Russian army justifies its reforms. OSW Commentary No. 109, 2013-06-25

The Armed Forces of the Russian Federation have been more active than usual since mid- -February this year, holding a number of previously unannounced military exercises aimed at testing combat readiness. They have also maintained, for many months, a Russian warship task force in the Mediterranean in connection with the civil war in Syria. Those activities stand out of the usual training routine of the Russian army. They have no precedent in Russia’s recent history in terms of the size of the forces involved, the measures employed, the territorial span, the number of exercises, or the scheduling and mode of carrying out the drills. The last combat-readiness tests on this scale were carried out by the Soviet army in the 1980s. The intensity of the Russian Navy’s activities in the Mediterranean and the military means engaged are comparable, in due proportion, with the activities of the Soviet fleet during the Vietnam war. The Russian leadership, including president Vladimir Putin, has been directly following the recent activities of the Russian Armed Forces and their evolution.

Under the veneer of decentralisation. Ukraine's modernisation efforts stall due to lack of local government reform. OSW Commentary No. 102, 2013-02-12

President Viktor Yanukovych and his Party of Regions have been repeating the pledge to decentralise power in Ukraine and to give local government a greater decision-making role ever since the party appeared on the Ukrainian political scene. The implementation of this reform is crucial both for the economic recovery of Ukraine’s regions and the overall modernisation efforts of the Ukrainian state. At present relations between central government and the regions are regulated by Soviet-era legislation that fails to address the modern-day challenges facing Ukraine. The political elite in the country, including the opposition, appear to have reached consensus on the importance of the decentralisation reform. The first attempts to implement changes in this area were made in the late 1990s, followed by a comprehensive reform programme developed between 2007 and 2009 by Yulia Tymoshenko’s government. In 2012, the Constitutional Assembly under the President of Ukraine appointed a team of experts who drafted a document detailing the reform of local government and the territorial organisation of power1. The document envisages the implementation of what effectively are two major reforms: (1) an administrative-territorial reform, which would help consolidate the fragmented administrative structure, creating larger and more economically self-sufficient administrative units, and (2) local government reform, focusing on creating clearly defined powers for local authorities with a view to securing government funding for specific tasks delegated from central government. Nonetheless, despite these measures, and in spite of the rhetoric coming from President Yanukovych and other members of the Party of Regions, it seems unlikely that the reform will be implemented in the foreseeable future. A series of concrete political decisions taken by the president over the past three years indicate that Yanukovych has not abandoned his plan to build a highly centralised political system. This in turn limits the capacity to govern of local authorities and further restricts the sources of funding for Ukraine’s regions. This apparent resistance to change stems from the fact that by implementing the proposed reforms, the president and his political allies would be forced to relinquish much of their control over the political processes taking place in the country and would have to free up the distribution of budgetary resources between Kyiv and the regions. The implementation of the reform within the specified timeframe (i.e. by 2015) is also unlikely due to the upcoming presidential election and the deteriorating economic situation in Ukraine. Without a comprehensive reform of local government, however, Ukraine will be unable to undertake effective modernisation measures, which are key for the socio-economic development of the country’s regions.

Reforms in Moldova: Moderate progress and an uncertain outlook for the future. OSW Commentary No. 100, 2013-01-22

After coming to power in September 2009, the Alliance for European Integration (AIE)1 coalition began implementing a wide-ranging programme of reforms, with a view to bringing Moldova closer to the European Union, and ultimately to ensure the country’s full membership of the EU. Today, Moldova is considered a clear leader in European integration among the members of the EU’s Eastern Partnership programme. This, however, has less to do with the concrete reforms introduced by the Moldovan government, and more to do with, on the one hand, Chișinău’s excellent public relations with Brussels, achieved through effective diplomacy; and on the other hand, the growing disillusionment with the lack of progress in other Eastern Partnership countries, particularly in Ukraine. Attempts to evaluate Moldova’s reforms have proven rather problematic. On the one hand, the ruling coalition has managed to make significant progress in the areas of civil liberties, human rights and electoral reform. The government has also successfully implemented regulations which have brought Moldova closer to signing a Deep and Comprehensive Free Trade Agreement (DCFTA) with the EU, and it has made headway in talks on visa liberalisation with Brussels. On the other hand, Chișinău has still not carried out the structural and economic reforms without which real change in the country will be impossible. No reforms have been introduced in the Ministry of the Interior, the Moldovan police force, or the judiciary. The AIE has also failed to decentralise governance and has had no real success in reducing corruption; its attempts to rebuild the country’s financial institutions have proved equally unsuccessful. The main reasons for this poor performance include mutual mistrust and conflicting interests among the coalition members, a shortage of financial resources, strong resistance to change by public administration staff, and significant pressure from those political and business groups whose interests could suffer as a result of the proposed reforms. It should also be noted that since the AIE took power, the international context of the reform efforts has undergone significant changes. On the one hand, the EU has been facing an economic crisis, which has had a negative impact on Moldovan exports and contributed to the worsening of the economic situation in the country; and on the other hand, Moldova has been offered membership of the Customs Union as a viable alternative to EU membership.

