By Stephanie Petrella*
(FPRI) — The Volodymyr Zelensky surge continued on July 21 when the Ukrainian president’s newly created Servant of the People (SoP) Party won the first outright parliamentary majority in the country’s post-Soviet history. Given that the party’s candidate list was a hastily assembled collection of unknown faces, SoP’s victory can be explained only by Zelensky’s remarkable popularity and the salience of his message—that SoP will stamp out systemic corruption and return accountability to politics.
Zelensky’s popularity has only risen since he defeated incumbent President Petro Poroshenko with 73% of the vote in April. Earning 43% of party list votes, SoP outperformed Zelensky’s 30% in the first round of presidential voting. In single-mandate districts, which account for half of the Rada’s MPs, SoP won several David versus Goliath victories. A 25-year-old anti-graft civil servant beat Ukraine’s second richest man, mining billionaire Kostyantin Zhevago. A 29-year-old wedding photographer defeated aerospace tycoon Vyacheslav Boguslayev. A 36-year-old pizza chain owner trounced the former head of the Central Election Commission, an MP who first entered the Rada in 1998.
That these young SoP upstarts whose only credentials are their fresh faces were able to oust fixtures of the Rada—local elites capable of lavishing voters with “gifts” such as food and expensive medications—is nothing short of astonishing. Not even Zelensky’s team anticipated the groundswell of enthusiasm. Expecting to win 80-90 single-member district seats, a far cry from the 130 the party actually won, Zelensky invited the leader of the Golos Party to discuss a coalition after voting had concluded on election night. Of course, with 254 of the Rada’s 450 seats, SoP no longer needs a coalition partner.
Ukrainians are excited about Zelensky and his potential. And following the parliamentary elections, it’s hard not to be. Roughly 75% of the Rada will comprise new MPs, as SoP and pro-reform Golos shunned establishment politicians. These new deputies enter the Rada promising to advance judicial and anti-corruption reform—not their individual business interests, as many former Rada members have done. And with a multitude of fresh faces in the Rada, Zelensky should be able to establish the technocratic, pro-reform government he’s promised. SoP deputies are taking a crash course in lawmaking and free market economics at the Kyiv School of Economics, and a professional economist will lead Ukraine as prime minister.
Yet, amid all of this excitement, it’s hard to shake a tinge of cynicism. Could this just be history repeating itself? Is the pro-Zelensky, anti-establishment wave not just Ukraine’s latest revolution, this time via ballot box? Ukrainian presidents almost never retain power, and are often swept out by seemingly revolutionary waves. In the country’s history, a president has only won re-election once (Leonid Kuchma in 1999), as Ukrainians repeatedly grow disillusioned by their politicians’ inability to deliver on promises. After each new revolution—independence in 1991, the Orange Revolution in 2004, and Euromaidan in 2014—enthusiasm abounded: Ukraine was on the right path, casting off the corrupt elite and investing in the country’s future. Or so it seemed. But five or ten years later, nothing had changed.
Will Zelensky and SoP be able to avoid this fate? That depends on whether they can meet society’s demands: end the war in the Donbas, improve the economy, and fight corruption. Ending the war in eastern Ukraine is not within Zelensky’s power, unless he makes untenable concessions to Moscow. As roughly 70% of Ukrainians believe the self-proclaimed Donetsk and Luhansk People’s Republics should become part of Ukraine as before—that is, with no special status—Zelensky has little room to maneuver in a potential settlement with Moscow.
On the economy and corruption, which are closely related in Ukraine, Zelensky has a unique opportunity. The International Monetary Fund (IMF) estimates that corruption reduces Ukraine’s GDP growth by roughly 2% per year, as venal officials appropriate the country’s wealth, scare away investment, and stifle firms’ productivity. Anti-corruption was the hallmark of Zelensky’s, and subsequently SoP’s, presidential and parliamentary campaigns. SoP has a series of initiatives that aim to return accountability to politics and strengthen anti-graft institutions. These include revoking MPs’ immunity; reviving the law on illegal enrichment, so the state can confiscate officials’ ill-gotten wealth; ensuring the independence and effectiveness of anti-corruption bodies, such as the anti-corruption court; and depriving the security services of their powers to extort businesses via trumped-up charges of economic crime. With 254 Rada deputies, SoP should have the numbers to get this legislation passed. Even if several party members defect on anti-graft reforms—there’s speculation, for instance, that up to 27 SoP deputies are loyal to oligarch Ihor Kolomoisky, who is likely uninterested in stamping out corruption—these reforms should also get support from Golos’ 20 deputies.
Reducing graft should help stimulate the economy. As economist Anders Aslund has written, one of the greatest impediments to economic growth in Ukraine is low investment, which hovers around 20% GDP. Foreigners see Ukraine’s business climate as too risky, in part because the country ranks 120th in Transparency International’s Corruption Perceptions Index. As a result, foreign direct investment (FDI) stagnates around 1% GDP. For comparison, Ukraine’s western neighbors, the Visegrad 4 (Poland, Hungary, Czechia, Slovakia), experienced annual FDI averaging 3.5-7% GDP as they integrated with European markets in the mid 1990s to early 2000s. By reducing the risk to business ventures in Ukraine, total investment can rise to 28-30% GDP, a more appropriate value for an emerging economy in Europe.
