Thursday, April 2, 2009

Vote for early poll deepens Ukraine crisis

From the FT this morning:

Vote for early poll deepens Ukraine crisis

Ukraine’s parliament on Wednesday called an early presidential election setting the stage for a fresh stand-off in the former Soviet republic which has been plagued by poisonous politics and battered by recession.

The move to hold an election in October would cut months from the term of Viktor Yushchenko, who this week launched a bitter attack on Yulia Tymoshenko, the prime minister and his fierce rival, over her handling of the crisis. It would also prevent the president dissolving parliament, something he has repeatedly threatened amid widening rifts in the Kiev leadership.

Mr Yushchenko’s aides said the move was illegal and the president would appeal to the constitutional court. The process could take months to resolve.

Jorge Zukoski, president of the American Chamber of Commerce in Ukraine, said political turmoil was exacerbating an already difficult situation. “The business community continues to urge the political elites of Ukraine to focus their energy on re-engaging the [International Monetary Fund],” he said.

A $4.5bn tranche from the IMF helped stabilise Ukraine’s shaky financial system late last year. Additional disbursements have been delayed due to political bickering and Kiev’s failure to meet conditions such as cutting the budget deficit.

Mr Yushchenko’s popularity has sunk to single digits since he was propelled to power by the Orange Revolution of 2004.

The vote for early elections united Mr Yushchenko’s rivals, including the political camps of Ms Tymoshenko and allies of Viktor Yanukovich, the ­Moscow-leaning former premier. Both lead Mr Yushchenko in the polls, with 15-20 per cent backing, and are expected to square off for the presidency. The polls also show increasing support for Arseny Yatsenyuk, a young lawmaker .

Since taking over in 2004, Mr Yushchenko has pushed hard to break Kiev free of Moscow’s grip. He sought speedy membership of the European Union and Nato alliance but his attempts were brushed aside.

It takes some doing for an economy to shrink by a third. But that is what Ukraine managed to do in January and February compared with last year. Long the worst-managed economy among its central European peers, Ukraine has been savaged by the fall in steel and chemical prices, insolvent banks, and squabbles between Viktor Yushchenko, the president and Yulia Tymoshenko, the prime minister, a running stand-off that has paralysed policymaking. The country has a $16bn International Monetary Fund agreement to help it through – but disbursements have been held up by Ukraine’s inability to agree a budget. Without IMF money and the other funds that could follow, debt defaults are increasingly likely.

From financial crisis to economic crisis; from economic crisis to social crisis; and from there to political crisis: Ukraine’s woes are those of much of central Europe, only thrown into ghastly relief. Most forecasters expect the region’s economies to contract sharply this year, and possibly recover in 2010. That would follow the pattern of the most recent other emerging markets crisis, Asia’s meltdown in 1998. Emerging Asia, however, bounced back quickly thanks to steep devaluations, a growing world economy and western banks that were not on their knees.

That is hardly the case now. Indeed, emerging Europe's problems arguably have more in common with Latin America's debt crisis in 1982. Today, loans to central Europe by banks most exposed to the region account for 238 per cent of their capital bases, Citi estimates. That is half as much again as the nine biggest US lenders to Latin America in the 1980s. Yet it took a decade for the region's debt problems to be properly resolved, and it was four years before its economies were the same size as before the crisis began. A sobering thought - and one for Ukraine's fractious parliament to consider as it discusses legislation needed to get IMF money flowing again.

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