New Cabinet of Ministers of Ukraine announced

Ukrainian President Viktor Yanukovych made public his new Cabinet of Ministers on Dec. 24 after more than a week of anticipation. He reorganized state agencies under ministries, which increased to 17 from 16.

The new Cabinet members are loyal to one of the three leading groups in Ukraine’s ruling establishment: the Yanukovych family, SCM founder Rinat Akhmetov and DF Group founder Dmytro Firtash. The last Cabinet’s top two liberals are gone: former Social Policy Minister Serhiy Tihipko and former Economy Minister Petro Poroshenko.

The two new ministries to have emerged are the resurrected Ministry of Industrial Policy and the Income and Duties Ministry that consolidates the State Tax Administration and the State Customs Service. Yanukovych downgraded the Emergency Situations Ministry into the State Emergency Service.

Only seven ministers, including the prime minister, will remain in their chairs, including the pro-Russian Education Minister Dmytro Tabachnyk, who is widely considered as an indulgence to the Russian government.

The president reserved the first deputy PM post for Serhiy Arbuzov, the NBU chair who was the main competitor for Mykola Azarov’s PM position and his most likely successor. Indeed President Yanukovych and his son Oleksandr have appointed their family’s closest associates to run the Ukrainian economy, including Arbuzov. The others are Yuriy Kolobov, who will remain as finance minister, and Oleksandr Klymenko, who was promoted to lead the newly created Income and Duties Ministry from his former post as State Tax Administration chair.

Ukraine’s industrial sector will be run by ex-managers of Akhmetov’s System Capital Management, led by Vice Prime Minister Oleksandr Vilkul, who will oversee the infrastructure, maintenance and utility sectors. His longtime partner Hennadiy Temnyk will lead the Ministry of Regional Development and Utilities. Akhmetov ally Volodymyr Kozak will replace another ally, Borys Kolesnikov, as the Infrastructure Minister.

Former Foreign Affairs Minister Kostyantyn Gryshchenko became the Cabinet’s fourth vice prime minister, being replaced by Leonid Kozhara, a Party of Regions stalwart. Kozhara blundered last week when claiming Ukraine could join both the Customs Union and sign the Association Agreement with the EU. He retracted the bizarre statement the next day. He has also spent much of the past two years trying to polish the Yanukovych administration’s image in the West amidst the Tymoshenko imprisonment scandal. His appointment brings no progress to the Yanukovych administration’s foreign policy, which remains undecided between the Customs Union and European Union.

The DF Group’s only representative in the new government, Yuriy Boyko, was promoted from energy minister to vice PM of the same sectors. His replacement, Eduard Stavytskyi, is a close presidential insider.

The main surprise was Natalia Korolevska, ex-ally of imprisoned opposition leader Yulia Tymoshenko and the biggest disappointment of the parliamentary elections (whose party earned just 1.6% when posing as an opposition party). She was tapped to be Social Policy Minister and is widely expected to toe the president’s policy line.

Three key positions remain unfilled: Industrial Policy Minister, Culture Minister and the head of the National Bank of Ukraine, which was vacated by Arbuzov. Three key positions remain unfilled: Industrial Policy Minister, Culture Minister and the head of the National Bank of Ukraine, which was vacated by Arbuzov. A softer NBU monetary policy in 2013 will be critical for the new government in resuming broadly anticipated cooperation with the IMF and much will depend on its newly appointed chair. Given that the NBU is most likely to run politically unpopular measures like hryvnia devaluation, there’s a strong chance that the new NBU head will be pretty distant from ruling party.