Ukrainian Weekly Highlights February 08 – 14, 2016 from Digests & Analytics Ukraine
Governmental crisis continues – IMF and Western politicians demand Ukrainian authorities to combat corruption – State Statistics Service recorded the acceleration of inflation – Hryvnia exchange rate kept declining – President of the European Parliament promised to approve the visa-free regime – NABU and the Kononenko case – Another checkpoint in the occupied territory was closed – Second anniversary of the shooting of the Heaven Hundred approaches – Russia and Ukraine suspended cargo transit
Government crisis in full swing
Another meeting of the Parliamentary coalition council ended without results. According to Lutsenko, Head of the Petro Poroshenko Bloc, three factions refused to cooperate with the Prime Minister, which indicates the lack of votes in Parliament. The People's Front insist that Yatsenyuk remains prime minister as an ultimatum. Head of the Radical Party faction Lyashko announced his withdrawal from the negotiations on coalition reformatting. Batkivshchyna party faction is not going to withdraw from the process, but demands the Cabinet to present its program of action for the next year, which would be a vote of confidence in the Yatsenyuk's government. The West has reiterated its negative stance towards the change of government and early elections, but the contradictions within the Parliament may lead to its dissolution.
On Tuesday, the meeting of the Parliamentary coalition council with the participation of Prime Minister Yatsenyuk was cancelled due to the need for further consultations within factions.
Prime Minister Yatsenyuk demonstrates confidence that his Cabinet would received a vote of confidence despite the results of the report to the Parliament. The government approved the program of actions for 2016, which, according to Yatsenyuk, consists of "379 very specific decisions that the government must implement jointly with the Parliament and the President." Some ministers in their public addresses and interviews reported on the performance of their departments. Deputy Parliament Speaker Paruby believes that there is not enough votes to dismiss the government. According to him, the subject of the debate should be a joint plan of the Cabinet and the Parliament.
In his weekly ten-minute address, Yatsenyuk said that he has nothing to do with the politicians' fight for power, and believes his chances to keep his post to be high. The Prime Minister placed responsibility for fighting corruption on all branches of government, including the President, the Parliament and all politicians.
The population estimates the results of the Cabinet's activities to be a failure, resulting in the drop in incomes and general business activity, plummeting hryvnia exchange rate and the lack of real prospects for the country's economic situation to improve in the near future.
NABU, President Poroshenko and the Kononenko case
The corruption scandal linked to Kononenko, President Poroshenko's business partner, continues. Minister of Economic Development Abromavicius testified to the detectives of the National Anti-Corruption Bureau. The SMS correspondence between Abromavicius and the official whom Kononenko wanted to appoint to the ministry was published. MP Firsov left Petro Poroshenko Bloc faction because of the unwillingness of its leadership to fight corruption. Head of the State Property Fund Bilous said that Kononenko and former MP Martynenko exert personal influence on energy companies, so an immediate privatization of the largest enterprises is required to avoid corruption.
President Poroshenko said at the oath ceremony of a special task detachment of the National Anti-Corruption Bureau that this agency is investigating over 50 cases for the total amount of about one billion hryvnia. The special task force is equipped with the latest weapons and armoured vehicles. According to some analysts, the presence of the president at a NABU meeting , where he set the objectives for the agency, may be a sign of his direct involvement in the investigation into his business partner Kononenko. Kononenko's interrogation at NABU lasted less than an hour, he demands a face-to-face confrontation with Abromavicius.
Prime Minister Yatsenyuk demonstrated to foreign diplomats that he also began fighting corruption and submitted to the NABU the materials of 63 internal investigations.
Head of NABU Sytnyk in a public report on the six months of work stated that detectives were investigating the cases worth over UAH2 billion, and three judges were caught on a bribe. At the same time, observers note that most high profile investigations, including into the former Minister of Environment Zlochevskiy, are being hampered, while the Bureau has launched investigations into the ministers of the current government.
