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!

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.

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.

Presidential elections: interim reflections

Elections were fair and free. There were not many mechanisms for fraud in the electoral law this time, because both camps of the front runners were not sure that they can exert enough influence to control these mechanisms to their own benefit.

Big surprise was the amount of votes that a relatively "new" face of Sergei Tigipko won - 13%. Former NBU Head and ex-Vice-Prime Minister refuses to ask his voters to support one of the candidates, making a bet on their support during local elections in May 2010 (perhaps coinciding with early parliamentary elections). However, his refusal to support other candidates may be due to his electoral base being relatively new. That is it may not be likely to follow Tigipko's call to support one of the front-runners, but will only deem Mr. Tigipko to be a technical candidate thus reducing trust in him. That in turn can diminish his future May success on local elections.

Certainly, Ms Tymoshenko, one of the front-runners, who loses about 10% to Mr Yanukovich, is in a difficult position. Her chances of victory are slim. One of the interesting scenarios for her would be to step down from electoral battle and to ask her supporters to vote for Mr. Tigipko, thus making him a winner. That would make Tigipko a president, remove Mr Yanukovich from the playing field as well as preserve Yulia Tymoshenko as a Prime Minister of the country - a post that might be prefereable to weak presidential office.  That scenario is just one of the many and is not very likely, but... a really interesting one.

Second round of elections is expected on February 7 with a new president stepping into the office by March 29 should everything go on schedule. It is interesting to note lack of published polls predicting who the victor of the second round may be under different scenarios and what turnout to expect.

Gas distribution networks - civil gas war

Instead of having a usual winter gas war in Russia Ukrainian authorities decided to move the gas war to domestic terrain this year. The idea is that the state wishes to take control over the gas distribution networks previously rented out by private gas distribution companies - oblgases. January 1, 2010 rent agreements become void and the state decided that it does not want to prolong these agreements that easy. Temporary contracts may be signed, but there is no talk about long term contracts so far. Needless to say that the private owners of the distribution companies are getting the value of their companies diminishing to zero dollars. The big fight between the state and owners is ready to begin.

The management of the gas distribution networks is to be accumulated under the roof of Naftogaz - state monopolist in the gas sector. After that the state will have a second wave of privatization in the gas distribution sector giving long-term management contracts to new firms, or may be will condescend to giving these contracts to good old owners of oblgas enterprises, but on entirely new conditions. Naftogazmerezhi, an enterprise that will now manage all state gas distribution networks, is ready to start a long fight or getting all the networks under its control, with litigation if necessary.

Businessmen like Mr. Firtash, oligarch mainly known for owning intermediaries in Ukraine-Russia trade, may be pushed out of the distribution market. Instead Gazprom is likely to enter, perhaps through new chain of intermediaries. Certainly, the result of the civil gas war in Ukraine will be fully determined by who is going to be in power in Ukraine after presidential elections. Should Yulia Tymoshenko win it is most likley that the state will win the control over the distribution networks and Gazprom is likely to enter the market. In case of Viktor Yanukovich unlikely victory status quo in the industry is likely to be preserved.

Economic agendas from Presidential campaign 2010

Ukrainian Center for Independent Political Research publishes a 16-page research into the economic programs of the presidential candidates in the election-2010. The main three conclusions of the research are: 1) There is no correlation between actions of the candidates and their programs; 2) Candidates are addressing voters with the same promises as they did before without risking losing them; 3) Programs can contain ideologically contradictory messages, which shows willingness of the candidates to increase their electoral support.

In a nutshel, political programs during elections in Ukraine remain a formality.

For those interested in a full research, here is the link to a pdf documen in Ukrainian language.