WHAT ROLE DOES UKRAINE’S NEW PRIME MINISTER PLAY IN PRESIDENT’S KUCHMA’S GAME PLAN?

What role does Ukraine’s new Prime Minister play in President’s Kuchma’s game plan?

By Volodymyr Zviglyanich

On July 16, the Ukrainian parliament confirmed the appointment of Valery Pustovoitenko as prime minister by a vote of 226-91. He is Ukraine’s eighth prime minister. Before him, the post had been occupied by Vitaly Masol, Vitold Fokin, Leonid Kuchma, Efim Zvyahilsky, Masol again, Yevhen Marchuk, and Pavlo Lazarenko. Ukraine has a solid lead over the other post-Soviet countries as regards the number of prime ministers and governments it has had since independence. What are the political and economic reasons for this situation? And what role is Pustovoitenko likely to play in President Kuchma’s political and economic strategy?

Analysis shows that the "game of leapfrog" in Ukraine’s executive branch reflects the struggle between the country’s main political clans — the Kyiv, Donetsk and Dnipropetrovsk clans — and only partially reflects differences in economic models and strategies. Pustovoitenko appears, indeed, to owe his appointment primarily to President Kuchma’s hope that it would, by reconciling the president with parliament and assuring at least the appearance of economic prosperity, enhance Kuchma’s chances of being re-elected to a second presidential term in October 1999.

All the President’s Men

Ukraine’s first two prime ministers in the post-1991 period — Vitaly Masol and Vitold Fokin — both came from Ukraine’s Gosplan. They were characterized by their lack of understanding of the market economy and their purely bookish understanding of production. Ukraine’s third prime minister, Leonid Kuchma, was slightly different. He had been the director of the Yuzhmash factory, which produced the SS-18 and SS-24 missiles. Seen as a strong manager, he came from the so-called Dnipropetrovsk clan, traditional breeding ground since the 1960s for cadres destined for the Kremlin and the apparatus of the Communist Party Central Committee. Kravchuk had two aims when he appointed Kuchma as prime minister. First, he wanted to secure western credits by demonstrating that there were people in Ukraine who could implement reforms. Second, Kravchuk, as the leading representative of the Kyiv clan with its financial and political interests, wanted to strike an alliance between the Kyiv clan and the Dnipropetrovsk clan. The Dnipropetrovsk clan represented the interests of the directors of the military-industrial complex; it was technologically progressive, particularly in comparison to Ukraine’s traditionally conservative coal-mining and metal-working industries — the so-called Donetsk clan.

Kuchma did not satisfy either of Kravchuk’s hopes. His eight months as premier (October 1992-May 1993) were chiefly memorable for the fact that he resigned five times. On the fifth occasion, his offer was accepted. A major role in this was played by Efim Zvyahilsky, director of the Zasyadko mine in Donetsk, which is the largest coal mine in the world. When the miners went on strike in the spring and summer of 1993, Zvyahilsky, who had played a significant role in organizing the strike, gave Kravchuk an ultimatum: either Kravchuk appointed Zvyahilsky as prime minister, or Zvyahilsky would ensure that the steel mills also joined the strike.

Zvyahilsky’s appointment as acting prime minister ruptured the alliance that had taken shape between the Kyiv clan’s political and financial interests and the Dnipropetrovsk clan’s banking and industrial groups. The Donetsk clan was not forgiven for this attempt to storm the Ukrainian Olympus. Volodymyr Shcherban, a leading member of the clan, was killed and Zvyahilsky was forced to emigrate to Israel. (He came back recently, having secured immunity from criminal prosecution in exchange for his silence.) The Donetsk clan became and remains the "pariah" among Ukraine’s clans. But this does not mean that its political possibilities are exhausted, as the political strikes in the summers of 1996 and 1997 showed. As the situation becomes more acute and more unprofitable mines are closed, Ukrainian politicians will continue to play the "miners’ card." (This is what Lazarenko was doing when, in June 1997, he organized a miners’ march on Kyiv.)

