Five things about Ukraine’s change of government

After just six months on the job, the government of Oleksiy Honcharuk, Ukraine’s youngest-ever prime minister, was dismissed this week and replaced with a new executive, raising concerns regarding the country’s commitment to reform.

During a special session of the Verkhovna Rada on March 4, 353 of the country’s 423 lawmakers voted to accept the resignation of Mr Honcharuk and disband his government, firing two-thirds of his cabinet.

Mr Honcharuk has been replaced by the erstwhile deputy PM Denys Shmygal (pictured above).

The appointment of Mr Shmygal, 44, who is supported by Ukrainian president Volodymyr Zelensky, was backed by 291 Ukrainian MPs.

A change in PM had been rumoured since January when Mr Honcharuk first offered his resignation over the publication of a recording in which he allegedly questioned the Ukrainian president’s understanding of economics. However, the final result of the shake-up – or, as some refer to it, the Wednesday massacre – caught many by surprise.

Here are five takeaways on what has happened in Kyiv this week and what can be expected in the future.

1. The government reshuffle raises concerns over the continuation of much-needed reforms

Despite having served as deputy PM for regional development, Mr Shmygal was considered a relatively low-profile figure in Ukrainian politics. Following an unsuccessful bid to run for parliament in 2014 as an independent, he briefly served as governor of the Ivano-Frankivsk region in western Ukraine until February 4 when he was appointed as deputy PM.

Between 2017 and 2019, he was one of the top managers of DTEK, the largest Ukrainian energy business holding owned by Rinat Akhmetov, the country’s richest oligarch. While he has repeatedly told the public that his hiring as a top executive was the result of a competitive selection process and that he had never met the Ukrainian oligarch, critics fear that his appointment could mean that Ukrainian oligarchs are seeking influence over the new government.

Some other figures, who might fill vacant cabinet positions also give reason for concern: Ivan Plackov, the country’s potential energy minister is also reported to have ties to Mr Akhmetov, while Roman Zhukovsky, whose mother is a financial manager for Dmytro Firtash, a Ukrainian oligarch facing bribery-related charges in the US, was tipped as a possible economic development minister. He has, however, so far declined Mr Zelensky’s overtures to be part of the new government.

From this viewpoint, it is not unsurprising that many see the current transformation as the return of the oligarchs who are desperate to bring reform to a halt.

Discussing what the change of government could mean, Melinda Haring, the deputy director of the Eurasia Center of the Atlantic Council, a US-based think tank, warns that “one take [from the reshuffle] is that Ukraine’s window of reform under Mr Zelensky is long gone, and it may have been a fantasy from the very beginning. This theory is not easily dismissed as poppycock. The picture in Kyiv today looks very grim indeed.”

One other interpretation of the change of guard is that Mr Zelensky wants to get all of Ukraine’s oligarchs lined up behind him as he attempts to take on Igor Kolomoisky, one of the country’s richest men who is looking to regain ownership of PrivatBank, the largest commercial lender in Ukraine. PrivatBank was nationalised in 2016.

2. Ukraine needs to quickly reassure its international partners

In light of its largely negative reception, the main task of the new Ukrainian government will be to offer immediate reassurances to the country’s allies and partners, particularly the International Monetary Fund (IMF). The unlikely government reshuffle came only a few days after an IMF delegation held talks with Ukrainian officials about a new, 5.5 billion-US dollar programme which was approved by the Fund last December.

“We view the changes sceptically, as also most of the ministers have been changed, which could be negative for collaboration with the IMF,” Andreas Schwabe, a senior economist for the CEE and CIS regions at Raiffeisen Bank International tells Emerging Europe, adding that there has not been any disbursal of funds coming from the staff-level agreed programme of late 2019, given the lack of Ukrainian legislation to better shield the nationalisation of PrivatBank.

Observers – including Mr Schwabe – point out that appointing Igor Umansky as the country’s new finance minister instead of keeping Oksana Markarova was one of the most unexpected moves: while Ms Markarova was a reform-minded figure, who has served as finance minister since 2018 and has built a reputation for Ukraine and a stable working relationship with the country’s international partners, Mr Umansky has largely criticised working with the IMF.

“The change of government means that we want even better and faster reforms in Ukraine. The government will continue with a prudent fiscal policy and constructive cooperation with the IMF and other foreign creditors of Ukraine. Achieving the long-term well-being of Ukrainian citizens and sustainable economic growth is our common goal,” Mr Shmygal said on March 5.

Mr Umansky has since then met local IMF representatives, saying that cooperation was an absolute priority to maintain financial stability and implement structural reforms.

If he wants to defy critics, he has to soon prove that Ukraine will stay on track.

“We expect the new government to demonstrate a similar degree of determination to pursue these reforms, including the fight against corruption, vested interests and important sectors,” the office of EU foreign policy chief Josep Borrell said, with the US Department of State echoing the sentiment whilst arguing that securing a new IMF deal is the fastest way to do so.

The reshuffle has also been criticised for the delay it could cause to a landmark agricultural reform which has the aim of supporting economic growth by allowing foreigners to purchase farmland in Ukraine after an almost two-decade-long moratorium.

