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Ukraine: A bumpy ride ahead
06 February 2009
Ukraine notched up an unwelcome first in 2008 – it became the first country to be bailed out by the International Monetary Fund (IMF), which approved a $16.4bn loan to help it back from the brink.
The country, the second-largest in Europe after Russia, had been one of the emerging markets most buffeted by turmoil in international financial markets and the general downturn in the world economy.
Demand for steel, which provides $17bn or 40% of Ukraine’s annual export earnings, had fallen sharply, while the country’s currency (the hryvnia) and stock exchange had both taken a pounding as foreign investors sought to realise their assets. Inflation was the highest in Europe at more than 25%.
The political environment was also little short of chaotic. Ukraine’s ruling coalition had fallen apart in October following a row over the role of the president, Viktor Yushchenko, who had bridled over reforms that he saw as an attempt to dilute his powers.
Yushchenko had dissolved parliament – the Verkhovna Rada – and called snap elections. These were initially meant to go ahead on 7 December, then on 14 December, subject to a legal challenge by Prime Minister Yulia Tymoschenko, the President’s former ally and now increasingly bitter rival. Were the elections to have gone ahead as planned, it would have been the third time that the country had gone to the polls in just three years.
The gravity of the financial crisis, however, persuaded Ukraine’s squabbling politicians to put aside their differences – at least temporarily – and agree a package of stabilisation measures. These were enough to persuade the IMF to stump up its loan, although it has attached a number of tough conditions as part of its largesse. These include allowing the exchange rate to float, recapitalising the country’s banks, balancing the budget for 2009 and adopting measures to tackle inflation.
The move has been welcomed by Ukraine’s leading law firms. “The IMF’s decision is an encouraging sign,” says Jason Bruzdzinski, chief operating officer of Magisters. “It shows the world is going to stand behind one of the leading emerging markets.”
Armen Khachaturyan, senior partner of Asters, agrees about the significance of the IMF’s support. “This is a clear message from the international community, through the IMF, that they will not let Ukraine go into a deep crisis and that they understand how important the country’s role is economically and politically in the modern world, in Eastern Europe and in relations between the great powers,” he says. “We hope that Ukrainians will be clever enough at a government level to use the opportunity and overcome this situation.”
Whether the country’s politicians can deliver remains to be seen. President Yushchenko has postponed the elections until this year, which will allow some breathing space. But pictures broadcast worldwide of Ukrainian MPs brawling in parliament over the removal of the speaker do not engender confidence. There is also little doubt that the IMF’s medicine will be unpopular in some quarters, particularly at a time when there are expected to be large-scale redundancies in the country’s heavy industries.
The country, the second-largest in Europe after Russia, had been one of the emerging markets most buffeted by turmoil in international financial markets and the general downturn in the world economy.
Demand for steel, which provides $17bn or 40% of Ukraine’s annual export earnings, had fallen sharply, while the country’s currency (the hryvnia) and stock exchange had both taken a pounding as foreign investors sought to realise their assets. Inflation was the highest in Europe at more than 25%.
The political environment was also little short of chaotic. Ukraine’s ruling coalition had fallen apart in October following a row over the role of the president, Viktor Yushchenko, who had bridled over reforms that he saw as an attempt to dilute his powers.
Yushchenko had dissolved parliament – the Verkhovna Rada – and called snap elections. These were initially meant to go ahead on 7 December, then on 14 December, subject to a legal challenge by Prime Minister Yulia Tymoschenko, the President’s former ally and now increasingly bitter rival. Were the elections to have gone ahead as planned, it would have been the third time that the country had gone to the polls in just three years.
The gravity of the financial crisis, however, persuaded Ukraine’s squabbling politicians to put aside their differences – at least temporarily – and agree a package of stabilisation measures. These were enough to persuade the IMF to stump up its loan, although it has attached a number of tough conditions as part of its largesse. These include allowing the exchange rate to float, recapitalising the country’s banks, balancing the budget for 2009 and adopting measures to tackle inflation.
The lawyers’ reaction
The move has been welcomed by Ukraine’s leading law firms. “The IMF’s decision is an encouraging sign,” says Jason Bruzdzinski, chief operating officer of Magisters. “It shows the world is going to stand behind one of the leading emerging markets.”
Armen Khachaturyan, senior partner of Asters, agrees about the significance of the IMF’s support. “This is a clear message from the international community, through the IMF, that they will not let Ukraine go into a deep crisis and that they understand how important the country’s role is economically and politically in the modern world, in Eastern Europe and in relations between the great powers,” he says. “We hope that Ukrainians will be clever enough at a government level to use the opportunity and overcome this situation.”
Whether the country’s politicians can deliver remains to be seen. President Yushchenko has postponed the elections until this year, which will allow some breathing space. But pictures broadcast worldwide of Ukrainian MPs brawling in parliament over the removal of the speaker do not engender confidence. There is also little doubt that the IMF’s medicine will be unpopular in some quarters, particularly at a time when there are expected to be large-scale redundancies in the country’s heavy industries.
