UKRAINE SETTLES ON A NEW GOVERNMENT.

A month after the ouster of Ukraine’s liberal Prime Minister Viktor Yushchenko from power, the country now has a replacement. Anatoly Kinakh, 46, chairman of the Ukrainian Union of Industrialists and Entrepreneurs (UUIE), having been nominated by President Leonid Kuchma, was voted into office by the Verkhovna Rada on May 29. He received 239 votes in the 450-seat body, comfortably more than the required 226.

This margin of victory came despite 190 abstentions from the right-wing and Communist Party factions. The deciding votes, which were unexpected, came from the sixteen members of the left-leaning Socialist Party. All the centrist parties representing big business voted, predictably, in favor. The right wing, also predictably, stood by their promise to vote down any candidate but Yushchenko. The Communists refused to support Kinakh because he had turned down their demands to stop privatization, curtail land reform and cut ties to international financial institutions. The ostentatiously anti-Kuchma Socialist leader Oleksandr Moroz explained the choice of his party by its desire to disrupt what he claimed was Kuchma’s plan to destabilize Ukraine in order to distract public attention from the tape scandal clouding his power and reputation. This scandal, which broke last December, implicates the president in the murder of opposition journalist Georgy Gongadze and wide-scale corruption.

Kinakh will most probably serve only until the Rada elections scheduled for March 2002. He is not expected to reverse the course of market reforms that Yushchenko launched, but will only change their focus. A seasoned lobbyist for industry and big business, Kinakh has vowed to make tax reform his priority. His plan is to decrease the value-added tax from the current 20 percent to 7-10 percent, introduce a flat 13-percent personal income tax (following Russia’s lead), and expand Ukraine’s tax base by coaxing businesses out of the shadows (about half of Ukrainian GDP is produced by shadow economy, according to official estimates), and canceling unjustified tax breaks. His second priority is to stimulate domestic consumption by boosting remuneration for labor. His third is to enhance the efficiency of state administration. Kinakh has also pledged to continue the administrative reform Kuchma launched in 1999.

As UUIE chairman, Kinakh was critical of the IMF and Kyiv’s foreign borrowing policy in general. On being appointed prime minister, he vowed that Ukraine would be less susceptible to the IMF recommendations, which the domestic industrial elite often regard as unwanted intrusion. But Kinakh understands perfectly that Ukraine cannot do without international loans for the time being. He has said that Kyiv will continue cooperation with the IMF, which he described as a component in the national strategy of integration into the global financial system. And he vowed to continue negotiations with the Paris Club of creditors to restructure Kyiv’s foreign loan obligations.

As to foreign policy, Kyiv seems set to continue slowly drifting to Moscow. Kinakh said that Russia would remain a foreign political priority. At the same time, he said in a television interview that “We should understand that there is no alternative to Ukraine’s integration into the European and global economic and political system.” In Kyiv’s foreign political thinking, these two priorities apparently do not contradict each other. Kuchma confirmed the continuity of Kyiv’s foreign policy by reappointing Anatoly Zlenko as foreign affairs minister immediately after signing Kinakh’s appointment as prime minister.

No significant changes are expected the cabinet’s composition. Kuchma has reappointed Ihor Smirnov as internal affairs minister, Oleksandr Kuzmuk as defense minister and Vasyl Durdynets as emergencies minister. He also promoted Oleg Dubyna from deputy premier for industry to first deputy prime minister, the Number 2 government post. Dubyna had been, along with Kinakh, regarded as a possible candidate for the prime ministerial post. He had replaced former rebellious Deputy Premier Yulia Tymoshenko in Yushchenko’s government earlier this year. Dubyna, 42, is a representative of the heavy industry, and until this year, managed Ukraine’s largest steelworks, Kryvorizhstal, in Kuchma’s native Dnipropetrovsk region. Kinakh and Dubyna are expected to find a common language with the well-connected oligarchs who were opposed to the anticorruption plan Yushchenko and Tymoshenko launched in Ukraine’s energy sector, its most corrupt. Dubyna has been quoted on several occasions as saying that Tymoshenko’s reform plan for energy, especially the coal sector, will be revised (ICTV, May 27, Ukrainska Pravda, May 28; UNIAN, May 28-29; New Channel TV, May 29).

DESPITE POLITICAL INSTABILITY, UKRAINE’S ECONOMIC GROWTH ACCELERATES…