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March 9th, 2010
Ukraine’s Teetering Pyramid
Its unsustainable governmental debt policies are growing more precarious.
 
Ukraine’s total sovereign debt load in 2004-2006 hovered around $16 billion, and increased to just over 17 billion by the end of 2007. However, over the past 18 months, the Ukrainian authorities resorted to unusually active debt-financing operations in response to severe fiscal pressures. Total state debt (including state-guaranteed quasi-sovereign debt) more than doubled, reaching $37.8 billion by January 2010, a rise of more than 50% over 2009.
Debt Structure
According to the latest data from the Finance Ministry, total debt stood at 301.5 billion hryvnia ($37.7 billion U.S.) in February 2010. About two-thirds of this (65%)–$24.4 billion–is owed to foreign creditors, and $15 billion is owed by the state. State-guaranteed foreign debt amounted to about $9.4 billion, or 25% of the total. As for domestic debt, which has reached the hryvnia equivalent of $11.5 billion, more than 90% of these obligations are due to the issuance of Treasury bills, most of which mature over the next three to eight years.
Debt-to-GDP Ratio
In terms of debt-to-GDP ratio, the accumulation of debt looks even more severe, though this is partly a consequence of the 15% fall in real GDP in 2009. After remaining within the 13%-16% range in 2006-2007 and rising modestly to 20% by end-2008, the debt-to-GDP ratio now stands at 33% (based on recently released nominal 2009 GDP of 913 billion hryvnia, or just over 114 billion dollars). By the same token, Ukraine’s sovereign and quasi-sovereign external debt is currently equal to just over 21% of GDP, an increase from the 15% ratio registered one year ago.
The rapid accumulation of state debt underscores the extent to which Ukraine has become dependent on debt financing amid persistently poor economic performance and political instability. While the country cannot shake off this debt dependence in the near to medium term, maintaining it has proved difficult and costly.
Suspended Multilateral Lending
The suspension of the IMF’s $16.4 billion standby arrangement–due to the government’s failure to ensure compliance with conditionalities–after one year has deprived the government of an opportunity to use at least part of the planned fourth tranche of almost $4 billion to cover the budget deficit.
Treasury Bill Pyramid
In the absence of any new multilateral lending since September 2008, the government had to depend ever more heavily on the chief domestic source of borrowing: Treasury bills. The end result was a 250% increase in the volume of Treasury bills in circulation in 2009, from 29 billion to 71 billion hryvnia. Active sales of these instruments have continued into 2010:
–The January monthly volume of trading in Treasury bills at local exchanges reached a record 1.4 billion hryvnia ($175.4 million), a dramatic increase from January 2009 trading volume of 45 million hryvnia.
–Furthermore, February witnessed a resurgence of foreign investor interest in Treasury bills. The volume purchased by non-residents nearly doubled last month, and now exceeds 1 billion hryvnia.
There is one crucial problem. The phenomenal rise in investor interest stems from their unusually attractive yields–sometimes surpassing 30% in late 2009, and currently averaging around 20%–which the government has kept offering to replace maturing short-term obligations with fresh issues. In essence the government’s debt policies increasingly resemble an unsustainable financial pyramid scheme.
Outlook
Lingering financing woes will all but ensure that any government under newly elected President Viktor Yanukovych will be unable to avoid further large-scale borrowing. However, the emphasis is expected to shift to foreign borrowing, as the end of the presidential election process has improved Ukraine’s prospects for restoring relations with multilateral lenders.
(source: Oxford Analytica)
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March 4th, 2010
The thaw after a long winter has begun and this applies to Ukraine’s political situation. Politics does make for strange bedfellows. As this article states, an alliance between old foes may be just the sort of pragmatic move necessary to get Ukraine moving forward. Investors…like the IMF… are waiting on the sidelines and will pounce when the political situation stabilizes. Indeed, Ukraine could grow 5% or more this year.
Ukraine President May Need Other Orange Foe to Rule
By Daryna Krasnolutska and Kateryna Choursina
March 4 (Bloomberg) – Yulia Tymoshenko’s defeat in Ukraine’s parliament yesterday may push President Viktor Yanukovych to team up with his other Orange Revolution rival as he relies on supporters of his deposed predecessorViktor Yushchenko to form a majority.
Yushchenko’s Our Ukraine Party “is considering the possibility of taking part in creating an effective new coalition which would form the government, with Yushchenko as prime minister,” party leader Vira Ulyanchenko, who was Yushchenko’s chief of staff until Yanukovych ousted him from the presidency, said yesterday.
Yanukovych, whose ability to push legislation through the parliament hinges on his choice of prime minister, may need Our Ukraine to create a stable coalition. Lawmakers have yet to pass a 2010 budget, leaving in limbo a $16.4 billion International Monetary Fund loan needed to help the nation stay afloat. Investors are demanding yields in excess of 20 percent on hryvnia debt to compensate for the perceived risk of holding government bonds.
“Yanukovych secured a victory yesterday” in ousting Tymoshenko but “it will be difficult for his party to put together a majority,” said Kaan Nazli, director at New York- based Medley Global Advisors LLC. Tymoshenko was defeated in a no-confidence vote after some of her and Yushchenko’s followers changed sides and supported the new president.
Stability Is Key
“Negotiating with Our Ukraine and” supporters of Parliament SpeakerVolodymyr “Lytvyn is the most realistic scenario” for Yanukovych’s Party of Regions to pursue, Dragon Capital said in a note to clients.
Stability is key to ensuring Ukraine’s economic survival and investors have punished the country for its political turmoil.
Ukraine’s debt is the third-most expensive to insure in the world after Argentina’s and Venezuela’s, credit default swap spreads show. Ukraine this month paid the highest borrowing costs in six weeks on domestic debt as investors pushed the average yield up to 22.92 percent. The government sold just 150 million hryvnia ($18.8 million) of the 1.4 billion hryvnia offered at auction.
