[Ohio UZO News] Ukraine: WSJ; FT (2); EDM

[Deychak, Orest]

  <javascript:void(0)> 

World News: Yushchenko Forecasts Pain as Ukraine's Economy Deteriorates 

By Lidia Kelly 

17 December 2008

A12

MOSCOW -- Ukraine's gross domestic product plunged at its fastest rate in more than a decade in November, and President Victor Yushchenko warned that the worst is yet to come.

GDP in the former Soviet republic contracted 14.4% in November from a year earlier, the State Statistics Committee said Tuesday. In January to November, the annual growth rate slowed to 3.6%, half the pace of the past seven years.

Mr. Yushchenko told local authorities that the coming months will be particularly painful for the already battered economy. "In the first quarter of 2009, GDP is expected to fall between 7% and 10%," he said, according to his press service.

The news came as the country's currency, the hryvnia, hit a historic low of 8.50 hryvnia to the dollar, despite intervention from the National Bank. The Ukrainian currency has shed nearly half of its purchasing power since late summer.

With an economy heavily dependent on commodities, Ukraine has been among the hardest hit emerging markets during the global economic slowdown. As international demand for steel has collapsed, so have prices, straining businesses and banks and causing equity markets to drop.

Industrial production slid nearly 29% in November, and steel output fell by half in the same month. Growth in consumer demand slumped to 1.1% on the year in November from 16% in October.

Both exports and imports continued to decline, and the trade deficit in the first 10 months of the year widened to $16.1 billion.

A conflict between Mr. Yushchenko and Prime Minister Yulia Tymoshenko has impeded action to offset the growing crisis, delaying the passage of measures in parliament and almost derailing a $16.5 billion loan agreement with the International Monetary Fund.

November data released earlier this month by the National Bank showed Ukraine spent 80% of the first tranche of the IMF loan within a month of receiving it. The central bank spent $3.4 billion in foreign exchange interventions in November to defend the hryvnia.

On Tuesday, the parties of the president and the prime minister formed a new coalition, which most observers perceive as fragile.

Nonetheless, economists said it might provide some stability, if only temporarily.

"New parliamentary elections now look much less likely," said Oleh Yuzefovich, an analyst at Alfa Capital.

"This will keep the existing government in power and save valuable time for it to continue passing anticrisis legislation."

Financial Times

www.ft.com

Temperature rises in Russia-Ukraine gas talks

By Roman Olearchyk and Stefan Wagstyl 

Published: December 17 2008 

Every year, Russia and Ukraine pledge to end their high-stakes annual gas negotiations well before winter. And for the fourth year running, the January 1 contract deadline is looming with no agreement in sight.

"We spend every new year waiting to sign an agreement . . . I make money but I am tired of making it this way," says one gas trader.

Tension is particularly high this year because of Moscow's intervention in Georgia, a power vacuum in Ukrainian politics and the global economic crisis, which is increasing pressure on Gazprom, the state-controlled Russian gas group, to extract a big price rise.

Yulia Tymoshenko, prime minister of Ukraine, is also determined to implement a deal agreed with Vladimir Putin, her Russian counterpart, to cut "corrupt" intermediaries from the gas trade. She wants to exclude Rosukrenergo, a joint venture between Gazprom and Dmitry Firtash, a Ukrainian billionaire gas trader. The Swiss-registered company says it is fully transparent and intends to keep its contractual role.

Alexander Medvedev, the Gazprom deputy chief executive, has warned the European Union that the two countries are "far away from a settlement", raising fears of disruption to EU supplies similar to that caused by the price dispute in 2005-06 and, to a lesser extent, in March 2008. Gazprom supplies 25 per cent of the EU's gas, mostly via Ukraine.

The three key issues are price, Ukraine's unpaid arrears, and the intermediaries. Russia has increased its prices to former Soviet republics since 2003 from $50 per thousand cubic metres, with the largest rises hitting the two countries that have tried to break out of Moscow's political orbit - Ukraine and Georgia.

Next year Gazprom wants another big increase from Ukraine, from $179.50 per 1,000 cu m to $400 - close to what Germany pays. Naftogaz, Ukraine's state gas company, want to keep the price it pays at about $250, not least because the Ukrainian hryvnia has dropped 30 per cent against the dollar this year and could slide further. With its economy set for recession in 2009, Kiev fears the impact of higher gas prices on a country that has already needed International Monetary Fund support.

Ukraine wants to replace today's ad hoc negotiated prices with a long-term agreement pegged to world oil prices. This could reduce disputes and lead to cuts in gas prices in late 2009, when rolling six-month average oil prices - which could be the basis of a peg - are expected to fall sharply. Yet Russian economic growth has plummeted from more than 7 per cent to about 3 per cent. The state is running down its huge financial reserves by supporting the rouble and refinancing banks. With or without a new price formula, Gazprom is keen to maintain export prices.

It also insists that Ukraine settle unpaid gas bills worth $2.4bn (€1.7bn, £1.6bn) - an amount Ukraine disputes. The IMF says Kiev has the means to pay. But there is speculation in Ukraine that Moscow wants it to settle by transferring assets, notably a stake in Ukraine's vast pipeline network. The ageing network needs investment, for which Ukraine may require partners. But selling stakes to foreigners, especially Russians, would be politically unacceptable.

In the middle of the dispute sits Rosukrenergo. In taking a soft approach towards Moscow over Georgia, Ms Tymoshenko appears to have won favour with Mr Putin and may get her way over Rosukrenergo.

The company has a contract to supply all Ukraine's imported gas, 55bn cu m annually, which it buys from central Asian countries and ships via Gazprom. The $1bn annual losses made on the trade are offset by gains from a second contract to ship 15bn cu m across Ukraine into the EU. Even allowing for transit fees, this is very profitable. Last year the company made $867m pre-tax profits on sales of $9.9bn.

The US has criticised this arrangement, but the EU has been cautious. Edward Chow, a fellow at the Center for Strategic & International Studies in Washington, says "the critical question" is what Rosukrenergo does to secure gas worth billions a year. "What service does it perform that Gazprom and Naftogaz cannot do for themselves?" asks Mr Chow.

Even if Rosukrenergo were squeezed from Ukraine's import trade, it could remain a big player in gas if it kept its transit contract. Mr Firtash's holding company, Group DF, has also invested heavily in Ukraine's domestic distribution market and in central Europe. Whatever the outcome of the talks, Ms Tymoshenko will struggle to fulfil her aim.

Financial Times

Political crisis leaves Ukraine in a quandry

By Stefan Wagstyl and Roman Olearchyk 

Published: December 16 2008 

It has been a rough ride for Viktor Yushchenko, the president of Ukraine, since his triumph in the 2004 Orange Revolution - and it is about to get much rougher.

The political conflicts and persistent headaches of dealing with Russia that have long plagued his rule are now being compounded by a global crisis, pitching one of Europe's fastest growing economies into recession.

As a former central banker, Mr Yushchenko should be the ideal man to oversee an International Monetary Fund rescue. But, weakened by battles with Yulia Tymoshenko, prime minister, and Viktor Yanukovich, the formidable pro-Russia opposition leader, the president lacks the authority to lead from the front.

Much is at stake in Ukraine. The country of 46m is located in the uncertain middle ground between the European Union and a resurgent Russia. It controls the territory through which most of the EU's Russian and central Asian gas imports pass.

With the current account deficit widening to an estimated 10 per cent this year, external funding evaporating and the currency falling fast, Kiev turned to the IMF to help fund its external financing needs of about $50bn a year. The deal, agreed in November, envisages rebalancing the economy, stabilising the banking system and cutting the deficit. Kiev has pledged reforms including tighter budgetary controls, better bank regulation and floating the hryvnia.

The political impact of the economic crisis is uncertain. In the latest development, Mr Yushchenko has been forced to back off from an attempt to attack Ms Tymoshenko, his former Orange Revolution ally. He called early elections but postponed the plan amid moves by his followers to re-form a coalition with Ms Tymoshenko. They announced an agreement earlier this month.

Still, tension will likely remain until the end of next year, when voters will choose between Mr Yushchenko, Ms Tymoshenko and Mr Yanukovich in the first presidential elections since the 2004 poll.

The main beneficiary of the turmoil is Russia. Moscow wants Ukraine to demonstrate that its post-Orange Revolution democracy is a failure in order to reduce the risk of similar upheaval in Russia. Russia also opposes Mr Yushchenko's pro-western policies, especially his pursuit of Nato membership.

Moscow's intervention in Georgia and recognition of the independence of

Abkhazia and South Ossetia have further raised tensions.

It is again increasing pressure over gas supplies, with negotiations over next year's contract in full flow.

Given the threat of early polls and economic crisis, the last thing Ukraine needs this winter is a gas war. But the prospect of going into recession with a huge rise in gas prices is equally dangerous. Even by Kiev's standards, these are difficult times.

Eurasia Daily Monitor

December 17, 2008

Russian Dezyinformatsia Campaign against the Orange Coalition

On December 9 it was announced that a larger orange coalition had been agreed upon in Ukraine. It was formally registered on December 16. The news came as a surprise, as it had been widely assumed that Prime Minister Yulia Tymoshenko’s bloc (BYuT) was close to reaching a coalition deal with its arch enemy, the Party of Regions (PRU). Although unpalatable three months ago when Ukraine’s political crisis began after the orange coalition collapsed, BYuT described the move as a short-term “coalition of national unity.” The BYuT, pointing to other countries rallying around to defend their national interests, considered it a marriage of convenience to cope with the global financial crisis.

