KyivPost

Factbox: Key political risks to watch in Ukraine

Print version
July 1, 2010, 1:58 p.m. | Politics — by Reuters

Reuters

The new leadership of President Viktor Yanukovych has reduced a lot of the political tension in Ukraine, improved prospects of economic reform and set course for a new IMF bail-out programme. The ex-Soviet republic now appears to be inching towards a crucial agreement with the International Monetary Fund for fresh credit of up to $19 billion which may spur renewed interest by foreign investors.

Yanukovych fulfilled many pre-election prophecies that he would tilt Ukraine back towards its old Soviet master by extending the Russian navy's stay in a Ukrainian port until 2042 -- a move which sparked riots by the opposition in parliament.

But the new cosier ties with Russia have brought dividends.

With the IMF talks dragging on longer than expected, Moscow stepped in with a short-term loan of $2 billion to help Ukraine bridge its budget deficit.

That could be repaid with a Eurobond, for possibly as much as $1.5 billion, which the Kiev government says it will issue in July once the IMF deal has been squared away.

An April deal with Moscow on the price of gas supplies enabled Prime Minister Mykola Azarov to get a 2010 budget through parliament, which should pave the way for the new IMF deal, though the government has struggled to convince the Fund that its target figures are realistic.

Whatever policy moves Yanukovych makes, he will have to bear in mind that he was elected by less than 50 percent of the electorate.

To be certain of a second term, he may have to improve his standing in the Ukrainian-speaking west and centre which voted primarily for his rival, former Prime Minister Yulia Tymoshenko.

Below is an overview of the key political risks:


YANUKOVYCH'S GRIP ON THE LEVERS OF POWER

Yanukovych moved quickly to bring in Azarov, an ally, and restore to government many other old faces who fell from grace under the "Orange Revolution" leadership of Viktor Yushchenko.

But protests in parliament on April 27 over the Russian navy extension in the Crimea were a reminder of the opposition's potential strength.

The 2010 budget, rammed through parliament in almost siege conditions, has been a big step toward unlocking a new multi-billion-dollar IMF bail-out. A previous $16.4 billion programme was suspended late in 2009 after promises on fiscal restraint were breached under the previous administration of Viktor Yushchenko.

What to watch:

-- The size of the stand-by credit which the IMF will offer and how tough the Fund's conditions will be. The government is seeking up to $19 billion credit and an IMF mission currently in Kiev may give its answer in the next few days.

-- How hard will the IMF press for fiscal restraint? In particular, will it push for unpopular rises in household gas prices, something the Tymoshenko government balked at?

-- Signs of an economic turnaround in key areas such as metals and chemicals, real growth and new investment.

-- The Eurobond 'road show' -- set for the first half of July -- and the yield.

-- Real commitment by Yanukovych to end widespread corruption which deters foreign investment.


THE OPPOSITION

While Yanukovych has tightened his hold on power, the opposition has failed to re-organise and Tymoshenko is finding it difficult to get broad acceptance as opposition leader.

What to watch:

-- Further signs of moves to prosecute Tymoshenko and her allies for alleged past misdemeanours, which could destabilise the political situation.

-- Possible moves by deputies from Our Ukraine -- Yushchenko's party -- to join the coalition backing Yanukovych, something which would substantially help him consolidate power.


RUSSIAN GAS

Under the April agreement with Russia, Ukraine will now receive supplies of gas at a 30 percent discount, relieving huge pressure on the government which struggled every month to meet its gas bill under a January 2009 agreement.

Past disputes over gas pricing and conditions have had a knock-on effect on Russian supplies to Europe which also transit Ukraine. In January 2009, a cut-off in supplies by Russia led to millions of European householders being left without heating.

The Ukrainian government has offered Russia a role together with the European Union in revamping Ukraine's gas pipeline network which carries Russian gas to Europe.

Moscow reacted with little enthusiasm to this idea and instead took the Ukrainians by surprise on April 30 with an offer to merge gas giant Gazprom <GAZP.MM> with Ukraine's state energy firm Naftogaz.

The Yanukovych camp has effectively poured cold water on the idea, by saying Ukraine would want 50 percent of any such merger.

What to watch:

-- Reawakened interest by Russia in taking part in the three-way pipeline consortium.

-- Signs of strain in Ukraine meeting gas payments.


DANGERS OF DEFAULT

Ukraine's risk premiums have fallen and investors have returned since the vote, making it more likely that the government will be able to borrow domestically and even abroad to replenish its coffers.