The yield on Ukraine’s dollar-denominated bond due 2016 jumped 15 basis points to 9.14 percent at 9:07 a.m. in Kiev, according to Bloomberg data.
Fickle Support?
While a parliamentary coalition that includes Regions of Ukraine and Our Ukraine would create a solid majority, the rivalry between the two party leaders may undermine any smooth legislative process.
The outlook remains uncertain and Yanukovych may push through amendments on how coalitions can be formed to avoid having a government whose support may be fickle, Dragon said. His Party of Regions yesterday submitted a bill that would allow coalitions to be created based on individual lawmaker affiliations, rather than on blocs of political parties.
“If Regions moves to implement the bill, it would be a big mistake,” said Yuriy Yakymenko, an analyst at the Razumkov Center for Political and Economic Studies in Kiev. “It will undermine the constitution from the inside and rule out any constitutional logic behind forming a majority.”
According to Yakymenko, Yanukovych’s party is using the bill as a “manipulation attempt” to “pressurize opponents in Our Ukraine. I don’t think they realize the negative consequences of this bill.”
Orange Days
Yanukovych’s first bid to be head of state in 2004 was overturned by the courts after millions swept on to the streets in the so-called Orange revolution, claiming the vote was rigged. Yushchenko, backed by Tymoshenko, won the court-ordered re-run.
Yushchenko, who twice made his Orange partner Tymoshenko prime minister during his term, also fell out with her, firing her once, re-appointing her and in October ratifying a deficit- swelling opposition bill that prompted the IMF to suspend its program.
Some commentators say Yushchenko is unlikely to team up with Yanukovych as the partnership would complicate any future attempt to run for president.
“It is not clear why Yushchenko would like the post,” said Nazli. It “is almost certain to require difficult economic decisions and would thus deprive him of the ability to make a political comeback later.”
Elections?
Yanukovych, 59, has 30 days to form a majority in parliament and a further 30 days to appoint a new head of government and get the budget approved. If he fails, early parliamentary elections will be called.
Investors would be quick to reward a stable government, analysts said.
“Capital inflow will be strong as soon as political stability is in,” said Timothy Ash, head of emerging market research at Royal Bank of Scotland Plc in London. “Foreign investors, hedge funds will come to Ukraine as the government domestic debt offers attractive rates, while the country’s economy may expand 5 percent this year.”
With stability as evasive now as before the presidential election, the country may face a difficult economic future.
Ukraine may find it “challenging” to raise funds in financial markets to service its foreign and domestic debt unless a stabilization of the political situation reopens dialogue with the IMF, Danske Bank A/S said in a research note.
“With Yanukovych hamstrung by the presidency’s weak powers and struggling to form and sustain an inclusive government, Ukraine faces more instability and uncertainty,” Nazli said.
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February 25th, 2010
Today a new President was sworn here in Ukraine. With the boom of canons saluting the new leader, and Ukrainians basking in well earned pride at an election process that was more open and fair than in many states neighboring this nation, Ukraine may be poised for an economic boom as well. After years of stalemate, political bickering and economic disaster, Ukraine has an opportunity to move forward and the new President wasted no time signaling his intention to steer a positive course.
New Ukraine President gives right investor signals
KIEV (Reuters) - Ukrainian President Viktor Yanukovich sent positive signals to foreign investors in his inaugural speech on Thursday, but whether the ex-Soviet company manager succeeds in bringing them back remains to be seen.
Yanukovich was sworn in on Thursday after a bitter campaign against his election rival, Prime Minister Yulia Tymoshenko, and faces the tough task of consolidating his power to produce a stable government that can bring back vital IMF lending.
In his first speech as president, he said Ukraine faced “colossal debts, poverty, a collapsing economy, corruption”, and vowed to win the trust of investors.
“What is needed for investors and international financial institutions to renew their trust in Ukraine is securing internal stability, overcoming corruption, restoring clear, and most importantly, constant rules of relations between the state and business,” Yanukovich said.
He said his aim was not to strengthen the state’s role in the economy “but the government’s participation in the creation of effective market mechanisms”.
“I am certain that direct interference by the state in the economy — its manual control — is a road to nowhere,” he said.
Although managing the economy is not the remit of the president, investors hope Yanukovich’s victory ushers in a period of political stability that would allow the government to focus on shoring up the state’s finances and economic growth.
The International Monetary Fund suspended its $16.4 billion bailout at the end of last year in the wake of fierce political rows and broken spending promises. About $10.5 billion has been disbursed to date.
The finance ministry said a technical mission from the IMF is due to arrive in April 7. These missions are usually a prelude to a full-blown visit, after which a decision on resuming lending could be made.
Yanukovich’s Regions party instigated rises in the minimum wage, passed by parliament, that were the last straw for the IMF. The government had already reneged on a promise to raise domestic gas prices, which would have helped the state’s finances.
“(Yanukovich’s) statements point clearly in the direction of more stability, obviously a positive, as this is something that foreign investors have lost sight of in the past years,” said Simon Quijano-Evans of brokerage Chevreux.
The Regions party is now trying to form a new coalition to oust that of Tymoshenko. If it does, and succeeds in forming a new government, talks with the IMF could resume.
“He will have to make some difficult decisions early in his regime, in particular on gas price hikes and reining in pension/wage promises, to bring the IMF program back on track,” said Tim Ash, head of CEEMEA research at Royal Bank of Scotland. “This will be a key short-term test of his willingness to bite the bullet.”
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February 16th, 2010
The election is over and time to move forward. While voter fraud may have been committed (by one side only?), it would be better if the stalemate created by the challenge to the election were set aside for now. The last thing this country needs is another round of court challenges, or additional elections.
Ukraine needs stability and predictability more than anything else. There will be more than enough time later for an opposition to emerge and challenge the government.
