The Ukrainian Government as the Point of Balance between Domestic and Foreign Capital

Konstantin Zadiraka
Konstantin Zadiraka
Author's articles

This article was written a couple of months ago while the future of Ukrainian government was still unsure. I am happy to report that the ensuing events mostly confirmed my predictions: Groisman did take the seat of Prime Minister, Avakov and Petrenko entered the Cabinet and Yatsenyuk gained one more victory over the Parliament, forcing it to cancel its resolution recognizing the work of his government as unsatisfactory. The newly formed governing coalition includes Poroshenko’s Bloc and Yatsenyuk’s People’s Front, though it was also supported by former members of Party of Regions from “Will of People” and “Renaissance” deputy groups. The only mistaken prediction of the article was appointment of Ivan Miklos at the post of Finance Minister. Though Miklos did became an advisor of the Finance Minister, this post was taken by Oleksandr Danyliuk, former investment banker who worked in London for 4 years. With this final necessary bow to the West, the victory of local stakeholders has been achieved, at least for now. But what was really hard to predict was the backroom arguing between President Poroshenko and Groisman, who had seemed to be Poroshenko`s obedient partner, but has been quite persistent in demanding posts in the Cabinet for his men. After all, it seems that the lack of resources is forcing conflicts even between the closest allies in the ruling class.


It’s been some time since the heroic efforts to restore balance among the interests of political actors in Ukraine brought about the end of Prime Minister Arseniy Yatsenyuk. For most of his two years in this office, “Yats,” the head of the so-called “Popular Front”–had been a favorite of both local big business and their “Western partners.” Politicians came and went in these two years, but he seemed inviolable.

By the end of 2015, it had become clear that if at the beginning of his term Yatsenyuk was well-liked by almost everyone, by now almost no one was satisfied with him. The question of a new government was raised, as part of an attempt to find a new consensus among elites, and to publicly enact a renewal of social and economic policy.

In a parliamentary-presidential government, the prime minister is the head of state, and to be in charge of Ukraine is a hard and thankless task. This person must contend with powerful nationwide financial-industrial groups, the “Dnipropetrovsk” and “Donetsk” clans, countless local authorities and warlords, all with their own interests and more or less legal demands. Whoever hopes to lead them must be prepared to balance these interests and demands—otherwise, the best that he can hope for is to be forgotten. In addition, from the beginning of Ukraine’s emergence as an independent state, it has found itself at an international crossroads, with additions to its domestic problems coming from both the west and east.

Ukraine was lucky in its first couple of decades of independence. In the east, the Russian Federation could not cope with the separatism of little Chechnya nor countless other problems as it waited for oil and gas prices to rise. In the west, Europe digested the newest members of the EU, but it didn’t get to Ukraine. Then came the economic crisis of 2008, which, however, did not prevent Russia from testing its renewed strength and the patience of the West in the war with Georgia. But by now, the interests of global actors approached the borders of Ukraine—and the fuse was lit.

President Yanukovych and his “family” didn’t seem to notice, and they upset the balance of local interests by resorting to repression against some political opponents, concentrating power in his own hands, suppressing or buying up major media outlets, and, worst of all, encroaching on the oligarchs’ share in the distribution of state revenues. The fuse eventually ran out.

After Maidan, some of the problems were solved in the usual manner of capital—by blood and war. With local players things were more or less sorted out—some members of the “family” oligarchs, were run out of the country as a result of the revolution, some, like the richest and most influential to that point oligarch Rinat Akhmetov, noticeably weakened as a result of the war and the decline of the territories of uncertain status, and still others some, like Firtash, experienced visits by the law enforcement organs, though not the Ukrainian ones. But the main result of Maidan and of Russia’s counterattack, which perceived Maidan as an attack on its interests in Ukraine, was a significant deepening of the dependence of local authorities on international centers of influence. This is not to talk about the territories controlled by separatists and their complete dependence on, if not direct control from, Moscow—there is little doubt about this. But the question of the survival of the Kyiv government was clearly related to the volume of assistance coming from the west, especially the US and the IMF. The Russian army’s presence in Crimea and Donbas, along with the constant threat of further escalation and the possibility of Russia’s increased direct participation, necessitated diplomatic support as the economic crisis required economic support. Without either one the current administration is not viable.

Yatseniuk took his post as the head of the government, having been vetted ahead of time by the United States, but his relationship with the oligarchs, and in particular with Akhmetov, was already being discussed during his 2010 bid for president. He, like Poroshenko later, was the personification of compromise, a temporary alliance between local big business, the West and Ukrainian voters (including the moderates of Maidan), whose main desire was to restore and maintain peace and order in the country. In the first period after Maidan, from Yanukovych’s escape in February 2014 to approximately spring 2014, the interests of these two groups more or less coincided. They were interested in maintaining a certain order, political and economic, stopping Russia’s progress, keeping the country from sliding into the chaos of total civil war on the order of Bosnia or Somalia, curbing the right-wing radicals who acquired power during Maidan, and restoring the delicate balance among different financial and industrial groups. When these tasks were taken care of, their interests began to diverge.

