Herein are a few further reflections on the political “crisis” panning out in Kyiv, and remember that this comes only six weeks after the last crisis over the passage of the 2016 budget and revised tax code which had at the time appeared to risk mass resignations from reform ranks, and perhaps then the collapse of the ruling “reform” coalition.
After the budget/tax code finally passed, I and most people expected a period of relative political calm, where further reforms could bed down. Indeed, after two trips to Kyiv over the past month the sense then had been that if anything the constitutional reform process was the bigger near term risk of fracturing the ruling coalition than infighting over the battle against corruption.
In the end the battle against graft appears to have come to a head much sooner than expected, with the resignation of the reformist minister of economy, Aivaras Abromavicius, and subsequently his four deputies, and after making very direct accusations of wrong-doing (attempts to place “connected parties” in key positions in the management of state-owned ministries and within the ministry) against a very close ally of President Petro Poroshenko, Ihor Kononenko. The resignation hit to the very heart of criticism of the current administration (Kononenko is a close personal friend of Poroshenko and a business partner), i.e. that not enough is being done to address the number on one policy issue currently in Ukraine (as revealed in numerous opinion polls), i.e. establishing the rule of law, and rooting out graft and corruption. Indeed, many people argue that despite the Maydan protests which were essentially about this very issue, the same kind of people – oligarchic business interests – are back dominating government, the judiciary and the political process.
In many respects Abromavicius’ move was brilliantly timed, taking the Poroshenko/Yatsenyuk administration off guard, and the follow up support by G7 ambassadors and Western creditors has been “strategic” – some argue planned to keep reform momentum going, and to try and prevent cozy old practices to settle back in.
A fairly large-scale cabinet reshuffle had been planned already this year, after resignations already of four ministers earlier, including infrastructure, health, agriculture, and information. The assumption had been that there would be a spring clean, rather than wholesale transformation. But Abromavicius’ resignation presents two particular challenges for Poroshenko:
First, the intervention of the G7 ambassadors, alongside IMF chief Lagarde, expressing concern over the departure of Abromavicius has raised concern over the future of IMF-related credit disbursements. Can the IMF still move to release the latest USD1.7bn credit tranche under the IMF EFF, with the waft of corruption currently hanging over the administration. Again Abromavicius’s timing seems perfect – he struck just prior to the IMF board meeting to decide on the disbursement. And without IMF backing the recent macroeconomic stabilisation achieved would now be under threat.
Second, there have already been calls for early elections, with two of the smaller parties in the ruling coalition (Tymoshenko’s Batkivchyna, and Samopomnich) threatening to withdraw from the ruling coalition and force early elections unless there are far reaching reforms of the coalition extending perhaps to the prime minister, Arseniy Yatsenyuk himself. Without the support of these latter two parties the combined forces of the Bloc of President Petro Poroshenko and Prime Minister Arseniy Yatsnyuk’s People’s Front would fall a handful of seats short of the 226 majority in the Verkovna Rada.
But opinion polls currently suggest that the ruling parties, perhaps with the exception of Batkivchyna, would perform poorly in early elections.
The Popular Front likely would fail to cross the threshold required to secure parliamentary representation.
The “winner” would likely be the Opposition Party formed largely from the remnants of former President Viktor Yanukovych’s Party of Regions party, with the Bloc of Petro Poroshenko coming second, in a close fought contest with Batkivchyna and then likely Samopomich Party following close behind.
Something of a unknown is how former Georgian president Mikheil Saakashvili would play this. He is currently running Odessa regional administration, but has also been touring the country trying to forge a new political movement – he is currently the most popular politician in the country, followed by Andriy Sadoviy, the leader of Samopomich.
But it is unclear at this stage what early elections would mean for the likely composition of a reform administration.
