Within the study of international relations, empires have often garnered the attention of historians and political scientists alike.^[1] Their dominance in a given epoch in regional and world affairs naturally draws intellectual interest. Historians examine and place empires in their proper historical context. The rise and fall of empires is also a widely debated topic, and one that political scientists focus on with respect to the changing power dynamics within the international system. While these scholarly efforts provide insight into the nature of empires, they are less informative in determining the extent to which empires can revive. Moreover, an important component of any form of imperial revival, under conditions when military domination is unlikely, rests on the willingness of the former periphery to maintain relations with the former imperial center.
This article develops a conceptual argument about the prospects for imperial revival in the former Soviet Union (FSU) by examining the impact of domestic politics on a state’s foreign policy vis-а-vis Russia. We do not focus on Russian intentions although they are clearly important to the overall process of imperial revival because there has to be some willingness to establish an empire, without which imperial revival is unlikely to occur. Moreover, the economic calculations of the metropolitan center may be such that expansion is not a viable option and therefore the center may risk the possibility of what Paul Kennedy described as “imperial overstretch.”^[2]
While these are important issues, this article does not put forth a comprehensive explanation for the likelihood of imperial revival. Instead, it focuses principal attention on the interaction between FSU leaders and the orientation of their respective political coalitions and how this domestic game influences the prospects for imperial revival from the perspective of the periphery. In this regard, we examine a crucial aspect of imperial revival in the FSU, and attempt to explain the “special path” that Russia may have with respect to the restoration of some form of empire. When we refer to Russia’s special path, we mean a process by which Russia can exert some level of hegemony over its former periphery through its dominant economic relationship as opposed to the use of outright military force or intervention. As we will see, this path opens for Russia when FSU states are weak economically, when they are dependent on Russia and often debt-ridden, and when anti-reform actors dominate the political and economic scene in the country. Under these conditions, Russian oligarchs and business interests are able to penetrate the economy of weaker FSU states, which potentially makes imperial restoration more likely. In short, we seek to provide one answer for why some FSU states may be susceptible to Russia’s imperial overtures.
In developing the idea of Russia’s special path, we draw attention to the orientation of the elites that support a given FSU leader, and whether they are pro-reform or anti-reform. Reform in this context refers to actors that support or impede the evolution from a Soviet command economy to one guided by Western market principles. Such steps include, among others, an equation involving macroeconomic stabilization, the initiation of restrictive fiscal and monetary policies, the privatization of state properties and assets, and general price and trade liberalization.^[3]
When FSU leaders are supported by a pro-reform coalition, that is actors that support economic reform, the peripheral state is likely to adopt an anti-Russian foreign orientation. On the other hand, when anti-reform elements dominate a leader’s political coalition, the likelihood of closer relations with Russia is significantly higher, and the opening for Russia’s special path increases as well. This logic should not be seen as deterministic, however. That is, once there is dependence on Russia, this does not automatically imply that the prospects for imperial revival grow immediately. Indeed, Russian political attitudes do matter as to when imperial revival will occur, but the present analysis focuses on the first aspect of this equation. That is, which domestic factors within the periphery provide Russia with a better avenue for imperial restoration? Ultimately, we offer a conceptual discussion and forward a preliminary argument about the relationship between FSU leaders and political/economic elites, and the influence this interaction has on the development of Russia’s special path of imperial revival.
This article proceeds as follows. First, we briefly analyze the literature on empires and discuss some of the relevant work that examines the imperial question from the perspective of the peripheral state. Then, we consider the relationship between FSU leaders and political/economic elites. Finally, we provide an empirical examination of Ukrainian domestic politics in this light to suggest how Russia’s special path has emerged.
While there are fourteen potential cases (the total number of non-Russian republics in the FSU), this article examines Ukraine for several reasons. First, it has often been pointed out that Russia can restore its imperial status only if Ukraine becomes a part of that empire. As Zbigniew Brzezinski suggested, “It cannot be stressed strongly enough that without Ukraine, Russia ceases to be an empire, but with Ukraine suborned and then subordinated, Russia automatically becomes an empire.”^[4] Second, Ukraine is of immense geopolitical interest for those in the West as well as Moscow, and the current trajectory of Ukrainian foreign policy appears to be heading back towards the Russian fold, in contrast to the early 1990s. Third, the pervasiveness of anti-reform elements and the staggering economic and energy dependence on Russia make Ukraine particularly vulnerable to the themes laid out in this essay.

