The Oakland Institute, Executive Summary, 2023

The war in Ukraine has been at the center stage of foreign policy and media reports since February 2022. Little attention, however, has been given to a major issue, which is at the core of the conflict – who controls the agricultural land in the country known as the “breadbasket of Europe?”

This report addresses this gap – identifying the interests controlling Ukraine’s agricultural land and presenting an analysis of the dynamics at play around land tenure in the country. This includes the highly controversial land reform that took place in 2021 as part of the structural adjustment program initiated under the auspices of Western financial institutions, after the installation of a pro-European Union (EU) government following the Maidan Revolution in 2014.

With 33 million hectares of arable land, Ukraine has large swaths of the most fertile farmland in the world.1 Misguided privatization and corrupt governance since the early 1990s have concentrated land in the hands of a new oligarchic class. Around 4.3 million hectares are under large-scale agriculture, with the bulk, three million hectares, in the hands of just a dozen large agribusiness firms.2 In addition, according to the government, about five million hectares – the size of two Crimea – have been “stolen” by private interests from the state of Ukraine.3 The total amount of land controlled by oligarchs, corrupt individuals, and large agribusinesses is thus over nine million hectares, exceeding 28 percent of the country’s arable land. The rest is used by over eight million Ukrainian farmers.4

The largest landholders are a mix of oligarchs and a variety of foreign interests – mostly European and North American, including a US-based private equity fund and the sovereign fund of Saudi Arabia. All but one of the ten largest landholding firms are registered overseas, mainly in tax havens such as Cyprus or Luxembourg. Even when run and still largely controlled by an oligarch founder, a number of firms have gone public with Western banks and investment funds now controlling a significant amount of their shares.

The report identifies many prominent investors, including Vanguard Group, Kopernik Global Investors, BNP Asset Management Holding, Goldman Sachs-owned NN Investment Partners Holdings, and Norges Bank Investment Management, which manages Norway’s sovereign wealth fund. A number of large US pension funds, foundations, and university endowments are also invested in Ukrainian land through NCH Capital – a US-based private equity fund, which is the fifth largest landholder in the country.

Most of these firms are substantially indebted to Western financial institutions, in particular the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB), and the International Finance Corporation (IFC) – the private sector arm of the World Bank. Together, these institutions have been major lenders to Ukrainian agribusinesses, with close to US$1.7 billion lent to just six of Ukraine’s largest landholding firms in recent years. Other key lenders are a mix of mainly European and North American financial institutions, both public and private. Not only does this debt gives creditors financial stakes in the operation of the agribusinesses, but also confers a significant level of leverage over them. This was evidenced by the debt restructuring of UkrLandFarming, one of Ukraine’s largest landholders, which involved creditors including the Export-Import agencies of the US, Canada, and Denmark, among others, and led to important organizational changes including layoffs of thousands of workers.

This international financing directly benefits oligarchs, several of whom face accusations of fraud and corrupt dealings, as well as the foreign funds and firms associated as shareholders or creditors. Meanwhile, Ukrainian farmers have had to operate with limited amounts of land and financing, and many are now on the verge of poverty. Data shows that these farmers receive virtually no support compared to agribusinesses and oligarchs. 5 The Partial Credit Guarantee Fund established by the World Bank to support small farmers is only US$5.4 million, a negligible amount compared to the billions channeled to large agribusinesses.6

In recent years, Western countries and institutions have provided massive military and economic assistance to Ukraine, which became the top recipient of US foreign aid – marking the first time since
the Marshall Plan that a European country holds this top spot. 7 As of December 2022, less than one year into the war, the US has allocated over US$113 billion to Ukraine, including US$65 billion of military aid, 8 which is more than the entire budget of the State Department and USAID globally (US$58 billion).9

The report details how Western aid has been conditioned to a drastic structural adjustment program, which includes austerity measures, cuts in social safety nets, and the privatization of key sectors of the economy. A central condition has been the creation of a land market, put into law in 2020 under President Zelenskyy, despite opposition from a majority of Ukrainians fearing that it will exacerbate corruption in the agricultural sector and reinforce its control by powerful interests.

The findings of the report validate this concern, showing that the creation of a land market will likely further increase the amount of agricultural land in the hands of oligarchs and large agribusiness firms. The latter have already started expanding their access to land. Kernel has announced plans to increase its land bank to 700,000 hectares – up from 506,000 hectares in 2021. 10 Similarly, MHP, which currently controls 360,000 hectares of land, seeks to expand its holdings to 550,000 hectares.11 MHP is also reportedly circumventing restrictions on the purchase of land by asking its employees to buy land and lease it to the company.12

Additionally, by supporting large agribusinesses, international financial institutions are in effect subsidizing the concentration of land and an industrial model of agriculture based on the intensive use of synthetic inputs, fossil fuels, and large-scale monocropping – long shown to be environmentally and socially destructive.13 By contrast, small scale farmers in Ukraine demonstrate resilience and a great potential for leading the expansion of a different production model based on agroecology, environmental sustainability, and the production of healthy food.14 It is Ukraine’s small and medium-sized farmers who guarantee the country’s food security whereas large agribusinesses are geared towards export markets.

In December 2022, a coalition of farmers, academics, and NGOs called on the Ukrainian government to suspend the 2020 land reform law and all market transactions of land during the war and post-war period, “in order to guarantee the national security and preservation of territorial integrity of the country in wartime and post-war reconstruction period.”15 As explained by Prof. Olena Borodina of the National Academy of Sciences of Ukraine (NASU), “Today, thousands of rural boys and girls, farmers, are fighting and dying in the war. They have lost everything. The processes of free land sale and purchase are increasingly liberalized and advertised. This really threatens the rights of Ukrainians to their land, for which they give their lives.”16

At a time of tremendous suffering and displacement, wherein countless lives have been lost and massive financial resources spent for the control of Ukraine, this report raises major concerns about
the future of land and food production in the country, which is likely to become more consolidated and controlled by oligarchs and foreign interests.

