KYIV BLOG: Infighting rages in Ukraine as Yatsenyuk clocks a year in office

KYIV BLOG: Infighting rages in Ukraine as Yatsenyuk clocks a year in office
By Sergei Kuznetsov December 11, 2015

It's hardly an anniversary to pop a bottle of bubbly to, as Ukraine's embattled Prime Minister Arseniy Yatsenyuk marks a year in office. On December 11, he lost his statutory immunity from votes of no confidence, and now his rivals in other parties in the ruling coalition are vying for his job. Working in Yatsenyuk's favour, though, is that his opponents know any change at the top will precipitate a collapse of the coalition and another political crisis, and shatter the first fragile results of Ukraine's economic stabilisation.

"There are many criticisms levelled at the government, but whether this will lead to [Yatsenyuk's] resignation will become clear only later," Yury Lutsenko, head of President Petro Poroshenko's parliamentary faction, said on December 9, trying to avoid making any direct attack onYatsenyuk. "As soon as we have accepted the compromise version of the tax code reform and if we accept the budget for next year – only after that can we turn to the question of the government's responsibility."

Lutsenko's cautious stance is easily explainable. Ukraine wants to unfreeze the rest of the funds from the country's main donor, the International Monetary Fund (IMF) – the prerequisites for which include the passing of new tax legislation and a budget for 2016 that will be compliant with the multinational lender's requirements.

An IMF-compliant draft has the deficit at 3.7% deficit, while a rival draft prepared by the parliamentary tax committee has about a 10% deficit. The government is preparing a compromise tax reform, but the approval of this bill by the parliament will be impossible without the votes of lawmakers from Yatsenyuk's People’s Front.

Even more importantly, in the case of a vote of no confidence in Yatsenyuk and his cabinet, other parliamentary factions will be unable to find a compromise figure able to obtain the necessary 226 votes of lawmakers, Kyiv-based experts believe. That would be almost impossible in a situation whereby the People’s Front would refuse to support anybody other than Yatsenyuk.

A collapse of the ruling coalition apparently means only one thing – snap parliamentary elections. However, this would be a painful blow for the war-torn country, whose economy is displaying the first signs of stabilisation, specifically in the form of a firmer currency and an improvement in the fiscal position as fiscal policy has been tightened.

Western backers and international donors are unlikely to be happy about the prospect of fresh elections in Ukraine. 'We understand that the collapse of this coalition implies early parliamentary elections... The international community is also aware of this. The world has a certain fatigue concerning Ukraine, and all the talk about potential snap elections only increases this feeling," Ihor Kononenko, first deputy head of Poroshenko's eponymous bloc in parliament and a close business associate of the president, said on December 5.

Among the possible alternatives to Yatsenyuk that could be proposed by Poroshenko's team are the finance minister, Natalie Jaresko, and the governor of Odesa region, former Georgian president Mikheil Saakashvili.

However, speculation is growing in Kyiv that Jaresko could resign from the government due to her disappointment with long dispute over tax reform, approval of which is so badly needed for the country. "It would not surprise me to see minister Jaresko offer her resignation – to say 'back the budget or tax code or fire me'. I am not sure markets are taking enough notice of this," Timothy Ash, a credit strategist with Nomura International, said in a note to clients.

Saakashvili's candidature is also triggering doubts. His candidacy is unlikely to be supported by the People’s Front in parliament, due to a series of corruption accusations he has made against Yatsenyuk and his close associates.

"I don't cling to this chair"

"I took full responsibility for the most unpopular steps in our country, which nobody has done for 20 years... I did not come here for my own political rating, but to carry out reforms, and for the rating of our country," Yatsenyuk told parliament on December 11, adding that he was ready for a possible no confidence vote. "Put this issue [of no confidence] to the vote and vote... I don't cling to this chair."

