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Power Grab

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March 12, 2010, 12:04 a.m. | Ukraine — by John Marone

Ukrainian President Viktor Yanukovych, right, greets Prime Minister Mykola Azarov in parliament on March 11.
© AP

After a quick March 11 parliamentary session, the president is in charge of nearly everything now. After changing the rules in what critics call an unconstitutional way, President Viktor Yanukovych moved fast to control government. He has a 235-member ruling majority in parliament, a loyal prime minister and control of other powerful posts. Is this good or bad for the nation? Goodbye, gridlock government. Hello, steamroller government.

Viktor Yanukovych needed little more than two weeks in power to consolidate control over parliament, get his top choice as prime minister and to assemble a new Cabinet of Ministers – albeit in a manner critics called unconstitutional.

There’s nary an oppositionist in the bunch, which looks like a reunion of aides from former President Leonid Kuchma’s corrupt, authoritarian reign from 1994-2005.

Those opposed are relegated to backbenchers in the 450-member Verhkovna Rada. A safe majority of 235 members are now Yanukovych allies – a collection of his Party of Regions, the Communist Party and the bloc of parliament Speaker Volodymyr Lytvyn.

To put them over the top, these three parties recruited 16 deputies from other factions to form the ruling coalition that promptly approved longtime Yanukovych ally and technocrat Mykola Azarov as prime minister.

The investor reaction was instant and positive: Ukrainian markets surged in expectation of a new era of political stability sorely lacking under Western crusader Viktor Yushchenko, the former president whose chaotic five-year term kept him from being re-elected.

In fact, the new ruling majority in parliament is called the Reform and Stability Coalition.

How much of either the new government delivers is an open question.

Azarov, known as a firm proponent of closer economic integration with Russia, also had a reputation as Kuchma’s hatchet man when he headed the State Tax Administration.

Adherence to constitutional niceties doesn’t appear to be high on the list of priorities for the new government.

Yanukovych’s triumph on March 11 was made possible after the new president – inaugurated only on Feb. 25 – signed a law allowing him to form a coalition by recruiting individual lawmakers. Never mind, apparently, that the Constitution stipulates that ruling majorities can be formed only from entire political factions, not individuals.

Ex-Prime Minister Yulia Tymoshenko, who lost the Feb. 7 presidential runoff by 3.5 percent, called the move “unconstitutional.” In a YouTube video posted on her website, Tymoshenko said: “There will be an illegal coalition, an illegal cabinet and there will be no legitimate authority in Ukraine. It is a pity Yanukovych has chosen to begin his presidency this way.”

Both Tymoshenko and Yanukovych have asked the country’s highly discredited Constitutional Court to rule on the legitimacy of the new coalition.

Political analyst Kost Bondarenko, director of the Gorshenin Institute in Kyiv, said no ruling by the Constitutional Court could turn back the clock. “By the time the court gets around to the issue, the new prime minister and coalition will be firmly in place,” Bondarenko said.

Legal experts have questioned the independence and competence of the Constitutional Court since it agreed in 2004 that Kuchma was eligible to run for a third term. The court’s reputation was further damaged in 2007, when Yushchenko fired four of the 18 justices for questioning his right to disband parliament and call snap elections.

Law enforcement authorities at the time investigated at least one of the justices, Suzanna Stanik, on corruption allegations. The lack of respect for the Constitutional Court is symptomatic of a judicial system that is widely seen as dispensing rulings and verdicts for hire – or in deference to ruling politicians.

By that score, Yanukovych should have few legal troubles. Moreover, the new president controls all the powerful law enforcement bodies – the prosecutor’s office, the Interior Ministry and the State Security Service or SBU.

Additionally, the Party of Regions led by Azarov has recently increased its influence with members of the Constitutional Court, according to Serhiy Taran, director of the International Democracy Institute.

“Yanukovych and Azarov are obviously hoping for a watered down ruling from the court legitimizing what they’ve done,” Taran said.

Vadym Karasiov, head of the Global Strategies Institute, said: “The president seeks to recreate a strong from-top-to-down system of government” last seen when Kuchma was president, “instead of ruling by forming consensus” between political and business elites.

So if democracy advocates and rule-of-law junkies are dismayed by the political turn of events, Ukraine’s financial markets have taken a more sanguine view. A mini-bull market is under way.

“Ukrainian equity and bond prices have risen sharply over the past week, continuing their post-presidential elections rally fueled by investor expectations about a quick transition of power to the new administration that culminated in the appointment of a new government on March 11, or a mere two weeks after Viktor Yanukovych was inaugurated as president,” reads a report by Kyiv-based investment bank Dragon Capital.

The Kyiv Post-Dragon index, which tracks the performance of Ukraine’s 20 most liquid stocks, has risen almost 31 percent since the second round of the elections on Feb. 7 and surged 48 percent since the beginning of the year, reaching its highest level since September 2008, according to Dragon.

Ukrainian sovereign Eurobond yields, which move inversely to prices, have dropped to below 8 percent from as high as 15 percent at the end of 2009, with the shorter-term sovereign bonds maturing in 2011 and 2013 trading near their par level for the first time in years.

“Meanwhile, rating agency Fitch Ratings said Ukraine might see its credit ratings upgraded in the second half of 2010 if a parliamentary majority behind President Viktor Yanukovych passed a realistic budget and agrees it with the International Monetary Fund in order to resume the fund’s lending program,” the report continues.

Azarov made cooperation with the IMF and passage of a workable 2010 budget his priorities. “2010 will be a year of stabilization,” he pledged.

Peter Vanhecke, chief executive officer for Renaissance Capital in Ukraine, Belarus and Central and Eastern Europe, said the market is betting on the kind of stability that cooperation among parliament, the cabinet and the presidency – as well as better relations between Russia and Ukraine – will bring.

“Most of the steps that have been taken are what people before would have seen as the best possible scenario – formation of a new government without elections and a new president with an aligned government,” Vanhecke said.

As for the constitutionally questionable means used by Yanukovych to create this scenario, Vanhecke doesn’t foresee any waves from the market.

“Politically, there are some questions about the method used to establish this coalition. [But] I think that the market and European observers are willing to turn a blind eye, because the overriding aim is stability. If it’s not too blatant in violation of too many rules, it’s probably something that people will accept. Most outside observers always felt that Ukraine’s constitutional system had too many flaws anyway,” he said.

On the other hand, serious concerns remain, even among investors.

“Stability is kind of the bandage that covers the wound, but does not heal the underlying disease. They need to improve the economic environment, re-engage with the IMF and adopt a lot of unpopular but necessary reforms,” Vanhecke said.

In addition to Soviet vintage Azarov, the new government is also heavily dominated by Yanukovych’s millionaire-billionaire backers, or their close representatives. It includes Deputy Prime Minister Borys Kolesnikov, close to Ukraine’s richest man Rinat Akhmetov; Energy Minister Yury Boyko, who is close to controversial billionaire Dmytro Firtash (co-owner of former natural gas importer RosUkrEnergo), and media mogul-turned-spy chief Valery Khoroshkovsky.

Despite their Kuchma-era experience, they have a lot to prove.

“The big question is do they have the political will to do so. I am relatively hopeful and a sign that brings hope is that reformer Sergiy Tigipko has accepted a government position [as deputy prime minister],” Vanhecke said.


Kyiv Post staff writers John Marone and Peter Byrne can be reached at marone@kyivpost.comand byrne@kyivpost.com.
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