These concerns are exacerbated by Ukraine’s staggering and growing foreign debt, contracted at the expense of the population’s living conditions as a result of the measures required under the structural adjustment program. Ukraine is now the world’s third-largest debtor to the International Monetary Fund (IMF)17 and its crippling debt burden will likely result in additional pressure from its creditors, bondholders, and international financial institutions on how post-war reconstruction – estimated to cost US$750 billion – should happen. 18 These powerful actors have already been explicit that they will use their leverage to further privatize the country’s public sector and liberalize its agriculture.19

The end of the war should be the moment and opportunity for just the opposite, i.e. the redesign of an economic model no longer dominated by oligarchy and corruption, but where land and resources are controlled by and benefit all Ukrainians. This could form the basis for the transformation of the agricultural sector to make it more democratic and environmentally and socially sustainable. International policy and financial support should be geared towards this transformation, to benefit people and farmers rather than oligarchs and foreign financial interests.

Endnotes

1. UkraineInvest. “Agrifood.” https://ukraineinvest.gov.ua/industries/agrifood/; Leshchenko, R. “Ukraine can feed the world.” Atlantic Council, March 4, 2021. https://www.atlanticcouncil.org/blogs/ukrainealert/ukraine-can-feed-the-world/ (all accessed February 2, 2023).

2. Data on land leases was obtained from the Land Matrix https://landmatrix.org/ (accessed February 2, 2023) and compared with companies’ own documents as well as other databases such as https://www.largescaleagriculture.com/data/. The various sources present sometimes different data, but the Land Matrix appears to be the more up to date.

3. President of Ukraine. “For almost 30 years, the Ukrainian people have been fooled about land reform, 5 million hectares have been stolen during this period – President in an interview for Ukrainian
TV channels.” October 22, 2020. 

https://www.president.gov.ua/en/news/majzhe-30-rokiv-ukrayinskij-narod-durili-shodo-zemel-noyi-ref-64785 (accessed January 30, 2023).

4. US Department of Agriculture. Foreign Agricultural Service. Ukraine: Households Agricultural Production. May 23, 2022. 

https://www.fas.usda.gov/data/ukraine-households-agricultural-production (accessed January 30, 2023).

5. Foote, N. “Small farmers: The unsung heroes of the Ukraine war.” Euractiv. April 20, 2022.

https://www.euractiv.com/section/agriculture-food/news/small-farmers-the-unsung-heroes-of-the-ukraine-war/ (accessed January 30, 2023).

6. International Bank for Reconstruction and Development. Program document for a proposed first economic recovery development policy loan (dpl) in the amount of US$350 million to Ukraine. June 1, 2020. 

https://documents1.worldbank.org/curat-ed/en/665101593482807601/pdf/ukraine-first-economic-recovery-development-policy-loan.pdf; International Bank for Reconstruction and Development. Supplemental financing document for a proposed loan in the amount of EUR437.05 million (US$489.45 mil-lion equivalent) to Ukraine for the financing of recovery from economic emergency. March 4, 2022.

https://documents1.worldbank.org/curated/en/752081647378220940/pdf/Ukraine-Financing-of-Re-covery-from-Economic-Emergency-Ukraine-Supplemental-Development-Policy-Loan-Supplemental-Financing-Document.pdf (all accessed January 30, 2023.

7. Masters, J. and W. Merrow. How Much Aid Has the U.S. Sent Ukraine? Here Are Six Charts. Council on Foreign Relations, December 16, 2022. https://www.cfr.org/article/how-much-aid-has-us-sent-ukraine-here-are-six-charts (accessed January 30, 2023).

8. Four packages of aid for Ukraine were voted by the US Congress in 2022. The first was for US$13.6 bn in March, the second US$40bn in May, the third US$12.3 bn in September and the fourth
US$45 bn in December. US Congress. “Ukraine Supplemental Appropriations Act, 2022.” 

https://appropriations.house.gov/sites/democrats.appropriations.house.gov/files/Ukraine%20Supplemental%20Summary.pdf; “Continuing Appropriations and Ukraine Supplemental Appropriations Act, 2023. Division B – Ukraine Supplemental Appropriations Act, 2023.” 

https://www.appropriations.senate.gov/imo/media/doc/Continuing%20 Resolution_Section%20by%20Section.pdf#page=5;“Statute at Large 136 Stat. 4378 – Public Law No. 117-128 (05/21/2022).” https://www.congress.gov/bill/117th-congress/house-bill/7691/ text; US Committee on Appropriations; “Fiscal Year 2023 Omnibus Appropriations Bill. US Committee on Appropriations. Division M— Additional Ukraine Supplemental Appropriations Act, 2023.” https://appropriations.house.gov/sites/democrats.appropriations.house.gov/files/Ukraine%20Supplemental%20Summa-ry%20FY23.pdf; See for more analysis: Freeman, B. and W. Hartung. “New Ukraine aid is a go — and it’s more than most states get in a year.” Responsible Statecraft. December 23, 2022. 

https://responsiblestatecraft.org/2022/12/23/new-ukraine-aid-is-a-go-and-its-more-than-most-states-get-in-a-year/ (all accessed February 10, 2023).

9. USAID. “Budget Justification, FY 2022.” https://www.usaid.gov/cj/fy-2022 (accessed January 30, 2023).

10. “Kernel to increase its leasehold farmland bank to 0.7 mln ha:Verevskiy.” Latifundist.com, October 4, 2021. 

https://latifundist.com/en/novosti/56910-kernel-nameren-narastit-zemelnyj-bank-do-700-tys-ga–verevskij (accessed January 30, 2023).

