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Ukraine's Government Reshuffle Raises Concerns Over Reform Agenda

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Denys Shmyhal has been approved by parliament for the post of prime minister.

KYIV -- President Volodymyr Zelenskiy has abruptly reshuffled the Ukrainian government, putting the country’s commitment to reforms into question at a time when Kyiv is seeking to finalize a new loan program with the International Monetary Fund (IMF).

At a special parliament session on March 4, lawmakers voted to accept the resignation of Prime Minister Oleksiy Honcharuk, and backed Zelenskiy’s choice for his successor, Deputy Prime Minister Denys Shmyhal.

The reshuffling comes six months after Zelenskiy ushered in the youngest and freshest government to reduce the influence of oligarchs and eliminate opportunities for corruption -- two aspects that have dominated Ukrainian life since the country gained independence in 1991.

The shake-up also comes days after a mission from the IMF visited Kyiv to discuss a long-delayed $5.5 billion loan. Ukraine has failed to unlock the loan program, seen as crucial to economic stability and investor confidence, over policy and legislative disagreements.

In all, 291 members of the Verkhovna Rada approved Shmyhal's appointment, with 59 opposing and 46 abstaining, while nine did not vote.

Earlier, 353 lawmakers voted to accept Honcharuk's resignation. A total of 49 deputies abstained, and nine did not vote.

Parliament approved other cabinet members, including new foreign, defense, and finance ministers.

In a speech before parliament ahead of the votes, Zelenskiy blamed Honcharuk for failing to halt an industrial slump and for not meeting tax-collection targets. Honcharuck, a political newcomer, was named prime minister in August 2019.

“We need new brains and new hearts in the government,” he said.

But the reshuffle raised concerns that key policy issues like land reform could be delayed.

“All of a sudden, when we expected stability and passage of major pieces of legislation, there is major upheaval and things seem to be up in the air,” Morgan Williams, the president of the U.S.-Ukraine Business Council, a D.C.-based lobby, told RFE/RL.

“The business community is wondering why now, who is behind all these changes,” he added.

Williams said the business community was concerned about the replacement of Finance Minister Oksana Markarova, who was well respected by markets and Ukraine’s Western backers, and Economy Minister Tymofiy Mylovanov, who had been leading the controversial agricultural land-market reform that is now stalled in parliament.

Reshuffle Questions

John Herbst, a former U.S. ambassador to Ukraine and an analyst at the Atlantic Council, also questioned the merit of Zelenskiy’s sudden reshuffle.

“We all understood that he was a newbie and that there would be some changes,” he told RFE/RL. “The question is, what do those changes bring? There is a default position to expect the worst” because of independent Ukraine’s nearly 30-year history of promising reform and not delivering.

In the latest reshuffle, Makarova was replaced by her deputy, Ihor Umanskiy.

Dmytro Kuleba replaced Foreign Minister Vadym Prystayko, who was appointed as deputy prime minister for European and Euro-Atlantic Integration.

Andriy Taran, a retired general, is the new defense minister, replacing Andriy Zahorodnyuk.

The new health minister is Illya Yemets, who served in that post for several months in the administration of former President Viktor Yanukovych.

Controversial Interior Minister Arsen Avakov kept his job.

The new ministers of economy, education, energy, and environment have not been appointed yet.

Shmyhal, 44, was named deputy prime minister in February. He previously served as head of the regional administration in the western Ivano-Frankivsk region, where he made a name for himself as a business-friendly governor.

In 2017-2019, Shmyhal worked as an executive at DTEK, an energy holding owned by Ukraine’s richest man, Rinat Akhmetov. Shmyhal has rejected allegations that he was close to Akhmetov, saying he never met him and was hired to work for DTEK through a competitive process.

A native of Lviv, he headed several business enterprises for most of the previous decade before entering the civil service at the Lviv regional administration. He has studied abroad, including in Belgium, Canada, Georgia, and Finland.

Responding on March 3 to reports that Shmyhal had been chosen to replace Honcharuk, Michael Carpenter, a former deputy assistant secretary of defense with responsibility for Ukraine, cautioned Kyiv against allowing oligarchs “a pathway” back to power.

“If you do, you will lose the support of the Western community,” said Carpenter, who is now a managing director of the Penn Biden Center for Diplomacy and Global Engagement, during a March 3 conference dedicated to Ukraine.

“So much is at stake here and if we see the influence of people like Dmytro Firtash, Rinat Akhmetov, and other oligarchs through proxies, through people more beholden to their interests than to the national interest, then the [reform] project starts to unwind. I hope that they consider very wisely who they put into what jobs,” he added.

A 35-year-old former lawyer and a political newcomer, Honcharuk was named prime minister in August 2019. He immediately fell into disfavor with Ihor Kolomoyskiy, the powerful oligarch that backed Zelenskiy.

Honcharuk fought Kolomoyskiy’s attempts to recover PrivatBank, which was nationalized in 2016 following a $5.6 billion bailout. Western financial institutions could turn down Ukrainian aid requests if Kyiv hands the bank back to Kolomoyskiy.

Some analysts have speculated that Zelenskiy’s reshuffle is an attempt to get other Ukrainian oligarchs, such as Akhmetov, to back his standoff with Kolomoyskiy.

Melinda Haring, a Ukraine analyst at the Washington-based Atlantic Council, rejected that interpretation, calling it a “fat chance.”

Honcharuk​ previously submitted his resignation on January 17, amid a scandal surrounding an audio recording in which he allegedly disparages the economic knowledge and competence of both himself and Zelenskiy.

Zelenskiy at the time declined to accept it.

Honcharuk and his ministers had submitted a land-market reform bill into parliament and turned over several hundred state-owned companies to be privatized in moves lauded by western governments and lenders.

Land reform passed a first reading in parliament in November 2019, but opposition parties have submitted several thousand amendments, delaying its passage in a second reading.

Western analysts have said land reform would be the biggest driver of Ukraine’s economic growth in the coming years. Ukraine is one of just six countries, including Cuba and North Korea, that doesn’t have a land market. However, powerful interests inside the country have been opposed to land reform and other policies pushed by the Honcharuk government.

“The government changes just create another period of uncertainty and instability and possibly delay what we thought could be a major year for Ukraine’s economy,” said Williams.

Zelenskiy won a landslide victory in April 2019 on promises to end endemic corruption, attract foreign investment, and end the war in the east with Russian-backed separatists. Three months later, his Servant Of The People party swept national elections, giving him unprecedented power to push through major economic reforms that had been stalled by oligarchs for decades.

However, public trust in Zelenskiy has slid from nearly 80 percent in September to around 50 percent last month, polling figures from Kyiv-based policy center Razumkov Center show.

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