Coalition Building

Economic News

22 Jul 2010
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Although two months have passed since the March parliamentary
elections, efforts to come up with a working coalition formula in
Ukraine have so far failed to produce decisive results. As a result,
the stalled political process may delay a raft of long-awaited
economic reforms.

Despite early hopes of an Orange reunion between former allies
President Victor Yushchenko and former prime minister Yulya
Tymoshenko, their parties have so far been unable to resolve their

The March 26 election gave the divided Orange camp a numerical
victory, with the political blocs of Tymoshenko and Yushchenko
gaining 210 seats in the 450-seat parliament compared to the 186 won
by the pro-Russian Party of Regions.

Immediately following the election, analysts predicted that
Tymoshenko would resume the premiership after her party surprised
everyone by outperforming President Yushchenko's Our Ukraine party in
the March parliamentary race.

Yet despite numerous public declarations of intent to rebuild the old
Orange team, the parliament convened last week - for the first time
after the elections - without a working coalition.

The main obstacle, according to observers, is the question of who
should become the next prime minister. Tymoshenko's insistence that
she should have her old job back at any cost, political insiders say,
is proving too hard for the presidential camp to stomach.
Her opponents fear that if she were to resume her responsibilities as
prime minister, she may try to settle scores with her old foes or
re-launch economic policies targeting local oligarchs, such as the
short-lived re-privatisation process, which saw the re-auctioning of
Ukraine's largest steel mill, Kryvoryzhstal, last year.

Powerful businessmen who play a significant role in shaping Ukrainian
politics are wary of Tymoshenko's populist tactics, with many of them
favouring a broad coalition between Yushchenko's Our Ukraine and an
unlikely ally - the Party of Regions.

While this scenario is the current frontrunner, it remains
unpalatable to President Yushchenko, even though his old presidential
rival, Viktor Yanukovych, has apparently abandoned his aspirations to
become the next prime minister.

Having Tymoshenko in the opposition is an equally unsavoury prospect
for the embattled President, who knows full well of the Orange
revolution heroine's ability to mobilise the crowds behind her and
turn public opinion against him. His popularity has already suffered
due to squabbles within the Orange camp, with his former ally drawing
political capital from his troubles.

Although Yushchenko's strongest argument in favour of a blue-orange
coalition is a desire to reunite the west and the east of Ukraine,
analysts think he would have a hard time reconciling differences in
the foreign policy arena with the Party of Regions, whose home base
is considered to be the industrial powerhouse of Donetsk.

Speaking at the first session of the new parliament last week,
President Yushchenko reiterated his commitment to the European path,
"The government should be made up of those who, as a single team,
will ensure Ukraine's development on the basis of European values."

This statement seems to be at odds with the Party of Regions, whose
members favour closer ties with Moscow and would like to reinstate
Russian as the second state language of Ukraine. It is unlikely
Yushchenko can find an easy compromise on this front.

On the other hand, the blue-orange coalition is expected to perform
better in controlling rising gas prices that threaten Ukraine's
economic stability. Tymoshenko denounced the gas deal negotiated with
Russia earlier this year and is widely expected to try to undo it,
which could unleash a new gas price war - something no Ukrainian
wishes to experience again.

All of the elusive scenarios, it seems, have significant drawbacks
for the political actors involved, with none of them showing
willingness to back down. However, as the game of brinkmanship
continues, the country is losing vital time in regard to progressing
with its economic reform programmes.

As far as its World Trade Organisation (WTO) membership is concerned,
Ukraine must find a way through this bout of political uncertainty in
order to push through economic reforms. Having missed its chance of
joining last year, Ukraine still needs to adopt 17 laws in order to
enter the global trading club before the end of this year. However,
with parliament locked in political bickering there is a risk of
Ukraine slipping behind again.

In the event that the parties do not find a solution in one month's
time, the President, according to the Constitution, can call a new
parliamentary election. This would be a very expensive process for
deputies who have already invested heavily in their recent campaign.
However, analysts do expect a compromise, although tough negotiations
are likely to continue until the end of June.

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