11. “MHP plans to increase the land bank to 550 thousand hectares.” Latifundist.com, September 12, 2017. 

https://latifundist.com/en/novosti/37041-mhp-planiruet-uvelichit-zemelnyj-bank-do-550-tys-ga (accessed January 30, 2023).

12. “Offering the Ukrainians to Buy Land for the MHP Agricultural Holding.” Ukraine Gate, October 17, 2021. https://www.ukrgate.com/eng/?p=22025 (accessed January 30, 2023).

13. HLPE. Agroecological and other innovative approaches for sustainable agriculture and food systems that enhance food security and nutrition. July 2019. https://www.fao.org/3/ca5602en/ca5602en.pdf (accessed January 31, 2023); Lindwall, C. Industrial Agriculture 101. NRDC, July 21, 2022. https://www.nrdc.org/stories/industrial-agricultural-pollution-101 (accessed January 31, 2023).

14. “Small farmers are the backbone of food security during the war – and must be supported after the victory.” The Center for Environmental Initiatives “Ekodiya.” May 20, 2022. https://ecoaction.org.ua/mali-fermery-opora.html (accessed January 30, 2023); Mamonova, N. “What does War in Ukraine Mean for Smallholder Farming?” ARC2020, November 24, 2022. https://www.arc2020.eu/what-does-the-war-in-ukraine-mean-for-smallholder-farming/(accessed January 31, 2023); Mamonova, N. “Food sovereignty and solidarity initiatives in rural Ukraine during the war.” The Journal of Peasant Studies 50, no. 1 (2022): 47-66.

15. Resolution of the Public Forum of peasant farms, farming households, civil society organizations, and academic community. Kyiv, December 15, 2022.

16. Direct communication, January 27, 2023.

17. International Monetary Fund. “Total IMF Credit Outstanding Movement From January 01, 2023 to January 30, 2023.” 

https://www.imf.org/external/np/fin/tad/balmov2.aspx?type=TOTAL (accessed January 30, 2023).

18. “Ukraine sees post-war reconstruction costs nearing $750 billion – PM.” Reuters, October 24, 2022. 

https://www.reuters.com/world/europe/ukraine-sees-post-war-reconstruction-costs-nearing-750-billion-pm-2022-10-24/ ; Dolan-Evans, E. “Ukraine’s debts to Western banks are destroying its social safety net.” Open Democracy, November 17, 2022. 

https://www.opendemocracy.net/en/odr/ukraine-debt-freeze-western-creditors/ (all accessed January 30, 2023).

19. Ibid.; Relief, Recovery and Resilient Reconstruction: Supporting Ukraine’s Immediate and Medium-Term Economic Needs. Informal approach paper by World Bank Group staff Presented as background to Ministerial Roundtable for Support to Ukraine at IMF-World Bank Spring Meetings 2022. April 21, 2022. 

https://documents1.worldbank.org/curated/en/099608405122216371/pdf/IDU08c704e400de7a048930b8330494a329ab3ca.pdf (accessed January 30, 2023).

RT, 7/24/23

President Vladimir Putin has shared his views on how Russia and Africa should unite their efforts in pushing for global “peace, progress, and a successful future,” in an article released ahead of the Russia-Africa Summit in St. Petersburg.

1. Africa has “rightful place” in deciding the world’s fate

The Russian president said that Moscow’s relations with African states have “strong, deep roots and have always been distinguished by stability, trust and goodwill.” Moscow has “consistently supported African peoples in their struggle for liberation from colonial oppression” and “provided assistance in developing statehood, strengthening their sovereignty and defense capability,” he wrote. “We are sure that a new multipolar world order, the contours of which are already visible, will be more just and democratic.”

2. West hampers Russia’s supplies of food and fertilizers to Africa

Under the Black Sea grain deal, not only were none of the promises to exempt Russian grain exports from sanctions fulfilled, European countries even blocked Russia’s attempts to send fertilizers to African countries free of charge. According to Putin, more than 200,000 tonnes of fertilizers are “still unscrupulously held by the Europeans.”

3. Moscow can substitute Ukrainian grain

Over 70% of Kiev’s exports ended up in high-income countries, while the poorest nations received less than 3% of Ukrainian grain, according to Putin. Despite Western pressure, Moscow will continue to supply grain, food products, fertilizers, and other goods to Africa, “both on a commercial and free-of-charge basis, especially as we expect another record harvest this year,” Putin said. In 2022 alone, Russia exported 11.5 million tonnes of grain to Africa, and almost 10 million more tonnes were delivered in the first half of 2023.

4. Developing full spectrum of ties with Africa

Moscow highly values and will continue to develop economic relations with Africa – both with individual states and regional organizations. Russia also wants to take humanitarian, cultural, sports, and mass media cooperation to a “whole new level to serve our common interests.” In education, Putin noted that Russia is helping African states to build their human resources capacity, noting that out of 35,000 African students in the country “more than 6,000 receive Russian government scholarships.”

5. Importance of the Russia-Africa Summit

The second Russia-Africa Summit will take place from July 27-28, alongside the Economic and Humanitarian Forum, which is expected to provide a platform for business meetings and panel sessions. Forty-nine countries have confirmed their participation, and the Russian president expects that the participants will approve the Russia-Africa Partnership Forum Action Plan. “We are working to prepare an impressive package of intergovernmental and inter‑agency agreements and memoranda with individual states as well as regional associations of the continent,” Putin said.

By Connor Echols, Responsible Statecraft, 7/21/23

On July 16, 1945, the world ended. Or at least it seemed that way to residents of the Tularosa Basin in New Mexico.

Unbeknownst to local civilians, J. Robert Oppenheimer had chosen their backyard as the proving ground for the world’s first nuclear weapon. The explosion, which U.S. officials publicly claimed to be an accident at a local ammunition depot, tore through the morning sky, leaving a 40,000-foot-tall cloud of radioactive debris that would cake the surrounding area with dust for days on end.

