THE DONETSK TEAM IN KYIV: SUCCESS STORY OR STRUGGLE FOR SURVIVAL?

By Oleg Varfolomeyev

To stay afloat, the Ukrainian cabinet chaired by former Donetsk governor Viktor Yanukovych must constantly keep an eye on Viktor Medvedchuk, the ambitious head of the presidential office. The Ukrainian economy has performed quite well under Yanukovych, but it is becoming increasingly difficult for him to promote the interests of the Donetsk “clan” in Kyiv.

DONETSK COMES BACK

Since November of 2002 Ukraine has been steered by a ministerial cabinet dominated by a regional group that does not owe its economic might or political clout to President Leonid Kuchma.

This is a new experience for a country that has seen its president steadily concentrating power in his hands since his election in 1994–to the point that nobody could contest Kuchma’s almost absolute rule. With his loyalists in positions of control across the country, it was sufficient for Kuchma merely to reshuffle the representatives of rival groups in top posts from time to time in order to prevent the domination of any one “clan” over the others.

But the audiocassette scandal of 2000-02, which implicated Kuchma in the abduction of a journalist and the sale of radar sets to Iraq in violation of UN sanctions (charges denied by Kuchma), seriously weakened the president. Fearing isolation, Kuchma chose to rely increasingly on the “Donetsk clan”–the strongest regional group at the moment.

In Ukraine, the regional “clans” are groups of like-minded bureaucrats and businessmen with strong regional affiliations. The weakness of the central government in Kyiv in the early 1990s made it possible for these clans to secure control over resources in their regions. The Donetsk group, which drew its wealth from local coal and steel, quickly rose to prominence. But it then made a mistake by promoting strikes that were aimed at forcing Kyiv to pay out more in subsidies.

Kuchma managed to tame the Donetsk clan: The governor was fired and several leaders of the clan fled Ukraine. After 1996 the rival Dnipropetrovsk group temporarily took control over some of the key resources in the region, including gas. After that, the Donetsk group wisely steered clear of Kyiv politics. It quietly built up its wealth at home, in a heavily industrialized region that accounts for more than 20 percent of Ukraine’s GDP. The group has old ties with Russia, which borders the Donetsk Region, and its informal leader, Rinat Akhmetov, is widely believed to be the richest man in Ukraine.

Ironically, Kuchma, now a lame duck president, chose to lean on a regional group that he had earlier humiliated. In the wake of the tapes scandal, several key posts, including finance minister and presidential chief assistant, went to Donetsk people (Ihor Yushko and Serhy Lyovochkin, respectively). Then, in November of 2002, Kuchma replaced Prime Minister Anatoly Kinakh, a loyal but politically weak technocrat, with Donetsk Governor Viktor Yanukovych. The latter made no secret of his intention to rely heavily on trusted men from his home region. They included former state tax administration chief Mykola Azarov, who became simultaneously first deputy premier and finance minister, and another man from Donetsk, Vitaly Hayduk, who was appointed deputy premier for energy.

FIRST TESTS PASSED

The team from Donetsk had to fight against the odds in Kyiv from the very beginning. It faced two hard tests–the adoption of the 2003 budget and the need to pass anti-money laundering legislation to persuade the Paris-based Financial Action Task Force (FATF) to lift the sanctions against Ukraine. The sanctions had been introduced shortly after Yanukovych’s appointment. The new government needed to act quickly, as the budget had to be passed before the Christmas holidays, and the sanctions were threatening to ruin Ukrainian banks and exporters.

Meanwhile, the parliament plunged into crisis. Opposition factions blocked its work by protesting against the presidential administration’s plans to strip their representatives of the chairmanships of key standing committees.

In this situation, the Yanukovych government chose not to support the offensive against the opposition. Instead, acting through two Donetsk-controlled factions in parliament, the Party of Regions and European Choice, the government forged a deal with the largest opposition faction–Viktor Yushchenko’s Our Ukraine. The opposition retained its committees, including the budget committee chaired by Petro Poroshenko of Our Ukraine. This move paid off. Ukraine entered 2003 with a new budget–passed thanks to votes from Our Ukraine–as well as money-laundering legislation. FATF lifted its sanctions against Ukraine in February.

The fiscal results from the first quarter of 2003 validated the selection of the seasoned tax-collector Azarov as finance minister. Budget targets were fully met, and Ukraine made its Eurobond payments on schedule in March. Overall, the Yanukovych cabinet’s performance has not been bad. Ukraine’s industrial output grew by 10 percent and GDP grew by 7 percent in the first quarter of 2003.

