Ukraine's Orange Parties Break Coalition Deadlock, Tensions Linger as Ousted PM Regains Post

Signed, but not Sealed or Delivered

After 150 days of protracted and bitter negotiations which have damaged the country's investment image, undermined the electorate's faith in its leaders and stalled any progress towards political and economic reform, the three main political groups that constitute the so-called Orange faction have agreed to form a coalition that will bring Yulia Tymoshenko back into government as prime minister.

The leaders of Ukrainian President Viktor Yushchenko's Our Ukraine (OU) party, the Yulia Tymoshenko Bloc (BYT) - the political movement of the former prime minister - and the Socialist Party (SPU) announced in the 450-seat Verkhovna Rada (unicameral parliament) yesterday that they had agreed in principle to form a government, although the signing of the 103-page coalition agreement by all of the deputies in the would-be coalition was postponed until 23 June on the request of OU, which even up until the bitter end continues to be accused by BYT and the SPU of dragging out the talks in order to gain more concessions from the other two parties and making overtures to the opposition Party of Regions (PoR) of Viktor Yanukovych, who lost the 2004 presidential elections to Yushchenko, with the idea of forming a coalition.

According to the constitution, if no coalition is formed by 24 June, President Yushchenko has the right to disband the Rada and call new elections. However, after three months in which the Orange leaders have declared 'eternal love' for one another at joint press conferences, only to denounce each other within a matter of hours, the electorate have turned against the Orange parties and especially OU whose support is now estimated to stand at 5-7%. As a result OU is now desperate to avoid repeated elections. OU had suspended talks with BYT and the SPU on 13 June blaming the SPU leader Oleksandr Moroz's unwillingness to renounce his claim to the speaker of parliament position as the reason for opening a formal dialogue with PoR (see Ukraine: 14 June 2006: Opposition Alliance on the Cards After Ukrainian President's Party Reaches Talks Impasse). Faced with the prospect with being pushed into opposition, which would be a body blow for the SPU and does not serve Tymoshenko's purposes at this particular moment in time (as she fears that if she is left out of the coalition, her bloc's factions in all of the representative bodies would crumble) the SPU and BYT backed down.

Under the terms of yesterday's agreement, Tymoshenko, whose BYT party controls the largest number of parliamentary seats in the would-be coalition with 129 out of 450, would regain the coveted prime minister position, while OU (81 seats) would take the speaker of parliament post, the second most important position in cabinet. As compensation, the SPU (33 seats) are believed to have been offered the deputy prime minister post, although at a meeting between Yushchenko and Moroz on 15 June, the Ukrainian president was believed to have offered Moroz the powerful National Security and Defence Council post. In addition, while it still has to be confirmed in the Rada tomorrow, the coalition agreement will grant BYT the majority of the ministerial positions, including the energy portfolio which Tymoshenko has been determined to acquire. In total the Orange parties can muster 243 seats, a small, but workable majority and 57 more seats than that of the PoR.

While the creation of the government will allay the fears of foreign investors, there are still many reservations over the ability of the reformed Orange coalition to provide an effective government. For one, fact that the coalition talks were dragged out for over three months only served to exacerbate the ill-feeling between the leadership of OU and Tymoshenko within the so-called 'Orange' alliance. At the same time despite the fact that the 103-page agreement is designed to produce a coherent policy blueprint for the new government, there remain deep policy divisions between the three parties which will resurface in the immediate future. In terms of economic policy, OU still is essentially a centre-right party with predominately liberal beliefs and an evolutionary approach (despite the fact that in recent weeks in order to expand its electoral base it has courted some populist policies). Many of the powerful businessmen who support OU have similar interests to business leaders who bankroll the PoR, such as the steel magnate Rinat Akhmetov and a number of business leaders within the BYT faction. For its part, BYT is a political party in the making and as such has not formulated a coherent policy on a range of issues. While Tymoshenko has gone to great lengths since the 26 March election to display her pro-business face, BYT's political programme is still an unknown quantity; partly pro-reform, but also centre-leftist with a number of BYT deputies flip-flopping between both positions. As the junior partner in the coalition, the Socialist party would have little influence on economic policies, but an Orange government still needs Socialist support to pass legislation through the Rada and the Socialists will not want to be seen openly supporting any economic programme that did not deviate from reviving the planned economic model, which is unacceptable to either BYT or OU.