Improving the business climate does appear to be one of Zelensky’s priorities. Appealing to foreign investors in heavily accented English, Zelensky advertised Ukraine’s potential: “get in early and get big returns!” He promises that Ukraine will enter the top-10 of the World Bank’s Doing Business ranking in the next four years. While Zelensky may be over-ambitious in this goal—Ukraine currently ranks 71—any improvement will be welcome by investors.
On top of anti-graft, pro-business legislation, Zelensky has supported several large-scale reforms that should positively affect the economy. The most controversial is perhaps ending the moratorium on agricultural land sales, which has been in place since 2001. Despite the purported economic benefit an agricultural land market would bring—the World Bank estimates it would add $15 billion to Ukraine’s annual output—Ukrainians widely oppose the measure: nearly 70% say they would vote against lifting the moratorium if a referendum were held today. Nevertheless, Zelensky says he will pursue the reform by the year’s end. Again, barring major defections within SoP, he should have the numbers for approval—especially considering that former President Petro Poroshenko’s parliamentary bloc, which will have 25 deputies in the new Rada, largely supported the measure last year. It remains to be seen what effect this will have on Zelensky’s popularity. Other reforms include the de-monopolization of key industries—although Zelensky has provided little detail on how he plans to accomplish this—and smoothing out kinks in the transition to market-based tariffs in the electricity sector, a reform that experts say will add $72 billion to Ukraine’s GDP between now and 2030.
Will It Be Enough?
On the whole, Zelensky’s initial statements indicate that he is prioritizing the issues that will address society’s demands: improving the economy and stamping out corruption. Will it be enough for Ukrainian voters? The experience of Poroshenko and the so-called Euro-Optimists—young, Maidan activists elected to parliament in 2014—is instructive. In July’s parliamentary elections, Poroshenko’s European Solidarity, which won 132 seats in 2014, received just 8% of the vote. The Euro-Optimists, who previously instilled great excitement in the population, were similarly unable to win re-election. Despite supporting the pro-reform, anti-corruption messages of SoP and Golos, they were tainted by association with an ineffectual institution and the disappointment of unfulfilled promises.
The political leaders elected in 2014 did, however, have several notable accomplishments during their time in office. Granted, the war in the Donbas still rages. Yet, on the economic front, Poroshenko and his government successfully navigated Ukraine out of an economic crisis.
Ukraine’s economy was already contracting mildly when fighting in the Donbas began, but the outbreak of war caused economic output to collapse. GDP growth plummeted from -1.0% in the first quarter of 2014 to -14.4% in the fourth quarter. As budget revenues and foreign exchange dropped accordingly, the IMF warned that Ukraine’s fiscal deficit could spike to a whopping 10% GDP in 2014. The central bank was bleeding international reserves, which fell to the lowest point of just $5.6 billion in February 2015, and was forced to abandon the hyrvnia’s peg. Ukraine’s currency lost 70% of its value against the dollar, and inflation shot up to 61%. As much of Ukraine’s public debt, which stood at 40% GDP at the end of 2013, was dollar-denominated, the hyrvnia’s devaluation caused Ukraine’s debt to balloon to just over 100% GDP in 2015. Facing $35 billion in debt repayments in 2014-15, Ukraine stood on the brink of a default.
Today, this situation has stabilized, thanks to support from the IMF and a series of painful economic reforms. GDP growth has been positive since 2016, the hryvnia is stable, inflation stands at a much more reasonable 9% year-over-year, and reserves are up to $20.6 billion. Ukraine concluded a free trade agreement with the European Union, and Ukrainians can now travel to the bloc visa-free. Indeed, part of the reason Zelensky can focus so heavily on anti-corruption legislation is because Ukraine has achieved macroeconomic stability and modest economic growth in the past four years. As painful as the process was for ordinary Ukrainians, contributing to Poroshenko’s abysmal ratings, it is a significant achievement nonetheless.
Ukraine’s new president has an unprecedented opportunity to make meaningful changes that will benefit Ukrainian politics and economics in the long run. But if Ukrainians cannot feel an improvement in their day-to-day lives, public sentiment can always sour. After his recent trouncing by a political neophyte, it’s easy to forget that in 2014 Poroshenko was similarly elected to office in a landslide 54.7% of the vote in the first round of the presidential election. At the time, his trust level stood at 64%, just one percentage point below where Volodymyr Zelensky’s stands now. In Ukrainian politics, the tide can always turn.
*About the author: Stephanie Petrella is a Research Associate in Eurasia Program at the Foreign Policy Research Institute and a Deputy Editor of the daily political economy news brief BMB Russia.
Source: This article was published by FPRI