Lukashenka has to choose: reforms or concessions to Russia. OSW Commentary No. 42, 2010-10-27

The most serious crisis in the history of Russian-Belarusian relations has been taking place over the past few months. In 2007 Russia started the process of depriving Belarus of subsidies in the form of supplies of fuels at low prices, which have for more than a decade guaranteed the stability of the Belarusian economic model, and is continuing this process now at an accelerated rate. At the same time, the Russian media started attacks on Alyaksandr Lukashenka from the middle of this year. This toughening up of Russia’s measures indicates that the Kremlin is determined to implement its goals regarding Belarus, including first of all taking over its strategic economic assets, which would result in a significant weakening of Lukashenka’s position. The Belarusian government has been consistently avoiding meeting Russian demands, while at the same time insisting on the reinstatement of preferential conditions of co-operation. If the Belarusian leader continues resisting Russian demands, the crisis in Russian- -Belarusian relations will be aggravated, and a conflict over energy issues around the turn of 2011 cannot be ruled out. The reduction in preferences offered by Russia in the energy sector has significantly impaired the condition of the Belarusian economy, and may lead to its breakdown in a year or two. As his country comes under increasing pressure from Russia, Alyaksandr Lukashenka will soon have to make a strategic choice between yielding to the Kremlin’s demands and embarking upon an at least partial restructuring of the economy.

Counter-reforms in times of prosperity. OSW Point of View, September 2006

In 2000, Vladimir Putin came to power after nearly a decade of the rule of the first Russian president, Boris Yeltsin. As prime minister, and later as a candidate for president, Putin announced that he would reform the state. The main assumptions of this reform were presented during a congress of the pro-Kremlin Unity movement, in Putin's address entitled 'Russia at the turn of the millennium' which was delivered on 29 December 1999, and later in a open letter to voters published on 25 February 2000. Both declarations were rather general, but they gave a clear picture of the principal directions of and priority areas for the future president's efforts: they outlined Russia's development path as pro-market and democratic. Nearly seven years have passed since Vladimir Putin came to power, a time for a summary of his achievements. In a way, Vladimir Putin has partially delivered on his initial declarations; indeed, Russia has undergone a deep transformation. However, when seen in the light of the president’s initial promises, the changes appear to be no more than 'counter-reforms', because instead of putting into practice the policy he outlined seven years ago, they have largely followed a different, if not entirely opposite direction.

On the verge of crisis? Mounting economic problems in Belarus. OSW Commentary No. 51, 2011-04-06

Belarus’s financial condition has visibly worsened since the beginning of this year. The severe falls in the country’s foreign currency reserves and its shortage of foreign currency on the international market pose an increasing threat to the stability of the Belarusian economy. Fearing an outbreak of public dissatisfaction, The government has so far been trying to avoid devaluing the rouble or structural economic reforms. Maintaining full control inside the country and the stability of the authoritarian regime are still the main concerns for President Alyaksandr Lukashenka. For this reason, the actions taken by the Belarusian government have been limited to imposing short-term administrative restrictions on the foreign currency market and obtaining external support in the form of loans. Given Belarus’s falling creditworthiness, Minsk is only able to ask Russia for financial support, thus offering the Kremlin more opportunities to realise its desire to take over strategic industrial plants in Belarus. However, the present economic problems of Belarus are so serious that no loan will be able to safeguard its government from the need of carrying out serious economic reforms.

Ukraine's cooperation with the IMF - unfulfilled hopes for deeper reforms. OSW Commentary No. 52, 2011-06-15

The Party of Regions took power in early 2010, after Ukraine had been plunged deep in economic crisis. Over the next year, with the external markets recovering, the country’s economic situation started to improve gradually. Ukraine’s economic stabilisation was also strengthened by its resumed cooperation with the International Monetary Fund, which provided for a loan worth $15.1 billion. The issuing of successive tranches of the loan was made dependent on the implementation of a comprehensive reform programme. The cooperation went quite smoothly at first; however, as the economic situation in Ukraine improved, the reformist zeal of the Ukrainian government started to fade, and obstacles began piling up. As a result, Ukraine was refused the third tranche, scheduled for this March, and for the moment the credit line remains frozen. Even though the IMF has numerous reservations about the Ukrainian government’s economic policy, the fundamental condition for resuming cooperation is reform of the pension system, which the parliament should adopt. The difficulties with fulfilling the obligations made to the IMF reflect the wider problem with implementing reforms in Ukraine, as the Party of Regions promised after taking power. Changes which do not affect the interests of influential lobbies are quite easy to carry out. Often, however, these changes are not conducive to the economy’s liberalisation; moreover, the influential lobbies are successful in blocking reforms that could harm their businesses. Another impediment to the changes is that some reforms are likely to bring about painful social consequences, and that can affect public support for the ruling group. Even though theoretically possible, it does not seem likely that Ukraine’s cooperation with the IMF will be terminated. But even if this cooperation is continued, deeper reforms in Ukraine are likely to be postponed until after the parliamentary elections in autumn 2012.

