Yearender: Ukraine sees glimmers of hope to go out of crisis, but a long way to reach national stability

The deep political and economic crisis that has gripped Ukraine for two years is now easing, as the conflict in its eastern region has partially subsided and its economy has seen a glimmer of light for recovery.

Despite the encouraging signs, the country still has a long way to go before an overall political stability is regained.

PEACE STARTS TO TAKE SHAPE

Although the year of 2015 has been hard for Ukraine, the international diplomatic efforts to settle the situation did yield some positive results.

In mid-February, leaders of Ukraine, Russia, Germany, and France reached a landmark cease-fire deal in Minsk, the capital of Belarus, providing a clear 12-point roadmap for resolution of the conflict that has claimed more than 9,000 lives.

Although the deal has not been fully implemented and the road is neither quick nor easy, currently a much-anticipated peace is coming to the restive region as guns fall almost silent along the entire frontline and displaced people are returning.

"Of course, it is too early to speak about an complete end to the conflict, but now it is safe to say that a lasting cease-fire is being established. In order to ensure the comprehensive peace, the sides still have much work ahead," said Vadim Karasev, the director of the Institute of Global Strategies.

However, while violences and tensions have decreased, risks of armed conflicts still remain.

First of all, the rival sides have found little common ground concerning the future fate of the insurgent-held areas.

In addition, questions also remain over when all heavy weapons will be withdrawn from the frontline, when all prisoners will be released by both sides, and when Kiev will regain control of the Ukrainian border in the insurgent-controlled areas as prescribed in the Minsk peace deal, which is due to expire on Dec. 31.

Besides, the prospects for an early end to the conflict are dimmed by Kiev's decision to boost military spending next year to 5 percent of its gross domestic product, a record high since Ukraine's independence.

SIGNS OF FRAGILE RECOVERY APPEAR

As the conflict that took a heavy toll on Ukraine's backbone industries and its overall business activities is easing, the country's economy is showing initial signs of recovery.

After almost two years of drastic decline, Ukraine's economy expanded 0.7 percent on a quarterly basis in the third quarter. The growth, plus other latest positive macroeconomic data, indicated that a return to growth might be on the horizon.

In October, Ukraine's industrial production showed an increase for the second consecutive month, foreign exchange reserves have doubled comparing with the beginning of the year, and the exchange rate of the local currency has been stabilized.

"The Ukrainian economy has bottomed out and gradually returning to growth. If the external and the internal political situation could remain at least at the present level, next year we can expect an economic growth of 2 percent," said Alexander Sokolov, the chief executive of the Pro-Consulting investment company.

Yet, his optimism may be premature. The bad news is that the current stabilization was achieved not through the structural economic improvements, but mostly on the back of international loans, which should be repaid in the coming years.

Instead of squandering the loans on its everyday needs, Ukraine should use the funding on implementing reforms, which could be unpopular in the short-term, but will bring results in future.

"The current model of the Ukrainian economy is absolutely outdated. If we do not carry out reforms, we would actually jeopardize the existence of Ukraine as an independent state and the country would experience a permanent crisis," said Igor Burakovsky, the head of the Kiev-based Institute for Economic Research and Policy Consulting.

POLITICAL CONTROVERSIES REMAIN

Implementing deep political and economic reforms, ending the conflict and improving the well-being of Ukrainians were the main pledges of pro-Western authorities, which took over the country in 2014 when street protests toppled the previous government.

Yet, the pledges were not fully met and one of the main reasons was due to disagreements within the ruling elite.

Just as in previous years, Ukraine's main political players continue searching ways of achieving political advantage over each other, instead of working as a single team to develop the country.

First of all, it applies to the settlement of the conflict in Donetsk and Lugansk, which is perhaps Ukraine's biggest problem at the current stage.

While President Petro Poroshenko and his allies have proposed to solve the conflict through granting the restive areas a special status, enshrined in the constitution, three major parliamentary parties have rejected it, saying that boosting the autonomy of the conflict-torn regions will "break the country apart."

On Aug. 31, a parliamentary vote over the autonomy for eastern Ukraine triggered an unrest outside the parliament building, in which three policemen were killed and more than 100 wounded.

The tensions underlined how difficult it would be for the bill, which is included in the text of the Minsk agreement, to win a final approval from the two-thirds of the country's lawmakers in the second reading, whose precise date has yet to be set.

Another bone of contention among the Ukrainian policy-makers is how to further develop national economy. The government and the parliament have differed in a range of economic reforms, such as tax code amendments, austerity measures for next year, energy sector reform and changes of business regulations.

The disagreements over the taxation reform and the draft 2016 budget have already resulted in a delay of disbursement of the International Monetary Fund's (IMF) third aid tranche for Ukraine. And if the country further holds back its economic reforms because of disagreements between the cabinet members and the lawmakers, it risks losing all financial support from the international lenders.

The ruling parliamentary coalition is also itself on the verge of breaking up, because of antagonisms inside it. At the beginning of September, the Radical Party, which controls 21 seats in the 450-seat parliament, announced its withdrawal, meaning that the remaining four factions lose the 300 vote majority needed to amend the constitution.

Currently, certain lawmakers from different political parties continue to drop from the coalition one after another, signaling that the ruling majority may remain even without 226 votes needed for adoption of routine laws.

Looking at a larger picture, it appears that the Ukrainian policy-makers, some of whom are believed to be controlled by big businesses behind the scenes, are acting as a circular firing squad.

The president, whose popularity appears dimmed by a lack of progress in much-promised fundamental changes to the country, cannot really rely on the government and the parliament. And such a fact trims his influence among foreign partners and undermines the international credibility of Ukraine.

FOREIGN POLICY IMBALANCED

The country's foreign policy also finds itself in difficult straits. While Ukraine's relations with the European Union (EU) in particular and the West in general have strengthened, its ties with Russia, which used to be Kiev's essential trade and political partner for decades, had further deteriorated in 2015.

Ukraine's course westwards, launched in 2014, was cemented in 2015 after Kiev has surprisingly passed all the reforms set by the 28-member block to obtain a visa-free travel following five years of delay.

Ukraine's closer ties with the West have also further fueled its tensions with Russia, which have been deteriorating since last year over the developments in Crimea and eastern Ukraine.

This year, the two ex-Soviet neighbors have exchanged sanctions targeting their airlines, military sphere, and some other sectors. Currently, they are threatening to introduce a food embargo against each other starting from next year.

While the Ukrainian authorities are undaunted in their devotion to developing ties with the West, believing that the free trade with the EU will compensate for losing the Russian market, analysts warn that curtailing trade ties with Moscow could be devastating to the Ukrainian economy.

"All markets have different conditions, different tastes and standards. When one market is closing, it is impossible to automatically enter the other, selling the same volume of goods," said Alexandr Zholud, an economist at the International Center for Advanced Studies.

Apart from economic aspects, Ukraine's pivot to the West is also defined by the country's military policy, especially by the creation of a joint military unit with Poland and Lithuania and rhetoric regarding a decision to join NATO one day.

But despite the changes in Kiev's foreign policy priorities, the issue whether to forge political, economic and military ties with the West or with Russia remains deeply controversial in the country, with people in the country's west, north and center are Europe-oriented, while people living in east and south are more Russia-oriented.

If these differences are not properly managed, they could eventually bring a serious trouble to the authorities.

In the current circumstances, it could be better for Ukraine to pursue an independent strategy with a non-aligned status, pragmatic economic dialogue with all international partners and a balanced policy between the East and the West in foreign relations. Endi