Gov't crisis in Ukraine imperils IMF bailout

Mar 11, 2016, 1:36 PM EST
Ukrainian Prime Minister Arseniy Yatsenyuk.
(Source: Atlantic Council/flickr)

A leadership crisis within Ukraine is holding up the country's all-important IMF bailout. On Thursday Volodymyr Hroisman, the speaker of Ukraine’s parliament, declared that the nation is “running out of time” to form a new cabinet and resolve its political crisis. “We must make a decision very quickly,” he said at investment bank Dragon Capital’s conference in Kiev. “We have days, not months. The ball’s in the prime minister’s court.”

In Ukraine’s political system, the president is directly elected, and appoints a prime minister, who must be approved by parliament. The president provides overall policy direction and is somewhat above the fray of coalition-making, while the more technocratic P.M. handles the nitty gritty of implementation.

But President Petro Poroshenko has publicly turned against P.M. Arseniy Yatsenyuk -- whose public approval ratings have fallen to single digits – and called for a cabinet reshuffle. (Poroshenko also asked Prosecutor General Viktor Shokin, who had been accused of blocking prosecutions of corruption, to resign.) Popular anger has boiled over at the economic recession, political corruption, and the failure of the government to deliver on its promises to reform. Last month Economy Minister Aivaras Abromavicius resigned, citing corruption within the government blocking needed reforms.

Meanwhile, IMF chief Christine Lagarde threatened to halt a desperately needed $17.5 billion aid package for Ukraine’s economy. This was not unprecedented; the IMF had delayed a payment in 2011 on concerns over corruption, and last year Ukraine missed the third tranche of its IMF bailout over its lack of progress on promised reforms. As of now it is delayed indefinitely.

Yatsenyuk then narrowly survived a vote of no-confidence, only because the greater political turmoil of snap elections was feared to be worse than the status quo. Earlier this week, the embattled P.M. called out Poroshenko, saying, “back me or sack me.” Yatsenyuk is willing to form a new cabinet, but insists on staying on as P.M.

However, speculation abounds over alternatives to Yatsenyuk, including speaker Hroisman and Finance Minister Natalie Jaresko.  The latter is a favorite among investors for leading talks with foreign bondholders during Ukraine’s $15 billion debt restructuring last year.  Likewise, Abromavicius said Thursday that Ukraine needs a new prime minister, and that the chance of a Jaresko-led technocratic government has risen “tremendously” since he stepped down. However, finance minister has discouraged speculation over her candidacy.

Jaresko said on Thursday that Ukraine had been ready to submit a new memorandum needed to secure the money in February, but the resignation of Abromavicius derailed the process. She lamented this delay, which is undercutting confidence in the economy. Even if Ukraine submits the memorandum this month, it will have to wait until the IMF board meets in April to secure the money, she noted.

Without the IMF funds, the country only has an estimated 6-8 months of reserves. So for the nation’s sake, political change has to come one way or another – the only question is who will survive the government's latest round of musical chairs.