Empires: A View from the Periphery

Bruce Parrott suggests that an “empire denotes a dominant society’s control of the effective sovereignty of two or more subordinate societies that are substantially concentrated in particular regions or homelands within the empire.”^[5] According to this definition, empires are more than conventional foreign alliances between a metropolitan center and other peripheral states, even if that alliance endures over a long period of time. They differ from alliances and from great-power hegemony over small states by virtue of the center’s domination of the peripheral societies’ internal affairs as well as its external relations.^[6] The basic implication of this relationship is that empires become possible when great differences exist in the relative power of the imperial center and other peripheral states.^[7]
However, power imbalances alone are insufficient to explain the rise of empires, and whether or not they emerge depends upon both the metropole and periphery. First, domestic political developments in the center provide an impetus for the rise of empire, without which expansion is unlikely to take place.^[8] Imperialist policies are adopted when domestic elites with transnational interests exert influence on the center state’s foreign policy. For instance, these elites may include the military that favors expansion because they lead to larger budgets and expanded discretion, or business elites that possess transnational holdings and economic interests that would benefit from territorial expansion. Charles Kupchan and Jack Snyder noted how, especially in authoritarian systems, elites could capture the political agenda and push through their own narrow interests, which tend to support imperialist policies.^[9] As Snyder writes: “Wilhemine Germany and imperial Japan... gave rise to logrolling among narrow interests groups producing over committed expansionist policies... In contrast, the democratic systems of Britain and the United States... strengthened diffuse interests opposed to expansion.”^[10] While the interests of those in the metropolitan center cannot be discounted, we focus primarily on developments in the periphery that may open the door (and make it easier) for forms of domination by Russia. Accordingly, Russian interests and policies are not formally addressed at length in the present work.
While events in the center clearly impact the rise of empires, the motives and interests of elites in the periphery are also crucial to the overall picture. Indeed, the literature on dependency theory draws extensively on the connection and collaboration between local elites and colonial powers or advanced capitalist countries.^[11] Much in line with the present argument, these local elites often focused on how their interests were best addressed in contrast to the overall interests of the state.
The economic motives of peripheral leaders can be a strong impetus for strengthening relations with Russia, which as we will see, increases the probability for Russia’s special path to emerge. Given the overt specialization of the Soviet command economy, many FSU states were economically dependent on Russia for vital goods such as energy. This economic dependence placed some states in better relative positions after independence, but most were still dependent on Russia to some extent. Political sovereignty and economic dependence also led countries to amass significant trade debts to Russia, which paved the way for Russian capital to penetrate these weaker, fledgling economies.^[12] The end result often is compliance with the stronger state’s demands.^[13]
The most compelling case of this interaction is found in the so-called Russia-Belarus “Union.” After his election in 1994, Belarusian president Aleksandr Lukashenko moved to strengthen his country’s economic dependence upon Russia, integrating the Belarusian economy to a great degree with that of Russia. Lukashenko signed deals to obtain inexpensive energy supplies from Moscow and a variety of other subsidies. This, more than anything else, helped him secure his own political position. For Lukashenko, strengthening ties with Russia as a result of economic necessity was prudent to overcome international isolation. In critical sectors such as the military, energy, and agriculture, the Belarusian economy remains inextricably tied to Russia’s.^[14]
Hendrik Spruyt synthesized these motivations from both the former center and periphery, the latter of which is of primary concern for the present article. Spruyt provided a taxonomy of these relationships that incorporated Russian and FSU behavior.^[15] From the Russian perspective, he draws a typology between disengagement, contractual cooperation, hard bargaining, and outright coercion/domination. He then examines FSU strategies in one of two ways: either states cooperate or acquiesce to Russia, or they seek disengagement and resist Russia (See Table 1). This typology is useful in its conceptual understanding of the variety of relationships that may exist within the FSU, however, renewed scrutiny of his work is merited.
This article extends Spruyt’s work in two important ways. First, Spruyt’s original article was written in the mid-1990s. While his general framework is still informative, his empirical explanations of Ukraine need to be revisited in light of current events. For instance, as seen in Table 1, Spruyt correctly identified Ukraine’s foreign orientation in the early 1990s as that of disengagement, but in recent years Ukrainian foreign policy shifted back towards Russia, stemming from problems related to the non-acquisition of Western economic resources due to a lack of economic reform, continued energy dependence on Russia, and domestic upheaval surrounding the death of Ukrainian journalist Georgiy Gongadze. All of these factors propelled Kiev back into Moscow’s orbit, and Ukrainian president Leonid Kuchma has foregone a policy of disengagement in favor of one of cooperation. Thus, this is not a critique of Spruyt’s work, but rather an update of his original application to Ukrainian foreign policy. Second, the present argument adds conceptual depth to the cooperation/acquiescence strategy of FSU leaders. While he observes that such patterns may occur, we attempt to shed light on the domestic factors that drive such cooperative endeavors. In this respect, this article fleshes out and extends Spruyt’s work by examining a set of conditions that exist within the peripheral state and that may enable Russia to extend its influence over FSU states without the use of military force.

Table 1. A Taxonomy of Possible Russian and FSU Relationships

<img src=http://abimperio.net/pics/toritsin1.jpg>

Source: Hendrik Spruyt. The Prospects for Neo-Imperial and Nonimperial Outcomes in the Former Soviet Space // Dawisha and Parrott (eds.). The End of Empire. Pp. 318, 323.

Indeed, as we suggest in the next section, the economic motivations of peripheral leaders may open the door for the development of Russia’s special path of imperial revival (although whether or not this path is pursued rests largely in the actions of leaders in Russia).