However, Yatsenyuk is confident that his cabinet was able to achieve significant progress in terms of economic reforms over the past year. In particular, due to restructuring agreements, Ukraine's publicly guaranteed debt is currently at $66bn, while it was at $73bn at the end of 2013, during the final months of the ruling of ousted president Viktor Yanukovych. The country's international reserves rose to $13bn from $6bn before support packages with the IMF and other donors were agreed.

"The situation in the country's banking sector has also improved," the prime minister said in his address to the lawmakers, which was rudley interrupted by bizarre 'flowers and fisticuffs' scenes. First a lawmaker from the Poroshenko Bloc came up to the rostrum with a bouquet of red roses for Yatsenyuk, and physically tried to drag him down. Members of the prime minister's faction rushed to the scene and a brawl erupted, disrupting proceedings for several minutes until order was restored.

Biden's mission

The political forces led by Poroshenko and Yatsenyuk had high hopes for a visit by US Vice President Joe Biden to Kyiv on December 6-8 to try to resolve the current dispute. Yatsenyuk's team expected to hear public words of support for the prime minister, which would mean "approval" of his premiership. In turn, Poroshenko's team probably hoped to hear (in informal consultations) suggestions about who could replace Yatsenyuk.

However, Biden refrained from voicing any public support of the premier and his cabinet. At the same time, he warned the authorities in Kyiv against repeating the mistakes of pro-Western former president Viktor Yushchenko, whose tenure was mired by infighting, failure to conduct reforms and a dramatic drop in popular support.

"Ukraine's leaders proved incapable of delivering on the promise of democratic [Orange] revolution. We saw reforms put in place only to be rolled back. We saw oligarchs uninterested in change ousted from power only to return; reformers persecuted and thrown into prison as political retribution; and the bright flame of hope for a new Ukraine snuffed out by the pervasive poison of cronyism, corruption, and kleptocracy," Biden said, describing the aftermath of the first Maidan that brought Yushchenko to  power.

Avoid new infighting appears to be a clear message for Kyiv's elites. Can it be considered as approval of the current status quo, with Yatsenyuk as the prime minister? It appears the answer is yes.

"I sense that after the visit, [Yatsenyuk] will be staying. Biden's visit could further bring the ruling coalition together instead of enhancing his departure. In that [latter] case, Poroshenko would have to develop a new ruling coalition or announce early elections. These two options look less viable than continuing with the current arrangement," Balazs Jarabik at the Carnegie Endowment tells bne IntelliNews.

At the same time, Kyiv-based political experts believe the US is interested in keeping the balance of power, whereby no one political camp has its people in key positions. That is why the US administration will unlikely support the potential candidature of parliamentary speaker Volodymyr Hroysman for the post of prime minister. Hroysman belongs to the team of Poroshenko.

War of accusations

Meanwhile, the president's team seems to have launched an information attack against Yatsenyuk. Saakashvili, considered a close associate of Poroshenko, said on December 10 that Ukraine had lost up to $5bn annualy due to allegedly fraudulent schemes run by Yatsenyuk's close associates and oligarchs Rinat Akhmetov and Ihor Kolomoisky.

Meanwhile, the governor of Odesa region avoided criticising Poroshenko's close entourage, which is also at the centre of a set of corruption scandals. In particular, suspicions have arisen over possible fraud schemes run by Kononenko, which he categorically denies.

"The fact that [...] Saakashvili, rather than being a player at the highest level, has turned into one of many of those throwing accusations only at half of the [political] spectrum, forgetting about the president's friends, could drive one towards depression," Sergey Fursa at the Dragon Capital brokerage in Kyiv wrote on Facebook.

Poroshenko's bloc is also being shaken by scandals. In November, almost 20 of its parliamentary faction members accused Kononenko and another lawmaker close to the president, businessman Serhii Berezenko, of corrupt business schemes, and announced the creation of an "anti-corruption platform" within the faction.

It's not clear for now how the platform will act, however, the political divorce with Poroshenko's associates caused a great commotion in the local media. "It’s not a faction, it’s a mafia clan," Ukrayinska Pravda quoted bloc lawmaker Viktor Chumak as saying at a closed-door faction in November.