Tina Cordova, whose hometown of Tularosa lies just 45 miles from ground zero, remembers her grandmother’s stories about wiping that infernal dust off every nook and cranny of her childhood home. No one knew what had happened quite yet, but they figured it must have been something special. After all, a local paper reported that the explosion was so bright that a blind woman had actually seen it.

When the initial shock wore off, the 40,000 locals who lived within 50 miles of ground zero returned to their daily lives. They drank from cisterns full of radioactive debris, ate beef from cattle that had grazed on the dust for weeks on end, and breathed air full of tiny plutonium particles. Only later would the real impact become clear.

Bernice Gutierrez, born just eight days before Oppenheimer’s “Trinity Test,” moved from a small town near the blast site to Albuquerque when she was 2 years old. Cancer followed her like a specter. Her great grandfather died of stomach cancer in the early 1950s. She lost cousins to leukemia and pancreatic cancer. Her oldest son died in 2020 after a bout with a “pre-leukemia” blood disorder. In total, 21 members of Gutierrez’s family have had cancer, and seven have died from it.

“We don’t ask ourselves if we’re gonna get cancer,” Gutierrez told RS. “We ask ourselves when, because it just never ends.”

“Oppenheimer” — the latest film from famed director Christopher Nolan — is a three-hour-long exploration of the “dilettante, womanizer, Communist sympathizer,” and world-historic genius behind the ultimate weapon. The movie, based on the book “American Prometheus,” delves deeply into Oppenheimer’s psyche, from his struggles as a young student at Cambridge to his profound melancholy over the world he helped create.

Yet nowhere in the film will viewers find an acknowledgement of the first victims of the nuclear era. Indeed, the movie repeats the myth that the bomb site was in a desolate area with “nothing for 40 miles in either direction.” This was not for lack of effort, according to Cordova, who leads an activist group called the Tularosa Basin Downwinders Consortium. (“Downwinders” refers to those who live in the fallout zone of nuclear tests.)

When Nolan’s team got to New Mexico to film, Cordova and her team published an op-ed in the local newspaper that called on the Oppenheimer crew to “grapple with the consequences of confronting the truth of our stories, of our history.” When that didn’t work, she reached out to the production through Kai Bird, the journalist who co-wrote American Prometheus, in an attempt to get a meeting. She received a flat “no.”

Cordova says she was “aggravated, angry, and disappointed” that the filmmakers had come to New Mexico to shoot the movie (and rake in state-funded tax breaks) but showed little interest in engaging with locals affected by Oppenheimer’s work. “Tens of millions of people are going to flock to theaters to see this movie, and a lot of them have never been exposed to this history,” she added. A short mention at the end of the movie could have changed that, Cordova argues. (Universal Pictures, which produced the film, did not respond to a request for comment from RS.)

And her concerns are not just about recognition. In 1990, Congress passed the Radiation Exposure Compensation Act, which gave insurance and lump-sum payments to the people affected by decades of nuclear testing at the Nevada Test Site. RECA payouts to date total more than $2.5 billion. But New Mexican downwinders were not included in the original law or a broader version of it passed in 2000, a fact that former New Mexico Governor Bill Richardson attributes to a simple lack of awareness about their plight.

Cordova and her team have lobbied for years for an expanded version of RECA that would include New Mexican downwinders and some previously ineligible uranium miners, many of whom had little knowledge of just how dangerous their work was. A bipartisan group of lawmakers introduced a RECA expansion bill earlier this month.

“Imagine having radioactive waste fall down like dirty snow on your homes and communities causing cancer and disease,” said Rep. Teresa Leger Fernandez (D-N.M.), who sponsored the bill in the House, in a statement. “Then think about the despair when you learn that the U.S. government compensated other communities exposed to radiation during the nuclear testing program but not yours.”

Lawmakers have introduced similar proposals several times in recent years, but, with limited public awareness behind their efforts, the proposal has never quite gotten enough support in Congress to pass.

“It’s an inconvenient truth,” Cordova said. “People just don’t want to reflect on the fact that American citizens were bombed at Trinity.”

---

Born in 1947 in Alamogordo, New Mexico, John Greenwood grew up a short distance from the Trinity Test site. Years of radiation exposure caught up with him in 2008, when he was first diagnosed with colon cancer.

Greenwood and his family spent four years fighting for his life. Their insurance covered 80 percent of costs, but the remaining 20 percent added up quickly given that a single chemotherapy treatment could cost $100,000. Other expenses fell by the wayside. One after another, utilities companies cut off their electricity and phone lines. Their car was repossessed.

But Laura Greenwood, John’s wife, knew their only option was to keep going. “I can’t tell you how stressful it was,” she remembered. “You go to bed crying every night wondering what you’re going to do the next day.”

John passed away in 2012, just six months after learning that the cancer had metastasized to his liver. He was the thirteenth member of his family to die from cancer since the Trinity Test.

Greenwood’s story highlights the devastating economic impact that years of health problems have had on downwinders. This, in part, is why RECA expansion has struggled to get off the ground in Congress, according to Laura. Many lawmakers argue behind closed doors that it would simply be too expensive to compensate downwinders and cover future medical costs related to radiation exposure.

Advocates of RECA expansion also have limited data to back up their claims of a link between the test and later cancers, which they blame in part on government secrecy surrounding the event. “The specter of endless lawsuits haunted the military, and most of the authorities simply wanted to put the whole test and its after-effects out of sight and mind,” according to a Centers for Disease Control and Prevention report on the history of the Los Alamos National Laboratory.

A years-long study from the National Cancer Institute found that “no firm estimates can be established” of how many cancer cases came from the test due to limited radiation data from Oppenheimer’s team and a lack of reliable information on cancer rates and daily habits in rural New Mexico at the time. Sen. Ben Ray Lujan (D-N.M.), who supports RECA expansion, called the NCI research “limited” when it was released.

