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30 June, 2014  ▪  Oles Oleksiyenko

A Heavy Mace for Mr. Poroshenko

What the new President should start with to meet expectations of his voters

Victory in a presidential election is just the beginning of a long road for Petro Poroshenko – more so than for any former Ukrainian president. With the current Constitution and lack of commitment to “living in a new way” (in the understanding of the majority of Ukrainians who voted for him rather than his own) as his campaign slogan went, Poroshenko can quickly lose grip over the situation in the country if the current parliament remains in place or if it is re-elected too late. The slogan for which every voter had individual expectations, most of them exceeded, is gradually been filled with actual steps and appointments. And it looks like the new President may run out of the benefit of the doubt the voters have given him very soon now.

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Who are the president’s men?

Poroshenko may not have a good team, but he has two decades of experience in business and fifteen years in politics. He has a large pool of people whom he can get involved now. In the 2002 parliamentary election, Poroshenko ran the campaign headquarters of Nasha Ukraina (Our Ukraine), a party led by Viktor Yushchenko, the ex-president brought to power through the Orange Revolution. In 2004, he was deputy head of the presidential campaign ran by the Syla narodu (Force of the People) coalition. In 2005, he tried to turn the National Security and Defence Council he headed into an alternative government and later worked in the Ministry of Foreign Affairs under Prime Minister Yulia Tymoshenko and in the Ministry of Economy in the Cabinet of Mykola Azarov, Prime Minister under Viktor Yanukovych. Finally, the recent presidential campaign enabled Poroshenko to handpick people to fulfil the necessary functions. Moreover, his business interests forced him to form a pool of local-calibre officials. This is especially evident in Vinnytsia Oblast where his business is based and in Kyiv: among them are current and former mayors, heads of county and oblast administrations, police chiefs, other top officials, members of oblast and city councils, etc. As proven by the appointments of Vitaliy Yarema, the newly-appointed Prosecutor General and Poroshenko’s long-time ally, and Volodymyr Hroisman, Vice Premier since February 2014 and Vinnytsia Mayor prior to that, they can be appointed to high and even topmost offices in the government.

In contrast to his ally Vitaliy Klitschko, for example, Poroshenko, whose electioneering slogan was about “living in a new way”, did not emphasize the need for new people to come to power. This makes sense – Poroshenko himself and his closest comrades-in-arms have been in Ukrainian politics for a long time now. Some disgraced politicians, such as Davyd Zhvania (entrepreneur and MP, initially as non-aligned and member of Yushchenko’s Our Ukraine, then in various other parties and parliamentary factions including Yuriy Lutsenko’s People’s Self-Defence, the Party of Regions – Ed.) and Mykola Martynenko (MP from Arseniy Yatseniuk’s Front for Change – Ed.), still maintain good relationships with them after close cooperation at various times in Viktor Yushchenko’s team. Former members of Our Ukraine and Narodna samooborona (People’s Self-Defence) ran by Yuriy Lutsenko and Davyd Zhvania are, in fact, the core of Poroshenko’s reserve of experienced cadres.

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Volodymyr Lytvyn, ex-speaker of Parliament, is an old friend of Poroshenko. Lytvyn’s relative Andriy Derkach, one of the leading lobbyists of Russia’s interests in Ukraine, was said to be the informal supervisor of Poroshenko’s campaign in Sumy Oblast in the run-up to the presidential election. The current president has had close relationships with the team of ex-Kyiv Mayor Leonid Chernovetsky into which he was able to integrate his own people. These include, for example, Poroshenko’s business partner Ihor Kononenko, who is predicted to take the office of the Kyiv City Council’s secretary, and Serhiy Berezenko, the newly appointed head of the State Management of Affairs agency that is in charge of managing public and social services for the president and parliament by state-owned companies and facilities.

Poroshenko is currently viewed as a fairly convenient option for the oligarchic system, which wants to keep its positions in Ukraine. The Poroshenko-Klitschko union was a result of a meeting that took place in Vienna with the participation of Dmytro Firtash. The presidential inauguration showed that despite a severe confrontation with Rinat Akhmetov’s and Ihor Kolomoiskyi’s groups in 2005, Poroshenko is now ready to cooperate and, hence, take their interests into consideration in his policies. On the fourth day after the election, on May 29, he met with Kolomoiskyi, and they reached an agreement that the latter would keep control over government offices in a number of southern and eastern regions: Kolomoiskyi himself would remain governor of Dnipropetrovsk Oblast and his creature Ihor Palytsia governor of Odesa Oblast. It is now widely reported that Kharkiv Oblast will be headed by Kolomoiskyi’s man who will replace the protégé of Arsen Avakov’s, the Interior Minister with Kharkiv background.