The IMF and the West demand that Ukrainian authorities implement reform and fight corruption
IMF chief Lagarde said the Fund's management was concerned about the slow pace of the public administration reform in Ukraine and the fight against corruption, and the reduced influence of the laws and the rule of law on government policy. Lagarde believes that the country may return to the previous situation, which it has already experienced in recent history. Without active reform and the real fight against corruption, IMF might curtail its assistance program. Finance Minister Yaresko believes that the IMF has no questions to Ukraine on the adopted budget, but has claim to the country's leadership about the pace of reform and questions about the ongoing political crisis. President Poroshenko in a telephone conversation with Lagarde assured her that the country would continue reforms despite the political crisis and the lack of understanding between the Parliament and government. He once again stressed the need to restart the Cabinet without early Parliamentary elections.
US Vice President Biden during a telephone conversation urged President Poroshenko to restore political unity in the country for the sake of reform. Secretary of State Kerry, European officials and G7 leaders demand the same. At the security conference in Munich, Poroshenko said that he is fighting corruption and that all the necessary legislation has been adopted.
According to the President of the European Parliament Schulz, the financial assistance to Ukraine may amount to billions of euros if the donors are confident that the money is spent for the intended purpose.
President Poroshenko at a meeting with civil society activists once again confirmed that he considers the course of his administration to be correct, and does not want to listen to the civil society's opinion on the need of a new social contract. Despite the obvious risks of this position, failures in domestic and foreign policy, the Parliament's inability to work and the absence of reform, he does not intend to change anything in his line of conduct.
According to some experts, subject of negotiations between the government, the President and the IMF on the next tranche of the loan are not budget parameters and political instability, but the reluctance of the Ukrainian authorities to implement the declaration of incomes and expenditures by officials and politicians and their family members, as is the case in the EU and the US. Several MPs introduced an amendment to the Law on 2016 Budget cancelling the e-declaration of incomes. President Poroshenko demands to revoke the amendment, but the main question on the declaration of expenditures has not yet been resolved. Donors do not rush the process, understanding that Ukraine's economy is largely dependent on foreign borrowing and expecting that the Ukrainian authorities will be coerced to agree with their conditions.
Hryvnia devaluation continues
Given the uncertainty with the 'Yanukovych's debt' restructuring and the sharp response to the government crisis of the IMF management, which took a wait-and-see approach until Ukrainian authorities agree to all the set requirements, the hryvnia continues to fall on the interbank market, despite the daily sales of foreign currency by the National Bank. On Friday, the exchange rate passed the psychological threshold of 30 euro to the hryvnia, and the official dollar exchange rate exceeded UAH26.15. Observers believe the return to 24.2-24.4 UAH/USD exchange rate provided for in the budget to be unlikely.
According to some analysts, if the IMF stops financing, this will not lead to a financial disaster in the country, since no large payments on external debt are expected in the future. Besides, access to international financial markets is already limited, and investors are reluctant to come to the country because of high corruption levels. Termination of lenging would lead to the introduction of a flexible exchange rate policy and the further plunge of the hryvnia, up to the repetition of the last year's scenario. Freezing the World Bank and the EBRD programs that directly affect the maintenance of the infrastructure could also significantly impact the country's economic situation.
Accelerating inflation
According to the State Statistics Service, inflation in January exceeded NBU forecast indicators and reached 0.9%. However, according to financial analysts, the forecast is too optimistic and does not take into account the impact of the decreased export value of Ukrainian products on foreign markets, which will worsen the balance of payments and result in higher consumer prices and cheaper hryvnia. Inflation figures are also likely to be affected by the possible deterioration of the situation in the combat area and the parliamentary-governmental crisis.
EP President promised Ukraine a visa-free regime
Prime Minister Yatsenyuk said that he submitted to in the presidential administration the signed package of "anti-corruption" laws required to obtain a visa-free regime with the EU. On Friday, Poroshenko introduced these laws to the Parliament for immediate review and expressed hope that they would be voted. EP President Schulz confirmed that he would not delay the vote on the approval of the visa-free regime for Ukrainians immediately after the Verkhovna Rada adopts the package of anti-corruption laws, which is the key to granting the visa-free regime.
The Minsk process has not resolved the problems of Donbas
The situation in Donbas remains tense, with dozens of militants' attacks recorded daily, including shelling using mortars and heavy weapons of armored vehicles along the entire line of fighting. Fighting continues in Maryinka, Pisky, and near Horlivka, Mariupol and Volnovakha. Intelligence reports about the transfer and accumulation on the front line of Russian troops, equipment, ammunition, and fuel. The occupation army is constantly holding exercises, coordinated with the exercises of the Russian troops in the immediate vicinity of the border.
