The government’s rescue plan made official on Feb. 27 clearly pushes for a pro-European policy.
The Cabinet of Minister’s program mentions European
integration immediately after the first point of strengthening the nation’s
territorial integrity. Cooperation with Russia comes in third indicating the Cabinet’s
concern for the nation’s eastern and southern regions where affinities with
Russia are stronger.
The economic part of the action plan is brief and
rather declarative, and includes the desire to resume cooperation with the
International Monetary Fund. To receive further financing from the Washington,
D.C.-based lender, the government has to meet key requirements that involve
raising gas tariffs for household and cancelling excessive state subsidies.
In a sign that it is ready to meet these requirements,
parliament on Feb. 28 cancelled many perks that former and current government officials
and lawmakers receive. Another requirement that is being met is the hrynvia has
been allowed to free float and approach its realistic value.
Yatsenyuk, known for his liberal views, appears ready
to introduce these measures. Since becoming prime minister on Feb. 27, he has
warned of painful times ahead that will include fiscal optimization and austerity
measures. They are even more likely since Ukraine needs at least $35 billion of
financial assistance in 2014-2015 to bring macroeconomic stability. The central
bank’s foreign reserves are at $15 billion.
Other features in the new government’s policy are to
make markets more competitive by reducing their monopolization and improving
the business environment. Economists see these initiatives as healthy measures,
but the program lacks specific policies that define how to implement them. Furthermore
the monopolists won’t just go away and are expected to defend their lucrative
positions by citing how much they contribute to the gross domestic product.
Introducing European energy standards and promoting
energy diversification are also on the agenda. Although they’ll bring long term
benefits, in the near term, Ukraine will remain dependant on Russian gas whose
price will likely grow since Russia’s President Vladimir Putin is disdainful towards
new Ukrainian government and sees no reason to support it economically.
Yatsenyuk said he wants to repatriate capital from
offshore accounts. Any steps in this direction are going to heat the conflict
between him and country’s richest business people: System Capital Management
owner Rinat Akhmetov and Groupd DF’s Dmytro Firtash first and foremost. Both
keep substantial amount of their assets in offshore companies registered in
Cyprus and other tax havens.
During a press-conference on Feb. 28 Yatsenyuk made significant
additions to the agenda. He plans to ask the central bank and commercial banks
to start a wide-scaled program of stimulating Ukraine’s economy with cheap
loans. “It involves both, the central bank’s refinancing rate, which is more
realistic and reflects the cost of resources, and (interest) rates in the real
sector of economy,” said Yatsenyuk.
Such a stimulus program combined with the austerity measures
have become an effective tool for solving economic problems in Europe during
the debt crisis in 2010-2013. However, whether National Bank is able to manage the
country’s economic problems effectively via monetary measures remains a big
question.
Yatsenyuk’s agenda does not say anything about renationalizing
assets that the state sold under non-transparent conditions in auctions held by
the State Property Fund. Some of those auctions clearly lacked competitiveness
and benefited the nation’s billionaires such as Akhmetov, Firtash, Igor
Kolomoysky and Viktor Pinchuk.
Moreover, there’s no
guarantee that the reforms won’t be delayed or even abandoned, as the scale of
the obstacles will become greater. When
addressing parliament, Yatsenyuk dubbed the new cabinet as “the government of
political kamikazes.”
“The agenda contains positive themes
and outlines all the necessary measures to transform Ukraine into a prosperous
economy,” Oleksandr Parashchiy, Concorde Capital’s head of research. “In fact,
it repeats many points that were declared by several previous Cabinets,
including the reform program of former President Viktor Yanukovych. For many
years, it has been crystal clear what has to be done to jumpstart the economy
but short-term political goals and rampant corruption prevented leaders from
taking radical steps.”
Fulfilling even a small part of the
reforms would be a breakthrough in Ukrainian politics, he added.
Taras
Kachka, vice president of American Chamber of Commerce, emphasizes that the document is too simple and too short to be called
a “good” document, however views it positively. “We, the business community,
welcome the direction of the government, the promise to sign the Association
Agreement with the EU, but still the question of relations with both the EU and
Russia remain open,” Kachka said in interview to the Kyiv Post.
He expects the new
government will be more open and will endeavor to maintain a dialog with the
business community.
Financial markets
reacted positively to the appointment of the new Cabinet of Ministers and
release of its policy agenda was rather positive. The hryvnia strengthened to
9.6-10.5 against the dollar on the interbank market on Feb. 28 after slipping
to 10.8-11.2 the previous day. Ukraine’s eurobonds due in June traded at 94.91
cents on the dollar, up from 94.15 on Feb. 27.
Kyiv Post associate business editor Ivan Verstyuk can be reached at [email protected]. Kyiv Post business journalist Evan
Ostryzniuk contributed to this story, he can be reached at
[email protected].