Ukraine Investors May Shun First Foreign Debt Sale Since 2007
By Daryna Krasnolutska and Kateryna Choursina
Feb. 16 (Bloomberg) — Ukraine’s first foreign debt sale in almost three years may fail as the political deadlock following the presidential election keeps emergency funds frozen and drains international investor confidence.
The Economy Ministry said in January it plans to sell as much as $1 billion in foreign-currency debt next quarter, its first international sale since June 2007. Ukraine needs to finance a budget deficit of about 13 percent of gross domestic product and cover $500 million in domestic debt coming due in April.
Half a decade after the Orange Revolution, the former Soviet republic doesn’t have enough funds to stay afloat without emergency relief. The International Monetary Fund has shelved its $16.4 billion loan since November after Ukraine’s Cabinet was unable to commit to budget cuts, and the Feb. 7 presidential election has yet to end the political unrest that’s crippled theeconomy.
The Eurobond sale “will only be possible with an IMF program in place,” Oliver Weeks, an economist at Morgan Stanley in London, said in an e-mailed reply to questions. “Without the IMF monitoring or some sign it’s imminent, I don’t think investors will have enough confidence the fiscal position is getting back on a sustainable path to lend at reasonable commercial rates. There is always some price you can borrow at, but I think in this case it would be too high.”
Political Powerplay
President-elect Viktor Yanukovych’s party has said it wants to topple Prime Minister Yulia Timoshenko’s government and is preparing a no-confidence vote this week.
If Yanukovych’s allies succeed, they’ll have about a month before the planned debt sale to form a new Cabinet and agree on budget cuts that the current administration has been unable to pass since October. If it fails to regain IMF favor by April, Ukraine may be without external funds until autumn.
“If Yanukovych can’t get a parliamentary majority to oust Timoshenko, he’ll have to call elections, which might be held in September,” said Andriy Nesteruk, an analyst at Kiev-based Phoenix-Capital investment bank. “If that happens, the IMF won’t return to Ukraine until October.”
Morgan Stanley’s Weeks said that even without a parliamentary election, the IMF program probably won’t be resumed until summer.
“We don’t have money to cover our state budget gap,” Nesteruk said. “We have significant budget problems, the situation is close to catastrophic.”
‘Tight’ Outlook
Ukraine’s debt is the third most expensive in the world to insure after Argentina’s and Venezuela’s, according to credit default swap spreads. The five-year CDS contract rose 6 basis points last week to 977, signaling a heightened perceived credit risk. The yield on the existing Eurobond, which matures in 2016, has risen 17 basis points since the election to 10.452 percent yesterday, the highest since Jan. 6.
“Investors don’t like uncertainty,” Frank Gill, a credit analyst at Standard & Poor’s Ratings Services in London, said in an e-mailed response to questions. “The outlook for financing in 2010 continues to be tight.”
S&P rates Ukraine’s foreign currency debt CCC+, seven levels below investment grade. Moody’s Investors Service ranks Ukraine’s debt B2, five notches below investment grade, while Fitch Ratings grades the country’s credit B-, the sixth-highest junk grade.
“It’s probably not the best time for them to be borrowing,” said Ian McCall, Director of Argo Capital Management Ltd in London, which manages about $500 million in emerging market debt. At the same time, McCall said, with lenders enjoying great leverage, “for us as investors, that can be one of the most interesting times to be lending to a sovereign.”
‘The Other Way’
Before the election, CDS swaps had eased from 1,232 basis points at the beginning of the year to 949 basis points on Jan. 18, one day after the first round of the election that ousted President Viktor Yushchenko.
“The market had rallied back on the expectation of an IMF deal,” said Timothy Ash, head of emerging market research at Royal Bank of Scotland Plc in London. “They will need to clarify the situation with the IMF pretty soon or we could see the market going the other way.” The government won’t be able “to fund the state budget deficit without IMF financing.”
The lack of funds is unlikely to trigger a sovereign default, economists said. Without external financing, the government can cover domestic debt obligations by asking the central bank to print money, though that would fuel inflation. Consumer prices rose an annual 11.1 percent last month, compared with a peak of 31.1 percent in May 2008, according to the State Statistics Committee in Kiev.
Ukraine can also finance its next payment for Russian gas, due on March 7 for February consumption, through a procedure approved by the IMF last year: It deposits Treasury notes at the central bank, the bank converts them into foreign currency from international reserves, and the currency is used to pay for the gas.
‘A Bit Dangerous’
The country can survive until September without IMF help, according to Dmitry Gourov, a Vienna-based economist at UniCredit CAIB AG, a unit of Italy’s biggest bank. “It’s September when the level of reserves would become a bit dangerous,” he said.
Gourov estimates the government would only be able to attract investors to an international bond sale without the IMF program back on track if it offered about 10 percentage points more in interest than investors would be willing to accept with the Fund monitoring the country’s finances.
That rate of interest hasn’t been announced, though Deputy Finance MinisterIhor Umanskyi said on Jan. 27 Ukraine expects to pay a “one-digit” interest rate on the borrowing.
The country’s gross international reserves stood at $25.3 billion at the end of January, according to central bank data.
Ukraine’s economy contracted an annual 7 percent last quarter, the statistics office said yesterday, bringing the average decline last year to about 15 percent.
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February 11th, 2010
Ok…the elections are over…or are they? Seems like they are dragging on and on without a resolution. Of course, nothing moves forward until some clear direction is obvious.
It might be best if the current players took a deep breath and reconsidered their positions. Ukraine is waiting and the world is waiting to loan, invest, and do business with Ukrainians.
Timoshenko’s Cabinet Says Will Refuse to Step Down
By Daryna Krasnolutska and Kateryna Choursina
Feb. 11 (Bloomberg) — Prime MinisterYulia Timoshenko’s government says it won’t step down voluntarily, suggesting Ukraine’s transfer of power after this month’s presidential election won’t be smooth.
“The government will resign only if there is a new coalition in parliament and if that coalition dismisses the existing government,” First Deputy PremierOleksandr Turchynov told reporters after a Cabinet meeting in Kiev today.