A civilian minibus was blown by a land mine near the checkpoint of Maryinka, killing four people. The checkpoint was closed for 24 hours because of the militants' attacks. The Antiterrorist Operation Headquarters reported that the checkpoint may be closed again at any time in case of danger to civilians.
According to the General Staff, the number of Russian troops and militants in Donbas is about 34,000. The Ministry of Defense believes that the deterioration of the situation in the East is not the escalation of the conflict, but a means to put pressure on Ukraine before the Minsk negotiations continue. At the same time, NSDC Secretary Turchynov said that the purpose of the sudden exercise of the Russian troops on the border with Ukraine is to prepare for active operations against Ukraine. The meeting in Minsk, scheduled for February 10, was drailed due to the absence of the Russian representative, the next meeting is scheduled for February 17.
At the meeting of foreign ministers of the 'Normandy Four' the 'modality' of the elections in the occupied territory was discussed, but, according to Foreign Minister Klimkin, no decisions have been made, since the French representative still has no authority. German Minister Steinmeier said that the settlement in Donbas will take a long time.
Experts summarized the results of the implementation of the Minsk agreements for their second anniversary. They all agreed that no provisions have been complied with, that Russia is using the agreements to put pressure on Ukraine to make it recognize the legitimacy of the Donbas "republics" and amend the Constitution, which would entail the destabilization of the socio-political situation in the country in the lack of consensus between the authorities and the citizens on the issue of reintegrating the occupied territories.
According to the Head of the National Institute for Strategic Studies Horbulin, there are three ways to resolve the conflict in Donbas: to implement the Minsk agreements and use the OSCE to monitor the implementation process, which would legalize separatism and increase confrontation in th Ukrainian society. The second option would be to divide the negotiations process into the purely functional part related to assistance to the affected areas, release of hostages and the ceasefire; and the newly created format of negotiations that could be held in another place related to the transfer of the territory under international mandate, possibly with the involvement of international peacekeeping forces. The third option is unilateral, where Ukraine completely withdraws from the negotiations, for example, due to the other side's refusal to release hostages. This should be followed by a strict blockade of the occupied territories with the expulsion of the invaders and collaborators.
The second anniversary of the Maidan massacre approaches
Prosecutor General's Office said that the Ukrainian authorities during the events on Maidan were influenced by the FSB and the Russian presidential aide Surkov, and reported that it has identified the special task force members who shoot the protesters. The GPO nvestigators argue that the examination cannot reliably determine whether the weapons that were found as stated by the Prosecutor General and the Head of the SBU were used to shoot protesters on Institutska Street.
The investigation continues. The indictment against three Berkut employees who participated in the murder of activists was has been submitted to court.
On February 18-20, civic activists are plannign to hold mass events dedicated to the anniversary of the murder of the Heavenly Hundred. Kyiv Mayor Klitschko order that the central Khreshchatyk street will no longer closed for traffic on weekends and public holidays, starting February 13. Some community activists believe this decision to be an attempt to interfere with the planned events.
Russian-Ukrainian blockade of cargo transit
On Thursday in Transcarpathia activists started blocking the entry to Ukraine of trucks with Russian license plates and demanded from the authorities to recognize Russia to be an aggressor country, suspend any trade relations and deny Russian companies the right to do business in Ukraine. Cargo transit has also been blocked in Zhytomyr, Sumy, Rivne and Volyn regions. According to the Head of the Transcarpathia Regional State Administration Moskal, the blockade of Russian cargo carriers continues, and trucks are being sent back to the border. He believes that the decision on cargo transit suspension should be taken at the government level. Crimean Tatar leader Chubarov supported the initiative.
Ukrainian trucks in the Bryansk region of Russia were put into parking lots. The Russian Ministry of Transport announced that the movement cargo vehicles registered in Ukraine would be suspended until the Ukrainian side settles the situation with blocked Russian trucks.
Ministry of Infrastructure of Ukraine holds consultations with the representatives of the European Commission and individual EU member states the transit of Russian trucks.
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