Why Ukraine’s reformers back a comedian for president

Author : Leonid Bershidsky

Source : Bloomberg

These ex-ministers wanted the country to become more European but were hounded out of government. Now they’re betting on a novice populist
13:24, 22 March 2019

Volodymyr Zelensky, Ukrainian presidential candidate for March 31, 2019

Ukrainian President Petro Poroshenko may soon pay a price for letting his government push out the reformers who followed him from the private sector after the 2014 uprising that put him in power. Some of them are throwing in their lot with the anti-establishment candidate in the upcoming presidential election, comedian Volodymyr Zelensky, hoping to return to power, even the score and enact policies that turned out to be impossible under Poroshenko.

Former Economy Minister Aivaras Abromavicius and former Finance Minister Oleksandr Danilyuk are known for their resistance to corruption and their commitment to a Western path for Ukraine. Both are working with Zelensky and against Poroshenko. I talked to them in Kiev this week; their willingness to gamble on a political novice speaks volumes about Poroshenko’s failures as Ukraine’s leader.

Five years after the overthrow of President Viktor Yanukovych’s corrupt administration, Ukraine is Europe’s poorest nation along with Moldova. The lack of improvement in Ukrainian living standards has made voters hungry for new faces in politics.

Zelensky, known for his comedy show, Kvartal 95, and his prowess as a TV producer, has made a career of mocking politicians, and he starred in a popular TV series as a humble teacher thrust by accident into the Ukrainian presidency and wreaking havoc on the established way of doing things. These credentials have made him the front-runner in the race. But he also has a lot going against him, which is why he is within Poroshenko’s reach in the first round of the election scheduled for March 31, and is likely to face off with the incumbent in a second round in April. The third relatively realistic candidate for the presidency, in a colorful field of 44, is populist former Prime Minister Yulia Tymoshenko.

One problem is Zelensky’s lack of demonstrable issues expertise, which his campaign has tried to cover up by making sure he sticks to anti-establishment talking points and doesn’t get into the specifics of tax policy or propose steps to resolve Ukraine’s conflict with Russia. Another is that the comedian is unconvincing as a wartime leader.

But perhaps his biggest drawback is his link to exiled oligarch Ihor Kolomoisky, accused in Ukraine of stripping assets from his lender, Privatbank, which held most of Ukraine’s savings and was nationalized in 2016 with a $5.6 billion capital shortfall. Kolomoisky’s TV channel, 1+1, is the main buyer of Zelensky’s productions. Long-standing Kolomoisky lawyer Andriy Bogdan works for the Zelensky campaign, and some bodyguards who have protected Kolomoisky have been seen providing security for the presidential candidate. When I asked campaign spokesman Dmitry Razumkov about this, he said Bogdan was a personal friend of Zelensky, the guards worked for a security firm that had been recommended by 1+1 and the business relationship between Zelensky and Kolomoisky didn’t imply any political or financial debts.

Abromavicius and Danilyuk have their own explanations for overlooking these issues and backing Zelensky.

Abromavicius, a private equity investor of Lithuanian origin, joined the Ukrainian government in 2014. He was responsible for a successful public procurement reform and a push for corporate governance improvements at Ukraine’s thousands of state-owned companies. He cut his ministry’s inefficient staff in half, bringing in young people from the private and nonprofit sectors to revamp it.

But Abromavicius resigned in 2016, accusing a Poroshenko-linked power broker of meddling with his reform efforts to enable corrupt schemes. He’s back in the private sector now, talking excitedly about some recent real estate investments. Six weeks ago, though, he met Zelensky, who’d asked to share his government experience and his ideas and to help him communicate with investors, business leaders and Western partners. They brainstormed on policy for about five hours.

“I found him a good listener, a quick learner and a decent person,” Abromavicius told me. “Everybody in Ukraine knows what to do but there’s no political will. Zelensky could be that hope, that platform, whereby people with the necessary political will could get significant powers.”

Zelensky has been crowdsourcing his program and the lineup of his top team and has received more than half a million responses. Abromavicius said Zelensky quoted Apple Inc. founder Steve Jobs to him: “It doesn't make sense to hire smart people and tell them what to do; we hire smart people so they can tell us what to do.” He also assured him he would abandon the Ukrainian style of picking underlings based on personal loyalty and family ties. Zelensky, who can be disarmingly clumsy in formal contexts — he showed up in a T-shirt for a key meeting with investors — has made a refreshing impression on the ex-minister, who himself doesn’t stand on formality.

As for Kolomoisky, Abromavicius doesn’t believe the oligarch will have much say in policymaking if Zelensky wins, if only because the comedian’s inclination to help his business partner and supporter in any way will be constrained for the first 100 days by the campaign for the October parliamentary election. To get decent representation for his movement, Servant of the People, Zelensky would need to perform convincingly as a president of and for the people.

