Ukraine to Push for Cabinet Revamp as Another Reformer Quits

  • Anti-graft efforts in focus after IMF warns aid may be halted
  • Senior prosecutor follows reformist minister in resigning

Prime Minister Arseniy Yatsenyuk is set to report to parliament this week on government performance, with proposed personnel changes to follow.

Photographer: Krisztian Bocsi/Bloomberg

The political crisis roiling Ukraine’s post-revolution leaders is coming to a head after the International Monetary Fund threatened to cut off aid and another top reformer quit. If efforts to revamp the cabinet fail, the risk is early elections.

Prime Minister Arseniy Yatsenyuk is set to report to parliament this week on government performance, with proposed personnel changes to follow. While President Petro Poroshenko has vowed to “reboot” the cabinet and jump-start reforms, two small coalition parties want the premier to step down and one has called for a snap ballot. Adding to friction, a senior Ukrainian prosecutor resigned Monday, accusing his boss of graft. His exit follows that of the economy minister this month amid similar accusations.

Poroshenko and his team were brought to power after a popular uprising with a mission to bring European levels of transparency to the former Soviet republic after decades of misrule. While much of their two years in office was spent tackling a recession and a pro-Russian insurgency that’s killed 9,000 people, voters and Ukraine’s foreign backers are fed up with delays in fighting corruption. The hryvnia has lost 10.5 percent this year.

QuickTake Ukraine's Other War

“I don’t think the reshuffle is enough,” Lutz Roehmeyer, director of fund management at Landesbank Berlin GmbH, said by e-mail. “Early elections are unfortunately still possible. Foreign investors thought that this is the one and only chance to reform the country but now it seems that Ukraine falls back into old political behavior.”

While investors have taken some comfort from recent efforts by Poroshenko to bolster coalition unity and reaffirm Ukraine’s commitment to reform, yields on government debt due 2019 remain almost 2.5 percentage points higher than when they were issued in November after a $15 billion restructuring. Warrants that pay out if expansion in gross domestic product exceeds 3 percent starting 2019 have lost almost a third of their value.

Already dogged by infighting that delayed passage of the budget and held up disbursement of Ukraine’s $17.5 billion IMF loan, coalition tensions spilled over this month when Economy Minister Aivaras Abromavicius quit, alleging corruption inside the president’s party. IMF chief Christine Lagarde added to the pressure last week, saying it’s “hard to see” the bailout continuing without “substantial” reform and anti-graft efforts. Ukraine’s corruption perceptions ranking at Transparency International barely budged last year.

In another blow to Ukraine’s anti-graft ambitions, Deputy Prosecutor General Vitaliy Kasko submitted his resignation Monday, saying in a webcast that Prosecutor General Viktor Shokin has blocked corruption investigations and reform. Poroshenko, who appointed Shokin, has resisted calls to oust him despite a lack of progress to solve the murders of protesters in 2014 and recover funds allegedly embezzled by former officials.

“The Prosecutor General’s top officials have completed the job of making it the office of corruption and covering each other’s backs,” Kasko said. “Any attempt to change the situation inside the office is halted at once.”

Vladyslav Kutsenko, an assistant to Shokin, called Kasko’s move “a PR stunt,” saying the departing official was given the resources he needed to fight corruption. Geoffrey Pyatt, the U.S.’s ambassador in Kiev, called Kasko’s resignation “a blow to Ukraine’s reform progress.”

To ease the political crisis, Poroshenko’s is proposing a new reform schedule with the IMF and a cabinet overhaul, retaining reformers such as Finance Minister Natalie Jaresko. The plan is preferable to early elections as support for the parties of the president and the prime minister has tumbled: Yatsenyuk’s People’s Front is polling at less than 1 percent. Backing for the coalition’s two smallest parties -- Samopomich and ex-Premier Yulia Tymoshenko’s Batkivschyna -- has risen.

The coalition controls 261 of parliament’s 450 seats, with Samopomich and Batkivschyna holding 45, enough to require a new alliance is forged if they back out. Even a successful end to rankling over a new-look cabinet wouldn’t be sufficient to douse the idea of a snap ballot, according to Eurasia Group analyst Alex Brideau.

“A change might ease some of the tension, but I don’t think it will dispel it entirely,” he said by phone. “Within a few months, they’ll have to look at potentially changing the government, while reformatting the coalition. That doesn’t necessarily mean early elections would happen, but the risk does seem to have increased.”

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