But one impact of the test is clear. In the months after the explosion, the entire state of New Mexico saw an unprecedented spike in infant mortality, with 56 percent more New Mexican babies dying during live births in 1945 than in 1944. That number went back down in 1946 and has never reached such high levels since, a statistical anomaly with a 0.0001 percent chance of being caused by natural conditions, according to the Bulletin of the Atomic Scientists.

To Nolan’s credit, “Oppenheimer” includes affecting scenes in which the scientist wrestles with the pain wrought by his life’s work. While it leaves out some notable parts of the history, the film offers a powerful and largely accurate account of Oppenheimer’s quest to build — and later try to contain — the ultimate weapon, according to Stephen Schwartz, an expert on the history of nuclear weapons and a non-resident senior fellow with the Bulletin of the Atomic Scientists.

“I don’t think it glorifies nuclear weapons at all, which was the concern that some people had,” Schwartz told RS. Viewers will leave with “a better understanding of why he did what he did and all the complications that ensued,” he added. “I hope that it sparks many conversations.”

But Cordova sees the lack of engagement with downwinders as a major missed opportunity. She remembered back in 2018, when the Santa Fe Opera put on a production of “Dr. Atomic,” an opera about the lead-up to the Trinity Test. When Peter Sellars, who wrote the show’s libretto, found out about the problems faced by downwinders, he invited Cordova and her team to talk about their experiences on stage before each performance. 

At a climactic moment of the show, Sellars portrayed a general arguing with scientists over whether to warn locals about the blast as a group of downwinders quietly watched on from the other side of the stage. “History is about what’s happening to people you’ve never met,” Sellars told RS. “Their bodies are carrying the traces of what you did.”

Sellars says the engagement with locals affected by the blast — most of whom were Latinos or native New Mexicans — helped make the show a hit. “The show was sold out, and the talks were packed,” he remembered.

Despite her lack of luck with the Oppenheimer team, Cordova remains optimistic. She hopes the movie will encourage people to learn more about the impacts of nuclear tests and boost support for her cause. “Every movement that has ever been started has a tipping point,” she said. “This movie could [have been] that tipping point. And it still might be that tipping point.”

This interview aired on 7/19/23. Link here.

In Reality It Resulted Largely from Kyiv’s Destruction of Eastern Ukraine’s Economy Under Neo-Liberal Economic Policies Pushed by Washington Since the 1990s

By Ambrose Sylvan, Covert Action Magazine, 7/13/23

Ambrose is an independent researcher and former social worker from Toronto, Ontario.

The war in Ukraine is commonly seen through one of two lenses. The vision presented by Western, NATO-aligned powers is one of an astro-turfed Donbas separatism created by Moscow to justify the division of Ukraine.

The view of NATO’s critics is that the Donbas republics rebelled against the Euromaidan revolution and the country’s nationalistic, Euro-centric tilt. The reality is that this conflict started much earlier and was merely frozen until the overthrow of the Ukrainian government in 2013.

Political Economy of the Donbas

Global Security outlines the economic situation in Donbas at the time of the dissolution of the USSR.

The Donetsk basin had been settled by Russian and Bessarabian people in the 18th century, after the steppes of Ukraine and the coasts of the Black and Azov Seas were added to the Russian Empire.

Donbas held enormous reserves of coal, which were vital to the industrialization of the Empire and, later, the Soviet Union. During Soviet times Donbas became the industrial center of the Ukrainian Soviet Socialist Republic, with major iron mines in Krivoy Rog, the massive “Azovstal” steelworks, and the manufacture of machine parts for the defense and space industries.

Coal miners were able to exert political power throughout the industrial age by staging widespread strikes. Major strikes in August and September 1962 were held in Donbas and neighboring regions, resulting in promises of extra pay and threats of military force from the authorities.

Another wave of Donbas strikes in 1989 received concessions from the central government and the strike committees were effectively left in control of mining towns instead of the Communist Party.

The tension between the central government and the Donbas miners was fueled by the increasing difficulty (and cost) of pulling coal from Donbas mines. Other coal-mining regions of the USSR were less costly but the social unrest in Donbas was placated with increasing state subsidies.

Ukrainian independence ended the Donbas struggle against Moscow but created intractable economic problems. The extensive subsidies for Donbas mines were shifted to the less wealthy government in Kyiv, the economic integration of the Soviet Union’s republics was disrupted, and the shift to a market economy was disastrous.

After the break-up of the Union, the political leaders of the Donbas miners would become known as “red directors,” socialists who put the interconnected economic needs of the Donbas and surrounding regions at the heart of their demands to Kyiv.

One of the earliest separatist organizations in Ukraine was the International Movement of Donbas. The Ukrainian news site DEPO, citing Novosti Donbas, describes the origin of the Intermovement as a project of academics at Donetsk University. The group was created as the “International Front for Donbas” at a meeting held on August 31, 1989.

The “Interfront” was clearly inspired by the Intermovement of Estonia, which had formed the year before to defend communism and the Union state from Estonian separatists. In the summer of 1990 two of the leading figures of the Interfront, the brothers Dmitry and Vladimir Kornilov, traveled to the Baltics and western Ukraine. On this trip they studied the Intermovement of Estonia and its parallel organizations in Lithuania and Latvia, as well as the anti-Soviet People’s Movement of Ukraine (“Rukh”) based in Lviv.

The founding conference of the Intermovement of Donbas was held on November 18, 1990, and the Kornilov brothers were among those elected to its central council. The Intermovement unsuccessfully promoted the New Union Treaty and gained little popular support. Their most enduring success debuted at a rally on October 18, 1991, not long before the referendum on Ukraine’s declaration of independence: a red, blue, and black tricolor flag that would eventually become the flag of the Donetsk People’s Republic.

