Yanukovych has started to act

New president of Ukraine Mr Yanukovych has started to act and first he ordered a research or better say an audit of state budget expenditures as well as disbursements from the IMF loan facility. The audit order was given to a consortium of State Prosecutor and the Accounting chamber. President also complained that exporters get their VAT on an ad hoc basis and that the prosecutor should also look into that as well as into all the state officials who do not complain to the law of Ukraine.

All this is to create pressure on Julia Tymoshenko who is still a Prime Minister and refuses to quit. Verkhovna Rada will hold a vote of no-confidence on the governmnet on March 2, which is likely to be successful. So far Tymoshenko has reacted only through convening an extraordinary meeting of the Cabinet scheduled for March 1.

New president was also outraged by the tax administration's idea that the taxes could be paid by firms "voluntarily" 3 months in advance of the due date. Such a method is used by tax authority to manipulate with the cash flow to the budget in order to avoid state coffers getting sort of empty. Indeed, this method shold be avoided if Ukraine is to speak of restoring any kind of fiscal discipline.

Looks like until Tymoshenko is still in CabMin the State Prosecutor Medved'ko will be new president's de-facto both Minister of Economy and of Finance.

IMF Mission will come to Ukraine April 7? (Update)

Technical IMF Mission will come to Ukraine April 7 as the press office of the Ministry of Finance reports. The mission will be busy with drafting a new memorandum with the new government of Ukraine and prepare the grounds for the IMF mission to come to the country for negotiations.

UPD. However there were news on TV that the IMF mission will not come to town on April 7 as the Ministry of Finance has said that it is too early to discuss the IMF missions to Kyiv.

Due to Russian investors IUD gets further deferral of debt repayment

Ukrainian corporation Industrial Union of Donbass (IUD) whose controlling stake was recently bought by consortium of investors managed to persuade its creditors to allow it to pay only interest on its debt of USD 3.3 bn until March 2010. Such an agreement was in place till the end of the 2009, however, former owner of the controlling stake Sergei Taruta could not manage to persuade creditors to prolong the agreement. It is said that the new agreement with creditors was mainly achieved due to Russian businessment that enter into the investment consortium that owns controlling stake in IUD

IMF now thinks freedom of capital is not such a good thing (incl. for Ukraine)

WASHINGTON—International Monetary Fund economists, reversing the fund's past opposition to capital controls, urged developing nations to consider using taxes and regulation to moderate vast inflows of capitalso they don't produce asset bubbles and other financial calamities. It said emerging markets with controls in place had fared better than others in the global downturn.

The recommendation is the IMF's firmest embrace of capital controls and a reversal of advice it gave developing nations just three years ago. The IMF has long championed the free flow of capital, as a corollary to the free flow of trade, to help developing countries prosper. But the global financial crisis has prompted the fund to rethink long-held beliefs. It recently suggested the world might be better off with a higher level of inflation than central bankers now are targeting.

New regional investment and trade facilitaition project is open for Ukraine

EAST-INVEST is a new regional investment and trade facilitation project covering the period from 2010 to 2013, and the countries of Ukraine, Belarus, Moldova, Armenia, Azerbaijan, and Georgia. EAST-INVEST will contribute to the economic development of the Eastern Neighbourhood region and to the improvement of its business environment within the context of developing networking between EU and Eastern Neighbourhood Region public and private organisations.

Reference: EuropeAid/129289/C/ACT/ESU

Call for Proposals has been launched. Deadline for submission of applications: March 4, 2010

For full details about this call for proposals please consult the website of EuropeAid: https://webgate.ec.europa.eu/europeaid/online-services/index.cfm?do=publi.welcome&nbPubliList=15&orderby=upd&orderbyad=Desc&searchtype=RS&aofr=129289

Yanukovych - Uncovered

Today I have presented the analytical piece authored by me and my colleague, which analyzes in detail Viktor Yanukovych's possible future steps in Ukriane.

Have a look!