“The government’s economic block is weakened as economy minister Tymofiy Mylovanov was not willing to be part of the new cabinet, so there is currently no one in charge on the economy and the important land reform,” Mr Schwabe stresses.

What does look set to remain unchanged is Ukraine’s pro-Western foreign policy.

“Our course remains the same. And for us the priorities are unchanged,” the Ukrainian president told the country’s lawmakers.

On March 5, Dmytro Kuleba, a longtime career diplomat and newly appointed foreign minister, whose appointment Ms Haring calls the “only good thing” coming from the reshuffle, noted that Ukraine would continue moving towards the EU and NATO, while achieving peace in the war-torn Donbas region, the territorial integrity and security of Ukraine, as well as public and economic diplomacy are his top priorities.

3. The shake-up was motivated by domestic politics

Addressing the Verkhovna Rada, Mr Zelensky argued that Mr Honcharuk’s cabinet needed to go for a number of domestic reasons, including not focusing enough on social spending, or the collapse of the country’s industrial performance in recent months, as well as failing to reduce smuggling.

The government shake-up also comes after Mr Zelensky’s approval ratings in February fell under 50 per cent for the first time since he was elected president in May 2019. With local elections set to take place in the autumn, the change in government can be seen as a move to reposition the ruling Servant of the People party as a more socially-conscious force that focuses on the well-being of average Ukrainians.

According to Timothy Ash, a London-based economist specialising in emerging Europe, technical politics also played a part: Mr Honcharuk lost capital after the Ukrainian president fired Andrey Bogdan from heading the presidential administration.

Mr Ash argues that the former chief of staff “wanted to run the government from the presidential palace” and needed a PM loyal to the president. His successor, Andrey Yermak, however, seems to be more focused on the country’s international relations, which is why the president’s team needs a prime minister who is capable of running the domestic agenda alone.

4. Oleksiy Honcharuk did a decent job

“[It] will be looked back upon as the cleanest Ukrainian cabinet ever – likely why it was removed in the end,” Mr Ash tweeted, pointing to Mr Honcharuk’s government that – amongst much else – stepped up privatisation and modernisation, resisted public pressure and kept market pricing in the energy sector, and successfully completed the unbundling of Ukrainian state energy concern Naftogaz’s gas transmission systems.

“What’s clear is that Prime Minister Honcharuk crossed Mr Kolomoisky by firing some of the latter’s loyal lieges at a state-owned energy company. Mr Honcharuk has been in the crosshairs of Ukraine’s most powerful oligarch as he tried to hold the line and prevent the crafty Kolomoisky from getting his old bank back,” Ms Haring adds.

Mr Schwabe highlights that the Honcharuk government kick-started many reforms, but did not have enough time to implement them properly. “Generally, it was good to touch issues, which were not touched by previous administrations,” he says about the Honcharuk government’s standing on land reform.

“Ukraine is not in a precarious external funding situation. However, if we see no progress with the IMF by late spring, this topic could become more prominent,” he continues, noting that it has yet to be seen how international investors, who have put five billion US dollars into local bond markets, will react.

5. Fears loom over the rule of law

Similar concerns have arisen after the Verkhovna Rada on March 5 voted to fire Ruslan Ryaboshapka, Ukraine’s prosecutor general for “not delivering” on crucial investigations such as that launched against former Ukrainian president Petro Poroshenko, who is accused of interfering with the judicial system, of attempting to stop PrivatBank’s nationalisation process, and of treason for signing the Minsk Agreements in 2015.

Mr Ryaboshapka, who backed Mr Zelensky during the 2019 presidential election, was also a central figure in the impeachment of US President Donald Trump for refusing to investigate Burisma, a Ukrainian energy company where Hunter Biden, the son of the former US vice president and Mr Trump’s main political rival Joe Biden worked as a member of the board.  Sergey Ionushas, a ruling party MP and a Zelensky loyalist is expected to take over as early as March.

“This is Ukraine at its very worst. [Former Ukrainian president Mr] Yanukovich put [former Ukrainian PM] Iulia Tymoshenko in prison on trumped up charges, and now Mr Zelensky seems to be aiming to do the same. Shame,” said former Swedish FM Carl Bildt, one of the architects of the EU’s Eastern Partnership, when the case was opened.

“We don’t know if Ukraine is back to the bad old days, but the picture is bleak. Every reformer and activist I know is depressed and determined to keep Ukraine on a pro-European path. All in all, Zelensky’s promises to fix Ukraine fast ring hallow,” Ms Haring tells Emerging Europe about Mr Ryaboshapka’s sacking.

The Ukrainian media has also reported that Bankovaya (Ukraine’s Presidential Palace) is now considering the removal of Artem Sytnyk, the head of the National Anti-Corruption Bureau, the only functioning Ukrainian anti-graft agency. Unlike Mr Ryaboshapka, Mr Sytnyk is more controversial: while he is seen as an independent figure and enjoys support from Ukraine’s international partners, domestic opposition has mounted over his alleged corruption and questionable prosecution efforts.

However, his removal from office could also reduce trust and potentially delay a long-awaited agreement on the IMF’s new funding programme.

Photo: Volodymyr Petrov