Ukraine: The election gets organized and the IMF gets gone

by Tammy Lynch

The IMF ended its fact-finding mission to Ukraine on 26 October. The organization’s representatives left Ukraine without disclosing whether they would recommend the approval or delay of the next tranche of Ukraine’s stabilization loan. Shortly after, Tim Ash, an emerging market analyst at the Royal Bank of Scotland, suggested that the IMF cools on Ukraine as politics heats up and that the dispersal of the $3.4 billion loan in the near future seems unlikely. “Even with the IMF in very generous mode at present, it is difficult to see the Fund lending into an election campaign,” he said. “The most likely outcome would be for the Fund to delay disbursement, perhaps even awaiting the outcome of the elections.”

This is particularly true since certain suggested IMF policies and reforms have become hostage to Ukraine’s newly opened election campaign. The government has not raised household gas rates as agreed, in order to help balance state gas company Naftohaz’s books, and the parliament recently voted a state pension and wage increase that is unfundable in current circumstances.

While suggesting that the economic situation in Ukraine “is stabilizing,” IMF representatives in Ukraine specifically mentioned the wage increase as a potential deal-breaker. They urged President Viktor Yushchenko to veto the legislation.

As noted in a previous blog here, Prime Minister Yulia Tymoshenko – trying desperately to save the IMF funding – called the wage increase “an atom bomb under the finances of the country” shortly after it was passed. She asked the President to veto it. He has not done so – at least not yet.

Given Ukraine’s deep economic crisis and almost catastrophic decrease in budget revenues this year, allowing the increases to remain could be one of the most irresponsible actions of Yushchenko’s presidency. Moreover, since he did not propose the wage increase, and since his poll ratings sit under 5 percent, it seems unlikely this increase will boost his support ahead of the 17 January election.

On the other hand, it just may decrease support for his bitter rival, Prime Minister Tymoshenko, which is perhaps the point.

Election Fast Facts

– The Central Election Commission registered a slew of presidential candidates this week. These candidates include Party of Regions/opposition leader Viktor Yanukovych, Parliamentary Speaker Volodymyr Lytvyn, former Defense Minister Anatoliy Hrytsenko, former Central Bank Chair and 2004 Yanukovych campaign manager (through the first round) Serhiy Tyhypko, former parliamentary speaker Arseniy Yatsenyuk, former deputy head of the Party of Regions Iryna Bohoslovska, and President Viktor Yushchenko. The CEC is examining the papers of dozens of other potential candidates, including Prime Minister Tymoshenko. Only Yanukovych, Tymoshenko, Yushchenko and Yatsenyuk are expected to have any major effect on the race.

– Two new conflicting polls were released this week. The first by TNS Ukraine showed Yulia Tymoshenko making up almost eight points on the lead held by opposition leader Viktor Yanukovych. The former Prime Minister is said to lead the current Prime Minister by 21.17% to 17.92%. Yatsenyuk is third with 6.5%.

The second poll by the Research and Branding group found Yanukovych maintaining his significant lead over Tymoshenko (31%-18.4%). Yatsenyuk is listed at 9.6%.

Because of the historical problems with methodology and loyalties within Ukrainian polling firms, it is difficult to know which poll is closer to reality. The almost sure bet, though, is that Yanukovych and Tymoshenko will square off against each other in the second round of the election.