Viktor Yanukovych, 59, who beat Timoshenko in the Feb. 7 presidential run-off, has urged his rival to concede defeat, dissolve her government and move aside so he can start putting together a new Cabinet with majority support in the Parliament. A legislative impasse threatens to stall Ukraine’s International Monetary Fund bailout and leave the country short of funds to pay for Russian gas that flows through to Europe.
While Timoshenko, 49, has remained silent since the election, her allies have conceded nothing. Turchynov, who ran her campaign, yesterday asked for a recount in more than 900 polling stations, claiming that “falsification” influenced the election results.
“Timoshenko is not a politician who leaves quietly,” said Ariel Cohen, a senior fellow at the Heritage Foundation in Washington.
Damaged Reputation
“She damaged her reputation as a democratic leader very much and is showing now that she was prepared to only one possibility of herself to win,” said Ivan Tchakarov, an economist at Nomura in London, in phone interview today. “If she resigns, it will be very beneficial for her. She will get applauds from abroad,” Tchakarov said.
The Central Electoral Commission said yesterday it sees grounds for recounting votes in several constituencies, Ukrayinska Pravda reported. The commission has received complaints of vote count violations and in certain constituencies will conduct a recount, the news service said.
Timoshenko has submitted 60 appeals for recounts, Borys Kolesnikov, an ally of Yanukoych, told reporters in Kiev today. So far, 24 appeals have been rejected, he said. Yanukovych still hopes that Timoshenko will resign voluntarily from the post of premier, Kolesnikov said.
The commission is due to publish the official election results on Feb. 17.
No Plan B
Even so, Timoshenko’s room to challenge the election results may be limited, Cohen said, given that the Organization for Security and Cooperation in Europe and the U.S. Embassy in Ukraine have already called the vote democratic. That may lead her to concede the election and focus on trying to maintain her clout in government.
“Her silence means she was sure she would win and she did not have a decent plan B,” Cohen said. “Timoshenko’s hope for the courts to overturn the results is not huge. I do not exclude the possibility that Timoshenko now tries to reach some accord with Yanukovych to keep her post.”
Today’s government meeting in Kiev was the first since the election. While Timoshenko’s agenda was filled with administrative issues, such as spring planting and fire safety, Turchynov’s comment signals the Prime Minister and her allies discussed how to stay in power.
Prolonged Battle
Yanukovych, whose first presidential election victory in 2004 was overturned by the courts, won 48.95 percent of the vote while Timoshenko got 45.47 percent, according to the Central Electoral Commission.
“I officially ask the Prime Minister to resign and move into opposition,” Yanukovych said yesterday on his Web site. “Another political crisis is not needed for the country.”
A prolonged post-election battle may worsen Ukraine’s economic plight and delay the resumption of a $16.4 billion emergency loan from the IMF, adding to pressure on the hryvnia and government bonds. The country needs to adopt the 2010 state budget to resume cooperation with the IMF to stay afloat and pay for natural gas imports.
“The new Cabinet has to audit Ukraine’s financial and economic situation and work out the state budget as soon as possible,” Yanukovych said in his statement. “It also needs to address our creditors, our neighbors and economically developed countries to ask for financial help to combat the economic crisis.”
‘Not Easy’
The need to move forward on those issues may give Timoshenko leverage in any negotiations with her rival over remaining as prime minister, some analysts say. She and her allies have a majority in the parliament and could block the passage of this year’s budget and pass other IMF-imposed laws.
Yanukovych will “have to organize prime ministerial elections and try to have her removed, but it’s not going to be easy,” said Nick Day, London-based chief executive officer of the security and intelligence research group Diligence Inc. in an interview on Feb. 9. “She still has a very strong bloc of support and he doesn’t have an overriding mandate.”
Another analyst, Anastasia Golovach, at Renaissance Capital in Kiev, says Timoshenko may find it more advantageous politically to resign as premier.
“The best way is for her to move into opposition,” Golovach said. “She can just do nothing and just comment on the new government’s actions as they will have a big bunch of problems to deal with. The new Cabinet will have to implement unpopular measures, like to raise natural gas prices for households in order to curb budget spending. So she can criticize them.”
‘Unlikely’
Timoshenko is “unlikely to pull parliament support,” said Ivan Tchakarov. “If she concedes, Ukraine will have the government much sooner,” Tchakarov said.
Investors are watching the political stalemate closely. Ukraine’s government debt is the third-most expensive to insure in the world after Venezuela and Argentina, based on credit default swap prices. The hryvnia has lost 42 percent against the dollar since the beginning of September 2008.
Credit-default swaps linked to Ukrainian government debt jumped to 17.2 percent upfront and 5 percent a year, from 16.8 percent yesterday, according to prices from CMA Datavison in London. That means it costs $1.72 million in advance and $500,000 a year to protect $10 million of the nation’s debt from default for five years. The hryvnia gained 0.44 percent against the dollar to trade at 8.0320 at 14:03 p.m. in Kiev.
Ensure Stability
The central bank is ready to support hryvnia stability if political turmoil hits local financial markets, said First Deputy Governor Anatoliy Shapovalov yesterday.
“Natsionalnyi Bank Ukrainy will ensure stability as the nation is interested in stability on the foreign-exchange market as well as in the banking system in spite of political squabbles among politicians,” Shapovalov told reporters. “We have the resources necessary for intervention” to assist the hryvnia if it becomes volatile, he said.
Golovach at Renaissance Capital says Timoshenko’s maneuvering may be nothing more than posturing and is likely to be in vain.
For Timoshenko to “challenge the results through the courts is not tragic for economy, it is just unpleasant,” Golovach said. “As soon as the IMF sees that a consolidation of power is possible under Yanukovych, they will help Ukraine.”
