Ukraine government to reject call for painful reforms

Sept. 27, 2012, 8:45 p.m. | Reuters

Andriy Klyuev ruled out, in particular, an increase to gas prices, which the International Monetary Fund (IMF) says is necessary to cut the budget deficit, and an adjustment to the hryvnia exchange rate.
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Ukraine does not need to implement unpopular economic reforms advocated by its Western lenders after next month's parliamentary election, a leading government official said on Thursday. 

President Viktor Yanukovich's Party of the Regions is expected to secure the most votes in the Oct. 28 mid-term poll, and analysts say that his government could then increase energy prices and adjust the exchange rate to improve economic competitiveness.

However, party campaign manager Andriy Klyuev, who is also Secretary of the National Security and Defence Council and close to Yanukovich, said that the government will instead focus on improving living standards.

"As for unpopular measures, we have already implemented all of them," Klyuev said in an interview with Reuters.

Klyuev ruled out, in particular, an increase to gas prices, which the International Monetary Fund (IMF) says is necessary to cut the budget deficit, and an adjustment to the hryvnia exchange rate.

"We have no right to make the population pay for the mistakes of the previous government," he said of gas prices.

Ukraine relies on imported Russian gas for residential heating systems, and the price has been rising for the past few years because Kiev's 2009 deal with Moscow tied the price to global oil prices.

The government subsidises gas and heating prices for households. The IMF says this is a burden on state finances and halted lending to Ukraine in early 2011 after Kiev refused to raise the prices.

Ukraine's budget deficit for the January to August period tripled year on year to about $2 billion, but Klyuev said that government finances were under no risk. "We have sorted out the state budget," he said.

"As for the exchange rate, it is stable ... central bank reserves are adequate and I see no problems here," he said.

Ukraine has kept the currency pegged at about 8 hryvnia to the dollar since early 2010 through a combination of policies, including central bank intervention.

This approach has hurt the competitiveness of Ukrainian goods at a time when economic growth is already slowing because of falling demand from the troubled euro zone. Klyuev dismissed such concerns, saying: "There is no stagnation. We see gross domestic product growing a little and I hope the crisis will be over soon and we will develop our economy more actively."

Klyuev, a former first deputy prime minister, is confident of a strong showing in the election.

"I think we will have a rather respectable representation in parliament. We are ahead of our (closest) competitors by 6-7 percent," he said, citing an opinion poll that gave Party of the Regions 22 percent of the vote and put heavyweight boxer Vitali Klitschko's Udar (Punch) party in second place with 15 percent.

A bloc that includes Yanukovich's key political opponent, former prime minister Yulia Tymoshenko, was in the third place with 14 percent, Klyuev said.

However, other surveys paint a different picture. A September poll by TNS put support for Party of the Regions at 17.8 percent, with Tymoshenko's Batkivshchyna (Fatherland) bloc at 16 percent and Udar at 11.1 percent. More than a quarter of voters were still undecided, according to the poll.

Tymoshenko, who narrowly lost the 2010 presidential vote to Yanukovich in a close run-off, was sentenced to seven years in prison last October on abuse-of-office charges in a trial criticised by the West as an example of selective justice.

Her party has since formed a bloc with another opposition movement, Front Zmin (The Front of Change), led by pro-Western liberal politician Arseny Yatsenyuk.