Structure of Ukraine's debts

The Y axis - mln USD
Blue - Corporate debt
Orange - Sovereign debt
Greenish - Banks
Source

Kiev real estate at below the market rate prices

Real estate agents started to not a larger than zero number of deals with luxury property in Kiev and its suburbs. The 750 sq. m. house with a pool and 35 sotkas of land was sold at $400,000 instead of $1 mln, which was the initial asking price, with a single condition that the money are paid in cash in 2 weeks.There were about 10-15 deals of that sort in the last several weeks. Real estate agents tie this to the presidential elections, saying that some businessmen are shedding property to help their business withstand the power change or may be to leave the country.

In Janurary 2010 there were about 200 deals with real estate registered on the market of which 10% with luxury properties. Therefore the trend of shedding the luxury property in exchange for fast cash may seriously drop the prices in the segment.

Ukraine's vodka producer Nemiroff to be sold to CEDC?

Despite the higher than expected downfall of Ukraine's economy in Q4 (7% instead of predicted 2-4%) things are not so bad in the "vodka" industry.

Central European Distribution Corporation (CEDC) representatives tell that CEDC is interested in buying 70-80% of Ukraine's vodka producer Nemiroff. Though Nemiroff representatives openly decline that the company is going to be sold there are rumors of pre-sale activities within it.

Earlier several beverage companies received investment memorandum from ING on the wish of current Nemiroff owners to sell the business.

Nemiroff is the third largest vodka seller in the world.

Trade deficit contracted by 9.6 times in 2009

Ukraine's trade deficit decreased by 9.6 times in 2009 to $1 bn 380.7 mln against $13 bn 307.6 mln in 2008. Negative balance of trade in goods in 2009 was $5 bn 732.7 mln, and positive balance of trade in services was $4 bn 352 mln against $18 bn 580.9 mln and $5 bn 273.3 mln respectively in 2008.

Q4 2009 GDP of Ukraine is down 7%,

GDP of Ukraine in fourth quarter of 2009 in comparison to the same period in 2008 was down 7% in constant prices of 2007 (preliminary figures of Ukrainian Statistics Committee). 

Earlier president Victor Yushchenko has said that GDP was down 15% in 2009. 

In Q1-Q3 decreases in GDP were 20.3%, 17.8% и 15.9% respectively.

Freight transit through Ukraine has grown in 2009 due to pipelines

	Freight transported through Ukraine in 2009, thousands of tons	In % to 2008
Freight transit overall	337000.08	103.6
including
Rail	63780.00	68.3
Road	3394.74	69.2
Sea	1937.16	55.6
River	0.12	02
Air	1.17	76.1
Pipelines	267811.46	119.8
Other	75.43	71.5

Ukrainian banks to recover soon?

Oxford Business Group undertook a study of a Ukrainian banking sector. Here are the conclusions:

Officials are hoping that banks will start opening the taps soon, and are planning to take some steps to encourage them to do so. On January 19, Valeriy Lytvytsky, the head of the group of advisors to the governor of the NBU, said it would be appropriate for the reserve to accelerate the adoption of a resolution intended to boost the credit activity of commercial banks.

Though details of how the NBU is to prompt banks to return to the loan market are lacking, predictions that the economy should move out of recession in the coming months and post modest growth by the end of 2010 may spark some interest amongst Ukraine’s banks to resume lending.

.............

While it will take time for Ukraine’s banks to regain the confidence to re-enter the loan market, the worst appears to be over for the sector, with some underperformers winnowed out and the remaining players potentially made stronger by the experience.

Moscow or Brussels - artificial dilemma

As Ukraine is prepared to meet its new president experts and diplomats chat deciding where Mr Yanukovich, the most likely candidate, will go for the first international visit. Certainly, the most likely win destinations are Brussels and Moscow. Previous president Yushchenko went first to Moscow to turn Ukrainian-Russian relations in a 5 year confrontation and misunderstanding. Some say that Yanukovich will go first to Brussels. To do the same to Ukraine-EU relations? We think that it is not that important where the president will go first. It will be rather important what follows. However, we would like the new president to consider an alternative destination to the Moscow-Brussels axis.

