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Main intrigue: Government of Servant of the People. Who and how will steer Ukraine's economy

17:50, 30.07.2019
7 min.

The main intrigue of the next month is what the new government will be like and who will lead it. The fate of the format of the Cabinet of Ministers is exclusively in the hands of the Servant of the People party that won in the early parliamentary elections. And it depends on the "government" decisions of this political force whether Ukraine can finally become economically strong.

Who will lead the government and what will be its composition is the main topic of discussion both in the expert community and in the media. According to the results of the early parliamentary elections, it is absolutely clear that the seats in the Cabinet of Ministers will be occupied by representatives of the political party of President Volodymyr Zelensky, Servant of the People. This political force won an unconditional victory – more than 43% of voters cast their votes for it. This indicator is an absolute record of party support in the entire history of Ukraine's independence.

The Servant of the People will receive 124 seats in the new Verkhovna Rada on party lists, plus another 130 deputies on "majority constituencies". In general, the presidential political force will be represented by 254 deputies, which allows it to form a mono-majority, to appoint, without anyone's consent the speaker and vice-speaker of parliament, the government, and adopt any law. It is hard to say what the Servant of the People will not be able to do... All the power in the next few years will be practically in its hands, as well as all responsibility for what is happening in the country.

Draft plan for Government

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Team Zelensky have already voiced several "draft plans" and told how they want to see the future government. To begin with, it is planned to reduce the number of ministries.

"First of all, the government should be compact. I stand for a small number of ministers. Our country lacks quality personnel. Even if we have one or two weak ministers, let alone the prime minister, this will simply drag down the whole Cabinet," NSDC Secretary Oleksandr Danyliuk said. "Therefore, the maximum of 12-13 ministers is how I see it," said the official.

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According to him, the number of ministries can be reduced, for example, by merging them in blocks.

"For example, I've always been the supporter of merging finance and economy ministries. We could also look into merging the social politics ministry and the health ministry because, in the end, health care is also a certain social function," the NSDC secretary noted. I am against 'free' vice prime ministers. I mean that every vice PM must head a ministry. We don't actually need such a number of vice prime ministers. That is, there should be one to replace the prime minister, when they are on vacation or unable to perform their duties This is possible. The rest are not necessary. Everything must be compact," Danyliuk added.

The Servant of the People's team want to see an economist-technocrat as head of the Cabinet of Ministers. At the same time, it is assumed that not everyone will like the candidacy of the future prime minister.

So far, the president and the newly elected deputies have no specifics as to who will become the prime minister. But the media, with reference to backroom negotiations, have already voiced the names of potential candidates: Deputy Executive Director of the International Monetary Fund Vladyslav Rashkovan, head of Naftogaz Andriy Kobolyev, CCO of Naftogaz Yuriy Vitrenko, Secretary of the National Security and Defense Council, Oleksandr Danyliuk, and Chairman of the supervisory board of Ukroboronprom Aivaras Abromavicius (still a citizen of the Republic of Lithuania), as well as Deputy Head of the President’s Office for economic issues, Oleksiy Honcharuk.

However, as presidential advisor Oleh Ustenko noted, the number of candidates for the prime minister’s position is much larger than is currently being discussed in the media.

If we believe the words of chief of headquarters of the Servant of the People party, Oleksandr Kornienko, the political force has allegedly decided on the candidates for heads of the Ministry of Health and the Ministry of Education. This is the founder of the Boris private clinics network, Mykhailo Radutsky, and candidate of economic sciences Serhiy Babak (both are elected deputies with the Servant of the People).

Details of the process of forming the government were also voiced by Head of the Presidential Office, Andriy Bohdan. According to him, the head of state holds meetings with potential candidates for positions in ministries and central authorities. However, all appointments will occur according to the law.

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"We must understand – the procedure for appointment is spelled out by law. No matter how much we talk about it here, I don’t know what decision the president will take. In general, we need to understand that in our team, all decisions are made by the president. Rumors and speculations do not correspond to reality. He conducts interviews, he meets with many people, including candidates for relevant ministries, for relevant posts in central government bodies. However, the coalition of factions submits nominations for prime minister to the president. If a coalition of factions is created, then this is one system of coordinates ... If this is a mono-faction, that's another case," Bohdan said.

Thus, there is no talk about candidates for positions in the government – only "theory"; there are no official statements yet. All personnel issues will be resolved in the new parliament, the first meeting of which will be held in late August or early September.

New faces

Experts believe that personalities in the new Cabinet are not so important, the main thing is that the government should be technocratic and professional. Otherwise, it will not cope with the challenges that face the economy of Ukraine.