Pro-Leadership Coalitions and Russia’s Special Path

This section examines the role of FSU leaders and elites in the formulation of foreign policies towards Russia. Our analysis of post-Soviet domestic politics begins with a behavioral assumption about the principal motivation of FSU leaders: they seek political survival as their primary goal, and are therefore mindful of domestic threats that can impact their careers and positions.^[16] In this light, political survival is seen as a first-order goal, much in the same way realists identify the survival of the state as a first-order goal.^[17] As Philip Roeder notes, “post-Soviet politics is dominated by self-interested politicians who seek to maximize their control over the policy process.”^[18]
What is necessary for any leader to survive is his ability to establish a strong base of political/economic support. More specifically, leaders need two material factors to maintain their political positions, regardless of whether they governed authoritarian or democratic states: 1) economic resources to provide for the economic stability of the country, thereby strengthening the legitimacy of the leadership in power, and 2) a strong political coalition to ensure political support within the governmental and economic structures of the state. Without these elements, leaders find it difficult to secure their positions.
On the first point, it should be noted that economic resources were of a national and an individual character. That is, leaders seek to obtain economic resources to advance national interests, but in the case of the FSU, and other developing nations, leaders also exhibit a strong degree of autonomy from their populace and face few institutional constraints on their power.^[19] Since most FSU leaders are less accountable to the populace and other domestic political institutions, they exert a tremendous amount of influence over how economic resources could be used once obtained. This allows leaders to control the flow of resources and disperse them in a manner that would maximize their political tenure. This was a common practice during Boris Yeltsin presidency in Russia, when economic resources obtained from Western governments and multilateral institutions were regularly traded for the political support of various political and economic leaders at national and regional levels.
Extending this to the second point, a relationship exists between economic resources and a leader’s political coalition. The composition of a leader’s political coalition (the political forces that are enacting and implementing policies) influences the sources and availability of economic resources. When pro-reform elements make up a leader’s political base of support, the availability of economic resources from international financial institutions increases substantially.^[20] This is because Western countries and financial institutions were willing to support FSU states in their economic transition. This process, assuming that comprehensive reform is implemented in the long run, all but severs the prospects for Russia’s special path. However, when anti-reform elements dominate the political system, Western economic resources are less available because of a lack of reform, and leaders are forced to turn to Russia for economic assistance to ensure their political security. Under these conditions, the prospects for Russia’s special path to emerge increase significantly.
This logic should not be seen as overly deterministic, but rather it can be seen as opposite sides of an ideal continuum (See Figure 1). The more pro-reform elements dominate a leader’s coalition, the less likely Russia’s special path will emerge, making imperial restoration less likely. Conversely, the more anti-reform elements dominate a leader’s coalition, the more likely a special path for Russia will emerge, bringing with it a greater likelihood for imperial revival. The rest of this section examines pro-reform and anti-reform groups, while examining the logic of their influence on FSU leaders’ foreign policy.

Figure 1. Leadership Coalitions and the Probability of Russia’s Special Path

<img src=http://abimperio.net/pics/toritsin2.jpg>

On the left side of the continuum, pro-reform forces within the state support FSU leaders. The principal pro-reform actors highlighted for the present discussion include: 1) small and medium-sized enterprise (SME) owners and employees, and 2) foreign investors.
When pro-reform actors support leaders, the likelihood of the emergence of Russia’s special path, and hence an imperial revival, is low for two reasons. First, strong pro-reform elements support efforts to make the political environment more open and transparent. By making sure that policy decisions are made in a legitimate and open manner, the multiplicity of pro-reform elements work to check the narrow self-interests of various actors, thereby inhibiting “state capture.”^[21] Leaders also become more flexible in their survival strategies because there is greater need to maintain a powerful political coalition among varied interests. Leaders are unable to rely solely on repression, for instance, and must focus on creating a winning coalition, as opposed to balancing or eliminating domestic opponents.^[22] More transparent political and economic practices also replace the older informal practices of the Soviet bureaucratic system.
Second, by supporting reform and fostering a greater sense of transparency within the government, leaders may benefit from such actions at both the domestic and international levels. Domestically, properly designed and implemented economic reforms create equal conditions for all economic actors to produce a more efficient economic environment. The economy is supported by external capital inflow that allows the private sector to expand. Eventually, increasing private wealth and growth create more taxable income that can be used by the leadership to maintain its political position. As a result, leaders may allocate resources for the most pressing social and economic concerns, which if done wisely, can enhance their political security.
At the international level, the necessity of Russian assistance declines, as the availability of Western economic resources increases with the implementation of reform. The logic underlying the importance of reform stems from the manner in which Western and U.S. policy makers have attempted to guide and support post-Soviet economic transitions. This meant that if FSU leaders were willing to engage in reform, then Western economic assistance would more than likely be made available to them. Obtaining favorable assessments in Western financial circles was another way in which FSU leaders could attract foreign direct investment (FDI). Without such endorsements FDI tended to shy away from the more unpredictable economic environment rooted in inefficient methods and practices.
On the right side of the continuum, FSU leaders are supported by anti-reform actors that support a political system fundamentally different from the one analyzed above. The key anti-reform actors in most FSU states include: 1) oligarchs, 2) bureaucratic and former Communist party functionaries, and 3) managers of inefficient industrial and agricultural enterprises.
A lack of transparency favors anti-reform elements and impacts the prospects for imperial revival in two ways. First, when anti-reform elements dominate the political system there is a greater tendency to rely on informal and personal networks. Such practices were common during the Soviet era, and since FSU leaders were well entrenched in the Soviet apparatus, there was ample opportunity for these practices to continue. Without transparent institutions and with only limited citizen participation, leaders can maintain these essentially inefficient practices, where a loyalty-based model remains intact. In these relationships informal, personalized networks reward political support with economic benefits, as for instance in Russia’s privatization process, where insider loan-for-share agreements allowed a few individuals to amass tremendous amounts of wealth.^[23] Andrei Schleifer and Daniel Triesman point out that the “stakeholders” from the previous system (or those in positions of political and economic power) were simply dealt new cards in the transition, and the reform process was adjusted to their interests.^[24]
Second, a leader that relies on anti-reform elements for their political support has difficulties obtaining economic resources both domestically and internationally. The domestic economic and political arrangements serve the narrow interests of anti-reform elements, which, as Joel Hellman has explained, often prefer a partially reformed economy where they are able to extract the maximum amount of personal resources from their business dealings.^[25] The most serious consequence is that a small group of oligarchs tends to amass disproportionate shares of the economy and prioritize their own interests above those of the country, often leading to capital flight, which further depresses a weakened economy. Such activities also dramatically reduce the taxable income necessary for social and political stability.
Access to the resources of international financial institutions is also limited as they are conditioned on the progress and success of reform, which are absent when anti-reform actors dominate the government. This places FSU leaders in a difficult position and one that inevitably leads back to Russia, thereby opening up Russia’s special path. Since Russia does not attach such strict conditions to its resources (other than a softer foreign policy stance and one more conducive to the interests of Moscow), FSU leaders who are supported by anti-reform coalitions tend to rely on informal links with Russia.
As our discussion illustrates, the composition of domestic political actors in peripheral states has a profound impact on foreign relations with Russia and hence on the prospects for imperial revival in the FSU. In those cases, when pro-reform actors dominate the political landscape and domestic political and economic institutions are transparent, leaders may utilize a wide range of instruments assuring their political survival ranging from increasing expenses for social welfare programs to a pro-leadership coalition reshuffling. Although a pro-Russian policy remains a strategic option, leaders prefer to abstain from it, if at all possible. In this regard, the emergence of a strong pro-reform coalition is a necessary condition for avoiding imperial revival. If, however, anti-reform actors dominate the political landscape, the options available to leaders are limited and a pro-Russian orientation becomes the most reliable way in which to secure a regime’s political position. With an understanding of our central argument, we now turn to a discussion of these issues within the context of Ukrainian domestic and international politics.