Again citing Novosti Donbas, DEPO reports that former KGB General Oleg Kalugin had accused all of the Intermovements of being created by the KGB. According to Kalugin the Intermovements were meant to undermine nationalist separatism in the republics of the Soviet Union.

One might question whether or not Kalugin is the most reliable source on this subject. He had been demoted for criticizing KGB chief Yuri Andropov during Andropov’s anti-corruption campaign, and also allegedly protected CIA spies in the USSR.

Kalugin was elected to the Congress of People’s Deputies on the Democratic Platform of the CPSU in 1990 and supported the anti-communist reformer Boris Yeltsin. After securing the break-up of the KGB, Kalugin moved to the United States in 1995. From the 1980s onward Kalugin had been an opponent of the socialist system and a supporter of those who would destroy it.

Whatever the truth is behind Kalugin’s statements, it is evident that an enthusiastic clique of academics, even with KGB backing, could not create a separatist movement out of thin air. The proof is in the results of the December 1, 1991, referendum, in which 92% of voters said “YES” to the Declaration of Independence from the USSR.

The Intermovement for Donbas failed to raise support for a renewed USSR, but the separatist movement would grow larger and stronger with every crisis that shook independent Ukraine.

The Shock Year

The act of independence immediately triggered a years-long economic crisis which was the driving force behind Ukraine’s growing separatist and anti-government movements.

The March 1990 elections to the Congress of People’s Deputies and Supreme Soviet of Ukraine had been the first to allow non-communist candidates to participate. Liberals, nationalists, and other anti-communist groups like Rukh entered the legislature. During the reaction to the August Coup in 1991 the Communist Party of Ukraine was banned and the nationalist groups remained as the most organized factions in the legislature.

As Ukrainian news site STRANA opined in its retrospective on 30 years of independence:

“The nerve of 1992 is the first attempt by the country’s leadership to deviate from the framework set by 1991. When Ukraine arose as a result of a compromise between very different groups (including representatives of the party apparatus, directors of enterprises), most of [them], as well as the population as a whole (which was shown by voting for Kravchuk, and not for Chornovil [leader of Rukh]), were not nationalistic and did not want to completely break with Russia.”

The newly independent government rapidly implemented policies which served nationalist and anti-communist ideologies irrespective of the material impact they had on the people of Ukraine. Per STRANA, “the nationalist tilt and the growing tension in relations with Russia became a serious factor in internal destabilization.”

The year 1992 was immediately characterized by economic “shock therapy.” On January 2, 1992, all price controls were released and the market was allowed to dictate prices on all consumer goods. The stated goal of this policy was to find balance between the shortage of goods and the large amount of money that the public held with nothing to buy. The “solution” to the “problem” of the public having too much money was predictable: The shelves were full of goods once more but prices increased by 2100% by the end of the year.

Inflation was accelerated by the spike in oil and gas prices as Ukraine lost the preferential rates it had enjoyed in the Soviet Union. Despite warnings from Moscow and the National Bank of Ukraine that the country would have to pay world prices if it exited the “Ruble Zone,” the government decided to drop the ruble as Ukraine’s currency by year-end.

New national borders interrupted the industrial sector, costs soared, demand fell (especially in state-driven industries like defense and science), and production crashed. For the first time in living memory, Ukrainians experienced the terrors of unemployment, price gouging, and starvation in a time of plenty.

In a Year, We All Became Impoverished Millionaires

The monetary crisis was an indirect result of the USSR’s final Five-Year Plan, developed under the principle of “acceleration.” Starting in 1990 the Union Republics were forced to issue “Consumer Cards” alongside wages to help ration basic goods like bread and sugar.

The cards were perforated sheets of tear-off tokens that were printed in color and valid only if stamped by the employer or issuing agency. These were commonly referred to as “coupons” in Ukraine (as in English this comes from the French word couper, “to cut”). The main obstacle to counterfeiting was the limited availability of color photocopiers, which became increasingly accessible after the borders were opened to Western trade.

From-UA tells us the origin of the “coupon-karbovanets,” Ukraine’s first national currency. Independent Ukraine still used the ruble as its official currency in 1992, but rubles were printed by Goznak in Moscow. Unable to print more rubles to accommodate soaring prices and (slightly) increased wages, the Kyiv government had to issue its own currency which was of much lower quality and was much easier to counterfeit than the ruble.

Introduced January 10, 1992, the karbovanets was printed on simple paper with few protections. It was meant to supplement the ruble and replace coupons, not to act as a primary currency. The ease of counterfeiting was made worse by the ease of modification: A one karbovanets note was the same color as a 100 karbovantsiv note. The kupon-karbovanets (notes were marked “купон,” literally “coupon”) became the most counterfeited currency in the world and inflation accelerated further. By the end of 1992 the karbovanets was so worthless that it was no longer profitable to counterfeit.

Counterfeiters and “shuttle traders” who exploited shortages of money and goods made enormous illicit profits. Criminal enterprises flourished and became increasingly appealing to an impoverished public and dissolute youth, such as the “Runners.” These were gangs of ultraviolent teenagers who terrorized the streets of southern cities, using grenades and handmade pistols in their feuds.

Ukraine dropped the ruble on November 12, 1992, and had no stable legal currency to use at markets. Wages were worthless and some workers were paid directly in consumer goods like soap instead of money. The economic problems of the working masses had become many times worse than they had been at the end of the Soviet era.

Demands of Donbas

Naturally there were outbursts of popular rage against the government as people lost their livelihoods. Ph.D. student Vadim Borisov was with the miners in Donetsk when the 1993 general strike began.

Borisov describes the inciting incident at Zasyadko coal mine on June 7:

The spark that ignited the flame was the increase in prices, carried out in the Donetsk region without advance warning on June 7. Half-smoked sausage, the daily food of miners, almost quadrupled in price overnight to 20,000 rubles (£4), compared to an average miner’s monthly salary of 120,000.

