Editor’s Note: This opinion piece was originally published on Jan. 7, 2021, by REDD Intelligence, a leading news and analytics platform that writes about emerging markets. The REDD Insight is a market comment produced by senior members of the REDD Intelligence CEEMEA newsroom. The views expressed in this report are solely those of the author and are not necessarily either shared or endorsed by REDD.
“I found out [from the impeachment trials] that Vladimir Putin doesn’t want me to be president.”
– Joe Biden
With President Volodymyr Zelensky’s leadership already mired in chaos, the shift in US foreign policy toward Ukraine under a Biden administration is likely to prompt significant political reshuffles in the coming months. Competing groups – Western-minded reformers; Russian-backed loyalists; domestic oligarch lobbyists – are hustling to secure power in this moment of disruption. A key target will be securing appointments in Ukraine’s government.
While Zelensky’s administration, and the broader Servant of the People parliamentary party, currently consist of all three, Ukraine’s political and economic direction will be determined by which influence group has the tightest grip when the dust settles.
With a Western-leaning government, Ukraine can expect stronger cooperation with the International Monetary Fund and development finance institutions, and be able to attract more participants to its still young capital markets. Reformers promise to level the playing field for business, easing access to capital and reducing the need for oligarch sponsorship.
For their part, the oligarchs would have less room to abuse their power, for example by reshuffling cash from more successful business enterprises into loss-making ones, which in turn would make their financial reports more trustworthy.
But if oligarch-backed groups seize control, Ukraine could revert to its pre-2014 regime, with policy negotiations dominated by a select few to benefit their enterprises and a non-reformed corrupt judiciary. Existing monopolies will remain unbroken – and likely grow stronger – and relations with the IMF are almost guaranteed to be strained even further.
Lastly, if Russia-aligned politicians continue taking over key political positions, the Ukraine-European Union Association Agreement can be expected to be further stretched, with more political turmoil and increasing military activity in the country’s east and perhaps south. Ukraine will also become more reliant on Russia’s natural-gas-dominated economy.
If the latter two groups succeed in their bid for dominance, some Western reformers may still be appointed, but they will not be placed in key roles and will be used as a distraction from the larger issue of Ukraine’s backsliding of reforms and unwillingness to cooperate with the IMF.
President Donald Trump’s efforts to push Zelenskiy into digging up political dirt on Joe Biden – in particular, asking Ukrainian prosecutors to open a case investigating any links between Biden and the notorious Burisma Holdings gas production company – put a dent in US-Ukraine relations.
However, reformists should have a stronger ally in the Biden administration than they did in that of Trump, potentially limiting the moves of oligarchs and Russian-backed influence groups. Joe Biden taking office seems to naturally push Ukraine towards the Western orbit, given his team’s strong anti-Kremlin stance.
But this also means the Kremlin will try harder over the coming weeks to push its own people into key positions in an effort to counter the Biden administration.
Reshuffle under way
Change is already afoot, with Zelensky having started his latest bout of reshuffles. For example, Yuriy Vitrenko, a former executive at state-owned Naftogaz, was appointed as acting energy minister on Dec. 21. Vitrenko has a reputation as a pro-Western reformer who led Naftogaz to its multibillion-dollar arbitration victory against Russian counterpart Gazprom.
Whether the appointment was window-dressing for an international investor audience or a meaningful statement of intent remains to be seen, but Zelensky will no doubt be hopeful that Vitrenko will stop his outspoken critiques of Naftogaz’s current leadership. On the same day Vitrenko was appointed, First Deputy Energy Minister Olha Buslavets – associated with Rinat Akhmetov-owned DTEK – wrote her letter of resignation.
A day later, Yuliya Kovaliv, deputy head of the Presidential Office of Ukraine and a member of the Naftogaz supervisory board, stepped down to be replaced by Yulia Svyrydenko.
Kovaliv built her name as a young pro-Western reformer – albeit one who tends to be reticent to criticize individual lawmakers publicly – during Petro Poroshenko’s presidency as the first deputy economy minister and head of the Office of the National Investment Council of Ukraine. Her replacement Svyrydenko is less known, although her controversial boss – Andriy Yermak, head of the Presidential Administration – is known to have business connections with Russia’s elite and served as a key mediator between Ukraine and the US during the Trump-Zelensky scandal.
Meanwhile, the future leaderships of two of the most important ministries in Ukraine are also uncertain.
Finance Minister Serhiy Marchenko, alongside some members of parliament, suggested that his tenure may be close to an end. As recently as Dec. 17, pro-Kremlin member of parliament Andriy Derkach registered a bill regarding the dismissal of Marchenko. Marchenko is Zelensky’s third finance minister in one-and-a-half years. Meanwhile, rumors are swirling that Economy Minister Ihor Petrashko, a former executive of oligarch-owned Ukrlandfarming, may soon be out of the post.
This is all happening as Zelenskiy’s popularity plummets. According to a poll published on Nov. 16 by the Razumkov Centre, head of parliament Dmytro Razumkov for the first time was more popular than Zelenskiy by a 5% margin. (The Razumkov Centre and Dmytro Razumkov are not related.)
Some 42% of respondents also named Zelensky as the political “disappointment” of the year and indicated that the Servant of the People party lost half its electoral support. Since then, a number of articles have been published regarding the rising prominence of Razumkov over Zelensky.
With the president’s popularity dwindling, it is possible to see even the oligarchs looking for a new image to back. The political chaos that has characterized the comedian-turned-politician’s tenure so far is not likely to settle any time soon.
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