April 20, 2015 / 11:54 AM / in 3 years

Truce tenuous as Ukraine leader tackles economy, oligarchs

KIEV (Reuters) - President Petro Poroshenko is using the breathing space from a ceasefire with separatists to push reforms and rein in super-rich ‘oligarchs’ whose influence he says must be curbed for Ukraine to have a future in Europe.

Ukraine's President Petro Poroshenko addresses the media in Kiev in this February 18, 2015 picture provided by the Ukrainian Presidential Press Service. REUTERS/Mykhailo Palinchak/Ukrainian Presidential Press Service/Handout via Reuters

But the truce in eastern Ukraine agreed on Feb. 12 is tenuous, with each side accusing the other of violations and the death toll still rising in a year-long conflict that has killed more than 6,100, and most people do not see it lasting.

Its collapse could derail Poroshenko’s agenda.

Two killings in Kiev of pro-Russian lobbyists have meanwhile evoked the prospect of political assassinations and handed easy ammunition to critics in Moscow who deride Poroschenko’s commitment to building a new, law-based society.

Poroshenko launched his anti-oligarch campaign after a face-off with banking tycoon Ihor Kolomoisky last month which his supporters say marked a turning point.

The president sacked Kolomoisky as a regional governor after the billionaire staged a show of force in the capital in reaction to legislation threatening his business interests.

“De-oligarchisation” has since vaulted to the top of the policy agenda, a sign not only of presidential confidence but also of the vulnerability of Ukraine’s oligarchs in an unpredictable environment of upheaval and conflict.

Parliament has adopted measures to break monopolies in the gas market and bring order and transparency to a dysfunctional economy, orienting it away from the old post-Soviet model.

Poroshenko aides say the campaign will not bring a forced “redistribution” of assets. But they aim to halt the oligarchs’ interference in politics and their manipulation of placemen in parliament or government to “fix” advantageous legislation.

As Kiev discusses financial help and debt relief with the International Monetary Fund and Western creditors, any moves to clean out Ukraine’s political and economic stables are welcome for Western governments.

The financial empire of Rinat Akhmetov, Ukraine’s richest man, has also come under more scrutiny in recent weeks, with the state prosecutor challenging a sell-off of electricity-generating company Dniproenergo to his holding DTEK in 2012.

Akhmetov, whose fortune is put at more than $6 billion by Forbes magazine, was untouchable during the rule of ousted President Viktor Yanukovich. But the conflict in the east, the base of his operations, has had a huge impact on his steel and other industrial interests.

“The power of a certain number of financial-industrial groups who controlled, among others, the parliament, the Cabinet of Ministers and to a large extent the president -- all that was in the past and should stay there in the past,” Poroshenko’s top aide, Borys Lozhkin, told journalists.

“This (anti-oligarch campaign) does not mean that something negative will happen to certain people. We are not talking about a redistribution of property. But state property should not be confused with private property.”

The campaign is not without risk for Poroshenko, who pledged when elected president in May 2014 to sell off the Roshen confectionery business on which his own fortune was built.

“The president wants to sell everything, but the time now is not just bad, but very bad. Investors don’t want to come here,” Lozhkin said.

“NEITHER WAR NOR PEACE”

Not only is it unclear how long the truce will hold but relations with Russia, now officially labeled an “aggressor state” backing the rebels, are going from bad to worse.

Russian President Vladimir Putin gave no ground on Ukraine in a televised phone-in last Thursday. “We don’t choose our partners”, he remarked drily when asked about Poroshenko.

Agreed at talks between Putin, Poroshenko and the French and German leaders in the Belarussian capital Minsk, the ceasefire replaced an initial deal last September that failed to hold.

“The situation is neither war nor peace. Nobody is going to deviate from the Minsk agreements,” political analyst Olesya Yakhno said of a pact that outlines a withdrawal of heavy weapons, prisoner releases and more autonomy for the east.

A widespread suspicion in Kiev is that Putin wants the truce to hold until May 9, when Moscow stages events commemorating the end of World War Two in Europe. Afterwards, the Kremlin may hope the rebels can seize more land.

One possible hot spot is around the coastal city of Mariupol, which sits between the eastern “Donbass” regions of Donetsk and Luhansk and Russian-annexed Crimea. Others see separatist pressure building on Avdiyivka, the coke-producing northern gateway to the rebel-held city of Donetsk.

Many analysts, though, see a gradual escalation of the conflict rather than a full-scale offensive by Moscow-backed forces which would clearly violate the Minsk agreements and possibly expose Russia to further sanctions from the West.

The West accuses Russia of sending in troops and heavy weapons to back the rebels. Moscow denies this.

Under pressure from Western governments whose credit Ukraine badly needs, Poroshenko has pledged to stick by the Minsk terms.

He is now pushing ideas to amend the constitution to provide a framework for ‘decentralization’ to the eastern territories. Rebels there sneer at such talk, and are building internal power structures to give teeth to their proclamations of independent ‘people’s republics’.

For Kiev, there is no clear route to re-establishing control over lost territory in Crimea or the Donbass.

“The Minsk agreements foresee a road to reintegration but this is highly improbable and realizing it is almost Utopian,” political analyst Volodymyr Fesenko said.

“Poroshenko understands that we cannot win this war by force of arms. So he has put the accent on strengthening defense and establishing order on the front lines.”

Meanwhile, last week’s double shootings in Kiev, apparently by professional “hitmen”, have darkened the investment climate.

Former lawmaker Oleg Kalashnikov, 52, and journalist Oles Buzina, 45, a critic of the “Euromaidan” movement that brought down Yanukovich and who had expressed pro-Russian views, were shot dead a day apart, in or near their apartment blocks.

The killings followed a spate of mysterious deaths among ex-allies of Yanukovich in other parts of Ukraine, and Putin accused Kiev of dragging its feet over investigating murders that were political. Poroshenko said the shootings “play into the hands of our enemies”.

At a meeting of anti-corruption officials last week, Poroshenko was pouchy-eyed as he laid down the law on the need to break graft at any cost. It was a reminder of the strain on a man who has told fellow politicians to get used to the idea of sleeping with a revolver under the pillow.

Additional reporting by Natalya Zinets and Pavel Polityuk; Editing by Catherine Evans

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