Ukrainian PM Endorsed as New "National Unity" Cabinet Approved

An Orange and Blue Ukraine

After nearly four months of protracted and bitter negotiations which have damaged the country's investment image, undermined the electorate's faith in its leaders and stalled any progress towards political and economic reform, the Ukrainian parliament (Verkhovna Rada) has moved to end the political impasse, voting to approve Viktor Yanukovych, the leader of the Party of Regions (PoR) and to many die-hard believers in the Orange Revolution, the symbolic personification of the corrupt excesses of the old regime, as prime minister. Yanukovych was confirmed in the post by 273 votes in favour, comfortably over the 226 needed in the 450-seat chamber. Moreover, in line with the terms of the declaration of national unity, which forms the basis of the alliance between the Donetsk-based PoR and President Yushchenko's Our Ukraine (OU) party, the cabinet was approved in a later vote by 269 votes. Under the terms of the declaration of national unity, Yanukovych's nominally pro-Russian PoR party obtained the economic ministries. Mykola Azarov, a close ally of Yanukovych and head of parliament's budget committee was handed the deputy prime minister position in addition to the finance minister portfolio. Azarov also possesses close links to the Donetsk steel and chemical oligarchs and courted controversy as he was the force behind a parliamentary vote last month to restore the controversial opaque business tax breaks which had been scrapped after the Orange Revolution. Despite the questions over Azarov's links to big business interests, he is a proven and able technocrat. In addition to Azarov, other prominent positions are reserved for senior PoR members or those figures close to the PoR power-base including control over the energy sector. The influential Andriy Klyuev takes the post of deputy prime minister for the energy sector, while the highly controversial Yuri Boiko, an ally of Klyuev, makes a return as energy minister. As a former head of the state oil and gas company Naftogaz Ukrainy, Boiko was intimately involved in the opaque practices of a series of gas intermediaries responsible for bringing natural gas from Russia to Ukraine (see Ukraine: 27 April 2006: Ukrainian President Pressurised After Audit Sheds Light on Opaque Gas Trader).

On the surface, the return of Boiko to a position of power will raise fears that there could be a return to the levels of corruption witnessed under Yanukovych in 2002, but Yushchenko has managed to base the new government on systems of checks and balances, which in theory will prevent any ministry from abusing its position. Each minister will have to report to and be checked by a committee chairman in parliament who will belong to another party. This will be the case for those OU members or OU-affiliated politicians who took control of the so-called "power bloc", which includes the foreign and interior affairs ministry, the defence ministry, the prosecutor-general's office and the chairman of the state security service.

Outlook and Implications

The composition of the cabinet provides few surprises, given the nature of the tense negotiations between the two parties. The inclusion of Yury Boiko and Klyuev will undoubtedly give Yulia Tymoshenko and her Yulia Tymoshenko Bloc (BYT), which controls 129 seats in parliament, an early opportunity to denounce the new coalition and the declaration of National Unity as little more than a sham. At the same time, the vote in parliament has underlined the bitter divisions which threaten to tear Yushchenko's OU bloc apart. Less than half of the OU's 81 deputies in parliament actually voted for Yanukovych and while this does not necessarily mean that all of those will defect to BYT, it does not augur well for the future of OU as a political force.

Nevertheless, despite the various questions over whether the declaration of National Unity is legally binding or whether the coalition will be able to live up to the foreign policy and domestic policy reforms outlined in the programme, particularly if opinion polls suggest that PoR or OU will haemorrhage popular support from their core constituents for pursuing what they consider to be unpopular policies, the coalition brings much needed political stability to Ukraine. While it may signal the official end of the Orange Revolution, it has in fact had the effect of bringing the PoR and the oligarchs who support the party into the democratic process. Indeed, there may be concerns over whether Yushchenko has the power to push for a fully pro-EU and NATO foreign policy (although many within PoR would prefer to forge a closer relationship with Euro-Atlantic structures, if only to escape from Russia's orbit in addition to having access to EU markets), but the important aspect of the coalition is that it confirms that Ukraine is a unitary state. If the PoR were left out of the democratic process, there was a danger that they would have pushed for federalism which would have only served to exacerbate the east-west divisions and increased political instability across the country. The new government will allow a degree of decentralisation, relaxing the rules on the use of the Russian language rights in the south and east, but by including the PoR in government, it reinforces the government's power rather than negating it. Consequently Global Insight is upgrading Ukraine's political risk rating back to the pre-crisis rating of 3.00.