The government also successfully defended itself from the attempts of presidential administration chief Viktor Medvedchuk to exert control. Yanukovych’s predecessor, Kinakh, had been compelled to clear nearly all his moves with Medvedchuk’s office. But the Donetsk team has proved a nut hard for Medvedchuk to crack. “As the head of government I am responsible for my area of work,” Yanukovych said in an interview with the Fakty i Kommentarii newspaper in February. “The presidential administration also has many responsibilities, and there is no need for us to take over each other’s functions.”

Yanukovych apparently succeeded in persuading Kuchma that his government should work independently of Medvedchuk’s office. On March 6, Kuchma decreed that executive bodies would no longer be legally obliged to obey presidential administration orders. And on March 14, Kuchma fired the deputy chairman of the State Property Fund, Yury Hryshan, who was believed to be Medvedchuk’s man in the privatization body.

At the same time, the Donetsk representation in the Kyiv government was increased by two important appointments. In the first, the parliament endorsed the replacement of Oleksandr Bondar by Mykhaylo Chechetov in the post of State Property Fund chairman on April 3. In the second, Kuchma appointed Ivan Tkalenko to the newly established position of minister for relations with parliament on April 8.

NOT QUITE HOME IN KYIV

Yanukovych is not as blindly loyal to Kuchma and not as dependent on him as were most of his predecessors, but he must correspondingly rely more heavily on the parliament. The Ukrainian legislature is riven by rivalries, and is equally divided between the opposition and pro-Kuchma elements. And not all of the pro-Kuchma factions automatically support the cabinet, because a number of them represent regional groups that are rivals to Donetsk. That means Yanukovych must constantly maneuver to secure support for vital bills in parliament. Apparently, the informal assistance provided for Yanukovych by the two Donetsk factions and by the cabinet’s liaison in parliament, former Donetsk mayor Anatoly Rybak, has been insufficient. This has led to the creation of the post of minister for relations with parliament, which reflects an effort to improve the government’s interaction with the legislature by institutional means.

The Yanukovych government’s determination to promote the interests of Donetsk in Kyiv is its other handicap. It is safe to predict that so long as the Donetsk team controls the government, Ukraine’s ailing coal industry is unlikely to be reformed. That is because the exploitation of heavily subsidized mining complexes has been one of the main resources of the clan’s wealth.

Kuchma surely understands this. Earlier this year he overruled Yanukovych’s opposition to a proposal by Transport Minister Georgy Kyrpas to raise railway tariffs for coal. These fees will come out of the pockets of Yanukovych’s cronies in Donetsk.

Kuchma also attacked another lucrative business of the Donetsk people–free economic zones that benefit from tax breaks. “We don’t need such zones,” Kuchma was quoted as saying on one of his regional visits in March. “U.S. chicken legs and European beef are imported into these zones from Europe… They are dumped into our free economic zones tax-free, ruling our producers.” In response, Yanukovych mumbled that the zones are useful, but that the principle behind them is sometimes distorted. It is becoming increasingly difficult for Yanukovych to protect the free economic zones in the Donetsk region.

On April 17, parliament approved the Yanukovych cabinet’s program for 2003-04. The document itself is merely a declaration of intentions, but the fact that is was approved is nonetheless significant. Under the constitution, this means that parliament is prohibited from holding a no-confidence vote in Yanukovych for at least a year (although the president can still dismiss him). This is also a moral victory and leaves the cabinet more room for bold action.

The plan was approved by 355 deputies in the 450-seat body, well above the 226 votes needed. To an outsider, this may look like evidence of strong parliamentary support for the cabinet. But the voting was preceded by months of negotiations and deals. It was hardly a coincidence that, on the eve of the voting, Yanukovych asked Kuchma to appoint Mykola Pesotsky, who is linked to Medvedchuk, as chairman of the State Committee for Material Reserves. And Medvedchuk’s party, the United Social Democrats, unanimously supported the action plan.

The Socialists, an opposition party, also voted in favor of the government’s program. According to Socialist leader Oleksandr Moroz, Yanukovych had promised that a law on proportional representation, promoted by the Socialists, would be supported by the Donetsk people in return.

Premier Yanukovych cannot feel safe. His team has no reliable allies. The Yanukovych cabinet’s main asset is its affiliation with the Donetsk group, whose strength Kuchma respects.

Oleg Varfolomeyev is a freelance journalist based in Kyiv.