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February 4th, 2010
Many of my European friends who do business in Russia and Ukraine, often say that the EU does a very poor job in terms of economic relations with both countries. It certainly has not gone unnoticed here in Ukraine. The restrictive visa regime that Ukrainians endure is but one example. The lack of economic support is another. While the article below points the desire by both Presidential candidates and Ukrainian business to expand relations and trade with Europe, it is the EU that is that needs to step up.
If Ukraine were somehow to turn East and become closer economically and politically to Russia, it will be because the EU LOST UKRAINE.
Europe Swaps Places With Russia in Timoshenko Versus Yanukovych
By James M. Gomez and Daryna Krasnolutska
Feb. 4 (Bloomberg) — When Yuri Davydov needed investors to expand his Ukrainian food company, he looked west to the European Union, not east to Russia, even though his VAT Creativ Industrial Groupis in the Russian-speaking part of the country.
“We have good connections with Russia, but we prefer to trade with non-Russian companies,” Davydov said after a Jan. 19 presentation to potential investors in Vienna. “If the European Union removes barriers, we can find a niche.”
His attitude may explain why both contenders in the Feb. 7 runoff presidential election, Viktor Yanukovych and Yulia Timoshenko, have vowed to sign atrade accord with the EU. They favor it even though Yanukovych had Russian backing for his first run in 2004 and Timoshenko accused President Viktor Yushchenko of being too confrontational toward Russia.
The EU is looking more attractive to executives from Ukraine’s eastern industrial centers of Donetsk and Dnipropetrovsk, as well as in Kiev and Lviv farther west. The need to diversify from Russia, Ukraine’s largest single trading partner, has business leaders pushing politicians for easier access to the 27-nation EU. Its market of 449 million people is more than triple the population of Russia.
Opposition leader Yanukovych, 59, topped 18 candidates in the Jan. 17 first-round election with 35 percent support. Prime Minister Timoshenko, 49, took 25 percent, while Yushchenko was eliminated after garnering 5.5 percent. Polling less than two weeks before the vote is prohibited.
Trade Accord
Both finalists say they will repair relations with Russia that deteriorated under Yushchenko, and they question entry into the North Atlantic Treaty Organization. Both plan to work with the International Monetary Fund to unblock $5.8 billion in loan funds that were frozen in November when the parliament failed to adopt a budget or cut spending.
Timoshenko says she wants to abolish the value-added tax, while Yanukovych would cut that tax rate to 17 percent from 20 percent and cut the corporate tax rate to 19 percent in 2011 from 25 percent now.
Both also promise to sign a trade deal this year with the EU. The accord is part of a pledge made by Yushchenko, a former central bank governor, after the 2004 Orange Revolution.
Yanukovych’s presidential bid that year, against Yushchenko, was supported by then-Russian President Vladimir Putin and outgoing Ukrainian PresidentLeonid Kuchma. Kuchma courted Russia and picked Yanukovych, his prime minister at the time, as the candidate to succeed him.
Changing Laws
Talks over the EU trade accord have been stalled for more than a year. European Commission President Jose Barroso said on Dec. 4 that Ukraine has only “partly met” its promises to change laws needed for closer EU ties. The next discussions are set for early March in Brussels.
Ukraine needs more trade: Gross domestic product probably shrank 15 percent in 2009, Yushchenko’s office estimates, as the global financial crisis cut demand for Ukraine’s products, dried up investments and weakened the currency. Exports make up more than 40 percent of GDP.
The accord is intended to ease trade in all goods and services, including energy, and to eliminate a range of tariffs on both sides. The plan would also provide a blueprint for making Ukraine’s regulations on competition, public procurement and customs more transparent, according to the EU’s Web site.
‘European Perspective’
“For Ukraine, it is very important to have a European perspective,” Yanukovych said in an interview on Jan. 21 while campaigning near the Black Sea. “The most important thing is to create a real mechanism for real integration into the EU.”
Timoshenko and Yanukovych were both invited by Ukrainian billionaire Viktor Pinchuk, Kuchma’s son-in-law and a 2004 supporter of Yanukovych, to address investors at a luncheon at the World Economic Forum in Davos via satellite on Jan. 29.
The two also attended the opening of a soccer stadium in Donetsk financed byRinat Akhmetov, Ukraine’s richest man. Grammy-winning singer Beyonceperformed at the August event.
A political leader who wants to support business needs to promote easing trade restrictions to the west, said Jathan Tucker, head of trading at BG Capital investment bank in Kiev.
“Most business leaders lean towards a free trade agreement with the EU,” Tucker said an interview. “It would open up a new market for exports that they could take advantage of.”
The EU restricts the import of agricultural products that don’t meet EU norms, as well as limiting such manufactured goods as steel pipes and imposing tariffs on chemicals and drugs.
Exports to Russia
Exports to the 11-nation Commonwealth of Independent States, which includes Russia, Belarus and Kazakhstan, accounted for 34 percent of Ukraine’s $35.6 billion in international shipments in the first 11 months of last year. Exports to Russia alone totaled 21 percent.
Exports to the EU, including steel, food and chemicals, were 24 percent of the total, the government said Jan. 13.
“Ukraine needs to win western market share, we need to export more,” saidMykola Tolmachov, chief executive officer of TMM Real Estate Development Plc, Ukraine’s largest property developer, in Kiev. “We believe our investors are not in Russia.”
TMM is among Ukrainian companies that have raised money by selling shares in the EU, including in Frankfurt, London and Warsaw, the largest bourse in the EU’s eastern states, rather than in Russia.
Kharkiv-based Sintal Agriculture Plc, which grows grains, raised $13 million in October on the Frankfurt Stock Exchange through a private placement of a 17.2 percent equity stake.
Creativ offered shares on the Frankfurt Stock Exchange in 2007. After falling 75 percent from October 2007 to April 2009, the stock has soared 135 percent since then.
