Ukrainian Leader Backs Calamitous Reshuffle to Deliver Results

(Bloomberg) -- Ukrainian President Volodymyr Zelenskiy defended a cabinet reshuffle that unnerved investors and dismayed voters who’d backed him to clean up the country’s notoriously murky post-Soviet politics.

The revamp swapped young newcomers picked to sever ties with the past for experienced hands whose task is to revive stuttering reforms.

The problem is that, in one of Europe’s most corrupt nations, previous administrations are tainted by accusations of malfeasance. One replacement even worked briefly under Viktor Yanukovych, the ousted leader who was backed by the Kremlin and represents everything Zelenskiy was elected to end.

Ukrainian Leader Backs Calamitous Reshuffle to Deliver Results

To Ukraine’s fledgling president, a former TV comic whose first months in office saw him take center stage in Donald Trump’s impeachment, this week’s personnel changes have been misconstrued. They have one aim -- getting things done.

“We needed to react to the cabinet’s effectiveness,” Zelenskiy said late Friday in his office in Kyiv. “When you’re making such deep changes in the country, you can’t fail. It’s not about your personal ratings, it’s not that you can be kicked from power, it’s that Ukraine may not ever have a chance again to do this.”

With the reshuffle sparking a slump in bonds, incoming Finance Minister Ihor Umanskyi sought earlier in the day to stem the damage by pledging continued cooperation with the International Monetary Fund, including a visit to Washington in the coming weeks along with new Prime Minister Denys Shmyhal.

A new $5.5 billion loan with the lender has been delayed for months, in part over concerns about the influence of tycoons on the government. The program is vital for foreign investors who’ve piled $5 billion into Ukraine’s local debt and were already fretting about the spread of the coronavirus.

“Zelenskiy’s latest government reshuffle increases the risk of a setback in reforms,” Oxford Economics said Friday in a note. “It will likely substantially delay IMF negotiations.”

Zelenskiy has seen his popularity wane as economic growth plunged and ambitious reform plans got bogged down. But there’s concern about the departure of ministers who were well liked by investors, and a chief prosecutor backed by Western donors and local activists alike.

Ukrainian Leader Backs Calamitous Reshuffle to Deliver Results

The fear is that the new arrivals herald a return of the outsized influence Ukraine’s billionaire class has long had over politics. Speculation about links between Zelenskiy and former business partner Igor Kolomoisky has persisted, despite numerous denials from both.

Shmyhal helped lead an energy company owned by Rinat Akhmetov, Ukraine’s richest man. But that doesn’t worry Zelenskiy, who tried and failed to poach another top manager from the tycoon and is still looking to fill six more cabinet vacancies.

Zelenskiy says oligarchs have no influence over his government.

“They own 70%-80% of assets in this country,” he said. “Every manager in Ukraine worked for one them or is somehow linked to one of them. And they hire the best -- we should understand that.”

The new government has ample opportunities to prove the doubters wrong.

The advance of the coronavirus may simplify reaching an accord with the IMF. Long-delayed legislation ending a moratorium on farmland sales -- a potentially major economic driver in a country where agriculture dominates -- may yet be a success. In the meantime, however, the new team will face increased scrutiny from voters and more skepticism from the markets.

Zelenskiy is taking responsibility for some key endeavors. He pledges the passage of legislation lifting a ban on agricultural-land sales and protecting the 2016 nationalization of Ukraine’s biggest bank -- both sought by the IMF.

And he had a warning for the central bank, whose independence he said he supports while complaining that it maintains the region’s highest borrowing costs.

“I don’t plan to replace any person in the country who works fairly and efficiently,” he said. “But we agreed with the central bank on some things they can do. If they give us that, it means they’re efficient. I’m still waiting.”

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