Kravchuk replaced Zvyahilsky with Masol, a member of the Kyiv clan. He was still in office when Kuchma became president in July 1994. As a member of the Dnipropetrovsk clan, Kuchma tried to mend his fences with the Kyiv establishment. His campaign strategists remained his most trusted friends — people from Dnipropetrovsk such as Volodymyr Horbulin and Valery Pustovoitenko — but he also recruited people from the Kyiv clan such as Dmytro Vydrin, Viktor Nebozhenko and Dmytro Tabachnik. Vydrin became Kuchma’s domestic policy advisor, Tabachnik became head of the presidential administration, and Nebozhenko headed its information department. And, by appointing Yevhen Marchuk, former head of the Ukrainian KGB, as premier, Kuchma sought to secure the loyalty of Ukraine’s traditionally powerful security elite.

Kuchma’s first program of radical economic reform, drawn up in 1994 by members of the Kyiv clan such as Anatoly Halchinsky, was never implemented. Worked out according to the guidelines of the IMF and the World Bank, it received the approval of these financial institutions. (1) In 1996, Kuchma sacked Marchuk as prime minister, accusing him of "creating his own political image." Along with Marchuk went almost all the tacticians from Kyiv — Halchinsky, Vydrin, Nebozhenko, Oleksandr Razumkov and Tabachnik. Since then, Kuchma and Horbulin have put their bets on members of the Dnipropetrovsk clan, counting above all on their political loyalty. It was for this reason that Pavlo Lazarenko, a former collective-farm chairman from Dnipropetrovsk oblast, and Valery Pustovoitenko, a mining engineer and former chairman of the executive committee of the Dnipropetrovsk city soviet, attained the post of prime minister.

This game of leapfrog in the Ukrainian government has nothing to do with the economy, which has continued to deteriorate under every prime minister. Pustovoitenko faces a truly Herculean task: to halt the economic decline in the two years that remain before the 1999 presidential elections. At the same time, the prime minister must show loyalty to the president and ensure peace with the parliament. (2)

Neither Kravchuk nor Kuchma had the political courage to appoint the most brilliant Kyiv economists, or people from western Ukraine such as Volodymyr Lanovoi or Viktor Pinzenik, to the post of prime minister. What these people have in common is the fact that they never belonged to the Soviet or post-Soviet nomenklatura, and that their economic views are close to the liberal model of the market economy which has led such countries as Poland, the Czech Republic and Hungary out of economic crisis. The rejection of such men by both Kravchuk and Kuchma indicates the extent to which Ukraine’s economic policy lags behind the models adopted by some of her closest neighbors. The result of the presidents’ "caution" is the growth of corruption and the shadow economy.

Kuchma has never gotten along well with his prime ministers. The "honeymoon" usually lasts about six months. After that, leaks begin to appear about "slight" disagreements between the premier and the president, which, of course, did not have any effect on the warm ties between them or their devotion to the common cause of improving the lives of their people. After a further six months or so, the premier is usually removed on some pretext or other. This may be plausible (illness) or implausible ("creating his own political image"). Behind Kuchma’s capriciousness lies a painful reluctance to take personal responsibility for the situation in the country. The absence of a vice president on whom to lay responsibility for economic failures means that the only way the president can maintain his psychological equilibrium is by periodically replacing his prime minister, with all of the negative consequences that flow from that.

Pustovoitenko’s Appointment: Political Considerations

Valery Pustovoitenko has enough experience and organizational ability to hold onto the post of premier for some time. But this is probably not his main attraction in Kuchma’s eyes. Pustovoitenko is one of the longest-serving members of Kuchma’s team and one of the people closest to the president. Kuchma must, in other words, have had a compelling reason for elevating him to the premiership. Most likely, Kuchma was motivated by a desire to prepare for his election campaign. No-one in Kuchma’s team can match Pustovoitenko’s experience of organizing an election.

Recently, Kuchma has begun to gather together his old 1994 team, dispersed in 1995-96. Oleksandr Razumkov, Kuchma’s former chief assistant, was made deputy to Volodymyr Horbulin, who is secretary of the National Security and Defense Council. Anatoly Halchinsky, Kuchma’s former adviser on macroeconomics, became deputy chief of the presidential administration. Viktor Nebozhenko was reportedly invited to return to the presidential team from the headquarters of Kuchma’s main presidential rival, Marchuk. But there was also another reason for Pustovoitenko’s appointment. When he addressed the Parliament and the Council of the Regions on July 13 with his latest plan to improve the political and economic situation, Kuchma listed a number of initiatives. Among them were:

1) Formation of a Supreme Economic Council, chaired by the president and with the participation of the premier, senior cabinet ministers and all the previous prime ministers.

