Ukraine Looks to Safeguard Coalition as Another Party Leaves

  • Samopomich follows ex-Premier Tymoshenko's party in quitting
  • Radical Party, which exited in 2015, says it's ready to return

Ukrainian Prime Minister Arseniy Yatsenyuk moved to shore up the ruling coalition and ease the threat of snap elections after this week’s failed bid to oust him.

Efforts to attract new members to the alliance appeared to pay off Thursday as the Radical Party said it’s ready to rejoin, having left last year. Yatsenyuk is courting other groups after ex-Premier Yulia Tymoshenko’s Batkivshchyna quit. Samopomich, another small party, left Thursday, effectively eliminating the coalition’s parliamentary majority.

“The acute phase of crisis will slowly evolve into negotiations to search for a compromise for the coalition to work,” Yuriy Yakymenko, an analyst at the Razumkov research group in Ukraine’s capital, Kiev, said by phone. “Parliament probably won’t be dissolved and the issue of early elections has been delayed.”

The former Soviet republic is grappling with its worst political crisis since a pro-European uprising dislodged its Kremlin-backed leader in 2014. The turmoil is jeopardizing the flow of aid from a $17.5 billion bailout and the economy’s recovery after an 18-month recession. Infighting over the slow pace of reforms prompted top modernizers in the government and prosecutors’ office to resign. The hryvnia has lost 9 percent this year.

Still hovering near their lowest levels since a 2015 restructuring, bonds gained on Thursday, with the yield on government debt due 2019 falling 12 basis points to 10.615 percent. JPMorgan Chase & Co. on Wednesday reiterated its overweight recommendation on Ukrainian debt, saying it’s still confident bailout funds will continue to be disbursed.

Political tensions have added to headwinds for Ukraine, which is struggling to reshape its economy and institutions. 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. Economic growth remains fragile, while Russia said Wednesday that it’s suing its neighbor in London over a $3 billion bond.

The crisis escalated Tuesday, when a surprise statement from Poroshenko called for Yatsenyuk to step down and a government of technocrats to be installed. A no-confidence motion later in parliament didn’t muster enough support to oust him. Samopomich has called for a re-run, saying the process was a plot hatched by Poroshenko and Yatsenyuk.

Avoiding ‘Abyss’

Speaking Thursday after a party meeting, Oleh Berezyuk, who heads Samopomich in parliament, said the group would withdraw from all of its ministerial roles. The Radical Party has 21 of the legislature’s 450 seats, meaning its alliance with the President Petro Poroshenko bloc and Yatsenyuk’s People’s Front would create a new majority.

Once Samopomich’s departure has been confirmed in parliament, parties will have 30 days during which to officially register their new coalition.

“I’m ready to give a hand to anyone who cares about the country,” Radical Party leader Oleh Lyashko told lawmakers in the capital, Kiev. “We’re ready to take part in forming a new coalition, in a forming a new cabinet that will pull the country back from the abyss.”

The government no-confidence vote followed the exits of Economy Minister Aivaras Abromavicius and Deputy Prosecutor General Vitaliy Kasko, who accuse ruling-party officials of blocking reforms and engaging in corrupt practices. Their departures drew concern from allies such as the U.S., while International Monetary Fund Managing Director Christine Lagarde warned Ukraine’s bailout may be halted. A $1.7 billion transfer from the Washington-based lender has been delayed since last year, holding up other bilateral aid.

‘Political War’

Poroshenko’s party, which leads the coalition, reiterated a call to name a cabinet of technocrats, retaining officials including Finance Minister Natalie Jaresko. It gave Yatsenyuk three weeks to make proposals. The prime minister on Wednesday urged unity to ease tensions and end what he called a “political war of everyone against everyone.”

While a new coalition based on Yatsenyuk’s and Poroshenko’s parties is likely, it probably won’t last long, Eurasia Group analyst Alex Brideau said Thursday in an e-mailed note.

“The cabinet and coalition will be weak, and another crisis with the coalition in the fall, leading to Yatsenyuk’s removal, is likely,” he said. “Negotiations will probably take up much of the next month, which will keep major policy decisions on hold.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE