Blue &Yellow: Politics and Economics in Ukraine

• Reported crime up by a third in 2010. [Kyiv Post]
• July 16, Ukraine declared its sovereignty twenty years ago. [BBC Ukraine] 
• On the Russian Orthodox Church, Kyiv Patriarchate, [Kyiv Post]
• "'Metropolitan Hilarion noted that many schismatics living in various regions of Ukraine were increasingly inclined to come back to the canonic Church, and this was a "continuous process, though it not a widespread one so far.'" [Interfax]
•  "There is currently lots of liquidity in Russia and the issue can potentially find demand at the right price," said Elena Kolchina, head of fixed-income products at Renaissance Asset Managers in Moscow. Ukraine may lure Russian banks with yields near 10 percent on five-year bonds, though 12 to 13 percent would represent "fair price," Kolchina said. [SFGate]

In September 2003, Anatoly Chubais caused an outcry after introducing the concept of “liberal imperialism,” effectively saying Russia would regain its influence in the former Soviet Union through corporate investment. The phrase might have been provocative, but Russian oil companies undertook downstream investment in oil refineries and gas stations, pursuing vertical integration. Russia’s metallurgical companies and retail chains carried out horizontal integration, doing on a larger scale what they did so well at home. Consumer and mobile phone companies extended their successful business models abroad.

From a Moscow Times article by Anders Aslund analyzing how Russia may be altering its near abroad policy to focus on economic integration with its neighbors. However, Aslund doesn't mention to the reader that Russia still relied on tough action, like shutting off gas to Ukraine in 2009, to remind its neighbors who has the upper hand. Also, while Aslund notes Russia did not directly intervene in the recent presidential election, Yanukovych and Tymoshenko had a better disposition to Russia than Yushchenko. Yushchenko was one his way out so there was no need to act in that election.

Ukraine's national debt could reach 40% of gross domestic product by the beginning of 2011 once all of the planned loans have been taken, Vice Prime Minster of Ukraine Sergiy Tigipko told journalists on Thursday in Kyiv.

“Ukraine’s Cabinet and the Kiev administration will further take steps to ensure Kiev city’s budget has enough funds to hold an efficient debt policy,” Kopylov said today in a statement, e-mailed by the ministry press office today. Kiev’s 2011 dollar bonds rose to 96 cents on the dollar, the highest since July 2, pushing the yield down to 13.016 percent, Bloomberg data shows.

Kiev is likely to restructure principal of its $200 million of notes due 2011 and $250 million of bonds due 2012, while continuing to meet interest payments, said an unidentified official in the city’s administration on July 5.

Of course the central government won't let Kyiv go belly-up. Kyiv's supposed to host the Euro 2012 it still needs to finish financing and renovating/constructing for the tournament.  But will they try to push out the mayor and put someone they trust in office?

Didenko's lawyer Ihor Stepanov told reporters that the defense was planning to appeal against the ruling.

"We will challenge [this] illegal ruling in a court of appeals," he said, adding that the fact that Kyiv Pechersky District Court on Monday took no decision on a petition by MPs to release Didenko on bail gives grounds to cancel the court's ruling.

That's Ihor Didenko, ex-deputy head of Naftogaz whose been arrested for "two months".  RusUkroEnergo, according to Stockhold Arbitration Tribunal, is owed money and gas by Naftogaz. The SBU has turned its attention to former officials from the Tymoshenko regime to find someone to blame. Dzerkalo Tizhden has a good analysis on the SBU investigation. In short (as explained in DT) Naftogaz seized 11 billion cubic meter of gas from RusUkroEnergo, which Tymoshenko claims was legally acquired. The people arrested acted as agents of the Ukrainian state, according to her. However the SBU claims that the gas was stolen and  the agency is pursuing officials involved in acquiring the gas. As the DT article notes, the Ukrainian state is not liable for Naftogaz action nor does the state have to comply with the ruling. Nevertheless,with alacrity SBU has opened an investigation and arrested lower level officials from the Tymoshenko government.