Davydov is CEO of the company, based in Kirovograd, a Russian-speaking city 299 kilometers (185 miles) southeast of Kiev. He was at the ViennaEuromoney magazine conference seeking as much as $50 million to expand and improve production of his cooking-oil products.
His EU market is limited to Italy and Spain because meeting EU standards reduces the products the company can ship there.
“Ukraine has a great possibility to export” to the EU, he said. “Standards are very high and only a small quantity of Ukrainian enterprises are certified.”
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February 2nd, 2010
The agricultural sector in Ukraine is the one of the least sold, under publicized or appreciated investment vehicles in the world today. That will change in the next couple of years as Ukrainians begin to realize the potential of the world’s best growing region.
| Ukraine farm loan plans branded ’science fiction’ |
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The promise by Ukraine’s prime minister to create a bank offering low-interest loans to farmers may turn out to be “science fiction”, UkrAgroConsult has said in a report adding 1m tonnes to its grains forecast.
Yulia Tymoshenko, who is contesting this weekend’s run-off for Ukraine’s presidential elections, on Sunday restated her plans to create an agricultural bank, which would provide farm loans for potentially a decade at interest rates of at most 5%.
“In 2010, we want to create the state-run agrarian bank,” Ms Tymoshenko said.
However, Ukraine’s economic ills, which have forced it to turn to the IMF for help and left its national accounts on the verge of bankruptcy, raise “serious doubts” about the plans, UkrAgroConsult said.
“Creating the bank is the easy bit, but handing out loans to Ukraine’s agricultural class at 5% annual interest is doubtful, extremely doubtful or just plain old science fiction,” the influential analysis group said.
“Particularly as the promise is to grant loans for 7-10 years without collateral. The Ukrainian budget is unlikely to shoulder such an additional burden in the current economic situation.”
Overoptimistic promises?
Agriculture, a key earner of foreign currency and investment, has been a key battleground of the elections, in which the pro-European MsTymoshenko faces Viktor Yanukovich, who is viewed as more Russia leaning.
However, the winner of the February 7 vote is widely seen as likely to need to implement huge cuts to Ukraine’s public spending, whose levels last year prompted the IMF to suspend its support programme.
“Having learnt to live in a democracy, [we] have also learnt to believe little of what’s promised during election campaigns,” UkrAgroConsult, which is based in Kiev, said.
“To implement all the promises would probably require more dollars than China has in its hard currency reserves.”
Forecast Ukraine grain production, 2010-11 (year-on-year change)
Wheat: 18.74m tonnes (-10.0%)
Barley: 11.80m tonnes (+1.7%)
Corn: 10.9m tonnes (+6.9%)
Total: 43.95m tonnes (-3.2%)
Source: UkrAgroConsult
Weak crops
UkrAgroConsult’s comments came as it forecast Ukraine’s grain production this year at 43.95m tonnes, down 3.2%.
Spring plantings of cereal crops would be “somewhat larger than last year at the expense of increased corn areas”, the group said.
However, winter crops were “in their worst condition in the past four years”, after dry autumn planting conditions.
“Spring fertilization of crops will be critical.”
(courtesy of www.agrimoney.com)
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February 1st, 2010
I bet the students at this school in Lviv can teach Westerners a few things about life. Living and working in the one of the most challenging developing nations in the world is an education in itself. When combined with the type of business education the article from Financial Times below highlights, and an emphasis on ethics though real world illustrative case studies, Ukrainian graduates will be prepared for the demands of business in a nation that has a huge untapped potential.
As the 46m-strong population of Ukraine, browbeaten by political and economic crisis, moves towards the final leg of the presidential election, a recently established business school in the country’s western region may help revitalise a cynical business community.
Lviv Business School part of the Ukrainian Catholic University, was set up in 2008, in part with the support of three of the state’s business groups. In a country riddled with corruption, one aspect of LvBS’s mission is to inculcate Ukraine’s managers with an ethical approach to business.
Petrol station operator Galnaftogaz, software development provider Softserve and women’s clothing manufacturer Trottola, are all regional employers in Ukraine hoping to expand their international footprint. They have given their support to the school and are also fielding members of the school’s advisory board.
The companies believe that endemic corruption has hampered Ukraine’s progress. They say that putting their managers through an ethically focused school will not only give their executives a clean bill of health morally, but also makes sound business sense.
With this in mind they approached the rector of UCU and former Harvardacademic Father Borys Gudziak, (above left) with the suggestion of creating the business school to teach both their MBA hopefuls and ranks of middle managers requiring shorter courses. In the 2008/09 academic year, about 1,000 participants from the three companies and the wider community took part in short courses and seminars at LvBS.
“We want businesses to be ethical and managers to be ethical and we want those who control firms to love our land and be patriots,” says Fr Gudziak.
Chief executive of Galnaftogaz’s chain of 300 filling stations, Vitaliy Antonov, says a key factor in LvBS’s creation was the appointment of Sophia Opatska, then director of MBA programmes at Kyiv Mohyla Business School, in Kyiv, to run Galnaftogaz’s corporate university in 2005.
“At that stage . . . we began to understand it would be much more effective for several business organisations to join forces and create a business school,” says Mr Antonov. Ms Opatska has since been appointed chief executive of LvBS.
“LvBS represents . . .a particularly successful synthesis of business and ethics. At the moment, this is what everybody in the business community is interested in,” says Mr Antonov.
As the business community in Ukraine becomes more mature, “it’s no longer enough to just live on your wits; you need a classical education”, says Taras Vervega, business development director at the fast-growing Lviv-based Softserve, which employs 1,200 people. Mr Vervega needs LvBS to train middle managers to run regional offices, and branches in Florida and Manila, in the Philippines.
Trottola, with its 2,000 employees, has similar requirements. The company intends to create more jobs in Ukraine in sectors such as clothing design and marketing.
“The Kyiv Mohyla school is number one in Ukraine, but the fees are too high and not everybody can afford to go there,” says Yaroslav Rushchyshyn, Trottola’s chief executive.