Ukraine: Returning to Empire?

The first post-Soviet president of Ukraine, Leonid Kravchuk, secured his political position with the support of anti-reform elements, such as former Soviet bureaucrats, former party functionaries, and inefficient plant managers. These elites did not favor comprehensive political and economic reform or the creation of a transparent system.^[26] Thus, in many ways the policy decisions Kravchuk made were not always made with Ukraine’s best interests in mind, and instead, were aimed at bolstering the economic resources of his most influential political supporters. Because Kravchuk relied on these anti-reform actors, his economic policies tended to favor the interests of these elites.
Kravchuk’s political supporters preferred rentier capitalism and economic instability because of their ability to convert political positions from the previous system into financial and economic power in the new transition economy.^[27] The privatization process in eastern Ukraine during 1992-1994 was indicative of how Kravchuk and the elites who supported him capitalized on the economic transition. A large majority of privatization in the region was done by local political and economic elites, with 80 per cent of these privatizations acquired through a lease-to-buy system (in contrast to full-scale privatization) and the majority of them obtained despite legal violations.^[28] Furthermore, the overall pace of privatization remained low during the Kravchuk years. As a World Bank study found, the total number of privatized objects was approximately 11,852 during 1992-94, while in 1995 (after Kuchma’s efforts at reform) 16,227 enterprises were privatized, with 19,487 privatized in 1996.^[29] These were not favorable figures if Kravchuk hoped to obtain economic resources from international financial institutions. In the end, Kravchuk failed to implement economic reform. He was unwilling to address the economic problems of Ukraine with long-term goals in mind, but instead focused on his own short-term political survival. Reform and greater transparency would only threaten the privileged positions his supporters held.
Anti-reform elements, which benefited from informal networks institutionalized under Soviet practices, acquired many mechanisms to pursue private gains through official means.^[30] Indeed, Ukraine’s first two years of independence were marked by massive credits to heavy industry and the agricultural sector, with regulations on foreign trade allowing top government officials and other members of informal networks to enrich themselves.^[31] For instance, substantial administrative control over exports allowed bureaucrats to continue extracting rents through a complicated set of licenses and quotas designed to control trade and access to hard currency. Since the difference between domestic and world prices was substantial, it allowed informal bureaucratic networks and new entrepreneurs to acquire significant benefits from issuing licenses and quotas. Particularly attractive for personal enrichment were the energy supplies because prices of oil and gas charged by Russia for the former Soviet republics in 1991 were approximately 35-45 percent of the corresponding world levels. This allowed bureaucrats and their cronies to purchase gas and oil from Russia at subsidized prices and then re-sell it to the West at world prices.^[32] Naturally, the quotas and permissions for trading the energy supplies were provided to a limited number of actors who maintained personal informal connections with the political leadership and provided their political support in exchange for these economic rewards.
Kravchuk also provided capital to inefficient state enterprises to keep them afloat. Instead of adjusting to market reforms, managers of these enterprises began to incur debt. The solution to the debt problem was usually socialist in its spirit: managers of large inefficient state enterprises, relying on their informal contacts with state banks, received credits at the expense of new private and potentially more efficient enterprises. The informal links were also widely exploited in the horizontal inter-firm relations where suppliers extended credits to their customers with a purpose of protecting their markets, while customers made loans to suppliers to guarantee the flow of necessary supplies. As a result, enterprises were engaged in complex cross-indebtedness relations where delay or postponement of past-due payments was a common practice.
While anti-reform elements comprised Kravchuk’s political coalition, a consideration that would presumably increase the chances for the emergence of Russia’s special path, the initial phase of independence was dominated by a nationalist sentiment that focused on securing Ukrainian sovereignty. Kravchuk and other former Communists became “national” Communists. Indeed, as Alexander Motyl writes, Kravchuk transformed himself from “guardian of the Soviet state to guardian of the Ukrainian state, from supporter of all things Soviet to critic of all things Soviet, from enemy of Ukrainian nationalism to Ukrainian nationalist par excellence.”^[33] Unlike other former Communist leaders in Eastern Europe then, Kravchuk was not swept away by the nationalist movement. As one commentator notes, the nomenklatura in Ukraine “managed to preserve real power and property quite easily after 1991 by means of a peculiar political deal – by recruiting to its ranks the most conformist leaders of the former counter-elite and by a timely change in its slogans for the sake of a new ‘legitimacy.’”^[34] Thus, while anti-reform elements worked behind the scenes, Kravchuk severed ties with Moscow to ensure Ukrainian sovereignty and co-opt the nationalist agenda.
