Two years have passed since Viktor Yanukovych was inaugurated as president. Since then Ukraine has changed greatly. After hardly any legislation being adopted during five orange years, the country has seen febrile legislative activity. The number of government changes has also been large.
But the trajectory is worrisome. With the latest appointments in January and February, a clear pattern is evident: Yanukovych is concentrating power into the hands of his family. The number of oligarchic groups in the government has steadily been reduced, and only two – the Dmytro Firtash and Rinat Akhmetov groups - are left standing. There is little reason to believe they will survive.
Yanukovych was inaugurated on Feb. 25, 2010, and already two weeks later he formed his first government. It was stuffed with big businessmen, as an endorsement of conflicts of interest. It contained representatives of about nine different oligarchic groups.
Yanukovych adopted an impressive reform program in early June, and concluded an International Monetary Fund agreement in July, and the prior actions demanded by the IMF were swiftly adopted in July 2010. Yet his appointments made clear that market economic reform was not on his mind. The only senior officials appearing reformist were Iryna Akimova, first deputy head of the Presidential Administration, and Deputy Prime Minister for Economic Policy Sergiy Tigipko.
Everything changed in the last quarter of 2010, as Yanukovych’s real intentions became clearer. As the Constitutional Court dismissed the constitutional amendments of December 2004, Yanukovych restored the Constitution of 1996, gaining greater presidential power.
The Tax Code, which was adopted in December, brought devastation to small and medium-sized enterprises. Many small enterprises have been forced out of business, because enterprises with full bookkeeping can no longer deduct expenditures on small enterprises as business cost or deduct them from value-added tax. Medium-sized enterprises faced a sharp tax hike. Tyhypko was made responsible for this disastrous policy, and his political base collapsed.
Meanwhile, Yanukovych started sorting out minor oligarchic groups. In a major cabinet change on Dec. 9, he reduced the number of ministries from 20 to 16. The Volodymyr Lytvyn bloc was excluded from the cabinet, and with it two minor oligarchic groups. First Deputy Prime Minister Andriy Klyuev lost his two loyalists, Nestor Shufrich in July and Deputy Prime Minister Volodymyr Sivkovich in October. In effect, only the groups of Prime Minister Mykola Azarov, Firtash and Akhmetov remained significant in the cabinet beside the expanding Yanukovych family.
In 2011, market economic reforms were effectively abandoned with the exception of pension reform, which Yanukovych forced poor Tigipko to carry out as deputy prime minister for social policy, further undermining his political standing. A large number of privatizations have been undertaken, mainly of public utilities and mines, but these assets have been offered to one bidder at a low minimum price. The winner has usually been Akhmetov.
Yanukovych concentrated on appointing his family loyalists from Donetsk to many national and regional posts. In particular, he has taken care of all top jobs in the power ministries. Viktor Pshonka became general prosecutor in November 2010. Yanukovych took care also of the tax administration and the tax police. In November 2011, Vitaliy Zakharenko became minister of interior. Two family loyalists became minister of agriculture and chairman of the National Bank as early as 2010.
This January and February, Yanukovych carried out a new series of government changes, rendering the emerging pattern all the more evident. Suddenly he made Dmitriy Salamatin minister of defense and Igor Kalinin chairman of SBU. Both are pure Russians, identified as Yanukovych loyalists. Now he has full personal control over all the power ministries – what Vladimir Putin accomplished in April 2001.
He made former State Service of Ukraine chairman Valeriy Khoroshkovsky (a Firtash loyalist) minister of finance instead of Fedor Yaroshenko (an Azarov man), but then quickly moved Khoroshkovskiy upstairs to first deputy prime minister, which is a high but not necessarily very important position. Instead, one of the young Yanukovych family men, Yuriy Kolobov, advanced from first deputy chairman of the National Bank to minister of finance. Now the Yanukovych family holds the two key financial positions with Serhiy Arbuzov as chairman of the NBU with and Kolobov as minister of finance.
Yanukovych also demoted Andriy Kliuev to Chairman of the largely irrelevant National Defense and Security Council, while the incumbent Raisa Bogatyreva, one of Akhmetov’s top politicians, became deputy prime minister and minister of health care. The appointment of the independent businessman Petro Poroshenko as Minister of economic development and trade seems most like noise, like the retention of Tyhypko as deputy prime minister.
Thus, the Klyuev group is out of the cabinet of ministers, and as the lone survivor of his group Azarov seems the likely next man to go. Instead, the Firtash and Akhmetov groups have been strengthened in the cabinet with one person each. With marginal exceptions, the current Ukrainian cabinet only represents three groups: The Yankovych family, the Dmytro Firtash group and the Akhmetov group.
Akhmetov has two deputy prime ministers, Borys Kolesnikov and Bogatyreva, and Akimova as first deputy head of the presidential administration. Firtash has presidential chief of staff Serhiy Lyovochkin, Minister of Energy Yuriy Boiko and Minister of Finance Khoroshkovskiy. Even if these two groups balance one another, the dominance of the Yanukovych family is already overwhelming.
This pattern suggests three possible ensuing steps, though as most politicians Yanukovych likes to surprise us.
First, Azarov is likely to be forced out in the next round. Now Khoroshkovskiy looks the most likely successor. Since he is a Firtash man, Akimova is mentioned as a likely replacement as first deputy prime minister to balance him. Both are knowledgeable in economics and speak good English, skills needed to salvage Ukraine out of its financial havoc. Such government changes would not suggest any reinforcement of reforms but a new focus on financial survival.
Second, Yanukovych looks all too likely to start a war on the oligarchs, like Putin did on Mikhail Khodorkovsky in 2003, and clean out both the Firtash and Akhmetov groups. Clearly Yanukovych wants to concentrate both power and wealth to his family. The broader Donetsk group is no longer relevant to him.
Third, Yanukovych’s popularity rating has fallen to 13 percent, but he seems remarkably indifferent, as to international protests against his jailing of Yulia Tymoshenko. His attitude and personnel changes may indicate that he is preparing to rely upon force rather than popularity in the parliamentary elections in October.
It is difficult to see anything positive in these changes or the forecast. Both for oligarchs and Ukrainian society, these observations form a worrisome pattern.
Anders Aslund is a senior fellow at the Peterson Institute for International Economics.
