Foreign Affairs Committee on Feb. 16th, 2017

[Hélène Laverdière, NDP, Laurier—Sainte-Marie, QC]

Thank you very much, Mr. Chair.

I thank the witnesses for their presentations.

I'll leave the 30,000-foot altitude and come down to about 10 or 15 feet, just to better understand something in your chart.

There's a last line that is a composite index, which is always above zero, close to one, usually. What's the composite index? Sorry, it's the former sociologist in me who wants to understand.

[Samuel Charap]

Absolutely. It's the average of the eight post-Communist countries that joined the EU in 2004, so their scores are average.

[Hélène Laverdière, NDP, Laurier—Sainte-Marie, QC]

Okay, thank you.

One thing that also is striking in those charts is Georgia, which really stands out. Would you like to comment on that?

[Samuel Charap]

Yes, I think Georgia does represent a partial exception to the region's governance pathologies, and to a certain extent, that is a credit to the early years of the Saakashvili government when a lot of the functions of the state were dramatically improved. You see that in the regulatory quality, control of corruption, and government effectiveness.

What I would say is that on other measures here, like political stability, rule of law, and voice and accountability, Georgia does fall back to at least the top of the pack, but more in line with the rest of the region. I think what you've seen in Georgia is that there's been an improvement in governance, but that democratic institutions remain fragile. Nonetheless, it does demonstrate that, with the right combination of contingent factors, these things can change.

[Hélène Laverdière, NDP, Laurier—Sainte-Marie, QC]

I just want to underline that I started in French by thanking you both for your presentations, so here it is in English so that you can hear it.

It's very interesting. We had a witness in the first hour who said that Canada, in particular, has been quite invested in Ukraine, but said, essentially—and I don't want to destroy his words too much—that everything done by the international community hadn't led to good results because of the remaining level of corruption and everything.

Do both of you have any ideas as to the way forward with respect to Ukraine and to international support for Ukraine? What should we be aiming at?

[Anders Aslund]

I would be happy to talk on this. I have been deeply involved in the Ukrainian reforms. I've written two books and edited another two about Ukrainian economic reforms throughout the years.

What I would say is that the current reform wave has been enormously impressive. Ukraine achieved macroeconomic stabilization in 1994-95. In 2000, there was sufficient structural reform with deregulation and privatization to get economic growth of 7.5% a year for eight years. What we are seeing now is a massive anti-corruption and stabilization effort.

Let me give you just a few points. First, energy prices have increased for households 11 times. This means that three-quarters of the money from energy subsidies of 8% of GDP was previously given to a few oligarchs. This is gone.

The budget had a lot of money that was straightforward theft. As minister of finance, Natalie Jaresko cut the budget deficit by 8% of GDP in 2015 alone. That was essentially by doing away with corrupt expenditures.

Thirdly, as head of the central bank, Valeria Gontareva has closed almost half of the 180 banks in three years. The banks were, to a considerable extent, corruption machines. They were taking money from depositors and the central bank and giving it to the owners.

Ukraine has now introduced electronic open public procurement on a big scale, which hopefully can save 2% of GDP by more efficient and less corrupt public procurement. In the energy sphere, we have also seen a very substantial improvement of corporate governance, so that a number of top people can no longer divert the money from the state energy companies to their own pockets.

These are just some of the major reforms that have been carried out. Ukraine has done far more to fight corruption than previously. What is missing is judicial reform. The courts are now about to be reformed. We should see a new Supreme Court being formed at the end of March. That would be the start of a judicial reform.

The prosecutor's office has improved, but only somewhat. The police leave much to be desired. Canada is deeply involved in this, so I do not agree at all that this has been a waste. I do, however, think that the investment of western money has been far too small, therefore the western impact has not been sufficient to tip the balance when it comes to judicial reform.

[The Vice-Chair, Conservative, Dean Allison]

Thank you.

We're going to have to move on to the next round.

Mr. Robillard, welcome, and the floor is yours, sir.

[Yves Robillard, Liberal, Marc-Aurèle-Fortin, QC]

Thank you.

My question will be for Mr. Aslund.

Our very first witness today spoke about a renewal of Hungarian and Slovakian openness toward Russia.

Could you comment on that statement? How could this be beneficial to Russia?

[Anders Aslund]

Yes, with regard to Hungary, of course Viktor Orban, the Hungarian prime minister, has very much turned to Mr. Putin. We're seeing that he has changed the constitution in a not very democratic fashion, getting strong party control over all kinds of state institutions, including the media and supreme court. Democracy is in danger in Hungary.