Efforts to rally oligarchs around the president are being presented as a necessity in view of the external threat, but perpetuating an oligarchic system to which Poroshenko himself has become accustomed over the years will adversely affect Ukraine’s mid-term and long-term prospects. Under the cover of ostentatiously “patriotic” statements (like those coming from Akhmetov) or even actions (like those of Kolomoiskyi), the oligarchs will continue to enrich themselves at the expense of the state.

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A new Family looming?

Poroshenko has his own circle of close friends and oligarchs with whom he has to reckon at least initially. He is also loyal to the idea of keeping “professionals” who served the previous regime in office. At the same time, he is trying to put as many people personally loyal to or dependent on him in high offices as possible. Someone published on the Internet a revealing recording of a conversation between Anatoliy Matviyenko, ex-leader of the Sobor party, and Poroshenko. The issue discussed was an election campaign in one first-past-the-post district in Vinnytsia where Matviyenko and Poroshenko’s men competed. Matviyenko asked: “Why did you pit this man against me?” Poroshenko allegedly answered: “You are a friend of mine, while he is my man. Can you appreciate the difference?”

Poroshenko cannot fail to realize the dangers inherent in a decision to surround himself with politicians who could use him as a cover for launching their own political projects, as Arseniy Yatseniuk did under Viktor Yushchenko’s wing. Instead, Poroshenko needs people who are able to perform their functions without hopes for making a political career of their own any time soon.

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The same logic is likely to guide the new president in further appointments and his choice of allies in parliament. On the one hand, this approach is largely justified, because Poroshenko needs to have reliable men in various offices to implement his policy rather than lobby their interests or those of their patrons. On the other hand, Poroshenko’s desire to place his own, little-known men in key posts will lead to increasing resistance from his more or less prominent political allies who will perceive this manoeuvring as the rise of a new clan.

Unlike Yanukovych, Poroshenko had a fairly wide-ranging business empire by the time of election. Poroshenko has ranked among the top 20 rich Ukrainians for a decade now. His assets were recently estimated at UAH 15-20bn (USD 1.3-1.6bn).  He has business assets in the food-processing industry and agriculture (confectionery, sugar refineries, large agricultural enterprises, a starch plant, milk processing plants and their suppliers), machine building (the Bohdan corporation, the Leninska Kuznia shipbuilding plant and plants manufacturing car batteries and other spare parts), telecommunications, trucking business, a small bank, an insurance company, commercial real estate, a glass factory, resort centres and mass media outlets (the 5th Channel and a number of regional TV and radio companies in Lviv and Odesa oblasts).

Before and immediately after the election, Poroshenko promised to sign a contract with an investment company to find a buyer for his assets. However, there has been no word about it after the inauguration. Is Poroshenko really going to make good on his promise rather than sell his assets to some offshore company which will eventually turn out to be owned by him? After all, he took a formal step to separate himself from business in 2012 when the Ukrprominvest group was dissolved and his assets were concentrated in Prime Assets Capital, a closed non-diversified corporate investment fund headed by Poroshenko’s father. His previous claims of having sold his share in the Bohdan corporation were challenged in journalist investigations showing that he continued to indirectly own this asset.

The diversity of Poroshenko’s business empire readily opens up wide opportunities for channelling large sums of budget money. These may include budget outlays at various levels, money from government-owned and communal enterprises won at tenders and through various support programmes, tax reliefs, high-priority VAT compensation, etc. Will Poroshenko take advantage? Hopefully, he will not, for otherwise the scale of embezzlement may be no smaller than under Yanukovych.

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Poroshenko’s possible efforts to monopolize the information space may be especially dangerous. He flatly refused to sell his 5th Channel, unlike other assets. On the one hand, in the current circumstances any Ukrainian politician who does not own a powerful media holding is forced to depend on oligarchs, who control a lion’s share of the media space, especially the television. This is important in conditions when Moscow is waging an information war on Ukraine. How the oligarch-owned media will act is also unknown. On the other hand, the appointment of Borys Lozhkin, who has extensive experience in monopolizing the press market, as head of Poroshenko’s Chief of Staff is alarming specifically in this light. Does Poroshenko intend to establish total control over the Ukrainian media and start shaping the public opinion based on objectives defined in the Presidential Administration? If virtual reality of this kind is created, it may stave off and greatly reduce the depth of popular disappointment with the new president, but the other side of the coin is distortion of reality, slowed down civil society and lower impact of public opinion on government policy.

In word and deed

The majority of points in Poroshenko’s election programme are very vague, which enables him to avoid direct responsibility for a failure to fulfil them. At the same time, his programme emphasizes that socioeconomic policy is within the competence of the Cabinet of Ministers whose functions Poroshenko is not going to take over. So, all the responsibility in this area rests with the government and the coalition.

