Q: So what is your call for the second round of the Ukrainian election?
Timothy Ash: At this stage, it is hard to really imagine any scenario apart from a Volodymyr Zelenskiy win over President Petro Poroshenko in the second round vote on April 21. He was just too far ahead in the first round. And importantly, in the first round, he exceeded expectations, securing over 30% of the vote – I think many thought his younger voters would not get out to vote. But they did, and they will on April 21. Meanwhile, Poroshenko underperformed, getting just under 16%. I think the Poroshenko camp had been quietly optimistic that when voters came to the voting booth they would vote with their heads rather than their hearts/pockets. They did not, and herein I think Poroshenko suffered for failing to address key issues for voters which are corruption and elite capture of the political process– and in the end jobs/living standards. And these factors are going to continue to weigh into the second round, with polls showing the distributed voting intentions of other first-round candidate “also-rans” suggesting most will be falling for Zelenskiy. It looks like a 60/40 or more split for Zelenskiy at this stage.
Many Poroshenko supporters are I think in disbelief that the population seems set to vote (seemingly in large numbers) for the “hologram candidate” as some have described Zelenskiy, for a candidate without much in terms of a program, and with alleged close ties to another oligarch, Igor Kolomoisky. But I think they misunderstand the electorate, which sees no difference between one oligarch (Poroshenko) and the next (Kolomoisky). They had five years of Poroshenko, and want something (anything) different to that – and are willing to take a risk with Zelenskiy, and even with Kolomoisky potentially in tow. But it’s the fact that Zelensky himself is neither an oligarch nor a politician, which offers the prospect of something different and new, and change. That said the Kolomoisky factor clearly is a risk that they indeed get something very similar, or worse. But they see Zelensky as a chance for something different, for change. Poroshenko should look back and reflect on the fact that he failed to impart enough change. He had his chance and failed to deliver on what was truly important to Ukrainians.
Many people have made many predictions for these elections over the past year. I had thought Slava Vakarchuk would win on a reform ticket – as the “Ukrainian Emmanuel Macron.”
I got that wrong, but what was always clear to me was that Poroshenko could not win a second term – and actually I was one of the first to call Poroshenko as the most likely president in 2014. Zelenskiy represents the “anyone but Poroshenko” choice, and reformers have the choice, as ex-Finance Minister Oleksandr Danylyuk and x-Economy Minister Aivaras Abromavicius of engaging with him to mold him into a potential Macron-style reform president. It’s just possible that could be the case – it might not as well, but it’s a risk taking, given that the perfect reform candidate such as Vakarchuk failed to stand.
Q: What will you be looking for from Zelenskiy post-election?
TA: Well the immediate question will be who will be in his team. Markets were somewhat reassured that prominent reformers, such as Danylyuk and Abromavicius pinned their colors to Zelenskiy’s mast. The hope will be that these, or similar reform-minded figures will be given prominent positions – albeit given the current constitutional set up, a new President Zelensky only has the ability to appoint into a few cabinet positions, including foreign affairs, defense, and the National Security Council. Once elected many people will flood to work in the new Zelenskiy administration – the hope is that there will be suitable gatekeepers to sort out the good, from the less good and simply bad. The hope is that Ukraine’s Western supporters will help in this process, helping to guide Zelensky’s choices.
A key question will be how the new president chooses to manage his relationship with the cabinet and the Rada. He might seek to translate his high popularity in the presidential poll quickly into a working majority in parliament – one KIIS poll already suggested his party, the Servant of the People, might also take at least 30% in an early presidential poll. But before then we might also be surprised at the fracturing of existing factions in parliament, with the likely collapse of Block Petro Poroshenko (BPP) assuming their candidate loses this Sunday, and the emergence of a pro-Zelensky reform block in the Rada, albeit still falling short of a majority.
Obviously the hope, one way or another, is that the issue of the relationship between the new president, the cabinet and the Rada is resolved soon after the presidential poll – even if that is going to early parliamentary elections. The markets, certainly, don’t want the uncertainty.
Q: What about the Kolomoisky factor, does that worry you as a foreign investor?
