Ukraine's Political Crisis Worsens as Calls Grow to Oust Cabinet

  • Members of president's party seek backing for confidence vote
  • PM Yatsenyuk to address parliament on government performance

Ukraine’s political turmoil deepened as infighting left the pro-European government and a $17.5 billion international rescue loan in the balance.

Markets tumbled as members of President Petro Poroshenko’s party unexpectedly joined efforts to oust Prime Minister Arseniy Yatsenyuk, who’ll to report to lawmakers Tuesday in Kiev on his cabinet’s performance. Facing growing disquiet, Poroshenko had earlier pledged a government revamp to accelerate reforms and bolster efforts to stamp out graft. Firing the cabinet would raise the possibility of early elections.

Ukrainians and the nation’s foreign backers are losing patience with delays in fighting corruption. With billions of dollars in aid at stake, two top reformers quit this month, alleging graft within the ruling coalition. The president and his team, swept to power after a popular uprising, arrived with a mission to bring European levels of transparency to the ex-Soviet republic after decades of misrule. They’ve also had to grapple with a recession and a pro-Russian insurgency that’s killed 9,000 people.

“This shows the very deep risk we have in the political space,” Gunter Deuber, a Vienna-based analyst at Raiffeisen Bank International, said by phone. “The situation is in deadlock and is very challenging. It’s also disappointing what’s been coming on the IMF front recently.”

Ukrainian bonds sank Tuesday, ending a four-day rally. The yield on notes due 2019 advanced 75 basis points to 11.63 percent, having climbed as high as 12.15 percent last week as International Monetary Fund Managing Director Christine Lagarde warned that the nation’s bailout may be halted by political infighting. A $1.7 billion disbursement from the Washington-based lender has been delayed since last year, holding up other bilateral aid.

The escalating political crisis adds to headwinds for Ukraine. Almost two years after pro-Russian separatists seized swathes of the nation’s easternmost regions, a peace accord to resolve the conflict has yet to be implemented. Three Ukrainian soldiers were killed in the past 24 hours, the worst casualties in three months.

The economy also remains fragile as it recovers from an 18-month recession, with the hryvnia losing 10 percent this year. Trade with Russia has been ravaged since the street protests toppled Ukraine’s pro-Kremlin leader in 2014. Russia is also threatening legal action over a $3 billion bond that Ukraine defaulted on after restructuring attempts failed.

Poroshenko and Yatsenyuk had sought to convey unity after Economy Minister Aivaras Abromavicius and Deputy Prosecutor General Vitaliy Kasko quit amid accusations ruling-party officials were actively blocking needed reforms. JPMorgan Chase & Co. and Bank of America raised their recommendations on Ukrainian debt to overweight late last week, saying the market was overplaying the risk of early elections. Franklin Templeton, Ukraine’s biggest bondholder, was said to be holding onto its investment.

A snap ballot remains a possibility. Members of Poroshenko’s party said after meeting last night that they’d begin collecting signatures to trigger a no-confidence motion in Yatsenyuk. If lawmakers dismiss the government, parliament would have 60 days to form a new one. Failure to do so would trigger early elections.

“The cabinet hasn’t fulfilled a single item of the economic program,” Irina Friz, a lawmaker from Poroshenko’s party, said late Monday in a statement. “The government reports that it’s fulfilled lots of tasks aimed at creating a favorable investment climate, but expected changes to improve business conditions didn’t materialize.”

As of 12:30 p.m. in Kiev, lawmakers had collected 110 of the 150 signatures needed to bring about a confidence vote, Serhiy Leshchenko, a member of Poroshenko’s party, said by phone. To pass, a motion would require 226 votes in the 450-seat parliament. While a motion is theoretically possible on Tuesday, Samopomich, a coalition party, said it’s more likely in March.

Within the four-party coalition, Samopomich and ex-Premier Yulia Tymoshenko’s Batkivschyna are seeking Yatsenyuk’s exit. Backing for his People’s Front party, parliament’s second-biggest after Poroshenko’s, has plunged to less than 1 percent.

Maksym Burbak, who heads Yatsenyuk’s party in parliament, warned Tuesday of the dangers of pushing Ukraine into early elections, saying such a move would play in to Russia’s hands by destabilizing the country.

“Implementation of this scenario will have catastrophic consequences for the state,” he told lawmakers.

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