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The Donbas Blockade – Time for a Cabinet reshuffle?

February 27, 2017

Having been asked for a comment on the month-long and on-going blockade of the Donbas, it is perhaps worth viewing this event from a somewhat different aperture and writing a few lines using the Donbas Blockade as the lens to peer through – as smudged and unclear as that focus may prove to be, rather than looking in upon it.

Firstly it is necessary to make clear that the unofficial blockade that began with demobbed ATO soldiers and volunteer battalion veterans preventing the functioning of trade routes in and out of the occupied Donbas via major roads and rail has at its foundation several valid issues for which current and previous governments of 2014 and the Presidential Administration have only themselves to blame – and now face a very difficult task to settle some core issues in a timely manner.

Of the key issues that lie behind the blockade are facts of insufficient progress and political will.  First and foremost is the inability, or better stated unwillingness, to diversify away from reliance upon the “Republics” when it comes to fuel sources (and more broadly the glacial movement toward energy sector reform which is perceived as prolonging unnecessarily certain vested interests).

Another, and an issue rightly close to the hearts of so many manning the blockade, is the slow release and/or exchange of fellow combatants held within the “Republics” – albeit obviously it takes the “Republics” to engage in this process.

Clearly the on-going blockades are not going to be removed by using force when those in Kyiv are well aware that such a move will cause significant political damage – if not political suicide.  That notwithstanding many of those manning the blockade are war-hardened veterans who may sew far more effectively than those that would try to reap on behalf of Kyiv.

Needless to say certain  political personalities stand to gain from what is in effect something of a self-inflicted wound for President Poroshenko – certainly insofar as energy diversification from “Republic” fuel sources are concerned several years into his tenure.  The noses of many oligarchs that have been put out of joint during the past few years may also find a convenient common cause to rally behind this event to score some revengeful points too.

None of this bodes well for Prime Minister Groisman and his Cabinet with such a small (and often infrequent) majority in the Verkhovna Rada.  Thus the return of The Radical Party, led by Court Jester Oleh Lyashko to the coalition is an almost inevitable rumour and would come at some significant political cost – perhaps to all concerned if it went wrong, but certainly for some existing Cabinet members.

Early Verkhovna Rada elections remain very much a possibility, and presidential elections will see the likes of Mr Lyashko enter into (and already see Mrs Tymoshenko active in) pre-election populist electioneering.  (The same feckless and inspiration-less list of Boiko, Tymoshenko, Lyashko, Yatseniuk, Poroshenko and a few other equally sullied names will be presented to the Ukrainian voter for president in due course.)

Unfortunately this blockade, whatever the perceived rights and wrongs, has noticeable consequences for the Ukrainian economy when hundreds of thousands of jobs are connected to energy and metals in the region.  This, should the blockade go on for months, will effect the budget, balance of payments, import and export, growth generally and thus the attitude of the voting constituency (both regional and to a lesser extent nationally) toward those currently holding office in Kyiv.

How can the Energy Minister survive if those manning the blockade are to be pacified?  With who to replace?

Was the appointment of (Supreme Court Judge Boiko’s daughter) Nataliya Boiko as Deputy Minister for Energy a preparatory appointment of somebody loyal, prior to the Minister’s position perhaps necessarily being given to somebody/anybody less loyal to hold together the current coalition (or perhaps attract a new partner) yet pacify those on the blockade?

With persistent rumour that Ms Gontareva has (again) submitted her resignation as Head of the NBU, yet this time rumour stating it wmay be accepted (having now necessarily released PrivatBank from Kolomoisky (and partners) and moved it into public ownership and done a significant amount of cleansing of the Ukrainian banking system – who will fill her shoes?

I that resignation conditional upon the potential entry of Mr Lyashko and The Radical Party into positions of high office and undue political influence?

In the likely event of the blockade forcing political offered concessions by President Poroshenko toward Mr Lyasko and  The Radicals, and the less likely event and such concessions will be accepted bringing The Radicals back into the coalition (perhaps Lyashko’s price being too high or presidential horizons too close) the existing animosity between Mr Lyashko and Ms Gontareva would likely continue far more frequently and publicly.  Why would she want to continue?

Much of what passes as Ukrainian banking reform in the media is actually NBU policy as set by Ms Gontareva (and NBU Board).  Reform maybe the policy, but policy is not necessarily irreversible and consolidated reform.  Thus much of what she has accomplished could be undone – as a matter of policy under a new NBU Head.

For example, should President Poroshenko foolishly appoint somebody like Arseny Yatseniuk to the post, a move toward a much more political and oligarch friendly NBU would probably occur simply because Mr Yatseniuk will require backers for a presidential bid in 2019.  Yet refusing any interest by Mr Yatseniuk in that vacant post may (or may not) hasten early Verkhonva Rada elections if he feels they are inevitable and pulls his People’s Front from the coalition despite its undoubted political demise in doing so.

Finding somebody competent, strong-willed, not beholding to the oligarchs or a politician/political clan whims, and who will get the support of the Verkhovna Rada after presidential nomination will not be easy – particularly somebody without any political ambition themselves.  There is then the view of key funders and lenders toward any new NBU boss.  The IMF has been generally supportive of Ms Gontareva albeit it particular people and personalities the IMF cannot (officially) endorse.  It may be far more wary of any replacement.

The question then for the current government and President Poroshenko, is having simply failed to find alternative energy/fuel sources to those under the control of the “Republics” over the past 2 years – how, when matters have escalated to the point where unofficial but effective blockades by veterans are on-going and with them the possibility of bringing down – or saving – the current Verkhovna Rada (per the scenario above or similar), to swiftly heal this ostensibly self-inflicted wound?

A question not that easy to answer when timeliness matters economically, socially and politically – and against a backdrop of a widely perceived stalling of the entire reform process, what may have otherwise been more easily manageable is now potentially politically grievous.

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