Ukraine's FX reserves are worth $25 billion, providing around six months of import cover. High payments for Russian gas are a drain on Ukraine's coffers but the hryvnia currency has been on a strong footing since the elections, so at least there is no need to spend reserves on currency market interventions.

Credit default swaps have narrowed sharply since the vote, and investors have lined up to buy domestic debt, yields for which have fallen dramatically. This should enable Kiev to secure cash to meet sizeable debt repayments due.

Large corporate debt is a potential risk, including in the state-controlled sector, and restructuring is expected.

What to watch:

-- Will corporates be able to restructure debts easily?

-- April sovereign debt repayments were not a big problem thanks to improved sentiment but any signs of falling demand/ rising yields in domestic bond auctions could signal problems for the future. An IMF deal and/or other loans are key to keeping investors on side and thus risk premiums down.


RELATIONS WITH MOSCOW AND THE WEST

Yanukovych says he intends to take Ukraine along a middle path between Russia and Europe, improving poor relations with the former but moving his country into the European mainstream.

But he has taken major steps toward Russia and exposed himself to opposition charges that he plays fast and loose with Ukraine's sovereignty. A visit to Kiev by Medvedev in mid-May formally opened a new chapter of more intensive economic and political contacts between the two countries.

What to watch:

-- Under Yanukovych, Ukraine has pushed NATO membership off the agenda but will he limit military cooperation with the U.S.-led alliance?

-- Will U.S. Secretary of State Hillary Clinton make any oblique criticism of the Yanukovych presidency when she visits on July 2-3 ? -- How far will Yanukovich go in overtures to the European Union to balance out his policy ?
The Kyiv Post is hosting comments to foster lively debate. Criticism is fine, but stick to the issues. Comments that include profanity or personal attacks will be removed from the site. If you think that a posted comment violates these standards, please flag it and alert us. We will take steps to block violators.
Anonymous July 1, 2010, 2:31 p.m.    

Naive.

&gt; Whatever policy moves Yanukovych makes, he will have to bear in mind that he was elected by less than 50 percent of the electorate.

No he won't. He's not interested in this. The election was just the first of many levers being used to seize absolute power.

&gt; To be certain of a second term, he may have to improve his standing in the Ukrainian-speaking west and centre which voted primarily for his rival, former Prime Minister Yulia Tymoshenko.

We'll be lucky if we even have a free and fair election. I'm sure he is already plotting 7 year continuous election terms. Only another popular uprising can thwart it, and previous protest tactics will not work again, so only measures such as general strikes stand a chance.

{# <-- parent id goes here
Anonymous July 1, 2010, 8:26 p.m.    

&gt; I'm sure he is already plotting 7 year continuous election

&gt; terms. Only another popular uprising can thwart it, and

&gt; previous protest tactics will not work again, so only

&gt; measures such as general strikes stand a chance.

It is one thing when the Ukrainian situation or possible plans of the authorities are being presented and analyzed by the authors who get their word published in respected outlets (like Reuters). And it is quite another thing when anonymous users post their own fantasies to the news sites. Unless you have any factual evidence of what you said above (and if you did, you would have probably be publishing under your own name in established media) your outlandish anonymous fantasies look outright ridiculous.

{# <-- parent id goes here
Anonymous July 1, 2010, 7:10 p.m.    

POR team is doing a good job overall.Can't see getting imf funds without austerity measures.

{# <-- parent id goes here
Anonymous July 2, 2010, 12:04 a.m.    

&quot;But protests in parliament on April 27 over the Russian navy extension in the Crimea were a reminder of the opposition's potential strength.&quot; What strength??? throwing eggs towards the speaker and stink bombs, this is what the opposition calls &quot;democracy&quot;??!!

{# <-- parent id goes here
Anonymous July 2, 2010, 11:45 a.m.    

No, democracy is bribing the deputies of the opposition to take the side of the Yanukovich. A few dozen million USD more and we will have a very &quot;stable democracy&quot;.

The key point and the message the pro-Russian minority that came to power by a twist of fate can not see is that there are lots of people behind this opposition - a bit more than the pathetic 48+% Yanukovich got during the elections (a result he would be far from now).

{# <-- parent id goes here

KyivPost

© 1995–2014 Public Media

Web links to Kyiv Post material are allowed provided that they contain a URL hyperlink to the www.kyivpost.com material and a maximum 500-character extract of the story. Otherwise, all materials contained on this site are protected by copyright law and may not be reproduced without the prior written permission of Public Media at news@kyivpost.com
All information of the Interfax-Ukraine news agency placed on this web site is designed for internal use only. Its reproduction or distribution in any form is prohibited without a written permission of Interfax-Ukraine.