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

[Deychak, Orest]

Associated Press

EU Ukraine Gas; Ukrainian security agents raid Naftogaz offices as part of criminal probe 

By MARIA DANILOVA 

Associated Press Writer

4 March 2009

09:45

KIEV, Ukraine (AP) - Masked, armed security agents searched the headquarters of Ukraine's natural gas company Wednesday in a raid that the firm said threatened a deal with Russia over the shipment of gas supplies to Europe.

The national security service is controlled by President Viktor Yushchenko. The gas firm, Naftogaz, answers to Prime Minister Yulia Tymoshenko. The two leaders are locked in a political battle that has impeded an effective response to the financial crisis in Ukraine, one of the worst performing economies in Europe.

Serhiy Davydenko, head of Naftogaz's legal department, said the national security service agents were seeking original contracts from a Jan. 19 deal with Russia's gas company.

The deal ended a two-week cutoff of Russian gas that severely reduced supplies throughout Europe after Russia accused Ukraine of siphoning off gas. Most of the gas that Russia sells to Europe transits Ukraine.

Davydenko insisted that the possible seizure of documents would not lead to new disruptions in Russian gas supplies for Ukraine and Europe. But he said a local law requires the company to posses the original contracts in order to function.

Naftogaz must pay for February gas consumption by March 7. The company says it has collected the necessary funds, despite huge financial problems. Gazprom <javascript:void(0);>  said that it was concerned about the events at Naftogaz and hoped they would not derail payments.

Marina Ostapenko, a spokeswoman for the national security service, or SBU, told The Associated Press that the raid was connected to a criminal investigation launched this week into the alleged diversion of some 7.4 billion hryvna ($900 million) in Russian gas by officials at Naftogaz.

The SBU's scond-in-command, Valery Khoroshovsky, told parliament Wednesday that the officials had improperly taken gas that Gazprom <javascript:void(0);>  had sold to the RosUkrenergo company in recent years.

RosUkrEnergo <javascript:void(0);>  was an intermediary involved in Russia's sale of gas to Ukraine. It was eliminated this year as part of the January deal between Russia and Ukraine.

Yushchenko has been accused by political opponents of maintaining improper ties to RosUkrEnergo <javascript:void(0);> , which he has consistently denied.

Naftogaz spokesman Valentyn Zemlyansky said there had been no illegal actions by company officials.

Yushchenko and Tymoshenko joined forced this week to lobby for a $16.4 emergency loan from the International Monetary Fund to rescue a devastated economy, but the unity ended there.

In an interview with the French newspaper Le Monde published Wednesday, Tymoshenko called for early presidential elections and indicated she would run and win. She said that her struggle with Yushchenko will end "not in my destruction but in his political suicide."

Financial Times

Editorial

Kiev on the brink

Published: March 2 2009 

It would be comforting to think that Ukraine’s warring leaders have finally decided the country’s economic crisis matters more than their own political ambitions.

But do not bet on it. While their weekend pledge to co-operate with the International Monetary Fund is welcome, President Viktor Yushchenko and Yulia Tymoshenko, his prime minister and rival, must show they will fulfil their pledge.

With the economy plunging deep into recession, banks in serious need of refinancing and foreign partners running short of patience, Kiev has little time to avoid financial collapse. Its divided leaders must accept that if they continue putting top priority on the forthcoming presidential poll there may soon be little left to preside over.

Ukraine urgently needs to revive the stalled $16.5bn IMF rescue programme that was halted after an initial $4.5bn disbursement. The IMF has wisely responded to rapid economic decline by dropping its demand for a maximum 2009 budget deficit of 1 per cent of gross domestic product and signalling it would accept 3 per cent – as long as Kiev then sticks to this figure and raises extra funds from other donors. This will still be difficult, with the fund now expecting GDP to fall 6 per cent, compared with a forecast late last year of 0.4 per cent growth.

Kiev must try to implement the plan, despite the political manoeuvring. The IMF’s programme is not only vital in itself – it is also the key to securing other support from donors, including the World Bank, and from private sources, including foreign banks preparing to recapitalise local subsidiaries. Without the programme, Ukraine risks the ruinous collapse of its banks.

It is impossible to know how much extra support Kiev may need until this programme is fully in place. Much depends on market confidence. But if necessary the IMF should be prepared to increase its backing. Its member governments must recognise that to meet the needs of Ukraine and other hard-pressed states, they must accept the fund’s request for new resources to boost its war chest to $500bn.