With regard to economic links with Russia, the main thing here is a major nuclear power station that Russian state-owned Rosatom is supposed to build in Hungary with major Russian credit in the order of 10 billion euros. This is quite serious. I would not be so concerned about Slovakia. As evidence of the contrary, Ukraine now imports almost all of its gas from Slovakia, which is contrary to the interest of Gazprom. The current government is basically described as slightly left wing, slightly populist, but I don't see that democracy is in any danger in Slovakia, nor that there are any strong links to Russia.

[Yves Robillard, Liberal, Marc-Aurèle-Fortin, QC]

Thank you.

I will share my time with Mr. Saini.

[Raj Saini, Liberal, Kitchener Centre, ON]

Thank you very much, gentlemen.

I'll get right to the point. I love charts and graphs. Mr. Aslund, you created a graph in last month's Journal of Democracy magazine. To me, it seems a bit of a contradiction. I know, Mr. Chair, you also spoke about this. In that graph, you have nine countries; their transparency and freedom is greater than the rest. Within those nine countries, four of them are Visegrad countries, which are tilting towards Russia; and you have the Baltic states and Bulgaria and Romania that also have a pro-Russia tilt. Can you explain to me what the contradiction is? Why are the countries in that whole group that have the greatest freedom, the greatest prosperity, tilting backwards? And I'm not talking in general but as compared to others. Can you explain that graph to me?

[Anders Aslund]

Yes, happily so. Basically, this is where they start from. What Viktor Orban has done since 2010 has not been fully reflected there. I would only put Orban as pro-Russian. I would not agree that the other three Visegrad countries are pro-Russian in any regard. In the Czech Republic, you have the president, Milos Zeman, who is clearly pro-Putin, but he has very limited power. The parliament and the government are not tilting to Russia. I've already discussed Slovakia; I don't see that as pro-Russia. In Poland we have currently some tendencies to follow Viktor Orban, and at the same time we have massive popular resistence, so I'm not concerned about that. In Romania, the problem is not pro-Russia. Romania has all along, by tradition, been strongly anti-Russia. Part of it is that Romania is of Latin language origin, and part of it is that under Nicolae Ceausescu, the Russian secret police, the KGB, could not really operate in Romania while the KGB was overwhelmingly inside Bulgaria. In Bulgaria, we have a certain problem. The president is clearly pro-Russia, but he does not have all that much power.

[Raj Saini, Liberal, Kitchener Centre, ON]

You also wrote something else. You wrote, I think, last week or a couple of weeks ago that Russia has now achieved a certain semblance of economic stability. Can you elaborate on that point? For me, with the price of oil down to less than $50 a barrel, and in terms of the ties from the European Union loosening, if you look at even their oil price, the only big deal they've signed recently is with China to provide oil over I don't know how many years at $400 million U.S. How are they going to elevate their economy when the European Union and the Baltics are shifting away? The deals they're making with this Eurasian union are with countries that are also not as strong economically. They may have reached rock bottom or a point where they're not bleeding as much, but how are they going to elevate their economy?

[Anders Aslund]

That's an excellent question, and thanks for reading me so carefully. You have it just right.

The point is somewhat surprising, that Putin does not intend to raise the economy; he intends to get his political legitimacy from other sources. All these authoritarian rulers do not really care about economic growth. They care about two things: their own wealth and that they maintain political control.

That's what makes Putin's foreign policy so dangerous: that he wants to extract legitimacy for his rule through small, victorious wars. The Crimean annexation brought forth the ideal policy from the Putin point of view. Did it cost economically? Yes, but not very much. He could afford it.

He's very anxious to repeat low unemployment. Unemployment in Russia, as we speak, is 5.2%, according to credible statistics. He's anxious to get inflation down. It has fallen from 16% to apparently 5.4% in the last two years. These are things that he cares about. He also wants to have big international reserves. They are at $385 billion, one-third of GDP, which is very impressive.

Putin hopes to keep his people quiet not through a higher standard of living, but through just tagging along. It's a very undemocratic attitude, and therefore for us it's rather difficult to understand that he actually tries to operate like that, but the point is that so far he's successful.

[Raj Saini, Liberal, Kitchener Centre, ON]

Thank you.

[The Vice-Chair, Conservative, Dean Allison]

Thank you.

That's all the time we have today.

To our two witnesses, Mr. Charap and Mr. Aslund, thank you very much for being here today.

That's all the order of business we have for today.

The meeting is adjourned.