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How Honcharuk's government tripped up new PM Denys Shmygal?

Author : Anna Peshkova

Source : 112 Ukraine

Not a single government has resigned as fast as the Cabinet of Ministers of Honcharuk. How has his government tripped up the new PM, Denys Shmygal?
20:28, 6 March 2020

112 Agency

Not a single government has resigned as fast as the Cabinet of Ministers of Honcharuk. How has his government tripped up the new PM, Denys Shmygal?

  1. Indexation of pensions and social benefits

For a long time, Cabinet of Oleksiy Honcharuk has been implementing antisocial policy. For example, he reduced the number of professions whose representatives can retire earlier. When the offices were under question, and the public debt exceeded all expectations, the solution of social issues was transferred to the successors.

Goncharuk cooked Shmygal’s goose, he postponed the indexation of pensions for September, which had previously been held annually on March 1.

Related: Yanukovych’s lawyers litigate legality of EU sanctions against him in European Court

But in the last days of his cadence, Honcharuk began to bomb with messages about social assistance to various segments of the population, which he would no longer charge. This is an additional payment of 19 USD to pensioners, and 4,000 USD to Ukrainians who committed a heroic deed, and a scholarship of up to 100 USD for students that live on the demarcation line. This is not the first time we have encountered such a practice. Volodymyr Groysman also raised pensions before his resignation.

Shmygal said that he would increase social benefits. So, most likely, he would not cancel new allowances, and would also undertake indexing.

  1. Tariff policy

Starting May 1, a “market price” for gas is introduced. Nevertheless, Shmygal would be responsible for the promises of the previous Cabinet on tariff reduction. The previous decline was due to falling prices in world markets, and not due to specific actions of Honcharuk. People expect Shmygal to resolve this issue.

Honcharuk’s government completely ignored energy strategy until 2035. As well as Zelensky’s demand to close unprofitable mines. The solution to these issues will be the Damocles sword hanging over the prime minister.

Honcharuk’s Cabinet of Ministers has not only reduced subsidies not only in the budget for 2020 but also increased the size of the base rate for housing and communal services. That is if earlier it was necessary to pay 15% of your income for housing and communal services, then from May 1, it would rise up to 20%. Will the new prime minister have the political will to abolish such a norm?

  1. Government debt and loops in the budget

In addition to various social payments, the government has recently also been actively spending on infrastructure projects, for example, giving State Road Agency of Ukraine credit guarantees of almost 0,8 billion USD. Given the “loop” in the budget and technical default in December, all this will become a pain in the neck of the new prime minister.

Related: New government to complete ongoing medical reform, - Ukraine’s PM

Shmygal has already promised to reduce budget expenditures, but at the same time to increase pension payments. Economist Oleg Pendzin believes that the prime minister has no way to fix anything. A loop in the budget rests on the fact that the dollar exchange rate should be 27 UAH per 1 USD, but in fact, it is at the level of 25.

The government of Honcharuk formed a government bonds pyramid, from which it is almost impossible to get out. Economic expert Kusch calls only three solutions to the problem:

  1. Bad. Continue current policy. But, as non-residents buy our securities less and less, they will have to switch back to short securities and increase their yield to 15-20%.
  2. Horrible. When there is no possibility of refinancing, if necessary, returning internal and external debts, non-residents will sell government bonds.
  3. The correct one. Announce restructuring for 20-30 years, negotiate with debt holders, as it was done in 1998.

The expert does not believe that Shmygal will be able to cut off the influence of a conglomerate of speculators, foreign funds, which created subsidiaries in Ukraine and propagandize the ultra-liberal line here.

  1. The staff

The government came with the slogans of reducing the number of civil servants. After seeing that uniting the department's policy was ineffective and it bloated due to additional departments, Zelensky decided to bring them back. The ex-minister of culture actively criticized such a policy. Smygal will have to face the fact that moving from office to office will delay the actual implementation of new solutions.