• How long will this last, Ukrainians happy with the current president. [RFE/RL]
• FiveThirtyFive tries its hand at analyzing Kyrgyzstan. [FiveThirtyFive]
• A protest by FEMEN. [via Ukrainiana]
• A birthday for the president. [Ukrininform]
• Kharkiv is named the best city to live in by Focus Magazine, though the emphasis seems to be on business rather than tourist attractions. [NCRU]

However, the MVS has become more politicized and is undergoing a “Putinization.” At his 100 days anniversary meeting with the media, Yanukovych was asked why the MVS prevented the opposition from protesting. He responded that this was untrue and that the MVS merely defended civic peace and halted attempts by a minority to prevent the majority from living in peace. As stated in Ukrayinska Pravda (June 5), “A few more such comments (from Yanukovych) and one could think that one was listening to an explanation by a Unified Russia party spokesman.”

From Eurasia Daily Monitor (Volume 7, Issue 120) "The “Putinization” of Ukraine’s Security Forces", another good excerpt from EDM (again no link). A speculative article on the political direction of the  Ukrainian state under Yanukovych, which the article claims is looking more like Russia.  This idea is echoed in a blog post at Window on Eurasia on the vertical power structure being constructed by Yanukovych.

Some Ukrainians may now indeed want “a strong hand” but that does not mean that there is any reason to end public discussions of the issues. And in that regard, the range of opinions in society “is much broader and more diverse than [is reflected in the views expressed by] party representatives on the Ukrainian political Olympus.”

Ukrainians who oppose this measure need not turn to Ukrainian courts, Ivanov suggested. They have every right to make a direct appeal to the European Court of Human Rights, and they have every reason to do so: Even in Soviet times, the majority of deputies in local soviets were non-party people.

Tragically, it appears likely that Yanukovich plans to go even further to reverse Ukraine’s past democratic games. The Ukrainian president and Aleksandr Yefremov, the head of the Party of the Regions fraction, now say they would like to have a referendum to eliminate changes in the Constitution introduced after 2004 . 

 The plan provides for lowering the state budget deficit from 5.3 percent in 2010 to 2 percent by 2014, while public debt should be stabilized at 45 percent and inflation is expected to decline from 16 percent in 2009 to 5-6 percent by 2014. In line with IMF requirements, the plan includes increasing the pension age. It is scheduled to start repaying, from August 2010, the multi-billion dollar value-added tax debt to exporters accumulated in 2008-2010, which is one of the main hurdles to foreign investment. A new tax code, to be passed this year, aims to simplify taxation and bring it closer into line with European standards. The share of the public sector in the economy will diminish from 37 percent to 20-25 percent. Talks on a free trade zone with the European Union are scheduled to be completed in 2012 (www.zn.ua/2000/2020/69596). The plan can be summed up in three key words: liberalization, deregulation and Europeanization.

Even Yanukovych’s critics agree that the plan is good, but there are doubts about the seriousness of the government’s intentions. Former Finance Minister, Viktor Pynzenyk, a liberal economist and fierce critic of both Prime Minister, Mykola Azarov’s, cabinet and their predecessors, suggested that the plan was drafted only to coax the IMF into issuing more loans.

From Eurasia Daily Monitor  (Volume 7, Isssue 116," Will Yanukovych’s Reform Plan Convince IMF?", no link), a nice excerpt to go along with the news that the IMF and Ukraine have come to a new standby  agreement for $14.9 billion. Following the agreement Fitch raised Ukraine's credit rating from B- to B. The EU is pitching in by providing "macro assistance" for EUR 500 million.

The plan was most certainly meant to get the IMF to release loans to Ukraine, but its also likely that the government's intentions are serious. Regions has its share of oligarchs (like the not-dismissed SBU chief) who wouldn't benefit from seeing the Ukrainian economy in shambles. Clearly the (expected) autumn local elections and the next Rada elections will test the government's commitment to this plan, will they jump for populist measures or restrain themselves? The the last time Yanukovych was prime minister he increased pensions prior to the Rada elections in 2007. Also, a EU-Ukraine free trade zone would be an accomplishment (in time for the Euro) considering its been discussed since at least 2007.

Of course, CMA market data shows that Ukraine credit fault swaps haven't declined substantially since the announcement, below is July 8 2010 data. Its still in the top ten list for riskiest sovereign debt.