The provisional start of the second period of post-Maidan Ukrainian history can be placed at the beginning of the “Minsk 2” negotiations, after the loss of Debaltseve. The military campaign of winter 2014-2015 showed that Ukraine had no capacity to enact a military solution to the problems in Donbas, and that separatist groups cannot effectively attack Ukrainian army positions as the conditions of Russia’s limited involvement in the conflict stand. The status quo and easing of tensions at the front led to conflict within Ukraine. The first and most striking of these was a dispute between Kolomoisky and Poroshenko’s team over the control of “Ukrnafta.” The public nature of the conflict opened to the public a phenomenon of Ukrainian politics that had until that point been largely hidden. Here there was both the use of volunteer batallions to protect the interests of oligarchs, and the inability of the authorities to enforce their decisions, and the naked rage of Kolomoisky, who accused Vladimir Demchyshyn (Minister of Energy) and Ihor Kononenko (one of Poroshenko`s closest associates) of banditry, raiding and working for the Russian secret. It was also significant that the conflict was solved after Kolomoisky’s conversation with US Ambassador Jeffrey Payette, with assurances from the latter that “the law of the jungle” no longer holds. It was this conflict that served as a starting point for a subtle but increasingly tangible clash of interests among local oligarchs, those invested in existing schemes for the distribution of power and profit, with the guards of the interests of Western states and international institutions, behind which, ultimately, stand the interests of transnational capital.

Transnational capital is interested in four things with respect to Ukraine. First, it seeks to break the mostly shadowy schemes for the distribution of power and profit that form the backbone of the Ukrainian political and economic system, and which were consciously constructed by Kuchma in the 90s as closed to outsiders and designed to create and nurture a class of national capitalists. (See his memoirs, “After Maidan 2005-2006. Notes of a President.”) Second, it seeks to devalue Ukrainian assets, so as to make them easier to buy and use. Third, despite the first two tasks, it seeks to maintain order in Ukraine, through chaos, war, and the deepening confrontation with Russia. Fourth, that Ukraine pay the interests on its debts to the IMF and other creditors. To achieve these objectives, transnational capital relies mainly on the Ukrainian “middle class:” small businessmen, intellectuals, students, and the urban “creative class.” These segments of the population have less to lose than others from the destruction of the old system, and can rely on the benefits of integration with European institutions. The West has spent and continues to spend heavily to organize these strata within civil institutions. However, it’s easy to guess how local representatives of big capital relate to these activities. Several have clearly articulated the problem, and as a rule the majority express readiness to move to open and transparent cooperation with western partners. However, their behavior toward some of the emissaries of these partners speaks volumes. The constant mention of Borovik and Saakashvili on Kolomoisky’s TV channel as well as others, harsh statements by Grigorishyn to the Minister of Economic Development (Aivaras) Abromavicius and the conflict of that minister with Kononenko, the release of Deputy Prosecutor David Sakvarelidze—all these episodes show a global conflict of interest between local big business and transnational capital.

Ukraine’s Cabinet of Ministers and its head, Arseniy Yatseniuk, were caught in the middle of this conflict. This explains the sudden attack on him from all sides that lasted the entire second half of 2015. Yatseniuk, as a figure of compromise, tried to march to everyone’s tune at once, and ultimately no one was satisfied. The oligarchs criticize him for getting in the way of business as usual, and for trying to force them to share profits from infrastructure and resources with the state (this is usually dubbed “lack of support for national producers”). Small- and medium-sized businesses hate the government for its attempt to streamline the tax system to get rid of loopholes and increase revenue. Western partners have criticized the Cabinet (and all other branches of government) because none of these attempts were successful. But the main argument against the government has come from the general population’s dissatisfaction with its social and economic policies. It protested the general decline in standards of living and increased prices on utilities. Responsibility for most other problems—corruption, economic decline, and losses in the East—has been diffused among many members of the government. Personal responsibility for the raised rates, at least in the popular imagination, fell to Yatseniuk. By the time the local elections rolled around a number of parties, first of all “Batkivshchyna,” successfully took up the theme of social concern, actively positioning themselves a defender of public interests and opposed to the interests of the oligarchy and the IMF. This effort proved fruitful, and now Yulia Tymoshenko, who after the recent presidential election many had written off as a political player, has overtaken Poroshenko in the ratings. The radicals Oleh Lyashko and Sergei Kaplin, of the “Party of Regular People,” set up two tent cities at the same time in the government district, demanding the resignation of the government and pushing the theme of utilities.

After all this, the only thing everyone is able to agree on is that Yatseniuk must step down and the Cabinet must be remade from scratch. But this didn’t happen immediately.February 16 saw a spectacle that was pitiful and incomprehensible at first glance. In the morning, President Poroshenko issued a statement calling for the government’s resignation. Parliament then passed a resolution recognizing the work of the government as unsatisfactory. The next logical step would have been to vote for resignation, but the Rada failed to do this, and the main faction that failed to contribute the necessary votes was in fact the Petro Poroshenko Block. Nothing to see here.

