Political crisis leaves Ukraine in a quandry
It has been a rough ride for Viktor Yushchenko, the president of Ukraine, since his triumph in the 2004 Orange Revolution – and it is about to get much rougher.
The political conflicts and persistent headaches of dealing with Russia that have long plagued his rule are now being compounded by a global crisis, pitching one of Europe’s fastest growing economies into recession.
As a former central banker, Mr Yushchenko should be the ideal man to oversee an International Monetary Fund rescue. But, weakened by battles with Yulia Tymoshenko, prime minister, and Viktor Yanukovich, the formidable pro-Russia opposition leader, the president lacks the authority to lead from the front.
Much is at stake in Ukraine. The country of 46m is located in the uncertain middle ground between the European Union and a resurgent Russia. It controls the territory through which most of the EU’s Russian and central Asian gas imports pass.
With the current account deficit widening to an estimated 10 per cent this year, external funding evaporating and the currency falling fast, Kiev turned to the IMF to help fund its external financing needs of about $50bn a year. The deal, agreed in November, envisages rebalancing the economy, stabilising the banking system and cutting the deficit. Kiev has pledged reforms including tighter budgetary controls, better bank regulation and floating the hryvnia.
The political impact of the economic crisis is uncertain. In the latest development, Mr Yushchenko has been forced to back off from an attempt to attack Ms Tymoshenko, his former Orange Revolution ally. He called early elections but postponed the plan amid moves by his followers to re-form a coalition with Ms Tymoshenko. They announced an agreement earlier this month.
Still, tension will likely remain until the end of next year, when voters will choose between Mr Yushchenko, Ms Tymoshenko and Mr Yanukovich in the first presidential elections since the 2004 poll.
The main beneficiary of the turmoil is Russia. Moscow wants Ukraine to demonstrate that its post-Orange Revolution democracy is a failure in order to reduce the risk of similar upheaval in Russia. Russia also opposes Mr Yushchenko’s pro-western policies, especially his pursuit of Nato membership.
Moscow’s intervention in Georgia and recognition of the independence of
Abkhazia and South Ossetia have further raised tensions.
It is again increasing pressure over gas supplies, with negotiations over next year’s contract in full flow.
Given the threat of early polls and economic crisis, the last thing Ukraine needs this winter is a gas war. But the prospect of going into recession with a huge rise in gas prices is equally dangerous. Even by Kiev’s standards, these are difficult times.
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