“A business school is not just about an MBA, it’s about training people in the local area and the business mentality in Kyiv is very different from that in western Ukraine. Our focus on ethics differentiates us hugely from the competition.”
Business education is enjoying a surge of popularity in Ukraine, with approximately 30 business schools in the country. However, according to Alex Frishberg, senior partner of Kyiv-based law firm Frishberg & Partners, the most sought after management education is US or English.
Kyiv-based, foreign-owned consulting firms such as Boston Consulting Group, McKinsey and Bain typically retain Ukrainian graduates with Harvard or Yale MBA degrees, he adds.
The LvBS EMBA programme currently has 15 students and is taught by Ukrainian and visiting lecturers, including business specialists from companies such as Kraft Foods and Ernst & Young and academics from Moscow State University and theUniversity of Michigan.
It is the ethical dimension of the school that Fr Gudziak, believes will help senior managers focus on legal and morally acceptable solutions to their problems early in their careers. But he does not expect changes to happen overnight.
“Many people in Ukraine are trying to do something about corruption. But it’s a systemic problem and it’s not easy to change the system,” he says.
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January 28th, 2010
Ukraine Plans to Sell Up to $1 Billion in Bonds Next Quarter
Jan. 28 (Bloomberg) — Ukraine will seek to borrow $500 million to $1 billion by selling Eurobonds as early as next quarter, Economy Minister Bohdan Danylyshyn said, as Europe’s hardest hit economy looks for ways to restructure its debt.
“We have been analyzing the whole debt system,” Danylyshyn said in an interview in Kiev yesterday. “We are in talks with potential participants of the restructuring from the European Union, the U.S. and Japan.” While the country is considering different currencies for the sale, Danylyshyn said he thinks the bonds should be denominated in euros.
The former Soviet state needs to get through a presidential runoff vote on Feb. 7 before turning to markets for financing, Danylyshyn said. Prime Minister and presidential candidate Yulia Timoshenko and her opponent Viktor Yanukovych have both said they’re ready to dispute the outcome of the ballot if they suspect vote rigging. That would prolong the period of political uncertainty that’s left Ukraine’s $16.4 billion International Monetary Fund loan frozen since November.
“The major risk to the economy is the political risk,” Danylyshyn said. Ukraine plans to choose banks to manage the placement in the second half of March, he said.
Ukraine last sold international bonds in June 2007, when it offered investors $500 million in notes at 6.385 percent. The country has $5 billion of foreign-currency bonds outstanding, including 35.1 billion yen ($388 million) of 3.2 percent securities due in December 2010, Bloomberg data show.
The cost to insure against nonpayment by Ukraine using credit-default swaps is the world’s third highest, behind Venezuela and Argentina. Ukraine’s five-year default swaps have dropped to 910 basis points from a record 5,384 basis points in March. This compares to 483 basis points for Latvia and 179 basis points for Russia, Bloomberg data show.
Markets
The extra yield investors demand to own Ukraine debt instead of U.S. Treasuries fell 10 basis points to 7.47 percentage points as of 10:20 a.m. in Kiev, down from a peak of 35.93 percentage points in March, according to JPMorgan Chase & Co.’s EMBI+ Index.
Acting Finance Minister Ihor Umanskyi said yesterday Ukraine is in talks to borrow abroad as early as April, and wants to sell debt that will mature in two to three years and pay a “one-digit” interest rate.
The IMF last month agreed to allow Ukraine access to $2 billion more than originally agreed from its foreign reserves to help the country pay for Russian gas. The concession was made to keep the government liquid through the election without releasing loan funds.
Reserve Floor
Even so, the central bank has signaled it may limit access to reserves, which stood at $26.5 billion at the end of December, as policy makers try to avoid fueling inflation. Consumer prices grew an annual 12.3 percent last month, from 13.6 percent in November, the State Statistics Committee said on Jan. 6.
Danylyshyn said the central bank should agree to print as much as $2.7 billion this year and next to help revive growth and resurrect the economy from 2009’s contraction, which he last month estimated at between 12 percent and 12.5 percent. Output shrank 15.9 percent in the third quarter after declining 17.8 percent in the second and a record 20.3 percent in the first three months of 2009.
“This money should be spent for production, not for consumption and that would allow us to keep inflation under control,” he said. “Inflation is not a problem and there are good chances it will stay below 10 percent this year.”
The winner of the presidential runoff vote will probably keep the current Cabinet in place until the next parliamentary elections, due in 2012, Danylyshyn said.
Cabinet Outlook
“There are no reasons for any talks about the new Cabinet in the near future,” he said. “The Cabinet is backed by the majority in the parliament.”
Gross domestic product will expand between 3 percent and 3.7 percent in 2010, as prices for Ukraine’s key exports such as metals, grains and chemicals recover, Danylyshyn said. If the central bank agrees to print more money to finance industrial projects, the economy will probably grow between 5 percent and 6 percent this year and next and 7 percent in 2012, he said.
“We have passed the peak of the crisis,” Danylyshyn said.
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January 15th, 2010
Joseph Sywenkyj for The New York Times
Hundreds gathered Tuesday at a rally in Dneprodzerzhinsk, Ukraine, for Viktor F. Yanukovich, who lost power during the Orange Revolution.
Published: January 14, 2010
DNEPRODZERZHINSK, Ukraine — Viktor F. Yanukovich was swept aside five years ago in the Orange Revolution, derided as a barrel-chested party boss and Kremlin stooge whose career was over asUkraine embraced the West.
Viktor F. Yanukovich is leading in polls for Sunday’s election.
Now, though, Mr. Yanukovich is close to exacting his revenge, leading in opinion polls in advance of a presidential election on Sunday and drawing large crowds like the one that gathered here this week in a light snowfall in this smokestack region in the southeast.
Ukraine, it seems, is in the throes of a revolt against the revolution.
