Ukraine before “a perfect storm”

Sergiy Gerasimchuk, Foreign Policy Council "Ukrainian Prism"

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There was no peace and quiet following recent presidential elections in Ukraine. Political summer promises to be boiling hot. Vododymyr Zelensky and his team wish to follow up their spring success with early elections and government change. This scenario is far from being impeccable from a legal standpoint, however, current Ukrainian politics is dominated by political expediency. Financiers and international partners are bracing themselves for what is to come. It is yet unclear if the ship named “Ukraine” can survive its “perfect storm” and whether the ship’s new captain can avoid “shipwreck”.

Domestic Policy

Zelensky vs Parliament: constitutional crisis and early elections

The major development of Ukraine’s political arena in May was undoubtedly the inauguration of Volodymyr Zelensky and his first steps as the president of Ukraine. In his inauguration speech on May 20, the newly elected president stated that the parliament  must be dissolved and called on the Cabinet of Ministers to step down. The decision on dissolving the Verkhovna Rada (questionable from a legal standpoint) was taken by the sixth president of Ukraine and was reflected in the corresponding decree. Therefore, a new race for early parliamentary elections started. The elections are set for July 21.

During the meetings the new president held with the heads of parliamentary groups and factions a decision was made to hold an extra parliamentary session. Volodymyr Zelensky demanded to adopt some legislative changes concerning parliamentary elections, namely lowering the parliament’s threshold from 5 to 3% and rejecting  the electoral system majority component (when a half of MPs was elected in 225 constituencies). However, Ukrainian MPs did not support any initiatives proposed by the president. On the other hand, Volodymyr Zelensky, despite his campaign promises, did not introduce a draft law on open list election system to the parliament. There wasn’t any mention of the impeachment law promised by him as well.

The president’s decision to dissolve the Verkhovna Rada and set up a date for snap election got a mixed response from Ukrainian MPs. As a result, 62 MPs appealed to the Constitutional Court of Ukraine against the presidential decree #303/2019.

Together with this appeal to the Constitutional Court of Ukraine, two claims were received by the Supreme Court of Ukraine demanding that the presidential decree #303/2019 signed on May 21 be ruled null and void. However, it is likely that these court rulings will be ready only after the elections.

Another controversial decree #304/2019 signed by Volodymyr Zelensky was the one appointing Andriy Bogdan the Head of the Presidential Administration, the move that resulted in protests among legislators. The legitimacy of such appointment was questioned by Deputy Minister of Justice Serhii Petukhov, who stated that Mr. Bogdan was cooperating with the administration of Viktor Yanukovich, the president who fled the country, therefore making him subject to the lustration law.


Financial circles awaiting new political reality

Up until recently Ukraine’s political battles made little impact on its economic processes, however, it seems that the situation started to change in May. According to the World Bank 2018 report, Ukraine’s economy grew by 3,3%, while investors’ trust is limited due to erratic reform process and electoral uncertainty. The World Bank 2019 forecast is for the country’s economy growth to make up 2,7%. Further reforms could improve these indicators up to 3,4% in 2020 and 3,8% in 2021. Difficulties related to further reform implementation (including health care reform, pension reform, government administration reform and social aid reform) will result in 2% loss.

The answers to the issues regarding the plans of new authorities are sought by the IMF mission that arrived in Kyiv on May 21, in order to evaluate the implementation of the current stand-by program. Already in early May the IMF Managing Director Christine Lagarde declared support for Ukraine in the future. However, it is obvious that the heat of political battles in the country somewhat decreased the optimism among international financiers. Now, according to the IMF spokesman Gerry Rice, next IMF tranches will most probably reach Ukrainian accounts only following the elections and forming a new government.

Aside from political risks and a high chance for slower reforms, Ukraine’s financial partners express their concerns regarding the fate of Privatbank (that used to belong to a Ukrainian tycoon Igor Kolomoisky). As of now, the National Bank made an appeal regarding the verdict ruled by Kyiv District Administrative Court that challenges the decision of the National Bank leading to the nationalization of Privatbank in 2016.

Another confrontation between Ukraine and the Russian Federation adds fuel to the fire. Moscow protracts negotiations on gas transit. In its turn Ukraine is trying to claim damage worth $11-14 bn related to accelerated technical depreciation and losses due to the possibility of losing its gas transit starting 2020.

Foreign Policy

Zelensky and global leaders: welcome to the club?

Mr.Zelensky’s inauguration was attended by US delegation led by US Secretary of Energy Rick Perry (he stated that US will continue supporting the people of Ukraine). European leaders such as the presidents of Hungary, Latvia, Lithuania, Estonia and Georgia attended the official events on the occasion of the inauguration. As for the EU officials, the vice president of the European Commission Maroš Ševčovič was present. The president of Ukraine also had a telephone conversation with the Chancellor of Germany. They discussed further political dialogue between the two countries and the issue of restoring peace in Donbas region.

Vladimir Putin was not invited for the occasion. However, he was reminded of Ukraine in a different way. One of the most important May developments not only for Ukraine, but also for the entire civilized world was when the United Nations Tribunal ordered Russia to release Ukrainian sailors and ships captured in the Kerch Strait in November 2018.