Accordingly, Kravchuk adopted a policy of disengagement from Russia. He criticized the development of centralized structures within the Commonwealth of Independence States (CIS) and clearly stated that Ukraine would not go any further than a loose form of economic cooperation. He emphasized that the CIS structures should base their activities on the principles promoted by the United Nations and Organization for Security and Cooperation in Europe, and that the CIS should not be viewed as a supra-national structure, but rather as an international organization for facilitating the resolution of problems and tensions among member-states.^[35] Ukraine did not join the collective security agreement signed in Tashkent in May 1992 by representatives of six CIS governments, as Kravchuk feared that this agreement could have been used to legitimate Russian military intervention. Until early 1994 the leadership consistently resisted all attempts aimed at creating the institutional structure of the CIS, while supporting the idea of loose economic cooperation through the consultative organ of the CIS Inter-Parliamentary assembly.
By 1994, however, the situation changed as the interests and composition of domestic actors changed. The “short-term winners” of the initial (albeit limited) reform efforts were a small group of oligarchs and financial-industrial groups that capitalized on their positions and relations with the Kravchuk administration.^[36] However, as the Ukrainian economy slowed these actors could not maximize their profits in such a socialist economic environment. Therefore, they pressed for policy changes to advance their economic and political interests. As we will see, this meant moderating policies towards both the West and Russia in hopes of obtaining more economic resources, a strategy that Leonid Kuchma put forth.
The economic crisis that set on by 1994 was a second factor that contributed to reform. The energy crisis was rooted in the initial decision to cut the Ukrainian economy off from Russia by trading at world prices. Previously, Russia subsidized Ukraine by supplying around 50 million tons of oil and a substantial amount of gas each year at a fraction of world prices. Considering that oil and gas prices within the FSU were roughly 35-45 per cent of world prices, Russia’s removal of energy subsidies to Ukraine had a series of negative economic consequences for Ukraine, most notably the creation of sizable trade deficits to Russia. By the spring of 1994 Ukraine’s energy debt to Russia reached staggering levels exceeding $3.2 billion.^[37] This bleak economic picture prompted Kuchma to strengthen relations with Russia suggesting, “Ukraine no longer looks upon economic cooperation with Russia and the CIS as an unfortunate necessity but as an urgent requirement.”^[38]
These two dynamics, the change in the interests of domestic elites and economic crisis, altered the domestic political scene, leading to Kuchma’s victory in the 1994 presidential elections. Once in power, Kuchma reassessed the potential security consequences of preserving the economic status quo, and acknowledged that only radical economic reform could assure Ukraine’s sovereignty.^[39] As we suggest, reform brings with it access to Western economic resources, and this was necessary to ensure Kuchma’s political base of support. Yet, the reformist path would be short-lived.
Compared to those of his predecessor, Kuchma’s efforts in economic reform were serious and warranted the attention of Western countries and financial institutions. His reform program was characterized by cuts in state subsidies, gradual progress on privatization, the deregulation of many prices, reductions in government spending, and the establishment of markets for state securities including bonds.^[40] These measures fell in line with the conventional logic emanating from Washington and other international financial institutions and helped Kuchma attract much needed economic resources.
By the fall of 1994 Western financial institutions began to extend Kuchma economic assistance. A marked turn in the Western attitude toward Ukraine was evident at the October 1994 G-7 meeting in Winnipeg, where Ukraine was promised $4 billion in aid. This contrasted sharply with the April 1993 Vancouver summit, where Russia was offered $1.6 billion and Ukraine nothing. The International Monetary Fund (IMF) approved a $371 million stabilization loan on 26 October and the World Bank approved a $500 million credit on 22 December to support ambitious plans for economic reform, including price liberalization, quicker privatization, and banking reform announced on 11 October. The World Bank also supported a comprehensive privatization program, including the creation of investment funds, the launch of mass privatization and acceleration of small-scale privatization with a rehabilitation loan in 1994. The approval of the 1995 Ukrainian budget, by both the Ukrainian parliament and the IMF, also paved the way for the IMF to release almost $2 billion in aid, which consisted of a one-year Stabilization Fund ($1.5 billion), to be given in conditional tranches, and the second portion of the Systematic Transformation Facility ($392 million, the first half of which was released in October 1994).^[41]
However, by the following spring, Ukrainian leaders criticized the initial economic measures that Kuchma announced as a part of his fall 1994 reform program (measures that largely followed the prescriptions of international financial institutions). Instead of adhering to the blind monetarist policy prescribed by Western institutions, Kuchma increasingly saw the need for a more state-regulated transition. Addressing the parliament in early April 1995, he stated that economic reform should be state-regulated, more gradual, and should provide a greater social safety net.^[42] A few months later, Kuchma disregarded IMF conditions, when he outlined a fundamental policy correction that dropped the IMF target of 1 or 2 per cent monthly inflation to 4 or 5 per cent by the end of the year.^[43]
While Kuchma continued to speak about ensuring that economic reform was irreversible, his more gradualist approach was accepted overwhelmingly by parliament in October 1995. This solidified the pace of economic reform in Ukraine. Indeed, ever since this “correction” economic reform in Ukraine has never gotten back on track, although several major reforms were implemented after 1995, such as the establishment of a new currency in September 1996 and large-scale privatization completed between 1996-98. In short, a more gradualist state-managed approach further enhanced Kuchma’s position to distribute economic resources in a way conducive to the interests of his political supporters. Moreover, while Kuchma became the darling of Western financial institutions immediately after his election, underlying his political base of support were both pro-reform and anti-reform elements, and the latter became more influential as time went on.
