Oligarchs out, regional governments in? Ukraine eyes power reshuffle

Ukraine's reformers are figuring out how to move the levers of power from Kiev and the oligarchs to the individual regions – but without fracturing the country.

Just about everyone agrees that Ukraine is in a race against time. Its new government, which came to power amid revolutionary disorder just over a year ago, needs to deliver fundamental reform before the harsh realities of economic crisis, war, and plunging public approval ratings catch up with it.

And the to-do list of the government's barely begun legislative revolution is daunting: sweeping judicial reform, a ruthless battle against the country's ubiquitous corruption, a purge of corrupt officials, and renewal of the civil service.

Perhaps the most crucial tasks hinge on Kiev's ability to redistribute Ukraine's political power, long monopolized Soviet-style by the central government in Kiev, and later in parallel with the post-Soviet "oligarchs" who snatched up state industries after the USSR's collapse.

Over the next few months, Ukraine has to find a way to banish the oligarchs in order to encourage small business revival, and to redistribute power to the country's regions in order to keep it united without – the government hopes – compromising central control.

"In 25 years of Ukrainian independence, nothing was done. So it's all up to us, right now," says Volodymyr Groysman, the speaker of the fractious Verkhovna Rada, Ukraine's unicameral parliament. Mr. Groysman is tasked with changing almost everything about the way Ukrainians interface with their government. "The problem is that we have to destroy the old system while simultaneously building a new one."

"It would be a lie if someone said nothing has changed in Ukraine" since the Maidan revolution overthrew the elected, pro-Russian president, Viktor Yanukovych, a year ago, he says. "But we're not going nearly as fast as we would like to."

'De-oligarchizing' Ukraine

Ukraine has surprised many by making it through a very tough winter, but its economy is badly battered. About a quarter of Ukraine's heavy industry has been destroyed by war or is now in the hands of eastern Ukrainian rebels. An estimated 1.5 million people have been displaced by fighting. The sharp fall-off of trade with Russia, along with the economic crisis, has disproportionately hit the industrialized, mainly Russian-speaking eastern Ukraine, potentially ramping up tensions between Kiev and those regions.

Overall, polls show public trust waning dangerously, with nearly 60 percent of the country disapproving of President Petro Poroshenko's job performance and nearly 70 saying Ukraine is headed in the wrong direction.

"We're living on the brink of disaster," says Olexandra Mazina, a former economics professor who now lives on her pension of about $120 per month. "It's obvious that unemployment is bad, much worse than official statistics indicate, and many people are just living hand-to-mouth. Maybe the Rada deputies sincerely want to change things, but no improvement is visible yet."

Fortunately for those who are trying to shake up Ukraine's power centers, the economic crisis has hammered almost all of Ukraine's superwealthy oligarchs, who remain the single greatest obstacle to opening up the Ukrainian market to wider competition.

"We need to change the model of our economy, to 'de-oligarchize' it," says Groysman. "The space for small and medium business is too narrow, because big business controls the major part of our economy. The [monopoly dominance] of big capital is a threat to our national security."

Ukraine's richest man, Rinat Akhmetov, has seen his fortune shrink by more than half, to barely $7 billion, over the past year, because of war damage and expropriation of his factories by rebels in eastern Ukraine. Another top oligarch, Dmytro Firtash, has seen his assets take a similar beating and is also in legal trouble in Austria, where he makes his home.

Even Igor Kolomoisky, one oligarch who seemed to be winning through his support of the Kiev government, got taken down a peg last month. Mr. Poroshenko fired him from his position as governor of his native Dnipropetrovsk region after Mr. Kolomoisky used his private security forces to defy a new law limiting oligarchic control over state companies.

"This is a natural process. We need to return control over state companies to the government," says Groysman. "And it will continue."

Ironically, the main oligarch still standing is President Poroshenko himself, the so-called "Chocolate King" who made his fortune in candy and media, and has yet to fulfill his election pledge to sell off his business empire and get rid of his considerable assets in Russia.

"The influence of oligarchs is falling, but Poroshenko remains an unacceptable exception," says Andrei Shevchenko, a former Rada deputy and civil society adviser to the government. "Poroshenko really should keep his promises to divest his property. The public is watching."

'Everything in its proper place'

Just as critical a reform, if not moreso, is the implementation of a plan, authored by Groysman, to address Ukraine's regional differences by decentralizing power.

The Minsk peace accords mandate completion of a "constitutional reform" process to reconcile warring parts of the country by year's end. Moscow and some politicians in eastern Ukraine have demanded "federalization," which would give sweeping political autonomy to regional governments and probably block efforts by Kiev to join NATO or the European Union.

Groysman's idea is to sidestep those demands and instead redistribute the levers of power such that each tier of government deals only with its own local concerns.

"It means the central government will stop dealing with matters best handled in local districts, like kindergartens and hospitals," he says. "Decentralization puts everything in its proper place, everyone will have the appropriate powers to deal with their local issues. It doesn't affect things like foreign policy, or the army, which will be in the hands of the central state."

Poroshenko has likened the idea of federalization to a "biological weapon" designed in Moscow to destroy Ukraine. Kiev might agree to hold a referendum on the issue, he recently suggested, though he added that opinion polls already show the vast majority of Ukrainians want to keep the "unitary" model.

"Poroshenko is worried that under our present conditions of political and economic instability, the whole discussion about decentralization could turn into a threat to our national integrity," says Alexander Chernenko, a former civil society activist and Rada deputy with Poroshenko's party.

"He has a point. In the south and east of Ukraine, the [anti-Kiev] Opposition Bloc is very strong, and they have quite different definitions of decentralization than Groysman does. They look upon this debate as a way to seize more power for themselves. So, the very real fear is that the country could fly apart while we're trying to accomplish this," he says.