MBS Blog

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.

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.”