This past week has seen some dramatic moves by President Volodymyr Zelensky to reverse the damage to his credibility. The recent precipitous abandonment of a reform prime minister, Oleksiy Honcharchuk, and Cabinet in favour of new appointees with questionable credentials has created wide disbelief in his commitment to change.
The Verkhovna Rada has passed the crucial laws on land reform and, in the first reading, banking, which are key demands for receiving multibillion-dollar International Monetary Fund loans. With the defection of a significant number of members of parliament in the 248-member Sluha Narodu faction, these votes were achieved only with the support of the ex-President Petro Poroshenko, who controls a 27-member faction, and singer Slava Vakarchuk, who controls 20 members.
At the same time, the newly appointed minister of finance, Igor Umansky, who had questioned the need for IMF funding, was abruptly replaced by Serhih Marchenko, a proven reformer who had worked as a deputy of former Finance Minister Natalie Jaresko.
These moves are a critical signal that the policy of foregoing IMF support, which has been openly advocated by billionaire oligarch Ihor Kolomoisky and his acolytes in the Verkhovna Rada and in the media, is not being followed by the Zelensky government.
The abandonment of IMF mandated policies would have implied not only the loss of funding but also the effective end of significant economic reforms. In addition, the Kolomoisky proposed shift to Russian financing and collaboration has been halted. Also, important to note is that the influence of other oligarchic interests in the agricultural and banking sectors has been blunted. However, it has been recognized that laws must be enforced and not circumvented if the reforms are to be real.
The battle over the direction of policy is still far from over. First of all, the banking law still has not been passed in the second reading.
Opposition in the Verkhovna Rada is still most vocal and pressing for another reversal. The situational reform coalition is certainly not guaranteed to hold, particularly considering the level of animosity which has prevailed since the elections. The domination of the media, in particular television channels, by the oligarchs including billionaire Rinat Akhmetov, Kolomoisky, and tycoon Viktor Medvechuk, implies a steady drumbeat against reform.
Also, Zelensky’s approval ratings are continuing to fall and have now dipped below 50% lowering his ability to exert control and resist pressure.
At this juncture, a dimension which is critically needed to be addressed is the rule of law, including police, prosecutors and judges. With the recent change of the prosecutor general, a true reformer, Ruslan Riaposhapka, has been replaced with what appears to be a compliant Zelensky loyalist.
Interior Minister Arsen Avakov, whose ties to various oligarchs is suspected, remains in control of the police and security services despite the original pledge that the appointment was temporary. Evidence of possible corruption in the President’s Office has resulted not in efforts to establish the validity of the claims, but charges laid against the parliamentarian who exposed the tapes.
Judicial reform appears to be totally stymied with various judicial bodies continuing to be dominated by judges with questionable pasts. Various court findings, such as reinstatements of corrupt bureaucrats and managers, are continuing.
Highly questionable findings on the unconstitutionality of reform laws are occurring. Numerous decisions favourable to former bankers and shareholders, most notably in the PrivatBank cases, are evidence of likely corruption in the court system. There is an almost total lack of any convictions of the many former bank owners who brought their banks into bankruptcy through self-dealing and fraud. Prosecutorial attention instead appears to be on political retribution against the former administration.
It may even be concluded that, in the absence of proper judicial reform, any funding which is obtained from the IMF or other international institutions may well serve only to cover for corruption and fraud. Failure of the successful pursuit of the recovery of the massive funds spent by the National Bank of Ukraine in the restructuring of the banking sector is a clear example. The most prominent of these cases is the $5 billion related to the collapse and nationalization of PrivatBank. It is also a fact that many other former bank owners have not been charged with fraud nor pursued for recovery of funds. The state is effectively being pressured to abandon its claims to recovery.
It appears that under the pressure of deteriorating economic conditions and with the crisis created by the COVID-19 pandemic, the Zelensky government is desperately seeking funding from the IMF. This funding is crucial to avoid total financial collapse and default as private capital markets have been totally shut off to Ukraine. Without a renewed commitment to the reform of the judiciary and prosecution, the funds raised may simply provide a temporary bridge and support the ongoing exploitation of the economy for narrow oligarchic interests.
It would be highly desirable if a formal coalition of reform-minded forces is created in the Verkhovna Rada which would continue the transformational process originally initiated by the Zelensky government. The reliance of the Zelensky government on anti-reform and Russian influenced factions to provide a majority in the Rada would be tragic. It appears that, once again, the country is at a crucial turning point which will determine if the future is to advance or to continue to be mired in the corrupt control of special and hostile interests. It is unclear if Zelensky has the will and the power to reverse the degradation in the reform process which his actions have created.
