Ukrainian Weekly Highlights March 7–13, 2016

Ukrainian Weekly Highlights March 7–13, 2016 from Digests & Analytics Ukraine

Government and Parliament still in limbo – A hole in the budget of the Pension Fund – Government cannot reach agreement with the IMF – Nadezhda Savchenko as Russia’s international problem – Minsk talks in a deadlock – Fighting intensified in Avdiyivka – Poroshenko's visit to Turkey

Government and Parliament still in limbo

President Poroshenko's team still nurtures hopes for the resignation of Prime Minister Yatsenyuk. Several candidates for the post of head of the Cabinet were announced during the week, including Finance Minister Yaresko and Parliament Speaker Groisman. Observers believe that Groisman would be an ideal candidate for Poroshenko to be able to completely control the Government, in addition to the Army, the SBU, the Prosecutor General's Office, almost the entire judicial system, the National Bank, and the Ministry of Foreign Affairs. Western leaders believe that this would result in the imbalance of power, and support the Prime Minister, despite the obvious problems in management and the dismal results for the economy.

All of Yatsenyuk’s moves demonstrate that is not planning to leave. He believes that the early election is not an option. According to him, there are only two options to overcome the crisis. The first one is the revival of the coalition in the Parliament, consolidation of the current Cabinet and close interaction between the Parliamentary factions, the President and the Government to continue reforms. The second one is the appointment of a new Government by the Petro Poroshenko Block faction, which would have to assume full responsibility and to find a consensus with all the other factions. Judging by the developments in Parliament, the presidential team is not capable of forming a new coalition, therefore, the chance of early elections remains high.

Pension Fund to receive subsidies from the budget to cover deficit

The Cabinet approved the Pension Fund's budget, with revenues of UAH257.2 bnand expenditures of UAH256.4 bn, about UAH 145 bn out of which will be subsidized from the state budget to cover the deficit of more than UAH81 bn. The hole in the budget of the Pension Fund increased after the unified social tax rate was reduced to 22%. Prime Minister Yatsenyuk urged businesses to pay the "white" wages, but, according to some experts, the Government’s expectations to increase revenues through the unshadowing of salaries are unrealistic, and this rate can again be raised to the previous level of 41%. Companies working in the pension insurance market believe that a deficit-free Pension Fund budget could be achieved, if the Government decides to implement a fundamental pension reform. Such transformations would not require subsidies from the state budget, and would also boost the stock market by investing pension savings of private pension funds in promising companies.

Government cannot reach an agreement with the IMF

The fate of the next tranche of the IMF loan is still uncertain. The Fund officials said they see no need for the mission to arrive in Ukraine to agree on changes to the Memorandum of Cooperation. They expect from Ukraine to overcome the parliamentary and government crisis, and to implement the previously agreed reforms. They said that Ukraine has achieved some positive results in the energy sector, but the issue of fighting corruption remains crucial. The political situation in the country is far from stable. NBU Head Hontareva reiterates that the main cause of the problems in cooperation with the IMF is the political crisis. Finance Minister Yaresko said that the possibility of signing a new program instead of the current extended fund facility is not on the agenda.

Savchenko as Russia’s international problem

The international community demands from the Russian authorities the immediate release of the Ukrainian MP Nadiya Savchenko without any preconditions. MEPs and US politicians are inclined to the idea of ​​introducing the "Savchenko list" of personal sanctions against the perpetrators of violence against her. US politicians claim that the process is no longer Russia’s internal affair.

Russian judicial authorities have not given the Ukrainian doctors the permission to inspect Savchenko. She passed through the consul a letter in which she says that she will leave prison on her own terms and that she is confident of the victory over Russia. Savchenko said to the members of the Russian watchdog committee that she was not planning to die and had something to live for. Savchenko’s lawyer Feigin said that she had stopped her hunger strike after receiving a letter from President Poroshenko, which later was said to be a forgery organized by Russian pranksters. Savchenko’s hunger strike continues.

