industry and mining had been badly affected by the fighting in the east, but Ukraine is big and a country of enormous unrealized potential. At the western edge of Kiev, for example, is Antonov, the plane maker and designer and Ukraine’s only internationally known brand and company. The war had left the firm, which employs more than 12,000 people, struggling to disentangle itself from Russia. Before the war, Russia ordered their military transport planes especially, and it was there that so many of their parts were made.

  In its simulators I saw Cubans training for its small airliners and, in one hangar where planes were being built, a solitary gray military transport, which would soon be handed over to the armed forces. Another one, I was told, would also soon be ready, but completion was delayed because until now the propellers had been made in Russia and now they would have to be made in Ukraine, which was possible but time-consuming to do from scratch. “We will find business and work well even without Russia,” said Dmytro Kiva, the company’s seventy-two-year-old president, cheerfully. He is only the second man to have run it since the death of Oleg Antonov himself, who founded the firm in 1946 and died in 1984. The shock of the war and break with Russia had shaken Antonov so profoundly that its leadership had been jolted into understanding that it could no longer coast along as it always had in the past. In Soviet times Antonov had been a world-beating company, but now, still state-owned, it had squandered the years since independence. With its skilled employees hunched over modern design computers, it has a future, if it can catch up and find investment. In the hangar, no one was working bolting planes together though. It was lunchtime and everyone was eating at the same time. Some who had finished were playing netball in the sun.