Kuchma’s anti-reform supporters undermined the development of transparent institutions, since transparency only threatened informal networks. Oligarchs and other anti-reform actors shaped the pattern and character of reform in Ukraine and made sure that reforms got stuck at the first stage and did not proceed too far in terms of deregulation.^[44] For example, privatization enhanced the power of anti-reform actors, where bureaucrats and oligarchs became the new owners. They then benefited from favorable interpretations of the privatization process and stripped the best assets of the former Soviet economy for their own narrow interests. New owners continued to exploit their good connections with their old buddies in the bureaucracy to get subsidized credits, tax breaks, and other privileges.^[45]
Anti-reform actors were particularly successful at making personal profits from loss-making and inefficient enterprises. One of the most widespread devices was to spin off private “daughter companies,” owned by managers and their close allies. Such companies acquired the output of the enterprise and sold it at market prices; meanwhile, the main enterprises accumulated debt, withheld taxes, and delayed wages. Particularly impressive in its “achievements” was the symbiosis of corrupted state bureaucrats and entrepreneurs operating on the energy market. In the absence of transparent rules regulating the energy market, the companies operating on this market were not only protected from potential competitors but also were granted a tax-free status. This resulted in billions hryvnas losses for the state budget.^[46] Similarly, a former head of the Parliament was in the management of a company that received an $80 million credit for purchase of agricultural equipment under government guarantees. The company ultimately went bankrupt and the money was never returned.^[47]
In short, even though Kuchma came to power in 1994 promising reform, the reality of the political game was that his supporters, similar to those of Kravchuk, were interested in controlling the economic status quo or making sure that any reform measures would serve their interests. In this regard, widespread corruption, a lack of rule of law, inadequate protection of property rights, a lack of transparency and predictability in state’s policy decisions, and all other arrangements that can be qualified as informal institutions reflected the dominance of anti-reform actors. Informal practices meant that oversight and accountability would be elusive and allow strategically positioned individuals the opportunity to amass tremendous wealth.
When leaders rely on anti-reform elements, pro-reform actors find it difficult to accumulate sufficient economic and political power to promote their interests. Despite the official declarations about state support for SMEs, the existing climate is characterized by outdated policies, confusing regulations, oppressive tax burdens and corruption, which make this type of business activity highly unprofitable. As some European Bank for Reconstruction and Development (EBRD) analysts suggest, managers in Ukraine “face worse bureaucratic corruption, more mafia extortion, higher taxes, and a less effective court system” than in other post-Soviet economies.^[48] In practice this impacts small firms disproportionately, as evidenced by a recent World Bank/EBRD led survey of firms throughout Central and Eastern Europe and the FSU. Small firms in Ukraine reported bribe levels nearing or exceeding 8 percent of revenues (the post-Soviet average is 5.4 percent), and in these cases bribes accounted for a third or more of their profits.^[49] Given this high frequency of bribe payments, the senior management of these firms spend as much as 18 percent of their time dealing with government officials about the application and interpretation of laws and regulations, placing Ukraine at the top of the post-Soviet list. In this regard, SMEs are squeezed out of the picture, which undermines the development of new private sector companies.
Since the Soviet era, the Ukrainian business climate changed little. As Table 2 demonstrates, the distribution of small-scale industrial enterprise output has not evolved in ways indicative of other reforming post-Soviet economies. For instance, the share of total output held by private monies was approximately 21 percent in 1991, and increased because of Kuchma’s reform efforts to 27.5 percent in 1995. However, the figure continued to decline through 1996 and 1997 to levels that significantly lower than in 1991.
Pro-reform elements face twin challenges in Ukraine. They lack the economic resources needed to mobilize political support for their interests; and since many of these enterprises operate in the shadow economy or in both the official and underground economy simultaneously, they are unable to voice their political concerns openly, cognizant of administrative actions that may be taken against them.
Foreign investors are the other significant pro-reform element, but they can hardly be qualified as strong actors in Ukraine. Despite a promising increase in the volume of foreign direct investment (FDI) in 1995-1996, the leadership was not interested in establishing a set of transparent institutions, and foreign investors shied away. FDI in 1995 amounted to $260 million. It rose to $450 million in 1996 and went up to $760 million in 1997, which was almost nothing in comparison with the thousands of millions of dollars being invested in far smaller Eastern European countries.^[50] FDI remained modest because of the need to satiate anti-reform elements supporting the Kuchma administration. Transparent institutions and political accountability would have disrupted their lucrative practices in the partially reformed economy.