From stabilisation to stagnation. Viktor Yanukovych's reforms. OSW Point of View Number 32, March 2013

After winning the 2010 presidential election, Viktor Yanukovych and his government developed an ambitious and comprehensive programme of reforms across key areas of social and political life. The return to a presidential system of government created the ideal conditions for the introduction of deep reforms: it allowed Viktor Yanukovych to consolidate more power than any other Ukrainian president before him.The authorities launched an overhaul of the tax and the pension systems, and of the Ukrainian gas sector. Kyiv also completed its negotiations on an Association Agreement with the EU and on a Deep and Comprehensive Free Trade Area. However, the reformist zeal of Ukraine’s political elite progressively diminished as the parliamentary election approached, the economy slowed down, and the polls showed a decline in support for the ruling Party of Regions. Many of the reforms still remain in the planning stages, and in many areas the government has moved backwards. Viktor Yanukovych has proved unable to make systemic changes, and has increasingly used his powers to crush political opposition in Ukraine. The outcome of the latest parliamentary elections prevents the formation of a stable parliamentary majority, which in turn, removes any chance of reform before the 2015 presidential ballot.

Big business in the Russian economy and politics under Putin's rule; The Russian power industry shortly before reforms; Ukrainian metallurgy: the economic link in the oligarchical system. OSW Study 5/2002

Big business in Russia: The pace of ownership transfer in the Russian economy has speeded up considerably over the last year. There has been a significant rise in the number of acquisitions of whole enterprises, and large blocks of shares in individual firms and plants. Similarly the number of mergers, bankruptcies and take-overs of failing firms by their strongest competitors has grown. The Russian power industry: This study is an overview of the current condition and principles on which the Russian power sector has been functioning so far. This analysis has been carried out against the background of the changes that have been taking place in the sector since the beginning of the 1990s. This text also contains a description of guidelines and progress made so far in implementing the reform of the Russian power industry, the draft of which was adopted by the government of the Russian Federation in summer 2001. However, the purpose of this study is not an economic analysis of the draft, but an attempt to present the political conditions and possible consequences of the transformations carried out in the Russian power sector. The final part attempts to evaluate the possibilities and threats related to the implementation of the reform in its present shape. Ukrainian metallurgy: The metallurgic sector, like the east-west transit of energy raw materials, is a strategic source of revenue for Ukraine. Over the last ten years, this sector has become Kiev's most important source of foreign currency inflows, accounting for over 40 per cent of its total export revenues. The growth of metallurgic production, which has continued almost without interruption since the mid-1990s, has contributed considerably to the increase in GDP which Ukraine showed in 2000, for the first time in its independent history.

Systemic crisis in Alexander Lukashenko's regime. OSW Commentary No. 66, 2011-10-28

Measures undertaken by the Belarusian government in the areas of the economy, internal affairs and foreign policy in recent months have proven increasingly ineffective. Despite the deteriorating macroeconomic situation, Minsk is not implementing the reforms necessary to combat the crisis and its activity is limited only to feigned actions and administrative regulations. As a result, the economic situation is worsening but the chances of obtaining external loans as support, for example from the International Monetary Fund (IMF), are decreasing. At the same time there is mounting fear among the regime of social unrest, therefore by raising salaries of the least well-off groups of citizens it is trying to compensate for the increased costs of living. On the other hand, the government is extending the scope of control over society and competences of enforcement bodies. Belarus’s room for manoeuvre in foreign policy has also been diminishing substantially. Despite the EU’s declared willingness to reach an agreement and its encouragement, Lukashenko is not ready to make concessions in the political sphere (e.g. to rehabilitate political prisoners), and this is hindering the normalisation of relations with the West. Minsk furthermore feels a mounting pressure from Moscow, making the Belarusian negotiating position ever weaker. The lack of freedom of manoeuvre in foreign policy, no possibility to maintain a costly economic model and the lack of support from the majority of society all prove that Alexander Lukashenko’s regime is in severe crisis. The system he established is no longer able to respond to current threats with adequate and effective strategies. This situation is challenging the regime’s stability and calls into question its viability in the longer term.

