Economic Update

Published 22 Jul 2010

Unable to quell the bitter struggle within the Orange camp, Ukraine’s President Viktor Yushchenko took everyone by surprise early September by sacking the entire government led by his erstwhile ally, the charismatic hero of the Orange revolution, Yulia Tymoshenko.

While the divisions within Ukraine’s loosely knit Orange movement were widely anticipated, the political meltdown comes at a difficult time for the President, who is hoping to secure a favourable parliamentary election result in less than six months’ time.

Leaving himself somewhat vulnerable to a political backlash, Yushchenko is now faced with an increasingly disenchanted electorate, which brought him and his government to power nine months ago to give the underdeveloped country a fresh start.

To salvage the Orange revolution from being perceived a failure, Yushchenko’s newly appointed prime minister and long time ally, Yuri Yekhanurov, will need to get the economy and the dysfunctional government apparatus back on track quickly.

Yekhanurov, the Russian-born governor of Dnipropetrovsk and former chairman of the State Property Fund in charge of the privatisation programme, is, many analysts say, a capable and neutral technocrat who could help broker the more stable political environment that Ukraine needs right now.

He comes to office after the previous Tymoshenko government had been paralysed by constant quarrels between the president’s staff and government ministers, especially over the proposed re-privatisation plan.

As one editor of a Kiev-based newspaper told OBG this week, much of this faction fighting came out of the fact that the Orange movement was formed from a disparate group of political characters who were united against the former Leonid Kuchma regime, without a clear vision of their own.

Lacking in coherence, the administration was unable to deliver on some of the key promises made during the regime change, overseeing instead a period of slowing economic growth, rising energy prices and higher inflation.

Yet, while speculation had been rife for some time that the government might be reshuffled in autumn, no one foresaw such a swift unravelling of the grand Orange coalition.

Yushchenko’s unexpected decision came after a flurry of crippling resignations by senior presidential and government figures, who cited corruption among the president’s staff as the principal reason for their departure.

The political chain reaction was triggered by the resignation of Olexandor Zinchenko,
the president’s chief-of-staff who, some observers say, stage-managed the Orange uprising last year.

On September 6, Zinchenko accused Petro Poroshenko, the influential secretary of the Council of National Security and Defence (CNSD), and two other members of the president’s administration of using their power to advance their own interests. He then called upon President Yushchenko to sack them.

Refusing to answer Zinchenko’s calls, Yushchenko chose to stay firm in the face of the pointed criticism of his staff. Meanwhile, most observers expected the scandal would soon blow over, after Yushchenko accepted Zinchenko’s resignation and chose Oleh Rybachuk, the former vice-premier responsible for European integration, to succeed him.

However, political tension escalated two days later, on September 8, when Zinchenko was joined by Deputy Prime Minister for Humanitarian and Social Affairs Mykola Tomenko, who also tendered his resignation, restating the same corruption allegations directed primarily at Poroshenko.

At a press conference given after his resignation, Tomenko criticised the emergence of what he called “an oligarchic form of government run by Poroshenko, who has almost full control of the president”.

And while Poroshenko apparently tried to defuse the growing tension by tendering his own resignation to make way for what, he said would be “an unbiased investigation into corruption charges”, President Yushchenko decided to go one big step further, dismissing the entire cabinet and calling upon Yekhanurov to form a government.

In dissolving the cabinet on September 8, Yushchenko said, “We need to halt the disappointment in society and make sure that the ideals of the Orange revolution are not cast into doubt.” He accused his former colleagues of wasting their energy jockeying for power, while ignoring the country’s interests.

Having dealt the deathblow to Tymoshenko’s nine-month-old government, for President Yushchenko the political field remains wide open, replete with political pitfalls.

On Friday, Tymoshenko confirmed the widely held suspicion that she would run in the March 2006 elections “independently” of President Yushchenko’s party. Having performed valiantly during the revolution last year, Tymoshenko has a significant popular following in the country and could become a formidable opponent to the president.

Meanwhile, new Prime Minister Yekhanurov has signalled he will try to involve all the political groups, except for the Communist and Social Democratic parties, in forming the new cabinet, with some former ministers expected to keep their jobs. As for the President, he said on September 12 that above all he is looking to form a “pragmatic government” prior to the March 2006 poll.

When the parliament debates whether to accept his new ministerial line up, all eyes will be on Tymoshenko. As new political battle lines are being drawn, her further steps remain elusive. Now that she has decided to turn against her political ally, the Orange movement is slowly disintegrating, possibly undermining the prospects for radical change which the movement had promised to bring.