Many miners found out about the price increase when their wives returned in the morning from the shops, where they were going to buy food for their men on the “brake” …

The last straw was the director’s innocent attempt to justify the state’s price policy—here the workers immediately agreed with the words of one of their comrades: ‘Work yourself!’”

As the workers marched to the Kirov District Council, a local journalist informed the City Strike Committee of the spontaneous action. The Strike Committee in turn contacted all of the mines in the region and work stopped in mines and other industries across Donetsk, Luhansk and Dnipropetrovsk.

A government commission headed by the Finance Minister (who had authored the disastrous economic reforms) arrived in Donetsk on June 8. The striking miners made their demands clear: a no-confidence referendum on the President and parliament, and stronger regional self-government for Donbas. On June 18 the government agreed to schedule the referendum for September and to double miners’ wages. However this wage increase did little in the face of hyperinflation and the referendum was eventually canceled in favor of early elections.

Regional autonomy had already been a project of the Donetsk Regional Council before the 1993 general strike. Chairman Vadim Chuprun, elected November 12, 1992, had been carefully negotiating agreements with the president regarding Donetsk Oblast’s right to determine some of its own economic policies. In a February 1993 interview with Dmitry Kornilov’s newspaper, Chuprun explicitly proposed the federalization of Ukraine. Then on June 8, when the miners demanded autonomy and a confidence vote, Chuprun called a meeting of the Donetsk Council to demand broad autonomy for Donetsk, Luhansk, Dnipropetrovsk and Zaporizhzhia.

Even after the general strike had ended, President Kravchuk acceded to some of these demands and, on November 26, 1993, his Decree no. 560/93 gave those four regions control over 400 state-owned enterprises. When the parliament blocked this decree and only 200 enterprises passed to regional control the Donetsk Council responded by refusing to remit taxes to Kyiv, keeping the money to fund their own budget.

The federalist movement reached its maturity the next year. A “consultative poll” was held in Donetsk and Luhansk oblasts on the same day as the early elections, March 27, 1994. The central government refused to acknowledge it as a legally binding referendum, but the poll results showed that Donbas had a popular mandate to establish an autonomous government.

The poll had four questions: whether the constitution of Ukraine should change from a unitary state to a federal state; whether the Russian language should be constitutionally equal to the Ukrainian language; whether Russian should be an equal language of government and education in Donbas; and whether Ukraine should be a full participant in the post-Soviet Commonwealth of Independent States.

An overwhelming majority of voters said “YES” to all four questions: The federal system received 84% of all valid ballots in Donetsk, and the other three questions received more than 90% of all valid ballots in both regions.

Writing from Donetsk during the 1993 strike, Borisov noted that the national news media were hostile toward the Donbas movements. Though this strike was the largest in Ukrainian history, it received much less coverage than those during the Soviet era, directed against the Communist Party. The advocates of autonomy and federalism were portrayed as separatists or even as Russian nationalists. Were these movements really motivated by nationalist ideology?

Deindustrialization

Tensions between the Donbas miners and the Ukrainian government continued to intensify over economic and political issues, and major labor actions continued through the decade.

In 1995 Kyiv cut coal subsidies to reduce budget deficits and inflation, resulting in “mounting financial losses and payment arrears across all sectors of the economy.” That November the coal miners went on strike for two days to demand $112 million worth of unpaid wages in addition to their unpaid disability benefits, increased pensions, and worker control of coal policy. On November 15th the government agreed to pay a quarter of back wages immediately and to gradually release the remaining arrears.

The government did not follow through and strike action resumed on February 2, 1996, coordinated across Russia and Ukraine from Siberia to Donbas. As many as one million miners and allied workers went on strike in Ukraine. This time they demanded more than $560 million in unpaid wages. The strikes resumed in July when miners blocked roads and railways and picketed local administration buildings, bringing economic activity to a halt.[1]

The government was finally compelled to agree to a full repayment of wages but its restructuring of the coal industry accelerated. Mines were divided into categories based on profitability and work was halted at the least profitable sites. Subsidies were distributed unevenly and wages continued to go unpaid, provoking chronic labor actions and rivalries between mines and between unions.

Wage arrears reached $1 billion (or $3 billion by some estimates) by May 4, 1998, but only one of two major mining unions organized a strike, at only 45 of Ukraine’s more than 200 mines. The next week 1,000 miners marched to Kyiv on bleeding feet, unable to pay for buses after 15 months without pay. Some 20,000 desperate miners were on strike for months, many occupying a tent city in front of the Luhansk government building. It was there, on December 14th, that miner Oleksandr Mykhalevych burned himself alive. He left a note explaining his action:

“I’m tired of being scorned by mine directors and the regional administration. My [self-immolation] is hardly a way out, but it might help resolve the matter more quickly.”

Oligarch Rinat Akhmetov amassed his fortune in the 1990s by privatizing mines and steel mills, including Azovstal. Today he is the wealthiest man in Ukraine, #466 on the Forbes 500. [Source: kyivpost.com]

This time the government would not relent. Permanent mine closures began in June and the government secured loans from the International Monetary Fund by promising coal sector restructuring. The August 1998 Memorandum of Economic Policies guaranteed that no government subsidies would support production of coal, that no new mines would be opened, and that all mining subsidies would be used for “restructuring” (privatizing) the industry and permanently closing another 20 mines every year.

The central government’s economic warfare against the Donbas has continued unabated for decades. By the time of the Euromaidan and the rebellions in Donbas, Ukraine had only 150 mines remaining in operation, compared to 275 in 1998.

The mining workforce had shrunk from 1.2 million in 1996 to 500,000 in 2014 and miners were still owed an average of two to three months of back pay. The prospects for miners under the post-Maidan government were bleak: Only a month into his term Prime Minister Arseniy Yatsenyuk—a U.S. favorite—had sought a massive IMF restructuring loan worth up to $14 billion (almost 10% of Ukraine’s GDP). Yatsenyuk said that his policies would stabilize the economy but would increase gas prices by 50%, personal income taxes by 47-66%, and inflation by 1,000%.

