Outgoing Prime Minister Oleksiy Honcharuk was hired as he was young, inexperienced, a reformer and had no political baggage. In the end, he was forced out as he was young, inexperienced, a reformer and had no political baggage or, more importantly, no capital after the departure of Andriy Bohdan as President Volodymyr Zelensky’s chief of staff.
Bohdan wanted to run the government from the presidential palace and needed a prime minister who he thought would execute his orders. The new head of the presidential administration, “the other Andriy,” Yermak, is more focused on foreign affairs – peace in the east (with Russia) and West (with Donald J. Trump). So Yermak needs a more capable administrator to run the domestic agenda and therein Denys Shmyhal is seen as fitting the bill herein. He hails from western Ukraine so balances the administration a bit more and is seen as a doer given his business and public administration background, albeit is untested in central government and with reform.
In all this, I feel sorry for Oksana Markarova, the finance minister. She did a stellar job in running public finances – managing a record low in Ukraine’s overseas borrowing costs as foreign investors trusted her. She also helped manage the difficult portfolio of state-owned banks, including state interests in the PrivatBank case. Maybe that did for her in the end, which must now be a concern in terms of future relations with the International Monetary Fund, markets and investors.
Ihor Umansky, her likely replacement as minister of finance, had long prior stints as deputy finance minister. He likely knows where some of the skeletons are hidden but a concern is that he never showed himself as a proven reformer – more managing the status quo. Maybe that is what Zelensky now needs.
Perhaps Markarova paid the price of oligarchic intrigue – and the need for Zelensky to expend some political capital to stabilize his majority in the Verkhovna Rada given the fracturing of his Servant of the People party, which holds a 254-seat majority. Umansky’s appointment might be a sop to the likes of billionaire oligarch Rinat Akhmetov. Some might argue that in securing the majority for Zelensky in the Rada he can push on with key reforms such as land reform demanded by the IMF and other international financial institutions. But likely that reform agenda will now be watered down. And it’s unclear where all this leaves the PrivatBank issue, in which taxpayers lost $5.5 billion under Kolomoisky’s ownership. The state took the bank over in December 2016.
For bondholders, the worry now will be what Umansky thinks of foreign portfolio investors who pumped $5 billion into Ukraine under Markarova. This was criticized for strengthening the hryvnia and hurting oligarchic interests therein. If bondholders hit the exits, it could get ugly very quickly with a large number of investors trying to get through a very small door in an over positioned trade. And under the new management it is unclear whether the National Bank of Ukraine (which might also see changes) would be encouraged to provide liquidity to ease the process. Rather oligarchic interests likely will have more interest in securing a more competitive hryvnia albeit that would be at the price of higher borrowing costs. I am not sure Zelensky gets all this.
