First, the resignation of Economy Minister Aivaras Abromavicius did not appear to be particularly coordinated within the reform camp in government, or with Western creditors – otherwise we might have seen mass resignations. Indeed, as it was four other ministers, who had previously tendered their resignations actually recommitted to re-joining the government under certain conditions.
Rather this appears to have been a very personal effort by Abromavicius to put the reform efforts of the government back on track after very significant evidence that established political/oligarchic elites were falling too quickly back into their old habits of using the political process and public administration for their own business interests.
Abromavicius has gone on record as suggesting that the Western-reform orientation of the country is currently in the balance, and it can go back to the past, or can be pushed forward. He has stressed the remarkable reforms instigated thus far – against significant odds – but that the old oligarchic and political order is staging a fight back/come back. I sense his decision to “fall on his sword” is an attempt to to rally the forces of reform – Western creditors, NGOs and civil society and the population – in defence of the country’s reform orientation.
Second, there are quite a few news/social media sources that have suggested that Abromavicius demanded – of both the president and the prime minister – as the price of his continued stay in office the formation of a technocratic administration, with the incumbent finance minister, Natalie Jaresko, replacing Arseniy Yatseniuk as prime minister.
This idea seems to have received little traction in the presidency and prime minister’s office.
Jaresko herself has kept her powder dry, calling for loyalty within the cabinet. She is seen as someone who could certainly freshen up the tarnished image of the government, both internationally and abroad, but her apparent reluctance to formally step forward perhaps reflects a range of factors, including understanding of the difficult challenges which the job entails, no doubt some exhaustion already from her role as finance minister, plus some residual loyalty to Prime Minister Arseniy Yatsenyuk with whom she has forged a close working relationship.
Jaresko perhaps still sees in Yatsenyuk a useful political foil both to the Rada, the presidency, and to oligarchic big business.
Would she step into the position if asked?
I sense yes out of loyalty to the national cause, but I don’t think she is a political player yet who would trample on her cabinet colleague to take the big job.
I guess also she would need sufficient assurances of “protection” elsewhere in the administration and also from international creditors before taking the plunge.
Third, as noted above, I do not think that the departure of Abromavicius was coordinated with Western creditors, albeit they may have been given some prior notice and hence has some time to formulate a coordinated response – in the form of the G7 ambassadors communication in support of Abromavicius.
Western creditors clearly share the same concerns as expressed by Abromavicius, and want to see a step up in reform progress/momentum particularly in the sphere of “rule of law” related reforms.
At the same time I think there is some nervousness about pushing the Poroshenko/Yatsenyuk administration too far to the point that the administration collapses and early elections ensue – with the concern that this just delays reforms, and creates an uncertain outcome, i.e. potential for the return to power of elements from the former ex-President Viktor Yanukovych regime, or even a hung parliament.
Western creditors would I think appreciate the reformulation of the cabinet around technocrats, and headed by Jaresko, but are also nervous that by supporting the removal of Yatsenyuk that Jarseko could not win parliamentary backing when key elements of the ruling coalition, and the opposition at this stage favour early elections.
Western creditors thus are likely still to dangle disbursement of International Monetary Fund, et al., credits over the Poroshenko/Yatsenyuk administration demanding a very significant revamp of the government, to include more Abromavicius style individuals, plus greater assurances that the administration can deliver on reforms related to the rule of law, e.g. perhaps significant changes in the much-criticized General Prosecutor’s Office.
A key date is likely to be Feb. 16 when Yatseniuk is set to defend his government’s achievements since taking office to the Rada. This could well be an explosive session – more “underhand” wrestling sessions are likely. We expect Poroshenko to try and revamp the government to avoid early elections, supported still by Yatseniuk given his one lowly poll ratings.
In terms of scenarios now:
Scenario A:
Yatsenyuk survives at least for the next six months, with a reformed cabinet, with some sop to the international community over rule of law related issues. The market probably rallies from oversold levels, as IMF monies likely come back on stream, albeit reform momentum remains piecemeal and Western credit disbursements are subject to frequent delay. The coalition might still collapse within the year, forcing early elections.
Probability: 45%
Scenario B:
Yatseniuk is dismissed, and Jaresko assumes the role of prime minister. This would be very market friendly, and the market would rally hard albeit it could take some time for Jaresko’s appointment to be affirmed by the Rada and markets would likely drift lower until then. IMF credits would come back on stream, and this scenario probably offers the best chance of successful reform implementation.
Probability: 15%.
Scenario C:
Early elections, with Poroshenko’s Solidarity Bloc and the Opposition Party emerging as the two largest parties and forging a ruling coalition. The market might initially drift wider through an election campaign and then amid concern over policy paralysis. But the market might rally upon the formation of a coalition as I think Western financing would remain available, especially if, as expected the coalition retains the Western reform orientation, albeit at a slower pace. Western credits would be slowly disbursed with tough conditionality, in something of a repeat of relations with the IMF for the period 2011-2013 under Yanukovych.
Probability: 15%
Scenario D:
Early elections, but with the new political force of former Georgian President Saakashvili doing well, perhaps even topping the polls, with Solidarity, the Opposition Party, Batkyivchyna, and Samopomnich sharing out remaining seats. Poroshenko then has to chose between nominating Saakashvili or Tymoshenko as prime minister, in a very tough choice. A Solidarity hook up with Saakashvili’s force, plus Samopomnich would present the most radical reform agenda (15% probability), with Tymoshenko as prime minister (10% probability), with Solidarity and the Opposition Party, would likely be much less reform orientated.
Either a Saakashvili or a Tymoshenko prime ministership would suggest difficult/tense relations with Poroshenko – repeat perhaps of the Yushchenko-Tymoschenko experience after the Orange Revolution.
In either scenario relations with the IMF could be tricky, albeit initially the market might like the scenario of Saakashvili heading a reform team. Russia would though likely be less than enthused, given that they were very eager to see the back of him in Georgia. Saakashvili also has mixed support in the West – Europeans (and some Democrats in the US) view him as having been overly antagonistic towards Russia in the run up to the 2008 Russo-Georgian war.
