Ukraine headed for a standoff between its two most powerful politicians
after Prime Minister Arseniy Yatsenyuk defied President Petro Poroshenko’s call
for his resignation and defeated a no-confidence motion in parliament.
The result threatens to conserve political gridlock that’s jeopardizing the
economy and billions of dollars of foreign aid. The motion to remove Yatsenyuk
can’t be repeated during the current sitting of parliament, which ends in July.
While Tuesday’s vote failed, it “demonstrated that this government already has
no parliament support, it will not be able to carry out laws,” said Yuriy
Lutsenko, the parliamentary head of Poroshenko’s party.
Ukrainians and the nation’s foreign backers are losing patience with delays
in fighting corruption and modernizing the economy amid a recession and a
pro-Russian insurgency that’s killed 9,000 people. Two top reformers quit this
month, alleging graft within the ruling coalition. The president and his team
swept to power after a popular uprising and promised to bring European levels
of transparency to the ex-Soviet republic after decades of misrule. They now
also have to contend with a deepening conflict within the government.
“Given the poor track-record, we still see significant risk from the
political story in Ukraine,” Dmitry Polevoy, chief economist for Russia and CIS
at ING Groep NV in Moscow, said by e-mail. “The process clearly needs to be
streamlined for the country to resume inflows of external funding from the IMF
and other official creditors necessary for a sustainable economic recovery and
overall financial stability.”
Poroshenko earlier called for a “complete government reboot” to end
political turmoil and urged the formation of a technocratic cabinet. That drive
ended when the no-confidence motion, co-authored by Lutsenko, garnered 194
votes, short of the 226 needed to oust the 41-year-old Yatsenyuk. Parliament
Speaker Volodymyr Hroisman closed the session immediately after the vote.
The result means the risk of early elections was averted.
Ukrainian government bonds had pared losses after Poroshenko’s comments,
when he also sought the removal of Prosecutor-General Viktor Shokin. Shokin
later in the day submitted his resignation, Mustafa Nayem, a member of the
presidential party, said on Twitter. The yield on notes due 2019 climbed 25
basis points to 11.13 percent after earlier jumping as high as 11.65 percent.
Yields surged last week as International Monetary Fund Managing Director
Christine Lagarde warned 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 previously sought to convey unity after
Economy Minister Aivaras Abromavicius and Deputy Prosecutor General Vitaliy
Kasko quit amid accusations ruling-party officials were blocking 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.
It now falls on Poroshenko and Yatsenyuk to get legislation through an
increasingly acrimonious parliament. While lawmakers on Tuesday approved a bill
to improve procedures for the sale of state assets, a key piece of legislation
to access IMF funds, their agenda includes a constitutional amendment to grant
regions more power. The latter is one of the provisions of the peace accord
signed a year ago in the Belarusian capital of Minsk.
Within the four-party coalition, the Samopomich party and ex-Premier
Yulia Tymoshenko’s Batkivshchyna group also sought Yatsenyuk’s exit. Backing
for the premier’s People’s Front party, parliament’s second-biggest after
Poroshenko’s, has plunged to less than 1 percent.
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