Time for Ukraine to press reset button

A new government in Kiev has chance to reform, if it acts quickly.

By  ADRIAN KARATNYCKY 

3/31/16, 9:37 PM CET

Ukrainian President Petro Poroshenko waves to the crowd at a visit to Washington | Alex Wong/Getty 

KIEV — Ukraine’s complex, at times Byzantine, politics continues to confound and confuse.

Since independence, the main drivers of positive change in the country have been mass civic movements, Western economic pressure and incentives, and the necessity to act to avert economic disaster.

Nothing that will happen under a new government is likely to change that. But a new government is exactly what Ukraine is about to get.

In the coming days, President Petro Poroshenko will likely succeed in pushing through the election of his protégé, parliamentary speaker Volodymyr Groysman, as prime minister, and a new government will embark on a new reform trajectory.

Poroshenko’s main motivation for forcing a change in the government has more to do with long-simmering personal animosity towards current Prime Minister Arseniy Yatsenyuk, driven primarily by ego and aggrandizement, rather than policy differences.

Nevertheless, there is a chance that — at least for a short time — the new government will be able to push forward much-needed reforms. These include modest changes to the legal system, the privatization of inefficient state enterprises, and the reduction or removal of a wide array of rents that favor large businesses and oligarchs.

There are several reasons for short-term optimism.

First, Poroshenko, who hitherto counted on Yatsenyuk to bear the brunt of unpopular reforms, is increasingly viewed by Ukrainians as the leader most responsible for the country’s economic stagnation.

Poroshenko, moreover, realizes that unless rents are reduced and new revenue streams secured, Ukraine will have few resources to fund economic growth. He also understands that if courts do not protect property rights and enforce contracts, foreign direct investment will not come.

Second, the outgoing government was essentially a power-sharing arrangement between Poroshenko and Yatsenyuk in which both relied on the support of powerful, competing business leaders and oligarchs who command vast financial and media resources and have numerous proxies in parliament. By removing Yatsenyuk, Poroshenko is likely to put the squeeze on the oligarchs that the prime minister protected. That will increase state takings.

Third, the new government will have a good selection of reformers. Despite rumors about the imminent departure of key reformers from the current government, the list of names floated for economic posts is reassuring. These include former Slovak Finance Minister Ivan Miklos and the well-regarded former Microsoft executive Dmytro Shymkiv. There is also a good chance that former Polish Deputy Prime Minister Leszek Balcerowicz will serve as a key strategic advisor on reforms and will act as liaison with Ukraine’s unruly legislature.

Time is not on their side

Regrettably, even if it implements reforms, the life of the new government is likely to be brief.

The current parliament has a large cohort of populists, proxies of oligarchs, and rent-seeking businesspeople. These forces, coupled with a group of frustrated and increasingly rebellious members of the president’s own political bloc and an angry civil society, are likely to lead to new elections well before the current parliament’s term expires. New elections are likely to lead to an equally fragmented legislature. Or worse.

In short, any new coalition will be weak and given its likely razor-thin majority, its reform capacity will be of limited duration. So European and North American leaders should understand that in Ukraine, change inevitably comes in short, incremental bursts. That means policymakers should be prepared to nimbly react to opportunities to promote change when and if they occur.

Such a pattern of policy instability and inconsistency is likely to persist under the new coalition unless Poroshenko finds a way of building consensus between Ukraine’s political and business elites and civil society. Only by doing so can the country make a sustainable, long-term march toward reform. Any other approach is likely to lead to more of the same or to the empowerment of demagogic and populist forces.

Dmytro Shymkiv was an executive at Microsoft. A previous version of this article misstated his association. 

Adrian Karatnycky is senior fellow with the Atlantic Council and co-director of its Ukraine in Europe Initiative.