The most stable potential coalition would be the Bloc of Petro Poroshenko with the Opposition Bloc, but many of the supporters of Maydan would view this as a total sellout (by Poroshenko) of the ideals of the revolution, and a return to the old script of oligarchic capture of the political process, and state administration, albeit no one talks still about a return to the pre-Maydan status quo in terms of the relationship with Russia, i.e. even in this latter scenario the overall orientation would remain West (more akin to how former Prime Minister Bidzina Ivanishvili reset Georgia’s relationship with Russia after the ousting of Saakashvili) in 2010.
Rumors have abounded that Abromavicius has made far-reaching demands for his continued stay in government – including perhaps the replacement of Yatsenyuk by the current minister of finance, Natalie Jaresko (would she want the job).
At this stage the West would likely support such a move, but for Poroshenko it would remove a foil if he is indeed reluctant to press ahead with the anti-graft agenda.
Jaresko, supported by Abromavicius and Western creditors, would likely press home their advantage in driving the anti-graft agenda which could extend right to the top of Ukraine’s political and business establishment.
Thus far Poroshenko seems to be trying to play for time.
Kononenko temporarily stepped down from his position as deputy leader of the Bloc of Petro Poroshenko, pending an investigation of the complaints made against him by Abromovicius.
Poroshenko has called for Abromovicius to rescind his resignation – which in any event has to be approved by the Verkhovna Rada. The Rada might fail to accept his resignation, albeit this would just leave the Ministry of Economy drifting – a concern given some key reform benchmarks are looming, including some high profile privatisations.
In the end the resignation of Abromovicius could prove to be a key turning point for the pro-European Union reform agenda, and this particular administration.
The critical question which reformers and the West will now be asking is: is Poroshenko really willing and able to address this key issue of the rule of law or, rather, is he just part of the system which shaped the perversely corrupt way that business and politics are conducted in Ukraine?
On which side of the fence does he sit?
Can he change the system from which he himself has emerged as a successful businessman and now politician?
And therein I am not making any claims or otherwise against Poroshenko as I am in no position to judge, and in many respects he has proven a capable president (particularly in the pursuit of peace over the conflict in Donbas).
He may well seek to stall, buy time, perhaps by offering to remove the much-criticized prosecutor general, Viktor Shokhin, albeit many people still argue that the very institution is corrupted now to its core and needs total root and branch reform. He may also look to marginally reshuffle the cabinet, but still looking to retain Yatsenyuk as prime minister. This might be aimed at avoiding the uncertainty of going to early elections – albeit some would just argue that this is just to avoid/delay addressing issues related to the rule of law.
An alternative, very positive outcome from all this would be for Jaresko to be appointed prime minister, with new reform energy injected into the government. The question then would be could Poroshenko retain the unity within BPP, as the party has already appeared riven by rivalries as reflected in the battles over the 2016 budget and tax code. Some might look to split the party in order to bring the coalition down and force early elections and thereby stall the anti graft agenda being rolled out.
The third scenario is early elections, but for many People’s Front deputies this would mean they would lose their seats in parliament – this might encourage them to cut a deal to allow Yatsenyuk to move aside in favor of Jaresko. But as noted above, early elections would risk the return to office of the Opposition Party (with the Bloc of Petro Poroshenko), and for some a return almost to a Yanukovych II scenario, but with Poroshenko appearing as a somewhat more reformist version and still more likely appearing Western-oriented.
In this scenario the West would still likely maintain its financing support for Ukraine, albeit conditionality would be very tight, with a high probability that the IMF programme would go off track for extended periods – pretty much in a repeat of the last but one IMF programme in 2011. But rule of law related reforms would drag, and underlying problems in this respect would unlikely be addressed, stalling Ukraine’s long-term growth potential.
The plus from all the above political machinations is that as long as domestic political tensions persist in Ukraine, the less likely that Russia will look to escalate the conflict in Donbas, as it will assume that Ukrainian political elites will inevitably self destruct as occurred in the aftermath of the Orange Revolution in 2004-2005, ensuring eventual delivery on Russia’s long term strategic interests in Ukraine.
Net net, messy, with lots of different scenarios likely, from muddle through, early elections and a much more bullish pro-reform outcome if Poroshenko is finally, really serious about addressing rule of law issues.