Investment behaviour of EU arable crop farms in selected EU countries and the impact of policy reforms. Factor Markets Working Document No. 42, May 2013

This deliverable provides a comparative analysis, among selected EU member states, of the investment demand of a sample of specialised field crop farms for farm buildings, machinery and equipment as determined by different types and levels of Common Agricultural Policy support. It allows for the existence of uncertainty in the price of output farmers receive and for both long- and short-run determinants of investment levels, as well as for the presence of irregularities in the cost adjustment function due to the existence of threshold-type behaviours. The empirical estimation reveals that three investment regimes are consistently identified in Germany and Hungary, across asset and support types, and in France for machinery and equipment. More traditional disinvestment-investment type behaviours characterise investment in farm building in France and the UK, across support types, and Italy for both asset classes under coupled payments. The long-run dynamic adjustment of capital stocks is consistently and significantly estimated to be towards a – mostly non-stationary – lower level of capitalisation of the farm analysed. By contrast, the expected largely positive short-run effects of an increase in output prices are often not significant. The effect of CAP support on both types of investment is positive, although seldom significant, while the proxy for uncertainty employed fails to be significant yet, in most cases, has the expected effect of reducing the investment levels.

The Impact of CAP Reforms on Farm Labour Structure. Factor Markets Working Document No. 63, August 2013

The labour force engaged in the agricultural sector is declining over time, and one can observe the reallocation of labour from family members to hired workers. Using farm-level data, this paper analyses the on-farm labour structure in Greece and assesses the factors driving its evolution over the period 1990-2008. The impact of agricultural policies and farm characteristics is examined in a dynamic panel analysis. Family and hired labour are found to be substitutes rather than complements, while agricultural support measures appear to negatively affect demand for both family and hired labour. Decoupled payments and subsidies on crops are found to have a significant impact on both sources of labour, as well as subsidies for rural development that do not favour on-farm labour use. The paper also finds that structural labour adjustments are the result of farm characteristics, such as farm size and location. The results are robust to various estimation techniques and specifications.

A Microsimulation of the Impact of Tax Reforms on Child Poverty: the Case of Italy. Bruges European Economic Research (BEER) Papers 29/February 2014

Microsimulation models have been used in order to find efficient counteractive instruments to poverty. The objective of this paper is to analyse the impact of fiscal policy on poverty, insisting on child poverty rates. Empirical analysis suggests that in fighting poverty, a mix of policies need to be in place, fiscal reforms increasing tax allowances such as child benefit granted to parents with dependent children, are not sufficient to reduce child poverty.

Bringing South Caucasus Closer to Europe: Achievements and Challenges in ENP Implantation. Natolin Research Paper 03/March 2011

While the initial Commission Communication on Wider Europe (March 2003) did not include Armenia, Georgia and Azerbaijan in the forthcoming policy for the EU’s new neighbourhood, the Southern Caucasus region has now gained considerable attention in the framework of the ENP and beyond, not least because of security considerations. The ENP undoubtedly represents a step forward in the EU’s policy towards Armenia, Azerbaijan and Georgia, yet its implementation highlights major differences between the three countries and important weaknesses in all three of them. The Eastern Partnership addresses some of these weaknesses and it also significantly strengthens the EU’s offer to South Caucasus countries, which is now fully in line with the perspectives proposed to the Western NIS. The paper highlights five main conclusions and recommendations: • Political, economic, social and diplomatic developments in the South Caucasus in the 2000's highlight both diverging trends and the persistence of tensions between the three countries. They also have different aspirations vis-à-vis the EU and different records in ENP implementation. The EU should therefore mainly rely upon an individual approach towards each country. • While bilateral relations should form the basis of the EU's approach, most of the challenges faced by Georgia, Armenia and Azerbaijan are not confined to national borders and require regional solutions. This applies primarily, but not exclusively, to the unresolved conflicts. The EU should promote targeted regional cooperation including, inter alia, confidence-building measures to address indirectly the protracted conflicts and measures supporting drivers of change, which play a critical role in the confidence-building process; • Under the ENP, especially since the opening of negotiations for association agreements and with the perspective of DCFTA, trade-related issues, market and regulatory reform have become prominent in the EU's relations with all three Caucasus countries. At the same time, the priorities identified when the ENP was launched, i.e. good governance and the rule of law, still correspond to major challenges in the South Caucasus. The EU should more clearly prioritise good governance and the rule of law as the basis of both the ENP and successful reforms; • In all partner countries (but even more so in the South Caucasus), ENP implementation has been adversely affected by poor administrative capacities and weak institutional coordination. The EU should increasingly focus on institutional reform/capacity building in its support to partner countries and ensure that the link between the ENP and domestic reform processes is strengthened; • In the South Caucasus the EU has recently concentrated on a few assistance tools such as budget support, Twinning and TAIEX. While these instruments undoubtedly bring an added value, they should be better combined with tools allowing for greater flexibility and targeting non-governmental actors, e.g. EIDHR/NSA.