Answer: Absolutely – it is the biggest concern for investors and I think Western diplomats in regard to Zelensky. I think one of the big wins from Ukraine’s credit profile perspective has been the transformation of the NBU and the clean-up in the banking sector under President Poroshenko. Any Kolomoisky-inspired backtracking or erosion of the institutional strength of the NBU (removing Smoliy as governor) or back-tracking in banking regulation/supervision would be a huge step back for Ukraine. The transformation of the NBU and the clean-up in the banking sector involved a huge effort by those involved, and a significant cost to the Ukrainian state – perhaps upwards of 10% of GDP in bank clean-up costs as a result of the 2014-2015 crisis. The NBU is currently an international standard, best practice, the central bank, and the banking sector is no longer a latent systemic risk to the wider economy. These were huge wins for Ukraine. Any backtracking herein would be hugely disappointing and a massive backward step. But I think reformers in the Zelensky team – Daniliuk and Abromavicius, are well aware of the risks to the NBU and the broader banking sector related to attempts at the early privatization of Privatbank, and of backtracking in on-going efforts by the state to secure compensation from past owners for the cost of the Privatbank bailout/nationalisation. The International Monetary and other international donors/creditors will also, I think, have a critical eye on the PrivatBank issue, and it is difficult to imagine the current IMF standby-agreement sustaining if a Zelenskiy administration backtracks on existing commitments made with respect to reform of the National Bank of Ukraine and the broader banking sector. This will be a deal breaker for the IMF et al, and I think for foreign private sector creditors.
Q: Are there checks/balances?
TA: Well, under the constitution, power in Ukraine is finely balanced between the president, the executive (cabinet) and parliament (Rada). Assuming Zelenskiy does not push for early elections, the government will remain in place until scheduled parliamentary elections in October. So there will be a limit to the damage a President Zelenskiy can do.
I am somewhat assured that Ukraine has some decent institutions at this stage – including the NBU and the Ministry of Finance, and I was inspired this week to hear that Max Nefyordov, is set to head the new Customs service. On the macro front, Ukraine now only runs modest twin deficits, NBU FX reserves have risen to around USD20bn or over 4 months of import cover. The IMF SBA also provides a key anchor – and note there that Zelenskiy has offered his support for the continuation of the programme. Importantly, Zelensky has indicated an orthodox, pro-business agenda, and has even supported the concept of land reform in Ukraine. Interestingly the market has quickly bought into the idea of a Bolsonaro presidency in Brazil, despite his less than orthodox political and social views – but because he has hired a team of economic reformers around him, Geddes, in particular. Zelensky is an anti-establishment candidate, but he seems liberal in orientation, he is Jewish so cannot easily be accused of xenophobia, is pro-Western, pro-business and pro-market. Danylyuk and Abromavicius have the potential to be Ukrainian Geddes. Zelenskiy could be a good news story – a liberal version of Bolsonaro, which perhaps explains France’s Macron’s invitation to Zelenskiy to visit him in Paris last week. I think Zelenskiy makes a much more comfortable future partner for Macron than Bolsonaro – albeit that might not be the case for Trump.
Q: And what about Russia?
TA: The Poroshenko team have argued that Ukraine’s security is at risk from a Zelenskiy presidency, and implied that he might be pro-Russian. Russian is Zelenskiy’s mother tongue but he has made clear his loyalty to Ukrainian statehood and sovereignty. And remember that Kolomoisky proved his loyalty to the Ukrainian cause as governor of Dnipropetrovsk – holding the line in that region at a time when the fear was a domino effect from Luhansk and Donetsk. It’s surely unfair for the Poroshenko team to claim Zelensky is pro-Russian, but also a puppet of Kolomoisky. There seems to be a contradiction here. But Zelensky’s Russian language orientation also offers some hope of bringing Ukraine further/back together, or reaching back out to the East (of Ukraine) whereas Poroshenko’s language, church and army agenda in some respects seemed to do the opposite.
Zelenskiy’s lack of experience in foreign affairs, defense/security is a weak spot, for sure. But again key will be who he chooses for the key roles of ministers of foreign affairs, defense and national security – and I think plenty of credible candidates will be queuing up to serve. The West I think will also help/guide/support Zelensky in its dealings with Moscow, and the Paris trip will no doubt have been useful given the French leadership in the Normandy peace process.
And even on this issue, the Zelensky presidency offers the chance of a different, new perspective to the peace process which has essentially stalled under Poroshenko (and more importantly Putin) – albeit admittedly key will be how Moscow reacts. There has been talk of Moscow offering an olive branch by releasing the score or more Ukrainian sailors captured months back in the Sea of Azov.
A Zelensky presidency is what it is – I could think of tried tested and trusted reform candidates. But they failed to present a decent challenge. Reformers, and the West, need to work with Zelensky to ensure the post-Euromaidan Revolution wins are preserved and further reforms pushed forward.
