I think there is disbelief with this cabinet reshuffle. The general line I have heard is what is President Volodymyr Zelensky doing? Just to reiterate what I said upon Zelensky taking office last year: This guy has the best opportunity to enact transformational reform of any Ukrainian leader over the past 30 years. He had:
* Political capital, having won a landslide election in the presidential poll and then also winning a landslide majority for his Servant of the People Party in the parliamentary election;
* The population wanted reform/change;
* Ukraine was still backed by the West, and the International Monetary Fund had a new loan program teed up to be signed off by the IMF board;
* The macroeconomic setting in Ukraine was the best I have seen in 30 years covering the country – low single-digit inflation, a stable currency, rising foreign-exchange reserves at the National Bank of Ukraine, falling interest rates, suggestive that investment was about to take off, a public debt ratio falling from over 90% to 50% and fiscal and current account deficits reduced to 2% of gross domestic product each;
* And markets had rewarded his team and Ukraine with a collapse in borrowing costs, on hard currency debt from 10% to less than 6%, and in hryvnia from 20% to 10%. Conditions were well set for recovery.
In the midst of all that he has decided to almost completely change the team, ousting the reformers, and going back in time to a team that would not look out of place in a Viktor Yanukovych cabinet, circa 2011.
He seems to have decided that the conditionality attached by the IMF to the new loan program – of going after oligarchs to recover losses from the 2015-17 banking crisis was just too difficult. Assuming no IMF support he seems to have been sold some snake oil by the old guard oligarchic industrial lobby that there is some other “quick fix” scenario where the budget and a weaker currency are used to pump prime growth, and that Ukraine does not need the IMF.
Now going back to Yanukovych circa 2011, that worked for a few years, and back then global monetary conditions were also favorable as they are now – so Ukraine grew rapidly in those years, but at a price of rising twin deficits and rising indebtedness and that all eventually ran out of steam in 2014.
But Zelensky had the winning lottery ticket on this one and seems to set to see it fly away in the wind being blown towards him by oligarchic vested interests.
It’s interesting that the fate of the former Prime Minister Oleksiy Honcharuk was sealed when his conversation with his economy team, and the National Bank of Ukraine, was recorded, and then published in the Ukrainian media (presumably by one of these same oligarchic vested interests) whereupon he was heard describing the fact that Zelensky had no grasp of economics. I think events this week have just proven that to be the case.