Table 2. Distribution of small-scale industrial enterprise output, by type of ownership

<img src=http://abimperio.net/pics/toritsin22.jpg>

Source: Derzavnuy Komitet Statustuku Ukrainu, Statustuchnuy Schorichnuk za 1997 (Kyiv, 1999), 323.

While some improvements in the legal framework for foreign investment occurred, legislation was riddled with declaratory statements that lacked the conceptual coherence and details essential for establishing a concise framework for investment. The uncertainty in the legislation not only made it difficult for players to understand the rules of the game, but also opened an avenue for many interpretations of legislative intent, and for arbitrary decisions on the part of those who were in charge of implementing the legislation.^[51] Relatedly, when property and contract rights are not upheld by the state, foreign investment is harder to attract because of the murkier business climate. This is especially true in Ukraine, where 75 percent of firms surveyed reported they were not confident that the state would uphold their property and contract rights in business disputes.^[52] Few foreign investors would enter such an uncertain business environment, unless they were skilled in the practice of informal exchange as Russian investors are. These underlying anti-reform practices Kuchma employed to secure his political position ultimately led to difficulties in obtaining Western economic resources and prompted a return to Russia’s orbit.
By the late 1990s Western economic assistance, which looked promising a few years before, dwindled because of a lack of reform (See Table 3). As some observers have noted, by the summer of 1997, Ukrainian authorities became strangely seized by a sense that financial constraints were easing, at a time when Western institutions were suggesting continued conditionality.^[53] Indeed, many conditions placed on IMF funding never came to fruition, including stalled discussions over the gas sector, restructuring the bank sector, the privatization process, and the writing off of debts and unpaid taxes by the Ukrainian government.^[54] The lack of reform led the IMF to suspend the disbursement of funds to Ukraine in September 1999. Although lending was resumed after a 14-month break in December 2000, the IMF chose not to extend a scheduled March 2001 tranche.^[55] Another factor leading to the suspension of IMF aid is that IMF officials became aware that between 1996 and 1998 Ukraine’s Central Bank conducted almost $1 billion worth of transactions that moved several hundreds of million of dollars through Credit Suisse First Boston, a Swiss-owned investment bank. These transactions gave a false impression of healthy currency reserves, and Ukraine received funding that otherwise would have been withheld.
By the late 1990s, the potential for Russia’s special path began to emerge. Anti-reform actors had long dominated the political and economic seen in Ukraine, and Western countries and financial institutions were skeptical of supporting Kuchma. The economic and energy dependence on Russia, coupled with isolation from the West, led Kuchma back to the East, and in order to manage the difficult economic relationship with Russia touch choices had to be made, which opened the Ukrainian economy to Russian penetration.
By the late 1990s, the potential for Russia’s special path began to emerge. Anti-reform actors had long dominated the political and economic seen in Ukraine, and Western countries and financial institutions were skeptical of supporting Kuchma. The economic and energy dependence on Russia, coupled with isolation from the West, led Kuchma back to the East, and in order to manage the difficult economic relationship with Russia touch choices had to be made, which opened the Ukrainian economy to Russian penetration.

Table 3. IMF Summary of Disbursements and Repayments to Ukraine (in SDRs)

<img src=http://abimperio.net/pics/toritsin3.jpg>

Source: “Ukraine: Financial Position in the Fund,” (www.imf.org/external/country/UKR/index.htm, 31 May 2001).