This approach is unlikely to please Ukrainians who voted for Poroshenko as someone who will take responsibility for expected changes in the country (and they are not a bit interested in knowing what authority he actually has). At the same time, the majority of promised changes directly depend on the passage of respective laws. Parliament is now conditionally controlled by the head of state. Just like under Yushchenko, the Verkhovna Rada may support most of the president’s initiatives (even though sabotage is possible, because the president does not have as much authority as in Yushchenko’s times). However, the lower Poroshenko’s popularity rating drops, the less loyal the MPs will be, and the president will have a hard time changing the status quo under the current Constitution.

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Poroshenko’s term in office comes at a time when Ukraine’s economy is in the doldrums. The GDP dropped by 1.1% in Q1’2014 and is set to shed 3-5% by the end of the year. Industrial output fell 5.3% and will continue to plummet. A record-high harvest kept the GDP from taking a major tumble last year, but agriculture has a gloomy prospect for 2014. Certain industries improved the overall statistics. The food and wood processing industries hovered around zero. However, as wage arrears accrue, prices rise and the purchasing power of the population drops, the domestic market is set to contract with negative ramifications for the dependent industries.

Ukraine’s economy was forced to transform itself in the face of increasingly bitter confrontation with Russia and the need to reorient itself to the European and other world markets. The prices of the utilities are going up, while the level of income is essentially frozen. Moreover, a large-scale replacement of general-purpose subsidies with individual ones is in the works, including in the housing and utilities sector. The annexation of Crimea and military actions in the Donbas will furnish a valid explanation why Ukrainians must tighten their belts. However, if the process drags for too long and the plummeting standard of living is not at least stopped (most people actually expect it to rise after the fall of the Yanukovych regime), this will trigger outrage, in particular against Poroshenko.

Peace without capitulation

However, the newly elected president will suffer the most if he fails to fulfil his promises completely or in due time or if he simply falls short of the expectations of his voters. Among other things, Poroshenko promised to eliminate the terrorists in the Donbas; switch to new, independent and equal relations with Russia; sign and implement the Association Agreement with the EU; reach an agreement on security guarantees for Ukraine from other states.

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The public at large perceived Poroshenko as, among other things, a person who is able to fend off Putin’s blows even if it hurt his business interests. Poroshenko’s companies were the first victims of the trade war Moscow waged against Ukraine in July 2013 in order to force it to abandon the Association and DCFTA agreement with the EU and instead integrate with the Customs Union of Russia, Belarus and Kazakhstan. At that point, Russia banned the imports of Roshen, a company that consists of Poroshenko’s confectionery factories. In March 2014, Roshen had to stop its facilities in Russia after the Tversky District Court of Moscow opened a criminal case against the company and froze an equivalent to UAH 1bn on its accounts in Russian financial institutions. After the presidential election was over, it was reported that Russia was preparing to “nationalize” Poroshenko’s shipyard in Sevastopol.

After induction into office and several conversations with Putin, Poroshenko has yet to show much-expected toughness and decisiveness in carrying the anti-terrorist operation, introducing a visa regime or fully closing the border with Russia as the key source of instability in Ukraine. So far, he has not come up with any initiatives regarding Crimea that would hurt the occupants and the local collaborators and make the peninsula’s existence without Ukraine increasingly less bearable.

Poroshenko also appointed Lozhkin his Chief of Staff, even though he worked to Russify the Ukrainian press and even earned an award for his efforts from Valentina Matviyenko, Chairperson of the Federation Council of the Russian Federation and one of Putin’s closest allies.

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True, after Poroshenko’s inauguration Ukrainian forces launched an offensive to regain control over part of border between the Donbas territories controlled by the separatists and Russia. At the same time, a number of steps he took appeared to be belated or inadequate to the real situation. For example, at a meeting of the National Security and Defence Council, which Poroshenko called three full days after the terrorists shot down a Ukrainian aircraft carrying 49 troops, he declared his intention to give the terrorists time to think so that they would relinquish their firearms and leave Ukraine’s territory, which in fact gave them a break and an opportunity to regroup. Perhaps the only specific outcome of this meeting was a demand to fully discontinue all kinds of cooperation between Ukrainian enterprises and Russia in the defence industry. A similar restriction adopted earlier did not cover all the products, such as double-purpose items.

Not much time has elapsed since Poroshenko’s inauguration, and one can surmise that it was used to prepare bigger initiatives aimed against Russian gunmen in the Donbas and the occupation administration in Crimea, changing the format of relations with Russia and Russia-controlled structures, such as the CIS. However, the newly elected president should not forget that what was expected of him was not just peace and normalized relations with Russia but achieving all this without open or concealed capitulation before the Kremlin.

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