Blue &Yellow: Politics and Economics in Ukraine

Tymoshenko's desire for no new election may have been purely for political self-preservation, but the economic crisis certainly has shown why the political crisis must be resolved quickly. President Yushchenko believes that the internal Ukrainian market needs to be supported as the first move toward getting out of the crisis. His also concerned about exported oriented firms that have been hit hard by the economic crisis.   Meanwhile, the National Bank has once again devalued the hryvnia, the official exchange rate to the dollar is now 5.76 to 1. 

With the economy under dire straits, Tymoshenko and Yushchenko continue their political struggle. In Dzerkalo Tyznia, a recent piece noted how destructive this political brinkmanship is to the country. 

The general public was left out in the cold again: the NSDC never published its resolution. No one even took the trouble to explain the direction or objectives of the anti-crisis steps or what they would cost. It looks strange because after the NSDC meeting the President said that the anti-crisis measures would require “one colossal asset – the people’s trust” – which he called “the key factor of overcoming the crisis.” Is that the way the people’s trust should be gained?

The only concrete figure the public heard was disclosed by Prime Minister Yulia Tymoshenko: she said that 49 active laws and regulatory norms would have to be amended. She decided to put all draft bills into one basket – i.e. motion them in a single package. She must have shared Yushchenko’s suspicions that it would be “extremely difficult to get all political forces to support them.”

Both Yushchenko and Tymoshenko have been demonstrating a storm of “anti-crisis activity.” Yushchenko addressed the nation on TV and met with representatives of national and international mass media and the IMF, and his press service diligently rubber-stamped press releases. The tenor of this PR spurt could be found his utterance: “It is in the government’s exclusive competence to turn on the mechanism of support to the national economy.”

Tymoshenko also made a series of public appearances, addressing her compatriots and holding numerous consultative meetings with authoritative economists and bankers. After her meeting with IMF representatives on Monday, she said proudly that Ukraine had “practically completed talks with the IMF” and that an agreement on a multi-billion-dollar loan might be reached on Wednesday.

Nothing of the kind happened on Wednesday (according to some sources, the IMF experts were very much disappointed with a number of legislative innovations proposed by the government). All that the government showed the public was a package of 43 amendment bills. At a closer look, some of them have nothing to do with the financial crisis. The brief explanatory note does not say how the proposed amendments to the laws on melioration or thegeological service are supposed to lift the country out of the crisis.

Since the economic crisis the hryvnia has fallen against the dollar, its currently trading at 6 hrv to $1. The main stock market continues to fall, closing down 6% at 248.9 points.  Gazprom and Haftogaz are close to reaching a long term deal; the two sides expect to sign the agreement soon. In order to combat the crisis the Rada is back in session, in order  to pass several measures needed before the International Monetary Fund will provide it credit.

The financial package calls for amendments to the 2008 budget, borrowing of $2 billion from unnamed international financial institutions, sovereign guarantees to firms seeking foreign credits and creation of a stabilisation fund.

The IMF has said nothing about its talks in Kiev. But officials say the Fund will make a credit contingent on balanced budgets, greater currency flexibility and higher interest rates.

Tymoshenko has asked the president to cancel what would be the third election in as many years and reinstate the shattered coalition between her bloc and Yushchenko's Our Ukraine party.

BYuT refuses to fund new elections and asks that the decree dissolving the Rada be cancelled. According to BBC Ukraine, the party says that any funding would mean a chance in the state budget and BYuT is not interested in doing so because of the economic crisis. Also, with a pending lawsuit, the date of the election may be moved from 7th of December to a later date. Kyiv Post has a similar article about this situation, but also notes that Tymoshenko is using the arrival of the IMF to argue her case for a postponment.

 Political woes in Ukraine, which faces its third parliamentary poll in as many years, have been compounded by fears that government and banks may not be able to refinance debt as its currency weakens and global lending dries up.

 IMF officials arrived on Wednesday to discuss how it could help cushion the impact of the global financial crisis. It has also been approached for aid by Iceland, Hungary and Serbia."We have information today that the International Monetary is ready to examine special credits from $3-14 billion to stabilise the financial system," Tymoshenko told a news conference after a cabinet meeting.

"At the same time, the IMF said it finds it very difficult to talk with Ukraine amid all these proposals for an early election.Citing the background of the financial crisis, Tymoshenko offered to accept "any conditions" to persuade the president to call off the election. Her allies have launched court action suspending preparations for the vote.

Ukraine is close to a deal with the IMF, meanwhile the country has taken action to prevent a collapse of its banking system. According to a report from Radio Free Europe, Ukraine is being impacted by the global crisis.  

Citing a "psychological factor," the National Bank of Ukraine (NBU) this week decided to impose limits on lending, foreign-currency trade, and early withdrawals of certain deposits. 

The decision, taken October 13, came after National Bank depositors -- unnerved by mounting inflation and a weakening currency -- withdrew more than $1.3 billion from their accounts in just under two weeks. It's hoped the steps will prevent a full-scale run on the bank by panicking citizens.

Ukrainian President Viktor Yushchenko ordered the creation of a 1-billion-hryvna ($200 million) stabilization fund to support an economy hit hard by the global financial crisis, as his bitter political rivalry with Prime Minister Yulia Tymoshenko dragged on.

Yushchenko told the government to shore up the banking sector, assist the country's key steel and chemical industries, adopt a balanced budget and regulate foreign trade.

The president continues to pressure the factions to form a new coalition or else face new elections. As reported in the BBC, Yushchenko has given the factions till the end of the day, but there is no sign that a new coalition will emerge that soon. Its also unclear if the president will follow through with his threat.  

President Yusshchenko sent an invitation to faction leaders and the Speaker and his two deputies to meet with him tomorrow. Pravda reports that the president will hold final consultations on Wednesday at 8:00 in the morning before deciding to dissolve the Rada. 

The days are running short and with it a chance to form a new coalition. Kyiv Post reports that Yushchenko has given parties until October 7th to form a new coalition. Speaker of the Rada is reported to have ”expressed doubts that such a coalition could be formed by the president’s deadline."

Ukraine's President Viktor Yushchenko threatened on Saturday to call a snap parliamentary election in a few days if a governing coalition is not formed.

Yushchenko made no call however for the coalition of his party and the bloc of Prime Minister Yulia Tymoshenko to reunite, after the premier said she met all the conditions to restore to the team linked to the 2004 Orange Revolution.

However, this tough stance is not very credible considering that the presidential party Nasha Ukraina may not do well if snap elections are held. Low approval ratings for the president will probably translate into low support for the party in new elections. There is also no sign that the alternative pro-presidential party United Center will be successful in a new election. Though, the party may just be serving as a dummy party to lure support away from BYuT and Regions. 

The departure of Taras Chornovil from the Party of Regions suggests that the party is going through an internal power struggle over the direction of the party. The idea of forming a Regions-BYuT coalition seems to have created discord within the party. BBC Ukraine reports that he disagreed with this decision and it was the motivating factor to leave. Will this make a ByuT -Regions coalition more likely? Perhaps but it will also encourage the president to complete a new coalition rather than risk this possibility.