Related: Medvedchuk: Zelensky’s team, like Poroshenko’s team, does nothing to bring Crimea back

The Cabinet of Ministers decided to dismiss 20,000 government officials from the district state administrations, which heated up the personnel issue in the regions. But the day before the resignation, the Cabinet of Ministers introduced the post of head of the digital transformation in all government agencies.

  1. Notorious privatization

Everything is more complicated with state-owned enterprises. Before dismissal, the ministers decided to privatize another 401 enterprises. Among them were Bread of Ukraine, State Food and Grain Corporation of Ukraine, Artemsil, First Kyiv Engineering Plant.

This decision was made contrary to the regulations and without the approval of the Ministry of Economy. Theoretically, it can be challenged in court. In addition, Artyomsol could potentially be a budget donor, so Honcharuk deprived Shmygal of a chicken that could bring him golden eggs.

In December, the Cabinet of Ministers adopted a resolution on private traction on the Ukrainian railway. The Ministry of Infrastructure will need to determine the conditions for the pilot project.

Related: Zelensky: Government should develop support program for Ukrainian industry

This supposedly should solve the problem of shortage of rolling stock. But in reality, large cargo owners will receive preferences, and small and medium-sized businesses may suffer. Ukrzaliznytsia will sell everything profitable, high-margin, and will keep the industries with negative profitability for itself. And this would mean deterioration in the quality of the railway, experts assure.

  1. Education

The situation with education is also challenging. As well as with social payments, the Cabinet worsened the conditions, and on the last day of its work, it became much more generous.

Honcharuk first lowered the salary of teachers, canceling the decree that it cannot be lower than 250 USD. PM and Minister Anna Novosad also increased the cost of a contracted form of study for three dozen popular specialties. Now you have to pay at least 1,100 USD per year.

Anna Novosad
Open source

On the last day of its work, the Cabinet of Ministers adopts a resolution according to which young teachers will be paid 900 USD each. The new Minister of Education will have to deal with it somehow. By the way, Shmygal did not introduce the new minister.  Minister Novosad also ruined her successor by eliminating the capital’s National Academy of Public Prosecutions, the only specialized university for prosecutors. The institution was turned into a training center for the provision of paid services.

  1. Healthcare

A few days before the resignation, Honcharuk announced that the next phase of medical reform would begin in April. However, it was supposed to start back in January.

Everything would be fine, but the Shmygal government will need to implement reform against the background of a very limited budget and unprepared clinics. Not all of them have passed the autonomization process, not all have the equipment or are connected to a medical base. Minister Skaletska dumped these problems on her successor, although everything had to be ready before his appointment.

Related: Ukraine's new government to continue cooperation with IMF, - PM

Zelensky said that he doubted whether the country was ready for “money follows the patient” system. But Prime Minister Shmygal expressed more confidence. So it is unlikely that new Minister of Health Illya Yemets would stop healthcare reform.

Shmygal’s perspectives

Usually, when talking about “new faces,” one does not mean unknown people, but those who propose new approaches. For example, Trump introduced “trumponomics,” a combination of social functions and powerful protectionist policies.

Honcharuk, however, was remembered only for inaction, which, in combination with certain failed initiatives, became fatal for Ukraine. Oleksiy Kushch does not believe that Shmygal will cancel them. He believes that there will be no change in the course, only the beneficiaries will change.

Related: Zelensky: Ryaboshapka should not occupy position if he shows no results

As for Honcharuk’s promises, no all of them were fulfilled. However, Shmygal is a separate person and is not obliged to answer for the words of the “successor.” Nevertheless, it is likely that he will have to be responsible for them.

Will he be able to achieve the prosperity of our country in such conditions?

Oleg Pendzin compares Ukraine with a broken car, and PM – with a driver: “If a car has troubles with an engine (a problem with the industry, budget revenues), the driver cannot fix it. Only a locksmith can do this. But these are old staff that cannot be called back to work. Therefore, the idea came to call a locksmith from abroad. But there is a problem: they know how to fix a Mercedes, and we have to deal with ZAZ Zaporozhets.”

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