By the late 1990s, the potential for Russia’s special path began to emerge. Anti-reform actors had long dominated the political and economic seen in Ukraine, and Western countries and financial institutions were skeptical of supporting Kuchma. The economic and energy dependence on Russia, coupled with isolation from the West, led Kuchma back to the East, and in order to manage the difficult economic relationship with Russia touch choices had to be made, which opened the Ukrainian economy to Russian penetration.
Kuchma increasingly turned to Russia for assistance (often in the form of rescheduled debt payments), and in the process adopted an even stronger pro-Russian orientation. In 1999, for example, Russian officials attempting to resolve the gas debt problem provided a Ukrainian delegation with a list of Ukrainian enterprises that Russia, in exchange for writing off part of the energy debts, was interested in seeing privatized and in which it could later acquire shares.^[56] Thus, Ukraine’s indebtedness and need to maintain constructive ties with Russia opened the way for Russia’s special neo-imperial path, which tends to be led by Russian oligarchs and business interests. This setting is ripe for Russian oligarchic networks interested in Ukrainian enterprises and could have serious long-term consequences.^[57] Officials have also stated that Ukraine may provide up to one-third of its fuel-pipeline network as a “concession” to Russia.^[58] Staving off such serious steps, Ukraine and Russia reached a breakthrough agreement on the debt issue in early November 2000. Ukraine agreed to stop siphoning Russian natural gas piped through its territory in exchange for a Russian agreement to defer collecting Ukraine’s gas debt for 10 years, while maintaining a low rate of interest. Moreover, Russia agreed to give Ukraine an eight-to-ten year break on debt payments for half of future gas supplies, if Ukraine pays for the remaining half in cash and stops siphoning off gas.^[59]
Indeed, the penetration of Russian money as a result of energy dependence and accumulating debt is common in the FSU, and provides one of the most powerful means by which Russia can extend its grip over other FSU states. For instance, in early 2001 Russian investors paid $70 million for a 68 percent share of the Zaporizhia aluminum smelter, which went to the Russian car manufacturer Avtovaz. In this regard, Russian business interests are able to gobble up Ukraine’s best economic assets at bargain prices, and open the path to more informal economic control of Ukraine. The main difference between Western and Russian investors in this setting is their familiarity with the previous system. Western investors see Ukraine as a black hole, where profits are unlikely to outweigh the bureaucratic costs associated with economic activity, but Russian companies have the clout and experience to make the transactions more profitable. Yet as we have seen, this can undermine Ukraine’s independence, as it opens the door to Russia’s special imperial path.
Kuchma’s recent political problems and his continued need for Russian economic resources have further propelled his pro-Russian orientation. On military issues, Ukraine softened its approach towards Russia. In 1999 Ukraine gave Russia eight Blackjack TU-160 and three Bear TU-95 strategic bombers along with 674 cruise missiles in exchange for writing off $285 million of Ukraine’s natural gas debts.^[60] Ukraine granted Russia permission to deploy advanced new SU-24M bombers, which replaced older planes and allowed the Russian Black Sea Fleet to privatize more than 40 buildings in Sevastopol.^[61] In January 2001 Ukrainian and Russian officials signed a 52-point military cooperation plan that foresees the creation of a joint command post in Sevastopol and a joint rescue detachment of the Russian and Ukrainian BSF.^[62] As Kuchma proclaimed on several occasions, Russia is a strategic partner of Ukraine aside from which “there is no alternative.”^[63]
There are other indicators that substantiate that anti-reform elements are leading to an increasingly pro-Russian orientation. In 2000, pro-Western Foreign Minister, Borys Tarasyuk, whom Moscow disliked, was removed and replaced by Moscow-oriented diplomat, Anatoly Zlenko. In a similar manner, the sacking of Energy Minister Yulia Tymoshenko in January 2001 demonstrated the extent to which Kuchma favored anti-reform interests in Ukraine. Her dismissal was a response to efforts to introduce transparent rules in the energy sector, which threatened oligarchic interests. As Oleksandr Turchynov, Batkivschyna Party faction leader, concludes, Tymoshenko’s dismissal was a result of oligarchic activities rooted in one of the most corrupt sectors of the economy.^[64] Moreover, Tymoshenko went on to become one of the leaders of the Forum for National Rescue, an opposition movement aimed at removing Kuchma from office after allegations of his involvement in the death of the journalist Gongadze. In May 2001 the replacement of the pro-reformist premier Viktor Yushchenko with Anatoly Kinakh led many in the West to question the sincerity of Ukrainian leaders’ commitment to continued reform, not to mention their overall orientation towards Europe. These developments were complemented by Vladimir Putin’s appointment of former Russian Premier Viktor Chernomyrdin as Russian Ambassador to Ukraine. This appointment is seen by critics as a further attempt to promote Russian interests in Ukraine (presumably to the detriment of Ukrainian interests).^[65]
Kuchma’s inability to continue to obtain Western resources fueled his interest in strengthening ties with Russia. In 2000 alone Putin and Kuchma held eight meetings with one another, a clear indicator of a burgeoning relationship.^[66] After a 12 February 2001 meeting in Dnipropetrovsk, Ukraine and Russia signed a series of agreements culminating in 16 documents on economic cooperation aimed at strengthening cooperation in the areas of high technology, industry and energy. The most compelling development, however, surrounded the decision to reconnect the Ukrainian and Russian electricity power grids with subsequent exportation of Russian electricity through Ukrainian territory. The delivery of Russian electricity to Ukraine significantly weakens Ukrainian power generating companies, and reduces Ukraine’s long-term capacity to meet its own electricity requirements. Besides, such energy exports increase Russia’s ability to influence Ukraine in more indirect ways.
Today, Ukrainian-Russian relations are on a qualitatively different trajectory than they ever have been in the 1990s. The answer to this puzzle lies in the interests of anti-reform elements in the policy process. Clearly the failure to implement economic reform undermined Ukraine’s access to Western economic resources, and Russia became more central in the foreign policy calculations of Kuchma. Ukrainian leaders have addressed this problem in an incomplete and dangerous manner, however. By trading away critical aspects of the Ukrainian economy to Russian investors to cover Ukraine’s energy debt, Ukraine faces a precarious situation in the future.

Conclusions

The purpose of this article was not to provide definitive answers as to the prospects for imperial revival, but rather to suggest more general patterns that have and will continue to shape the trajectory of relations between Russian and other FSU republics. Our central argument was that Russia’s special path for imperial restoration, one shaped more by economic means than military ones, is most probable when leaders rely on the support of anti-reform actors. That does not suggest that imperial revival is automatic, since Russian intentions will also play a role, but it does illustrate that Russia’s options are more expansive when anti-reform actors do thrive in FSU states. Several conclusions can be drawn from the experience of Ukraine.
First, if the necessary public policy changes and institution-building measures aimed at altering the composition of domestic elites are not introduced in Ukraine, these developments will continue to lead Ukraine back to the Russian fold. Kuchma continues to maintain his position through an alliance with anti-reform actors, and this only threatens to keep Ukraine on the outskirts of developments within European institutions, like the North Atlantic Treaty Organization (NATO) and the European Union (EU). Clearly these European institutions are unwilling to embrace Kuchma and his international isolation remains, especially in light of his unwillingness to enforce piracy laws and reports of the sale of the Kolchuga radar system to Iraq. This trend is unlikely to be reversed as long as Kuchma remains in power and continues along the same path of political survival.
Second, the domestic sources of foreign policy analyzed in this essay, necessitate conceptual re-thinking of major threats to regional security in the FSU. If the sources of regional instability are domestic in their nature, then the policies of NATO, EU, multilateral and bilateral donors should be adjusted accordingly and focus more explicitly on advocating and promoting public policy instruments and institution-building measures, which could pro-reform elements. Without such a fresh approach, the short-term prospects look bleak for Ukraine.