Pushed to the Edge

Kyiv’s systematic destruction of the Donbas economy is a much greater driver of separatism than any Russophile nationalism. Sociological surveys conducted in early 2014 show us the most important issues to eastern Ukrainians on the verge of civil war.

Eight southern and eastern oblasts were surveyed by the Kyiv International Institute of Sociology (KIIS) in April 2014. KIIS found that, overall, 69.7% opposed annexing their region to Russia. In Donetsk this fell to 52.1% opposed, with 27.5% in favor. In Luhansk 51.9% opposed annexation while 30.3% supported it.

A Gallup poll conducted for the International Republican Institute in March 2014 had similar findings: 74% of easterners (Donetsk, Luhansk, Dnipropetrovsk, Kharkiv) did not feel that Russians were under threat because of their language, and 61% did not support Russian military intervention to protect Russo-Ukrainians. Even among ethnic Russians there was no clear preference for intervention, with responses split between 43% in support and 43% opposed.

Both surveys found stronger opinions about international economic relations than about ethnic politics. According to KIIS only 24.7% of respondents would choose Ukraine’s entry to the European Union over the Eurasian Customs Union; 46.8% preferred to join the ECU, rising to 64.3% in Luhansk and 72.5% in Donetsk. In Gallup’s poll the national average showed 52% in favor of the EU and 27% for the ECU. These proportions were inverted in the East, where only 20% supported EU membership and 59% favored the ECU.

KIIS additionally asked about the state structure of Ukraine. Only 10.6% in Donetsk and 12.4% in Luhansk indicated that they would keep the unitary state with its weak oblasts; 41.1% in Donetsk and 34.2% in Luhansk wanted power to be decentralized with oblasts given greater authority; and 38.4% in Donetsk and 41.9% in Luhansk endorsed a federal system with each region having its own state and the national government becoming a federation of these states. There were clear majorities in Donetsk and Luhansk (79.5% and 76.1%) that desired autonomous local governments.

Another survey was carried out by the Donetsk Institute for Social Research and Political Analysis in April 2014. It found that 31% of respondents in Donetsk favored a decentralized government with strong oblasts, 16% supported federalism, 27% supported Russian annexation, and 5% supported Donetsk independence. In total, 79% of respondents wanted Kyiv to have less power and 48% wanted Donetsk to have its own state formation, whether independent or federated with Ukraine or Russia.

On the eve of the separatist rebellion there was a clear preference among Donbas residents of all nationalities to have their own state and to join the Eurasian Customs Union. These were the political-economic concerns which the separatist republics could address in order to win popular support.

Breakaway

The infamous Donbas independence referendums were held just a few weeks after these surveys had been published. Despite accusations of endemic fraud and fabricated results the outcome was not far from what had been described by scientific opinion polls. The ballots asked not for independence but whether the republics should have “self-rule,” which the Donetsk electoral commissioner said could include autonomous or federal status within Ukraine.

When we consider the souring of public opinion on Kyiv’s “Anti-Terrorist Operation” and its civilian casualties, it is not hard to imagine how the 79% that polled in favor of more self-governance could have become 89% voting in favor of Donetsk self-rule.

Actions speak louder than words, and the people of Donbas did more than vote and answer surveys. KIIS found that the People’s Militias had little support in April 2014: In Donetsk they had 18.1% in favor and 72% opposed, and in Luhansk they had 24.4% in favor and 58.3% opposed. The separatists did not endear themselves to the hundreds of thousands of Donbas miners. They blocked mine exits, stole vehicles and explosives, kidnapped managers and union leaders, and tried to gang-press workers.

Nevertheless, analysis by Foreign Affairs found that “the size of the local mining labor force remains the strongest predictor of rebel activity.” They may not have been nationalists, but the people of Donbas were joining the revolt against Kyiv.

Surveys taken after the Minsk Protocol showed the solidification of Donbas separatism. In a 2016 survey by the Humboldt University of Berlin, 55.6% of DNR respondents wanted to remain within Ukraine while support for Russian annexation had grown to 44.4%. Another 2016 study, commissioned by Ukraine’s Ministry of Information Policy, showed 31% supporting autonomy within Ukraine and 47% supporting DNR independence; only 6% wanted Ukraine to regain the territory by force.

By 2020 the Donetsk Institute’s follow-up survey had found that 45-50% of respondents favored annexation and only 20-25% supported a return to Ukraine; the remaining 25-30% answered that they wanted any resolution that would end the war.

At the start of the 1990s Ukrainians were united in seeking independence from the USSR. It was the years of struggle and starvation which followed, aggravated by nationalist politicians and anti-Russian policies, that alienated the people of the Donbas. In large and heterogeneous countries like Ukraine, contradictions naturally arise between the interests of the people. Federalism has been proven to mitigate these contradictions in countries such as the United States and Canada, yet it was denounced at every turn by Kyiv.

Shut out of power, the Donbas was subjected to decades of ruthless economic policies which suited northern and western Ukraine’s desires to join the European Union. When President Viktor Yanukovych refused to sign the EU Association Agreement, acting in the interests of the south and east, he was ousted by the Euromaidan protests and riots in the capital. The government which replaced Yanukovych’s Party of Regions immediately signed the agreement, took on colossal debts, and adopted catastrophic austerity measures.

This is how Russian separatists, far-right extremists, and paramilitary bandits were able to find support. Their militant actions burst the tension and made secession a real possibility for the first time. Now a decade of war and blockades has deepened the fissure between Donbas and Ukraine and, with the accession of Donetsk and Luhansk to the Russian Federation, this division may become permanent.