MBS Blog

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.”