Danilyuk, a former investment manager and consultant for McKinsey & Co Inc. resigned as finance minister last summer after two years in the post, during which he saw through a major value-added tax reform, doing away with government abuses in refunding the tax to exporters. Prime Minister Volodymyr Groysman fired Danilyuk for his campaign against two top tax officials whom the finance minister accused of graft. A month ago, Zelensky sought out Danilyuk as he had Abromavicius.

“If there’s a risk of Kolomoisky surfacing next to Zelensky, I can’t even stand next to this thing because it would be very bad for my reputation,” Danilyuk, who clashed with Kolomoisky during the bank nationalization, told me. “But I take a broader view. Of course I’m disappointed that there’s no ideal candidate, but I wouldn’t like to see a second Poroshenko term because it would be damaging for the country.”

The ex-minister hopes Zelensky will adopt, on his advice, a “radical agenda” including an overdue reform of the corrupt judiciary and the intelligence service, which often freelances by shaking down businesses. Abromavicius, too, expects forceful moves from Zelensky to improve the rule of law and stop law-enforcement interference with business while sticking to a tight fiscal policy under International Monetary Fund guidelines.

Zelensky with Abromavicius and Danilyuk, both popular among Western investors, donors and Ukraine-watchers, is a different proposition from Zelensky the political incompetent without a specific platform and Kolomoisky’s shadow hanging over him. Suddenly, he’s got some tested intellectual firepower and integrity on his side.

Tomas Fiala, head of Ukraine’s biggest investment bank, Dragon Capital, explains this in the stark terms of bond spreads. “Bond investors tell me that if Poroshenko wins, spreads will tighten,” said Fiala, who was encouraged enough by Poroshenko’s early economic reforms to invest $500 million of Dragon’s and investors’ funds in Ukrainian private equity deals since 2015, mostly in real estate. “If Tymoshenko wins, spreads will widen by about 100 basis points. If Zelensky wins, it will depend on what role Abromavicius and Danilyuk play on his team. If they’re in control, spreads will tighten; if Kolomoisky people show up, they’ll widen.”

Fiala has his doubts about Zelensky, whom he sees as pliant and inexperienced, but says he’s seeing the two ex-ministers “doing a good job of organizing meetings for him, coaching him a lot.”

They do it though Zelensky hasn’t offered them jobs if he wins. “There’s an understanding they want us on the team,” Danilyuk says, “but no specific promises have been made.” Razumkov confirmed this, saying he, too, was volunteering his services without any idea what, if anything, he might be asked to do after the election.

Despite trailing in polls, Team Poroshenko is confident of the incumbent’s victory; Kiev is plastered with billboards with the message, “There are many candidates but one president,” a slogan Poroshenko’s nemesis, Russian President Vladimir Putin, used in his 2012 election campaign. A Poroshenko campaign insider told me there was no plan B, and the president’s advisers weren’t even discussing what he should do in the parliamentary election if he loses the presidential one. Poroshenko has campaigned on a nationalist platform, touting his success in building up the Ukrainian military and breaking off the country’s Orthodox Church from the Russian one. He’s also raised pensions and offered poorer Ukrainians cash subsidies.

In the Poroshenko camp, Zelensky is ridiculed as a clueless Kolomoisky puppet supported by opportunistic ex-officials.

There’s more, however, to the willingness of two of Ukraine’s most prominent reformers to stake their unusually clean reputations on a comedian who wants to cut taxes, deregulate business, introduce more direct democracy, strip legislators of their legal immunity and make it easier to impeach a president — all populist impulses that the next parliament will be unlikely to indulge.

“If populism is about delivering on promises on which others didn’t deliver, then I’m fine with that kind of populism,” Abromavicius said.

Forced out of the system by a tight network of friendships, kinships and economic self-interest, the reformers are hungry for closure more than anything else. “I’ve put in so much effort, but the country isn’t changing enough to justify it,” Danilyuk said. “I want an opportunity to cross this off my list and then go do something of my own in life.”

Both he and Abromavicius have successful business careers. They don’t consider themselves failures at government, either — just people interrupted as they were doing something useful for Ukraine. Poroshenko’s willingness to let them go opened a door for Zelensky, whose shows have a distinctly post-Soviet flavor, to appeal to patriotic ex-Poroshenko loyalists who would like the country to become more European.

That audience would like a less gradual break with the past and a meritocratic system to replace the archaic, almost tribal one that has existed in Ukraine since before its independence. To win these voters, Abromavicius and Danilyuk are some of the best possible allies for a candidate to have. If Poroshenko beats Zelensky now, he’ll beat them, too, scoring a win for the old system.

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