President Petro Poroshenko and Groysman are saying all the right kinds of things to boost the latter’s chances of getting the Verkhovna Rada signoff, including, accelerating European Union reforms, keeping to the International Monetary Fund program, fighting corruption and graft, accelerating privatization and also amending the constitution to adhere to Minsk II (Europeans will like that – means might cut slack on loans).
There have been mixed reviews of the cabinet line-up, but international financial institutions will, I think, reserve their judgement and the disbursement of credits until they see sign off on a new reform memo for this government.
Ukraine is clearly geopolitical to the US, given the poor state of relations with Russia, and as long as Poroshenko maintains the reform course, Western financing should flow.
The alternative of early elections would be a suicide mission for (former Prime Minister Arseniy) Yatsenyuk’s Popular Front at this stage and likely Poroshenko’s party, the Bloc of Petro Poroshenko (with 138 out of 422 members).
There are likely to be defections from the Bloc of Petro Poroshenko, but Groysman got over the line after deals were likely struck with key oligarchic groups, including billionaire Rinat Akhmetov.
Watch how many of the Opposition Bloc (former President Viktor Yanukovych allies) line up to support Groysman.
Some of the Opposition Bloc will be backing Groysman assuming that he inevitably fails, hurting Poroshenko in the presidential election and looming parliamentary elections (in this government, the buck stops with Poroshenko), the other as their “interests” are now represented in the administration.
The latter might suggest a “reach out” to the east – and the reference to constitutional change might be significant there. Two things are key for me in terms of market reaction.
First, getting the IMF program signed off and soon.
Second, what happens to the National Bank of Ukraine – which has been a bastion and dynamo for reform. If there moves against the managmenet of the NBU, this will send a very negative signal about NBU independence but also whether the new administration is really serious about reform or is just playing politics and in the game of oligarchic and elite capture of the economy still.