Poroshenko is in fact in the same situation as Yatseniuk; positionally, they are allies, and although Yatseniuk has not satisfied the oligarchs, he was better than someone unknown, especially if this unknown person might be an emissary of the West, such as Finance Minister Natalia Yaresko. Despite everything, everyone could agree on Yatseniuk. The need to find another, more stable compromise has not gone away, but the Prime Minister was given time and space to maneuver. There began intense, shadowy negotiations. One example of the interaction between the government and the oligarchs away from the reach of cameras was the decision regarding the transformers purchased by Ukrenergo from the company ZTR, owned by the Russian tycoon Konstantin Grigorishin, who is often said to be close to the president. In the summer, the company won a $2.2 billion contract to supply transformers, but the deal fell apart because excess price was noticed by SBU and Antimonopoly Committee. They agreed to $928 million, managing to preserve the agreement though its appetite was not fully satisfied.

In early March, the bargaining reached a point of agreement, and Yatseniuk announced that he was ready to resign, proposing with some degree of sarcasm that the President and his Block take responsibility for government policy and building a Parliamentary coalition. The Prime Minister and the “Popular Front” had two informal requirements: to keep behind them the portfolios of two important ministries: the Ministry of the Interior and the Ministry of Justice, which were held by Arsen Avakov and Pavlo Petrenko, a long time friend of Yatseniuk. These posts will give the Prime Minister and members of his team immunity from criminal persecution, and allow them to maintain some control over the government.The nominee for prime minister was under questioning for a certain amount of time, and they were also considering Yaresko, which would come as very happy news to the US, to where Poroshenko had just left for a visit and to the speaker of Parliament Volodymyr Groisman, but this dilemma was resolved quickly and simply. Appointing Yaresko as Prime Minister would be too powerful a blow to the positions of local capital and would amount to an almost direct implementation of governance from “western partners.” The only group of Ukrainians that had nothing against this was a section of the liberal Facebook community. But in general, politicians discovered that they agreed, even if they did not openly protest, arguing that it was not very democratic for the Prime Minister to appoint someone that no one had elected. The ideals of democracy were used to justify local capital’s banal fear before the dictatory power of the IMF and the United States. The latter did not insist, like Yaresko, knowing that the country was not ready for this scenario, at least for the time being.

Thus Groisman, the former mayor of Vinnitsya and a faithful ally of the President, was the uncontested leader for the saved alliance between the Petro Poroshenko Block and the “Popular Front.” Both parties are seeded with allies of various financial and industrial groups, and their leaders, as we have discussed, are in very similar situations, as situational allies. Last but not least, the Block and the “Front” are united in their desire to avoid a new election and give up a significant portion of their seats to Tymoshenko’s party. As for the other parties, certainly no strangers to the interests of oligarchs, they are also guided by ratings and are expected to play the role of the opposition, continuing their criticism of the government’s piecemeal policy in the usual “neither our way nor your way” style, which will obviously not change because of the lack of structural preconditions. Most striking here is Tymoshenko, embedding future coalition partners. Her demand for the adoption of a number of laws, including a moratorium on land sales, tax assistance to agribusiness, lower utility rates and an end to pension taxes, has put the government in a dilemma that will reach a simple, if unpleasant, solution. The first option – to dash the hopes of those “Western partners” for so-called “reforms”, the unbalancing of the budget and other risks that the new government will be unable to take. The second option is to begin the work of taking on the label of “antinational” and forcing a dirty fee “on our knees” in the style of Yanukovych, a new coalition of unaffiliated MPs. This kind of coalition formed as a result of lack of votes and forced cooperation with other factions is likely to be strained and infrequent, given that party discipline is so weak. In any case, Tymoshenko will emerge from the situation a folk heroine, her reputation as a defender of the interests of ordinary people (and not to mention agribusiness) intact.

Of course, away from the podium and the campaign trail, the backroom deals continue, though exactly what is being decided we can only guess. The final version of the coalition may yet surprise us, since apart from the issue of party popularity and politicians’ personal brands, all parties are backed up by roughly the same people. It has become clear who will be the most important figures in the new Cabinet; the key positions have been reserved. The candidate for the post of Finance Minister is clear. This position is evidently reserved for representatives of transnational capital; instead of Yaresko, it falls to the former Slovak Minister of Economy and Finance, Ivan Miklos, known as one of the architects of “shock therapy.” It seems he has become a major driver of new government “reforms,” and can guarantee compliance with the IMF.

Finally, it’s important to remember that the balance between the interests of oligarchs and international institutions takes into account only indirectly the interests of the people of Ukraine, its workers, small businesses, farmers, and intellectuals. Of course, the demands of maintaining a competitive democracy require attention to be paid to the electorate, but there’s no need to explain to the Ukrainian electorate how the representatives of the interests of capital can be switched out for one another without changing the substance of those interests or their implementation. The question as to how to bring the interests of Ukraine’s 99 percent into Ukrainian politics without simply resorting to populist promises remains an open one.

Translated by Emma-Claire Foley

Taken from LeftEast