The dust is just settling on the results of the July 21 parliamentary election in Ukraine, with initial indications that Vladimir (as he likes to be called) Zelensky has secured a majority for his Servant of the People party, only formed a few months ago. It looks like he captured at least 115 seats in the 199 single-mandate constituencies and perhaps 120 seats in the party system, so likely 235-241 seats in the 424-seat Verkhovna Rada.
Six quick takeouts:
1. Turnout was low, at just under 50%, which I think is the lowest in an election in post-independent Ukraine. I am not sure that this tells that much as after now three elections this year there is perhaps some election fatigue sinking in. Plus it is summer, and many people likely are away from their home constituencies.
2. The Zelensky party victory (42.5+% of the vote), alongside the 6.4+% secured by rock star Svyatoslav Vakarchuk’s Voice (Golos) party, represents a huge 50+% vote for new, reform parties, which have marketed themselves as fielding political novices in the Rada, and as new and fresh reform parties. It is hence a rejection of traditional politics in Ukraine, and in favor of something new. That said, and while much has been made of the second place for the Moscow-leaning Opposition Platform for Life party, which secured around 12.9%, around three-quarters of votes went for pro-Western, reform parties – adding in the votes for ex-President Petro Poroshenko’s European Solidarity and ex-Prime Minister Tymoshenko’s Fatherland. That is a striking rejection of Vladimir Putinism.
3. While it is important to recognize Zelensky and his party as anti-establishment, this is in the post-Soviet context, as opposed to the trend in the Western context. This means Zelensky and Servant of the People represent liberal, market, democratic ideals, and not far-right/fascist inclinations as is too often appearing the case now in Western market democracies. Perhaps this reflects a Ukrainian rejection of Putinism, and Russia and Putin’s inability to influence the Ukrainian domestic political space after the Kremlin’s invasion of Donbas and the annexation of Crimea – and contrasts with Putin’s remarkable success in supporting far-right and far-left movements in the West.
4. Much has been made of recent perhaps anti-reform initiatives including raids on pro-Poroshenko brokers, a large foreign-owned steel maker and then the lustration bill proposed by some in the Zelensky team. But I think in general Zelensky is pro-Western and pro-business, and any less market favorable initiatives will be moderated in discussion with G7 ambassadors and international financial institutions. Important in terms of the longer-term direction of this government will be Zelensky’s choice of the prime minister – remember Ukraine is still a parliamentary-presidential democracy and the prime minister/government will be an important check on the president. Over the weekend, Zelensky highlighted herein the important role of the Rada as a check and balance and indicated that he will nominate a prime minister who is a respected economist, with good relations with the West and who has had no political career as yet. This suggests that he has someone clearly in mind. But it suggests a technocrat as prime minister – and I think it likely means one of the following: ex-Finance Minister Oleksandr Danylyuk, ex-Economy Minister Aivaras Abromavicius, ex-National Bank of Ukraine deputy governor Vladyslav Rashkovan, Naftogaz CEO Andriy Kobolyev, and Naftogaz executive Yuriy Vitrenko. All would be excellent choices from the market perspective.
5. Although Servant of the People has seemingly secured a majority in its own right, it will be interesting to see if Zelensky still looks to bring Vakarchuk and Golos into a broader reform coalition. Zelensky has already signaled that he will hold coalition talks with Golos. If he looks to create a coalition, even though his party has a majority, it will send a very good signal, as it will imply he understands the need to build a strong coalition to push through a radical reform agenda – particularly important will be furthering the fight against corruption, judicial reform, and land reform.
6. Assuming a government is formed by September, with a reform prime minister at its head, the first thing to look for will be the reformulation of the relationship with the International Monetary Fund. The expectations are that the existing standby by arrangement is revamped into a longer-term loan, with additional monies provided to augment the program – perhaps up to $9 billion. I would expect a new agreement to be in place, with important structural benchmarks, by the autumn at the general meeting of the IMF in October.