Just consider Ukraine's neighbours Moldova and Belarus and their recent successes with Beijing. China last July signed a memorandum of understanding to lend Moldova $1 billion -- equal to a tenth of the east European country's gross domestic product, and easily the biggest loan it will have received from anywhere. Last June, it agreed to invest more than $1 billion to build power plants and roads in Tajikistan, an impoverished ex-Soviet state with limited natural resources. In March, China's central bank agreed a three-year currency swap worth 20 billion yuan ($2.93 billion) with another former Soviet republic, Belarus.

Ukrainian banking sector registers losses in 2009

In 2009 Ukrainian banks has lost UAH 38,45 bn (~$4.76 bn) in comparison to the profits of UAH 7.3 bn (~$0.9 bn) in 2008 Association of Ukrainian Banks reports. 

As of January 1 2010 assets of the banking system were at the level of UAH 880.3 (~$109 bn). During 2009 assets decreased by UAH 45,8 bn. 

The main cause of assets decrease was the decrease in credit operations, which account for 79.2% of all assets. The level of bad loans increased by 3.88 during the last year. 

Liabilities of the banks also decreased by UAH  41.7 and were at the level of UAH 765.1 bn (~ $94.8 bn)

Statutory fund of the banks has increased by 44.6% in 2009 to the level of UAH 36.9 bn (~$4.54 bn). Source.

Swedbank declares huge losses due to Ukraine's branch

Sweden's Swedbank has bought TAS-Kommerzbank and TAS-Investbank in Ukraine in 2007 from one of the current presidential candidates Sergiy Tigipko. He as a banker has built these banks for sale and perhaps was too liberal in raising their value too fast.

Swedbank has said that 53.46% of all loans in their Ukrainian branch are bad loans as of the end of the last year. This figure was at the level of 4.97% in the beginning of 2009. Overall Swedbank's losses in 2009 are at the level of $1,46 bn, of which $1,01 bn due to Ukrainian branch, formerly Tigipko's TAS-Kommerzbank and TAS-Investbank

It remains to be seen if Swedbank starts a suit against Mr. Tigipko, who sort of sold them a lemon...

But Swedbank's share fell marginally, by 0.5 percent, to 65.40 kronor ($8.79) on the Stockholm stock exchange.

Interpipe fails to pay on Eurobond coupons

UR has written earlier about Interpipe's problems with its creditors. On February 5 Interpipe's Eurobond owners were waiting for the coupon payment, which have never materialized. The tranche on July 2007 $200 mln Eurobond issue should have amounted to $8.75 mln. Now the repayment of Eurobonds themselves, which is planned for August 2, 2010, is under threat.

It is rumored that most of the Eurobond issue belongs to Interpipe now and that non-payment of the tranche is a method of pressuring other Eurobond owners to agree for debt restructuring, once Interpipe offers it.

S&P does not believe in Ukraine's default in 2010

Rating agency S&P does not believe that Ukraine will default on its sovereign debt in 2010. Representatives of the agency say that political instability in 2010 will delay the pension and energy sector reforms, however, even with significant budgetary pressures Ukraine is going to go through the year default free.

Ukraine's currency reserves decrease

National Bank's currency reserves decreased by 4,6% or by $1,219 bn to the level of $25,286 bn due to the decrease in currency volume held by the NBU. According to the NBU's data its position as of now consists of the foreign currency for $24.273 bn, gold reserves for $949,19 mln., special borrowing rights - $0,063 bn and reserve position in IMF - $0,3 mln.

In 2009 international reserves of the regulator decreased by16% or by $5.038 bn.

Ukraine's 2010 policies: do you guesswork carefully

Ukraine's elections bring a need for those interested in things Ukrainian to find out "Who is Mr. Yanukovich?" as he is the likely winner of the presidential campaign. Provided Ukrainian parties are build around personalities rather than around policies and ideologies it is very hard to understand as of now what specific stance will be taken by the new president on this or that issue. We are going to devote more attention to specific aspect of future economic, foreign and domestic policies to be expected in 2010. As of now - a a factbox from Reuters on what to expect from Ukraine's election front-runners. Read on under the cut.

Slippery ground of forecasts: 10%, 12% or 15% gap?

