Key Political Risks To Watch In Ukraine

KIEV, Ukraine -- A new deal with the International Monetary Fund will bring temporary financial relief for Ukraine, but the painful reforms seem certain to rebound on the popularity of the cash-strapped government.


President Viktor Yanukovich's critics, who have also expressed alarm at what they see as increasing curbs on press freedom, say this is in line with a growing authoritarianism reminiscent of the 10-year rule of Leonid Kuchma from 1994 to 2004.

The ex-Soviet republic on July 28 finally sealed an agreement with the Fund for fresh credit of $15 billion over two and a half years which could spur renewed interest by foreign investors.

An initial tranche of around $1.9 billion was disbursed early this month and ratings agencies have quickly signalled optimism, with Standard & Poor's raising Ukraine's foreign currency rating by a notch.

The deal could be costly in raw political terms for the leadership of President Viktor Yanukovich: his government has had to cave in to IMF demands to raise domestic gas prices and reform the pension system, both of which could dent his popularity.

The election of Yanukovich, after a bitterly-fought campaign against ex-Prime Minister Yulia Tymoshenko, has defused much of the political tension in Ukraine.

The appointment of Azarov, an old ally, as prime minister has meant an end to the confrontation between branches of government that paralysed the administration of Yanukovich's predecessor, Viktor Yushchenko.

He 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.

It was expected that this could be repaid with a $2 billion Eurobond which the government planned to issue. But the government dropped the idea after a road show, apparently because investors were pressing for yields that were too high.

What to watch:

-- An economic turnaround in key areas such as metals and chemicals, real growth and new investment following conclusion of the IMF deal.

-- New loans from external lenders linked to the IMF deal.

-- Any planned new issue of a Eurobond, and its yield.

-- Any social discontent when domestic consumers receive their September gas bills for central heating showing a 50 percent hike.

-- Any indication the government is losing its resolve and retreating from reform pledges to the IMF.

GRIP ON POWER

Yanukovich enjoys a far tighter grip on power than the pro-Western Yushchenko ever did and his allies are pressing for constitutional changes that would significantly boost his powers as president.

Yanukovich's critics, who have also expressed alarm at what they see as increasing curbs on press freedom, say this is in line with a growing authoritarianism reminiscent of the 10-year rule of Leonid Kuchma from 1994 to 2004.

But Western governments appear ready to give Yanukovich the benefit of the doubt for the time being at least and have been equally unruffled by his decision to drop NATO membership as a foreign policy objective.

Yanukovich must bear in mind he was elected by less than half of the electorate. To be sure of a second term, he may have to improve his standing in the Ukrainian-speaking west and centre which voted primarily for his rival, Tymoshenko.

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 the new multi-billion-dollar IMF bail-out. A previous $16.4 billion programme was suspended in 2009 after promises on fiscal restraint were breached under the Yushchenko administration.

What to watch:

-- The outcome of local elections, expected to be held on Oct. 31.

-- What political appetite is there for the president to be given new constitutional powers that will sideline parliament and give him the authority to name his own government?

-- Any signs of growing authoritarianism in Yanukovich's style of rule. Are media freedoms under pressure?

-- Any signs of strain in relations between Yanukovich and Prime Minister Mykola Azarov over the pace of economic reform.

-- Any signs that Ukraine's power brokers such as billionaire oligarch Rinat Akhmetov or former gas trader Dmytro Firtash are dissatisfied with Yanukovich's policies.

THE OPPOSITION

While Yanukovich 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 Yanukovich, 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.

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 with Ukraine's state energy firm Naftogaz. The Yanukovich 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.

RELATIONS WITH MOSCOW AND THE WEST

Yanukovich 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.

What to watch:

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

-- How far will Yanukovich go in overtures to the European Union to balance out his policy ? What progress will there be in talks on a free trade zone with the EU?

Source: Kyiv Post

Comments

jacob p said…
On my opinion the goverment should invest the IMF money in agriculture for ukraine as a developing country should export crops plus yanokovich promised to increase the way of life in ukraine but just increasing minium wage but doing that would just lead to more inflation so what i would propose is putting money in agriculture, in goverment farms this would increase competition and eventually bring down cost on basic needs also this would increase demand for work in the country which would decrease migrations to cities and increase population in the country bad population in all because on my opinion people that live in the country are more likely to have kids. So this would solve ukrainian population problem and increase potentual work force also this would increase demand for agricultural vehicles and were there is demand there is always competition and with competinn people try to make their stuff better and maybe they can make them able to export which would also increase the economy. But who am I to propose stuff? just a underage teen trying to find his way in life.