With the European Union failing at the weekend to agree to a region-wide financial support plan for its own east European members, it is pointless expecting the EU to dig deep for Ukraine. But Brussels must increase its general backing by accelerating free trade and visa facilitation deals. It must also acknowledge that nothing would be of greater aid to Ukraine today than a hint of future EU membership. However distant it might be, accession would give Kiev the political anchor its leaders desperately need.

Financial Times

Risk of unrest grows as Ukraine ills worsen

By Stefan Wagstyl and Roman Olearchyk 

Published: March 3 2009 

Olexander Pavlenko, a young computer programmer, is one of tens of thousands of Ukrainians who cannot get their money out of the bank.

He stood in line in Kiev at Nadra Bank and Ukrprombank, two big troubled banks, planning to withdraw more than $10,000 (€7,950, £7,125). But like many others, he was told the cash was not available.

"I stood in line a couple times with other bank clients who were protesting, crying and screaming. But the bank told me: 'Sorry, we simply don't have the money now and can't help you.' "

With about nine banks now under the central bank's special control, Ukrainians are increasingly worried. Even those with their money in apparently solid banks, including those controlled by west European banking groups, are concerned because the central bank has banned the early redemption of term deposits, the most popular form of saving in Ukraine.

Altogether, hryvnia bank deposits have dropped 20 per cent since September and those in foreign currency 10 per cent. "This is very serious," said Olexander Suhonyako, president of the Association of Ukrainian Banks.

The growing discontent among bank clients is matched by other signs of public anger at the impact of the global crisis - and at the seeming inability of the country's divided leaders to respond effectively.

Recent weeks have seen protests by truck drivers complaining about taxes and the dramatic decline of the hryvnia, which has complicated the replayment of foreign currency vehicle loans.

Meanwhile, the owners of street kiosks in Kiev successfully demonstrated against the city's plans to take over their stalls.

But with demonstrations drawing only up to 5,000 people, the authorities are confident there is no serious threat to stability.

They say Ukraine is remarkably calm given the country's economic problems. Gross domestic product growth is forecast to contract 5-10 per cent in 2009, while unemployment is rising and non-payment of wages is becoming more common.

But with political leaders focused on the forthcoming presidential elections due before the end of the year, some observers fear that the protests will become bigger.

Oleksiy Haran, a political science professor at Kiev's Mohyla University, says: "If [the economic situation] worsens, if more banks run into trouble, and if more layoffs pile up, then I would expect large crowds to materialise. This will be dangerous for a country that is struggling already to deal with the economic crisis."

There seems to be no end to the disputes between Viktor Yushchenko, president, and Yulia Tymoshenko, his prime minister.

Much now depends on the implementation of the $16.5bn package assembled by the International Monetary Fund, including money for bank refinancing. After disbursing $4.5bn last autumn, the IMF suspended further loans after a policy disagreement with Kiev.

But Mr Yushchenko and Ms Tymoshenko pledged at the weekend to co-operate with each other and the IMF on implementing reforms. Meanwhile, the IMF agreed to relax its desired deficit target from less than 1 per cent of GDP to about 3 per cent, in the light of the deepening recession.

Co-operating with the IMF will allow Ukraine not only to secure loans but also support from other international institutions including the World Bank and multinational banks, which have pledged to back their local subsidiaries.

Yesterday, Austria's Raiffeisen International promised to support Aval, its Ukrainian affiliate.

Hryhoriy Nemyria, deputy prime minister, insists Ukraine "is not a basket case". Ceyla Pazabasioglu, the IMF's Ukraine mission chief, agrees, saying its difficulties are not "insurmountable". But investors are not so sure. Ukraine's credit default swap rate - a risk measure - stands at about 3,700, compared with about 1,000 for Latvia and 560 for Hungary.

Every week seems to bring a new crisis - the next could come this weekend, when Kiev is due to pay a $400m bill to Gazprom, the Russian gas monopoly.

  

Eurasia Daily Monitor

Yushchenko, Tymoshenko Pledge Reforms in Letter to IMF

Ukrainian President Viktor Yushchenko and Prime Minister Yulia Tymoshenko have managed to set their differences aside and agree on a reform package in an effort to save the economy from imminent collapse. Yushchenko and Tymoshenko agreed on March 2 on the content of a letter of intent to the IMF signaling their readiness to take measures in the economy to qualify for the continuation of IMF financing in the framework of a $16.4 billion standby loan. Ukraine badly needs IMF money in order to avoid a default on its international obligations. The plan approved by Yushchenko and Tymoshenko may be blocked, however, by the opposition Party of Regions (PRU), which disagrees with several key provisions of the letter.

