bne Ukraine Daily List
Pro-Russian protesters appear to be holding out still in a number of government buildings in eastern Ukraine, with various efforts on-going to negotiate a solution Ð Ukraine’s interior minister, Avakov has though suggested that the issue will be resolved within 48H, but is warning that the administration in Kyiv is prepared to use force if it has to. Moscow will likely be watching this closely, with the presumption being that any perceived “excessive” use of force might still be a pretext for greater Russian “direct” intervention in Ukraine.
One of the problem in negotiating a solution to the above stand-off, is that there does not appear to be any natural leaders as yet for the pro-Russian separatists, with the Regions party itself rapidly disintegrating Ð and now polling in the low single digits.
Former Regions politician, Serhiy Tyhipko, has been into administrative buildings in Luhansk to try and negotiate a settlement, but his poll ratings are also now down in the low single digits. Rinat Akhmetov has also offered his services to negotiate some form of resolution in Dontesk, but disillusion with the Regions political class is very high.
It is still noticeable that support for the “separatists” in east and southern Ukraine is pretty modest, with only several hundred/few thousands attending demonstrations in Luhansk, Donetsk, Dnipropetovsk, which compares with the tens/hundreds of demonstrators who hit the streets of Kyiv after the Vilnius summit. And, even in eastern oblasts opinion polls show majority support still for an independent Ukraine Ð which also seems to be the case with the oligarchic class. Some might argue then why not allow referenda on separation/Federalism Ð well I guess the risk is that any such polls are focal points for more destructive forces in the country, and serve as a further distraction when the primary focus for policy makers should be addressing acutely difficult macro and reform challenges.
Perhaps the most significant development over the past few days has been the announcement of four-side talks between the US, EU, Russia and Ukraine, over the future of Ukraine. Arguably this could be perceived as something of a success for Moscow’s policy of using all channels to undermine and disrupt government in Ukraine. Russia is still pushing for a Federal solution to the crisis in Ukraine which would involve the formation of some form of coalition administration in Kyiv, significant decentralisation of powers to Ukraine’s regions, with a weak central government, and then likely some agreement over Ukraine’s long term political (no EU) and security (no NATO) neutrality Ð so basically delivery on Russia’s agenda from the outset, short of perhaps CIS CU membership (albeit I still would not rule this out as an objective still from Moscow for some or part of present day Ukraine). No venue has yet been set for the above negotiations, but they are set to be very tough, as the government in Kyiv will resist efforts at too much decentralisation, or pulling the plug on European integration. Federalisation will be seen as giving momentum to the same centrifugal forces which had appeared to threaten Russian territorial integrity under the Yeltsin administration, and ended up in the various Chechen wars in the 90s/00s Ð Putin eventually ended this with a shock n’ awe and eventually brutal military campaign.
Russia seems to be looking to boost its position in negotiations with Europe, the West and Ukraine before the above meetings, by indicating that it is close now to negotiating a long term gas supply contract with China Ð perhaps for as much as 38 bcm. This deal has been years in the making, with price seemingly a sticking point up to now. However, with Moscow eager to suggest that it is not dependent on selling gas to Ukraine and Europe, it now seems much more intent on cutting a deal with China Ð likely by the end of 2014.
Amid all the above, the UAH continues to weaken, dropping to UAH12.12:USD1 this morning and now well north of the average level of UAH10.5:USD1 targeted by the government and the IMF in the recently concluded staff level agreement. While the prospect of IMF monies coming on line later this month, or into May, will provide a much needed fillip (particularly the NBU which continues to see FX reserves diminish), the risk of Russian intervention, and the lack of firm external support forthcoming yet will continue to drag on the UAH. Note at an average exchange rate of 12, USD GDP falls to around USD130bn this year, and likely the ratio of public sector debt/GDP rises to well over 60%. Note, that Ukraine’s finance minister, Shlapak, has indicated that the government is pressing now to get IMF board sign off for the new SBA with the Fund in the last week of April Ð this might reflect deteriorating trends/pressures on the UAH Ð plus the large gas bill looming from Russia, with higher gas prices and warnings from Russia that it may cut off supplies without pre-payment. Payment of gas dues will heap further pressure on the UAH.
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