25 July 2014
Ukraine’s Prime Minister Arseniy Yatsenyuk announced his resignation on July 24, attributing his decision to two pro-EU factions announcing they were abandoning the parliamentary coalition and their failure to support emergency measures to finance the state budget and conduct serious reforms in natural gas transit.
The pro-EU, populist Ukrainian Democratic Alliance for Reform (UDAR) and the nationalist Freedom party failed to include in the daily agenda tax code amendments that would have more than tripled royalty payments on Ukraine’s gas producers, starting immediately, and eliminated generous subsidies on agricultural producers, starting in 2015. The two factions then declared they were exiting the parliamentary coalition, preventing more votes, including reforms to gas transit that would have given a 49 percent stake in the system to American and European firms.
Parliamentary Head Oleksandr Turchynov and Yatsenyuk, both of the Fatherland party (which formed the third pro-EU parliamentary faction), said the coalition’s dissolution undermined their attempts to conduct badly needed reforms, which among other things would have provided financing for the army. The tax code amendments would have created USD 770 mln for the military, said Finance Minister Oleksandr Shlapak. “As of August 1, there are no funds to offer at least money to people fighting in the anti-terrorist operation,” he said. “We have nothing to pay our soldiers.” Yatsenyuk said the coalition’s dissolution left him with two options under the law: form a new coalition with the pro-Russian Party of Regions and Communist Party, which he said he “won’t do under any circumstances,” or submit a resignation.
“It’s unacceptable that the coalition has collapsed, that bills haven’t been voted on and there’s nothing to pay soldiers, police, doctors, fill the gasoline tanks of Armed Personnel Carriers, the decision hasn’t been made to fill Ukrainian natural gas tanks survive the winter and to free ourselves from dependence on Russian gas,” Yatsenyuk said.
Vitaliy Kovalchuk, the head of the UDAR parliamentary faction, blamed Yatsenyuk for failing to reach a normal dialogue with parliament. “Some of his expressions on the impossibility of paying wages and such don’t reflect reality,” he said. “Such statements can be the basis for destabilizing the situation in Ukraine.”
The Cabinet of Ministers has continued to work and met the evening of July 24 to appoint as its temporary acting Prime Minister Volodymyr Hroisman, according to the document signed by Yatsenyuk. Meanwhile, Ukrainian President Petro Poroshenko informed Turchynov of his position that the collapse of the parliamentary coalition cannot serve as the basis for the Cabinet’s resignation, contradicting Yatsenyuk’s claim. Although parliament should vote on whether to accept the Cabinet’s resignation within ten days of the announcement, Poroshenko asked parliament to review the matter promptly.
Zenon Zawada: These events reveal that significant rifts exist among Ukraine’s pro-EU political forces, which can be dangerous in a time of war if they prevent the government from functioning. In particular, it was the UDAR faction, which has an alliance with Poroshenko, that opposed the day’s legislative measures. So the events indicate that Poroshenko soon launch his own political party, registered as Solidarity. They also reveal the reluctance of Ukraine’s biggest oligarchs to sacrifice a part of their profit to finance the budget, as they likely played a role in derailing the measure to more than triple royalties on gas producers.
Though we expect an equity selloff today on the news, we view these events as positive. They indicate that real efforts are being made at serious reform, which would inevitably be met with resistance. Indeed it would have been odd for strife to elude the parliament in a period demanding wholesale changes in government. As for the coalition’s collapse, it occurred just as the president is preparing to announce early parliamentary elections in late October. Such dissension will only improve the chances for Poroshenko to secure a large, loyal faction in parliament with his Solidarity party, which will campaign on the promise of stability and winning the war.
In the meantime, we expect the Cabinet will continue working as parliament is very unlikely to approve its resignation in reviewing the matter today. Very likely, Yatsenyuk, who did a solid job in keeping the economy afloat in the period since the Euro-Maidan uprising, will also remain in his prime minister post. We view his resignation announcement and resolution supporting Hroisman’s appointment as bargaining for getting necessary legislation approved. Deputy Parliamentary Head Ruslan Koshulynskiy said this morning that he received no resignation letter from Yatsenyuk.