The differences between the parties are not confined to economics, with significant differences on foreign policy. OU wants to commit to NATO and EU membership, while the SPU is highly critical of the government's ambitions to integrate rapidly into Euro-Atlantic structures and the WTO. Naturally, it is difficult to ascertain BYT's exact position as it has never made any major foreign policy declarations, and while Tymoshenko has antagonised Russia both during the Orange Revolution and in the recent gas price dispute, this is no guarantee that she will rush headlong into the arms of the EU and NATO once in power. With an estimated 64% of the country still opposed to NATO membership, the Orange parties have found a compromise which envisages accession to NATO only after a nationwide referendum, which is not expected to take place until 2010. However, disagreements are expected to arise as to whether the government should embark on a public awareness campaign to the benefits of NATO membership (see Ukraine: 7 June 2006: Ukraine Faces 'Own Crimean War', Regional Parliament Declares Autonomous Republic 'a NATO-Free Zone').

Moreover, the most intractable difference between the three parties, especially in the short term, is over the constitution and the division of power between the executive and the legislative. OU has called for the recent constitutional reforms which curtailed the powers of the executive (stripping the president of the right to choose the cabinet) to be reversed, while the SPU and BYT vehemently support the reforms and will not budge on the issue. Nevertheless, with an eye on securing the presidency in the next presidential elections in 2009, Tymoshenko may well be inclined to reverse her position on the constitutional reforms in due course and back OU's position.

Outlook and Implications

With the clock ticking, the three parties appear to have come to a face-saving agreement to form a government. However, OU has indicated that it will nominate Petro Poroshenko for the speaker of parliament post, which will only exacerbate the divisions within the would-be coalition. Poroshenko’s nomination was overwhelmingly approved by OU after outgoing Prime Minister Yury Yekhanurov, who was widely tipped to take the post, had declined to do so. The nomination underlines the fears that the OU leadership still has about a Tymoshenko premiership and by tipping Poroshenko for the post, OU is once again trying to resuscitate the system of balances in the previous Orange government. Poroshenko, dubbed the "Chocolate King" remains not only one of Ukraine's most powerful businessmen but also is one of Yushchenko's closest and most trusted allies. Nevertheless, as the former National Security and Defence Council head, Poroshenko frequently clashed with Tymoshenko and their differences ultimately triggered the government crisis in September 2005 which led to Yushchenko removing both from office (see Ukraine: 6 September 2005: Former Ukrainian Presidential Aide Denounces Officials, Accuses Security Chief of Systemic Corruption). At the same time Yekhanurov's rejection of the parliamentary speaker post highlights the divisions and dilemmas for the OU leadership in agreeing to form an Orange government. Yekhanurov had advocated a grand coalition between OU and the opposition PoR.

In its negotiations with OU, the PoR has been as accommodating as possible. Unlike Tymoshenko, Yanukovych, the leader of PoR, has indicated that he would be willing to renounce his claims to the post of prime minister and parliamentary speaker. In return, the so-called "Donetsk" group of business leaders within PoR wanted the safety for their business interests guaranteed and political control over those regions where they have majority support. In addition, they are believed to have demanded certain important posts in the energy and industrial sectors. The elevation of Tymoshenko and BYT to the premiership and the energy portfolio will leave many within PoR nervous that Tymoshenko will once again seek to revisit the opaque past privatisations of the Kuchma regime. Tymoshenko understands, however, what damage this caused to Ukraine's investment image when she attempted to launch investigations into the old regime in her first spell as premier and her actions are likely to be more moderate this time around.

Nevertheless, with 186 deputies in parliament and enjoying total control of regional legislatures in the majority of Ukraine's southern and eastern constituencies, PoR will aim to cement its hold over local government and pressurise the government into accepting a degree of federalism across the country. Moreover, while in theory the Orange coalition can rely on the support of 243 seats in parliament, the PoR has been very active over the past three months in establishing contact with individual deputies from the Orange parties, particularly powerful businessmen from within the OU, BYT and SPU whose business interests coincide with theirs. The creation of an informal grouping with the Rada called the 'Stability in Ukraine' group on 7 June offered a glimpse into the future development of the party system and relations in the new parliament. Some 40 pro-business lawmakers from PoR, OU, SPU and BYT established a faction that will seek to vote together on certain economic issues, despite the fact that Article 83 of the constitution states that deputies could be stripped of their mandates if they move over to another faction. Members of the group include senior OU member Anatoly Kinakh and BYT deputy Tariel Vasadze, a significant shareholder in Ukraine’s largest carmaker, ZAZ and while in the immediate future they will not move against their own parties, the establishment of this group underlines that powerful business interests will play a prominent position in the passing of legislation which will only widen the OU-BYT division, especially if Poroshenko is confirmed as speaker of parliament.