Martin Sajdik, Special Representative of the OSCE Chairperson-in-Office at Minsk negotiations for the settlement in Donbas, said that the release of Nadiya Savchenko was an integral part of the Minsk agreements. Russian Foreign Ministry said that Savchenko could not be extradited to Ukraine pending the court judgment.

Situation on the Donbas front aggravated dramatically

Ukrainian troops, fighting off continuing attacks on the outskirts of Avdiyivka, seized an important strategic height near the Donetsk-Horlivka highway, blocking the traffic of the occupants’ military equipment in both directions. Russian troops and local fighters throughout the week tried to push the Ukrainian troops away from the highway using armored vehicles and heavy artillery. The Ukrainian army defeated all attacks, with the militants suffering huge losses. Artillery fire damaged a filter station supplying water to almost half a million people.

At the Minsk negotiations, the parties failed to come to any agreements, with all the offers of the Western partners concerning the elections in the occupied territories being blocked by the Ukrainian and the Russian delegations. Ukraine insists on pre-demilitarization of the region, gaining control of the state border and participation in the elections of the internally displaced persons, political parties and Ukrainian media. Russia demands from Ukraine the provisional amnesty to the members of the illegal armed groups, a constitutional reform providing a permanent special status to the "certain areas of the Donetsk and Luhansk regions," and the adoption of a special law on elections provided for in the Minsk-II agreements.

During the talks in Paris, the Western countries failed to reach a consensus on the issue of the settlement in Donbas. It was stated that the situation had deteriorated, and that none of the parties to the conflict was ready to make concessions. Ukrainian and foreign media reported that the Western countries insist on holding elections in Donbas in the first half of the year and the preparation of a new electoral law, however, the aggravation of the situation near Donetsk makes this unlikely. Ukrainian representative at the Minsk talks, former president Kuchma, noted that the Western partners did not have a principled position on the issue of the withdrawal of the Russian troops and heavy weapons from Donbas, as well as the return to Ukraine of control over its border with Russia, but wished to solve the problem at the expense of Ukraine through elections in the occupied territory.

At the end of the week, it was reported that the administration of President Poroshenko tried to implement a "compromise," allegedly agreed with Russia, on the appointment as the heads of the occupied regions of the leader of the Opposition Bloc Boyko and of the oligarch Akhmetov. Boyko and Akhmetov have not denied that such negotiations took place, but leaders of the "DPR" and "LPR" warned that such  scenario was impossible, threatening to arrest the Kyiv emissaries.

Successful actions of the Ukrainian army near Donetsk have disrputed Russia’s plans. Experts expect an escalation of the conflict in the near future, as evidenced by the intense traffic of the Russian troops and heavy weapons into the occupied territory.

The EU has decided to extend for another six months the sanctions against 146 Russian citizens and 37 Russian companies for the violation of the territorial integrity of Ukraine. Western media believe that Russia is waging a campaign to discredit German Chancellor Merkel, whose position defines the position of the EU on the sanctions against Russia.

Possible breakthrough in the relations between Turkey and Ukraine

President Poroshenko paid an official visit to Turkey. A joint declaration was signed on the enhanced cooperation in the area of security, defense, and the fight against terrorism, extremism, and separatism. The main areas of cooperation will be the defense and the aerospace industries. Ukraine and Turkey will join efforts to stabilize the situation and prevent human rights violations in Crimea, Donbas, and Syria. Turkey intends to participate in international negotiations on the de-occupation of Crimea. Both countries are ready to launch the implementation of the project to supply Caspian gas to Europe. Poroshenko said that Turkey could use Ukraine’s underground gas storage facilities. A comprehensive FTA agreement between the two countries is planned to be signed before year’s end. Poroshenko offered to Turkish businesses to participate in the privatization of Ukraine's state-owned enterprises. The day before the visit, Ukrainian frigate Hetman Sahaidachny and the auxiliary ship took part in joint exercises with the Turkish Navy.