The stumbling block for the formation of the coalition of national unity was Regions’ insistence on support for constitutional reforms that would transform Ukraine into a full-blown parliamentary republic. Regions, as in 2003 and 2004, when it supported the same reforms with other pro-Kuchma forces, supports the election of the president by parliament, because they fear defeat in the forthcoming presidential elections. In 2004 they lost to Viktor Yushchenko, and they are afraid they will lose to Tymoshenko in December 2009.

The BYuT does not support the election of the president by parliament. The consensus is to maintain the 2006 constitutional reforms that transformed Ukraine into a semi-parliamentary republic. Yushchenko is in a minority in backing a return to the presidential constitution.

The larger orange coalition is the third attempt to establish an orange alliance following Viktor Yushchenko’s election in January 2005. The first lasted nine months and collapsed in September of that year, after the president dismissed the prime minister, as he was still able to under the 1996 constitution.

The second orange coalition lasted 11 months, from November 2007 to September 2008. It disintegrated after the president’s faction, Our Ukraine-Peoples Self Defense (OU-PSD), withdrew on September 3.

The weak components of the three orange coalitions were first, Yushchenko’s antipathy toward Tymoshenko, which overrides other considerations; and secondly, deep internal divisions within the OU-PSD (Korrespondent, December 6, Fokus, December 12). Our Ukraine has always been undecided, like the president, about whether to establish an orange coalition with the BYuT or a grand coalition with the PRU.

These deep divisions were evident in September and again this month. Four months ago the OU-PSD voted by a bare majority (39 of 72 deputies) to withdraw from the orange coalition. This month it voted to join a larger orange coalition with the BYuT and the centrist Volodymyr Lytvyn bloc by a similarly slim majority of 37 deputies (the list is re-published in Zerkalo Nedeli/Tyzhnia, December 13-19).

Lytvyn’s election as speaker was only made possible by the 27-member Communist Party faction, which supported the vote (www.pravda.com.ua, December 9-10). Only 40 of the 72 OU-PSD deputies supported his election. The larger orange coalition cannot remain stable if it has to rely on the votes of the Communists, who would never support many of the anti-crisis measures that Ukraine is being forced to adopt as part of the IMF stand-by loan negotiated in October.

Of the nine parties in the OU-PSD, five did not support the OU-PSD’s withdrawal in September, and this month six supported joining the larger orange coalition. It is interesting how many of the deputies have fallen out with Yushchenko. Only 30 of the 72 OU-PSD deputies attended a meeting with the president on December 15.

The president does not favor the larger orange coalition and holds out hope for a technocratic government (www.president.gov.ua, December 15); but this is unrealistic in a parliamentary democracy, as the position of prime minister will always go to the leader of a political party.

After much criticism from abroad and within Ukraine, Yushchenko has decided not to hold early elections. Dealing with the global crisis is now the priority. Early elections would have been the only way to remove Tymoshenko, even though this was a dangerous tactic, since the president’s planned “Viktor Yushchenko bloc” only has about 3 to 4 percent support. Dealing with the economic crisis will be impossible if parliament remains unstable and the president continues to attempt to undermine the new coalition.

This domestic instability continues to give Russia opportunities to destabilize Ukraine. According to information given to The Jamestown Foundation, Russian intelligence hacked into the presidential secretariat during the invasion of Georgia creating a sense of paranoia among the president’s staff. An analytical wing was compromised and its staff, after being accused of “working for Russia,” was released.

Russia has also returned to the old KGB dezynformatsiya tactics. Stories were planted in the provincial Ukrainian media that the coalition was created “with the support of Moscow.” These stories were then reprinted by the main Kyiv media.

The Russian threat is real, as can be seen from the hacking of the presidential secretariat and support for Russian nationalists and separatists; but the paranoia of Yushchenko and his staff about “Russian conspiracies” is exaggerated. Both the proposed coalition of national unity and the larger orange coalition have been accused of being in the “pay of the Kremlin,” just as unfounded accusations of “treason” were leveled against Tymoshenko in August. The prosecutor’s office declined to institute criminal charges after studying the 300-page “testimony” prepared by the Security Service (SBU) on the orders of the presidential secretariat. These accusations have been aimed at influencing western Ukrainians, but opinion polls and focus groups have determined that the public has not been duped by such crude propaganda, a senior BYuT official told The Jamestown Foundation. Yushchenko had hoped to attract patriotic voters away from BYuT ahead of the upcoming presidential elections.

The third (larger) orange coalition suffers from the same problem as its two predecessors; namely, presidential antipathy and internal disunity within the pro-presidential Our Ukraine. The third orange coalition also faces two additional new threats: the global crisis and a bellicose Russia.

—Taras Kuzio






-------------- next part --------------
A non-text attachment was scrubbed...
Name: not available
Type: application/ms-tnef
Size: 21591 bytes
Desc: not available
URL: <http://clevelanduzo.org/pipermail/uzonews_clevelanduzo.org/attachments/20081217/634818d1/attachment.bin>