“Together, we have suffered through this Orange nightmare,” Mr. Yanukovich said at a rally here. “Let us consign this history to the black pages of our lives.”
Mr. Yanukovich, a former prime minister, has capitalized on the nation’s deep disillusionment with a limp economy and the Orange leaders, who promised to modernize the country and move it away from Moscow. Instead, they have been consumed with infighting that has paralyzed the government.
Under the tutelage of an American political consultant with ties to Senator John McCain, Mr. Yanukovich has put the Orange Revolution on trial in recent weeks. He has echoed another American politician, Ronald Reagan, by asking Ukrainians whether they feel better off now than they did five years ago.
“Do we want to keep living as we have lived these five years?” he asked. “When you know the answer to that, then you will know how to vote.”
The Orange Revolution shook the former Soviet Union, ushering in a pro-Western government in Ukraine that seemingly stood as a model for the many post-Soviet states seeking to emerge from authoritarianism.
The movement broke out after protesters asserted that Mr. Yanukovich had triumphed in the 2004 presidential election over Viktor A. Yushchenko only because of widespread fraud. A new election was held, which Mr. Yushchenko won. He had already garnered worldwide attention when he was poisoned by dioxin during the campaign, a crime never solved.
In recent weeks, polls have shown Mr. Yanukovich leading by 10 or 15 percentage points, but the race remains volatile. He is likely to be forced into a runoff next month against the other front-runner, Prime Minister Yulia V. Tymoshenko, an Orange leader known for her impassioned speeches and peasant braid.
If Mr. Yanukovich does become president, it will be a victory for the Kremlin, which has worked assiduously in recent years to discredit the Orange movement and ensure against a pro-Western realignment in its backyard.
But perhaps not the total victory the Kremlin may hope for. Since his defeat five years ago, Mr. Yanukovich has sought to avoid being pigeonholed as the Kremlin’s candidate. Sounding somewhat like an Orange politician, he said he supported Ukraine’s integration with Europe, as well as a robust, multiparty democracy at home.
But Mr. Yanukovich said he would repair relations with Russia, which has been especially angered by President Yushchenko’s attempt to seek NATO membership.
“We do not want to join any military bloc,” Mr. Yanukovich said an interview, explicitly rejecting NATO membership.
Speaking of Russia, he said: “Relations should be natural, as they are between the Ukrainian people and the Russian people. They must be friendly, they must be pragmatic, they must be strategic.”
The Kremlin, in fact, is trying to maintain ties with both front-runners, indicating that tensions may be soothed however the election turns out. Prime Minister Vladimir V. Putinof Russia has had warm words recently for Ms. Tymoshenko, and she has reciprocated.
Left behind has been President Yushchenko, an Orange leader and Kremlin foe who, rightly or wrongly, has been widely blamed for the economic troubles. He is seeking re-election, but his favorability ratings are in the single digits.
Lately, he seems mostly intent on destroying the candidacy of Ms. Tymoshenko, his former ally, as if he would rather Mr. Yanukovich win than she.
Mr. Yanukovich began his comeback in 2006, when relations between President Yushchenko and Ms. Tymoshenko collapsed, and Mr. Yushchenko named Mr. Yanukovich as prime minister. Mr. Yanukovich then lost the job to Ms. Tymoshenko after parliamentary elections in 2007.
Politically, Ukraine remains divided along geographic lines, with Mr. Yanukovich’s base in the Russian-speaking east and south. It is unclear whether he will be able to broaden his appeal to areas where the Ukrainian language dominates.
But Orange voters are disenchanted, and some may not show up at the polls.
Ms. Tymoshenko has been running a populist campaign, trying to paint Mr. Yanukovich as a front man for the country’s business elite.
“The oligarchs want a weak puppet leader who can be easily managed and ruled,” she said.
But political experts here said she faced a challenge overcoming the Orange backlash.
“There is this element of positive experience and timing,” said Andrei Yermolayev, director of the Sofia Center for Social Research in Kiev. “There is a certain stereotype that the years when Yanukovich was prime minister were years of success, and the years when Tymoshenko was prime minister were years of conflict and problems.”
Mr. Yanukovich has been assisted by Paul J. Manafort, an American political consultant who has been advising him since 2005. Mr. Manafort’s business partner is Rick Davis, who managed Senator McCain’s 2008 presidential campaign, though Mr. Davis has no role here. (And Mr. Manafort said he did no work for Mr. McCain.)
Mr. Manafort declined to discuss in detail his relationship with Mr. Yanukovich, but he acknowledged that he was pursuing a classic anti-incumbent strategy.
“Despite the great expectations from the Orange campaign promises of five years ago, the world and the people of Ukraine see that Tymoshenko has failed,” Mr. Manafort said.
He is not the only American consultant involved in Ukraine. The former firm of David Axelrod, President Obama’s senior adviser, is working for Prime Minister Tymoshenko. President Yushchenko is advised by the firm of Mark J. Penn, the strategist for the Clintons.
Mr. Manafort’s influence was apparent on Mr. Yanukovich’s visit this week in Dneprodzerzhinsk. His old style tended toward rambling speeches that seemed more suited for a Politburo meeting than a campaign rally. But throughout his day, he spoke in short, crisp sentences that rarely strayed from his theme of the Orange Revolution’s failures.
It seemed, however, that Mr. Yanukovich’s advance team could have used a strategy session. This city is named for Feliks Dzerzhinsky, founder of the Soviet secret police, and the campaign put Mr. Yanukovich right in front of a statue of Mr. Dzerzhinsky himself.
Ms. Tymoshenko is a native of this region, but it is now a Yanukovich stronghold. And there were people in the crowds who were once Orange backers.
“I voted for Yushchenko,” said Marina Sazonova, 44, a lawyer. “I was sitting home, breastfeeding my baby, watching with tears in my eyes our people getting up off their knees. There was this impression that everybody was united.
“People hoped that it would make their lives better,” she continued. “But nothing of the kind happened.”
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