2) Formation of a working group with the participation of representatives of parliament, the Cabinet of Ministers and the administration to prepare and implement laws designed to overcome the economic crisis.

3) Postponing the parliamentary and local elections which, according to the Constitution, are due in March 1998.

4) Preparing a memorandum of understanding between the president and the parliament. (3)

Pustovoitenko will be the key figure in accomplishing all these tasks. He is a far more suitable candidate than Lazarenko not only because Lazarenko’s relations with Kuchma are shaky but also because Lazarenko’s interests conflict with those of a number of influential groups in the parliament.

Pustovoitenko’s Appointment: Economic Considerations

As mentioned above, Kuchma began his presidency by announcing a program of radical economic reforms. Consistent implementation of this program would have made Ukraine’s economy transparent, opened it up to international competition, and undermined the financial power of the new "clans" that had arisen in Ukraine since 1994. The clans could not permit this. They preferred the protectionist "Ukrainian Economic Model" subsequently adopted by Kuchma and Marchuk, which rejected Western-style monetarism as foreign to the "national mentality." (4) But the abandonment of the 1994 program lead to a further decline in industrial production and the refusal of a number of Western companies to make large-scale investments in the Ukrainian economy. As a result, Kuchma found himself this year faced with the task of restoring his shaky image as a reformer. Lazarenko, who had been accused of corruption, was unsuited to the task. Instead, Kuchma chose Pustovoitenko. If Pustovoitenko can carry out of the following tasks in the next two years, Kuchma apparently calculates, Western faith in Ukraine’s reforms will be restored:

1) Cutting the tax burden to 30 percent this year, and in 1998 to 28 percent.

2) Making the transition from certificate privatization to privatization for money.

3) Legalizing the "shadow" economy, on condition that the money illegally taken out of Ukraine is returned.

4) Stimulating investment by offering tax breaks to foreign investors.

5) Overcoming the politicization of the agrarian sector.

6) "Economizing" Ukraine’s foreign policy and reaping the economic benefits of expanding relations with Ukraine’s main trading partners — Russia and Germany.

7) Freezing prices for a year in the housing sector, and launching a pension reform.

8) Reducing the level of consumption of natural gas by 5 billion cubic meters in 1997.

Conclusion:

The economic elements of the Kuchma-Pustovoitenko program repeat a number of the provisions of the 1994 program. But the program shares with that version a number of shortcomings, such as a lack of attention to public support for radical programs and the absence of concrete legislative guarantees that policies will be implemented. In the past, Western investors have been scared away from Ukraine by the fact that laws change frequently and, as a rule, in a direction unfavorable for investors. As a result, total direct foreign investment in Ukraine in 1992 was only $1.9 billion.

The political part of the program, having to do with the preparation of "memoranda," the creation of "working groups," and so on, is designed to: a) shift some of the responsibility for the political crisis onto parliament; b) create extra-constitutional bodies that will circumvent both parliament and the executive branch; c) subordinate both parliament and the Cabinet of Ministers to the presidential administration without requiring the president to assume responsibility for the decisions made.

In other words, Pustovoitenko was appointed prime minister in order to secure Kuchma’s victory in the 1999 elections, reconcile the administration with the parliament, and free Kuchma from responsibility for any further deterioration in the country’s economic situation.

NOTES:

1. Leonid Kuchma, "Slyakhom radikalnykh ekonomicheskykh reform", Holos Ukrainy, October 13, 1994

2. Valery Zaitsev, "Tainstvennyi ostrov doktora Kuchmy: kadrovaya politika v Ukraine v 1994-1997 godakh," Den’, July 11, 1997

3. Vsesvitnya Sluzhba Radio Ukrainy, 13 July 1997

4. "Marchuk Speaks on Economic Policy, Reform." FBIS-SOV, September 19, 1995, p. 53; "Kuchma Exhorts Economists To Solve Crisis," FBIS-SOV, September 18, 1995, p. 42

Translated by Mark Eckert

Volodymyr Zviglyanich is a senior research fellow of the Ukrainian Academy of Sciences’ Institute of Sociology, a research associate at George Washington University, and a Senior Fellow of the Jamestown Foundation.