"It would be good if everyone in the Cabinet of Ministers were not political targets, but technocrats far from political processes, and their work would be aimed at changing the nature of our economy without it being tied to politics. I do not think that this can be implemented in practice one hundred percent. But technically we have to strive for this. It is also desirable for the new Cabinet to understand and support the National Bank's disinflation policy, the achieved level of financial stability in the country, and the contradictions between the fiscal and monetary component of economic policy should be a thing of the past," said Financial Analyst Vitaly Shapran.

In his opinion, any of the already announced candidates may take the PM's seat. The question is not about personalities, but about the line of conduct and understanding of the country's economic problems. And the main one is the raw material nature of the economy against the background of a large dependence on exports.

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"According to the results of 2018, we have the ratio of exports to GDP of approximately 45%. Against the background of the growing negative balance of trade and commodity exports, this makes our economy vulnerable to external shocks. While the conjuncture of world markets for raw materials has been favorable for us, it will not always be so. Therefore, strategically, the economy of Ukraine should be changed structurally. It is necessary that the economy, to a greater extent, depended on the domestic market, and in the structure of exports, raw materials occupied a minimum. This fundamental problem can be solved quickly only through foreign investment. I think that this will be the main exam for the government. In order for us to feel a change for the better, we need 5-10 billion a year in foreign direct investment. In order to attract investors to the country, we need structural reforms – the judicial system, the reduction of fiscal pressure on businesses, and financial stability," the expert concluded.

Economist Oleh Pendzin called the future strategy of the government completely understandable given the economic situation in Ukraine: "According to the latest data for June, the volume of industrial output in Ukraine has decreased. Compared with May, it's negative 1.3%. Compared with June 2018 - also negative 1.3%. At the same time, the processing industry and construction are particularly falling – by 3.5% and 7%, respectively. A very alarming signal. We are increasingly becoming a raw materials appendage of developed countries. Therefore, the strategy is clear. But tactics will directly depend on how tough the International Monetary Fund will be in its striving to cut down Ukraine's budget expenditures. Budget expenditures are social. But the social sphere is the rating of the winning political force."

Regarding candidates for members of the government and the prime minister, the expert is sure that these will be completely new faces. And the future of Ukraine will depend on them.

Head of the Board of the National Bank, Bohdan Danylyshyn, also believes that the new government should concentrate on the inflow of investments into the economy, bringing order to the fiscal sphere (this mainly concerns customs).

"The influx of investments will be the main strategic task. Tactically, it can be implemented at the expense of the support of the IMF and our Western partners, while maintaining financial stability. It is necessary to intensify trade and economic cooperation in all areas, up to the resumption of the work of the trade missions of Ukraine, which were coordinated by the Ministry of Economy. However, we should not forget about the support of the domestic manufacturer. Economic protection and pragmatism are currently not abandoned by any government in the world," the expert emphasized.

The situation, according to Danylyshyn, is not an easy one. If we compare industrial production in the first half of 2019 with the corresponding period last year, it grew by only 0.5%, which is negligible for the economy that should grow by 5-7% annually.

"I will cite the facts that give goose bumps even in the middle of summer. For 2016-2018, state enterprise Antonov did not produce and did not deliver a single aircraft to the customers. In 2018 AvtoZAZ produced one (!) car. In January-April 2019, the Krukivka Carriage Works produced five passenger cars. There is a huge structural imbalance, where in one of the largest countries in Europe it became profitable to produce only raw materials and agricultural products, while production of technological products is becoming more expensive, and products themselves are of worse quality than abroad. Commodity flows between Ukraine and the outside world are built according to a simple scheme: exporting raw materials and semi-finished products, importing machines, equipment, and consumer goods. No need to reinvent the wheel – all measures to stimulate rapid and high-quality growth have long been known in international practice. For Ukraine, it is critically important that, simultaneously with the current operating structure – the Cabinet of Ministers – an administration, a certain Development Council, with special powers, be subordinated to the president, just as it was done in the countries where the "economic miracle" was witnessed. This should be the bid of the supreme commander in the economy," the expert noted. Danylyshyn believes that at present the government should be technocratic, consist of people who have experience in their fields.

"We also need to disown the presence of foreigners in the government. Apart from harm, they did not bring anything good in past years, they can act exclusively as advisors. The head of government should be someone who knows and understands the specifics of economic development, the institutional component, being able to work with the parliament, someone flexible, but also persistent in their decisions. A small open economy, which Ukraine's economy is, is very dependent on foreign markets, so some difficult times are ahead of us. And here we need a prepared cohesive team," summed up Danylyshyn.

The future of Ukraine now literally depends on the president's team. The country needs practical reforms, economic "stress".  Otherwise, the dubious status of an "agrarian superpower" will also become an inaccessible dream.

Nana Chornaya

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