News Analysis: Ukraine cabinet focuses on economy, foreign policy

0 Comment(s)Print E-mail Xinhua, December 27, 2012
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Ukraine's new cabinet showcased a mix of newcomers and veterans dominated by politicians loyal to President Viktor Yanukovych.

The 21-member cabinet led by Prime Minister Mykola Azarov is expected to revive the economy of the country and chart a balanced foreign policy, experts say.

Azarov, who resigned with his cabinet earlier this month following the October parliamentary election, was re-appointed prime minister. A Yanukovych ally, Azarov first became prime minister under the president in February 2010.

Sergey Arbuzov, 36, was named the first deputy prime minister in the new government. He is now an important player in upcoming talks with the International Monetary Fund (IMF).

The appointment to the No. 2 government position makes Arbuzov a likely successor to the 64-year-old Azarov because the former central bank governor is set to gain working experience in state management in his new post, local experts say.

Three other deputy prime minister positions went to Yury Boyko, Kostiantyn Gryschenko and Oleksander Vilkul.

Boyko, 54, the former energy and coal minister, was appointed to once again oversee the energy sector. He is likely to continue the policy of the previous government that focused on domestic energy production and energy projects.

Boyko and Gryschenko, 59, are well-known for their effective work in the outgoing government but Vilkul, the former head of eastern Dnepropetrovsk Region State Administration, is a fresh face.

Local political analysts say 38-year-old Vilkul, who is responsible for infrastructure, housing and communal services, is an effective manager ready for radical action.


The economic bloc of the new government is very different from the previous one.

Only Finance Minister Yury Kolobov and Agriculture Minister Mykola Prysyazhnyuk retained their seats in the government. In addition, the president formed the new Ministry of Income and Fees led by Olexandr Klymenko in an attempt to increase tax revenues.

The economy is a major test for the new cabinet as Ukraine's economy declined 1.3 percent year on year in the third quarter due to a decrease in global demand for steel, Ukraine's primary export.

Ukraine's gross domestic product (GDP) is expected to rise just by 1 percent this year, while the budget deficit is forecast to grow 2.6 percent.

Ukraine's national debt has reportedly reached 62.734 billion U.S. dollars so far and the East European country has to repay some 9 billion dollars next year to foreign lenders, including 6.4 billion dollars owed to the IMF that Kiev hopes to refinance.

The first major task of the new cabinet will be to secure a new bailout program from the IMF at the end of January to increase market liquidity and restore the confidence of foreign investors.

Kiev plans to resume cooperation with the IMF within the framework of the 15-billion-dollar stand-by program, which was frozen in February 2011, and receive some 1.5 billion dollars from the aid package.

If the new government is able to convince the IMF to resume the credit line, it will score some political gains. Otherwise, people's confidence in the cabinet will fall sharply.

The IMF's demand to increase gas prices for households while cutting welfare programs was the biggest obstacle to securing the loan.

Newly appointed Minister of Social Policy Natalia Korolevskaya, who, during the parliamentary race in October, promised to increase wages and pensions by three times, is unlikely to allow a reduction of social programs.

Therefore, the government will look for other ways to lower the pressure on its budget.

An increase in gas prices, which is an integral part of local production, will cause a rise in prices for most Ukrainian goods. That, in turn, will lead to reduced competitiveness of Ukrainian goods on the world market, increased inflation and a decline in retail trade.

To ease the burden on the state budget and get the IMF credit, the government has to negotiate lower gas prices from Russia, local experts say.

But to get an attractive price, Ukraine will have to abandon its multi-vector foreign policy and take a course towards closer integration with Russia and other former Soviet countries, they say.


The Kremlin was long trying to forge closer economic ties with Ukraine, urging it to join the Russia-led Customs Union.

Moscow pledges about 160 dollars U.S. dollars per 1,000 cubic meters of gas for Kiev if it joins the economic alliance consisting of Russia Belarus and Kazakhstan.

Azarov said Ukraine, which currently pays nearly 430 dollars per 1,000 cubic meters of gas, is generally interested in the bloc but Kiev doesn't want to choose between Europe and the Customs Union.

Leonid Kozhara, the new foreign minister, has said that further integration into the European Union (EU) is a strategic goal of Ukraine, but Kiev will also maintain a strategic partnership with Russia.

Kozhara believes that Ukraine has the potential to be the only country in the world that has free trade with both the EU and the Customs Union.

Gryschenko, who was in charge of EU integration while foreign minister, will continue that work in his new post as deputy prime minister. Gryschenko also is expected to lobby more for Ukraine's EU aspirations as a priority of Kiev's foreign policy.

At the same time, the reappointment of the pro-Russian Education Minister Dmytro Tabachnyk suggests that Ukraine does not want to spoil relations with Russia, despite its declared "European path," experts say.

Thus, experts say, the new government will continue to seek a balance in Ukraine's relations with its partners in the East and the West to benefit from the multi-vector cooperation. Endi

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