We're going to share some rumors. It is hard to come by honest sociology in Ukraine in the wake of presidential elections, so we'll present you the assortment of evaluations, if only to check our sources later on for accuracy. According to pro-Tymoshenko's internal sociology the gap between the candidates will be about 10% in favour of Yanukovich, pro-Yanukovich internal data tells of 12% gap, other "trustable surveys" say that the gap may reach 13-15%. 

We assume that there’s significant probability that Tymoshenko will try to delegitimize second election round. The gap of at least 10% makes it difficult for Tymoshenko to fight for the third round, but even if it is scheduled a miracle is needed for Tymoshenko to win.

Short-term risks for Ukrainian economy still remain high due to increased propensity to resort to radical moves by the two major political groups. Examples are the assault on Ukraina printing house (where voting ballots are printed), Party of Region’s attempts to dismiss the head of police loyal to Tymoshenko, and PoR's pressure on Central administrative court.
 

In case of prolonged political standoff there are risks for the National bank of Ukraine and the whole banking system. Deposits outflow is probable, as well as grivna devaluation pressure and sharp rise of prices for certain food products.

At the same time, we do not forecast the situation to get as radical as it was during the 2004 Orange Revolution.

To do list for Ukrainian president

Today FT publishes an article Daunting task ahead of poll winner which briefly highlights the tasks ahead of the new Ukraine's president. As the election day comes closer the thoughts of the public get directed into the "checklists" for the new head of state.

Here is the list according to FT (with minor comments from UR):

1) Renew IMF aid package for Ukraine, which means undertaking two unpopular tasks - cutting budget and increasing gas price. As of now both candidates are uneasy saying what they going to do if elected.

2)  Paying monthly gas bill to Russia.

3) Investment climate improvement. Ukraines business climate is notoriously bad and improving it is a first priority. At least stabilizing politics will greatly help.

4) Reforming pension system.

5) Seek new growth sources to overcome economy's high dependence on export-oriented sectors, such as steel and chemical industries.

6) Improving public services and infrastructure.

7) Fighting corruption.

There is no point in arguing with this list - it is all true. As it was just 5 years ago (take away the IMF program and the gas bill). The trick in Ukraine is not the lack of knowledge of what needs to be done - most of things are well explained in numerous reports - but the ability to implement the necessary actions. To do that the new president will have to work on the foremost issue - making the state machine able to get things done, preferably according to a mid-term plan.

Gas consortium - a topic for the presidential candidates

Julia Tymoshenko has declared that her idea for the development of the Ukrainian gas transit system is radically different from that of Mr. Yanukovich and Mr. Tigipko. Both Yanukovich and Tigipko said that they support the idea of a gas consortium to manage Ukrainian gas transit system. While Yanukovich was less clear about the membership in the consortium Tigipko was more clear: 50% in Ukrainian ownership, 25% in Russian and 25% in European. That kind of consortium according to Tigipko would guarantee that the consortium is stable and guarantees Ukrainian interest.

In the recent Focus on Ukraine note from German Marshall Fund its Senior Fellow Jorg Himmelreich seems to support Mr Tigipko (or vice versa):

But more than this: the EU should think about buying into or leasing stakes in Naftogaz by the European Bank for Reconstruction and Development (EBRD) or other international financial institutions. Such an EU investment touches Ukrainian sensibilities about its sovereignty, because gas pipelines and storage capacities are perceived as assets of Ukraine’s sovereignty. But the EU stakeholdership should also be seen as strengthening Ukraine’s negotiating position with Gazprom. The European Union as a stakeholder could then enforce the transparency of Naftogaz and Ukraine’s energy sector—and that would unblock Ukraine’s political and economic transformation.

 Recipy from GMF is enticing. Indeed the time has shown that Ukraine is unable by itself to untangle the gas knot named Naftogaz. European and Russian participation in the gas consortium would seem to guarantee the bright future of the enterprise. However, Russia is interested in making its gas more competitive and EU also wouldn't mind cheaper gas. These interests make Russia and EU perfect collaborators in taming Ukrainian side.