The IMF approved the standby loan for Ukraine last November. Its first $4.5 billion tranche arrived promptly for the National Bank (NBU) to start refinancing banks, several of which were about to collapse. Tymoshenko, however, intervened in the process. She told the NBU to coordinate refinancing with her cabinet, suspecting that banks were using the money for currency speculation; and she orchestrated a no-confidence vote in NBU chief and Yushchenko ally Volodymyr Stelmakh (see EDM, January 30). Tymoshenko also refused to revise the 2009 state budget, which both Yushchenko and the IMF viewed as too optimistic. Finance Minister Viktor Pynzenyk, who had refused to sign the budget, resigned in protest against what he described as the domination of politics over professionalism in the government (ICTV, February 28). Eventually, the IMF postponed the allocation of the loan's $1.845 billion second tranche, which Ukraine expected on February 15. The IMF mission left Kyiv.

This was the last thing that an economy teetering on the brink of collapse needed. Ukraine has been the East European country most severely affected by the crisis. The national currency lost some 50 percent of its value from September 2008 to February. In January alone, inflation reached 2.9 percent, real wages dropped 12 percent, industrial output shrank 34.1 percent, and GDP contracted by some 20 percent compared with the previous year after almost a decade of steady growth that continued until last fall. The lack of unity between Yushchenko and Tymoshenko had been one of the reasons why Ukraine became one of the weakest links of the global economy in the face of the crisis. It is hard to see how Ukraine can survive without more international assistance, but complications with the IMF have been a very bad signal for all prospective lenders and investors.

The IMF has been reluctant to resume funding in the absence of coordinated efforts inside the country, so it came up with a condition that Yushchenko and Tymoshenko should sign a letter of intent pledging such cooperation. Yushchenko initially refused to sign any letters jointly with Tymoshenko, insisting that she should unconditionally cut the budget deficit from 3 percent to 1 percent as requested by the IMF (Ukrainska Pravda, February 23); but the IMF made it clear that a joint letter was an important condition for resuming cooperation. At the same time, it agreed that the budget deficit could be higher than 1 percent if Ukraine managed to borrow more abroad. The IMF also said that the NBU's efforts to stabilize the banking sector should not be hampered by political interference (www.imf.org, February 27).

Yushchenko announced on February 27 that he had agreed on the following joint steps with Tymoshenko and parliament speaker Volodymyr Lytvyn: to draft a declaration pledging readiness to tackle the economic crisis jointly; to agree on a joint position on cooperation with the IMF; and to come up with a joint anti-crisis plan (UNIAN, February 27). Tymoshenko agreed not to insist on Stelmakh's dismissal (Ekonomicheskie Izvestia, March 2).

Details of the agreement were finalized on March 2. Both sides made further concessions. Yushchenko agreed that the budget would be revised in April and May rather than immediately. Tymoshenko agreed to increase the price of gas for the public. She had opposed the step, apparently fearing it would make her less popular as a presidential candidate in 2010. They also agreed to promise the IMF to launch a pension reform, finance the budget deficit from external sources and higher taxes rather than by money emission, and to stabilize the national currency without significant intervention from the NBU so that the forex reserve would not be depleted (Segodnya, March 3). "Ukraine will without a doubt procure the second tranche from the IMF," Tymoshenko said, summing up the agreements. IMF Managing Director Dominique Strauss-Kahn told Yushchenko by phone that the chances for securing the second tranche would now be high (UNIAN, March 2).

Even if Tymoshenko and Yushchenko have resolved all their differences, the action plan promised to the IMF may be blocked in parliament, where the coalition that backs Tymoshenko does not control a majority. Disagreements have emerged even within the coalition as Lytvyn, whose party is the Tymoshenko bloc's junior partner, has been reluctant to sign the letter to the IMF. The opposition vehemently objects to the plan. The Communists are against any accords with the IMF in principle, and the PRU indicated that it would oppose higher taxes, a higher gas price, and a pension reform that would raise the pension age from the current 60 years for men and 55 years for women (Ukrainska Pravda, March 2).

—Pavel Korduban

 

 

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