Ukraine

Politics:

• Analysis

  Ukraine politics: Tymoshenko is named a murder suspect

  In the latest prosecution against her, Yuliya Tymoshenko, a jailed former prime minister, has been named as a suspect in a murder case. However, the timing and circumstances around the resurrection of a case from the 1990s have raised suspicions. On the one hand, it may be designed to keep the opposition leader in jail should the upcoming rulings from the European Court of Human Rights on her imprisonment go in her favour. In this way, the incumbent could still keep a clear run at a second term as president in 2015. On the other hand, the case is likely to scupper any progress of EU integration, just as financial and economic pressures on the government mount.

  On January 18th prosecutors notified Ms Tymoshenko, currently in jail for abuse of office, that she was a suspect in the murder of Yevhen Shcherban, a businessman and parliamentary deputy who was shot dead in the eastern city of Donetsk in November 1996. Viktor Pshonka, the prosecutor general, said that Ms Tymoshenko and Pavlo Lazarenko (also a former prime minister) are suspected of contracting killers to get rid of Mr Shcherban as part of the struggle between rival business groups for control of the gas industry in the wake of the collapse of the Soviet Union.

  As one charge weakens, another may be needed

  The move against Ms Tymoshenko, who remains the most prominent opposition politician, is not entirely unexpected. The authorities started to prepare the case against her in 2012, following the receipt from Mr Shcherban's son, Ruslan, in April 2012 of documents indicating that Ms Tymoshenko and Mr Lazarenko may have been behind the murder. Until late 2012 Mr Lazarenko was serving a sentence in the US for money-laundering. Both politicians have denied the charges.

  As head of the United Energy Systems of Ukraine (UESU), a gas-trading firm, Ms Tymoshenko was a serious player in the rough-and-tumble gas business of the 1990s. As such, she may well have had business conflicts with Mr Shcherban. According to the Ukrainian media, her name has already come up in a connected case in the late 1990s, when an aide to Mr Lazarenko, Petro Kirichenko, told a US court that some of the money used to pay for Mr Shcherban's murder had come from companies linked to Ms Tymoshenko. Nevertheless, the re-opening of the case in 2012 seems suspicious. No source for the new information for the new prosecution has been given, but it is probably Mr Kirichenko, who appears to have recalled details that he did not mention when giving evidence previously.

  For Ms Tymoshenko, the future looks bleak, as the latest development seems to suggest that the coterie around the president, Viktor Yanukovych, is determined to keep her in jail indefinitely. The article of the criminal code under which the charge against Ms Tymoshenko falls carries a life sentence. Her lawyers say that they are not allowed proper contact with their client. Her main lawyer, Serhiy Vlasenko, has come under fire for failing to comply with a court order linked to a messy divorce, and he has been barred from leaving the country. Mr Lazarenko is unlikely to be willing to talk to Ukrainian prosecutors, lest he implicate himself. Vadim Bolotskikh, who is serving a life sentence for killing Mr Shcherban, could be persuaded to testify for the prosecution, although he is unlikely to make a reliable witness in the eyes of the public.

  Gambling with EU integration?

  The decision to press ahead with another prosecution of Ms Tymoshenko could indicate that the ruling group already has one eye on the presidential election, set for March 2015. They may be worried about a number of cases pending in the European Court of Human Rights, which are widely expected to go in Ms Tymoshenko's favour, and are preparing auxiliary charges to ensure that she is unable to take part in the presidential race. However, ahead of a crucial meeting with the EU set for the end of February, at which Ukraine's prospects for EU integration are to be discussed, this move is perplexing. Until the latest decision by the prosecutors, it was expected that the EU would probably agree to ratify an association agreement with Ukraine by the end of 2013. The latest move by the Ukrainian authorities may jeopardise this prospect. EU officials have again made it clear that, for them, the treatment of the country's opposition leaders is a red-line issue. In late January Jan Tombinski, the EU's ambassador to Ukraine, said that it was impossible to move forward in EU-Ukraine relations unless the sticking point of "selective justice" was removed.

  Mr Yanukovych may be hoping that the association agreement will remain on track, and that the EU will protest but reluctantly accept this latest development regarding his arch political rival; some west European officials may find it awkward to defend Ms Tymoshenko on such a serious charge before seeing the evidence of the prosecution. The president may also be gambling that western Europe will not want to "lose" Ukraine to Russia, whose efforts to resurrect the post-Soviet international institutions have intensified since the opening of an EU investigation into Gazprom in September. It is even conceivable, although highly unlikely, that Mr Yanukovych is prepared to join the Russian-dominated customs union if an EU deal falls through, as the price for securing a second presidential term. If so, he might face significant upheaval at home. According to latest polls, 48% of Ukrainians support Ukraine's accession to the EU, whereas 40% would like to see their country in the customs union.

  January 31, 2013

• Background

  Ukraine: Political forces at a glance

  Current government: The government is based on a parliamentary coalition between the Party of Regions (PoR) of the new president, Viktor Yanukovych, the Lytvyn Bloc of the parliamentary speaker, and the Communist Party of Ukraine (CPU). The coalition, which has 235 votes in the 450-seat parliament, also includes a number of individual deputies from the opposition Our Ukraine-People's Self-Defence (OU-PSD; formerly aligned with the previous president, Viktor Yushchenko) and the Yuliya Tymoshenko Bloc (YTB) of the previous prime minister. The current government replaced the outgoing one, which was based on a parliamentary coalition between the YTB, the OU-PSD and the Lytvyn Bloc, in March 2010, following the January-February presidential election. In April the Constitutional Court ruled the coalition constitutional after a challenge by the opposition.

  Parliamentary election, Sep 30th 2007
  Party or bloc	% of votes	Seats (no.)
  Party of Regions	34.37	175
  Yuliya Tymoshenko Bloc	30.71	156
  Our Ukraine-People's Self-Defence	14.15	72
  Communist Party of Ukraine	5.39	27
  Lytvyn Bloc	3.96	20
  Socialist Party of Ukraine	2.86	-
  Progressive Socialist Party of Ukraine	1.32	-
  Others	2.78	-
  Against all	2.73	-
  Invalid ballot papers	1.62	-
  Total	100.00	450
  Source: Central Election Commission.

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  Next elections: The next scheduled parliamentary election is in September 2012 and the next presidential election in 2015.

  May 06, 2010

• Structure

  Ukraine: Political structure

  Official name

  Ukraine

  Legal system

  A new constitution was approved by the Verkhovna Rada on June 28th 1996 and amended in 2004

  National legislature

  Verkhovna Rada (Supreme Council, or parliament); unicameral assembly of 450 deputies

  National elections

  October 28th 2012 (parliamentary); January-February 2010 (presidential). Next scheduled parliamentary election in 2017; next presidential election in 2015

  Head of state

  President, currently Viktor Yanukovych, sworn in on February 25th 2010

  National government

  A new government was appointed at the end of 2012. As with the outgoing administration, the Party of Regions is at the core of the new one, supported by a number of nominally independent deputies and by the Communist Party of Ukraine, although not so far in explicit coalition

  Main political factions in parliament

  The largest faction in parliament is the Party of Regions (PoR; 185 seats). Other factions include United Opposition (101); Ukrainian Democratic Alliance for Reform (UDAR; 40); Freedom (37); Communist Party of Ukraine (CPU; 32); independent MPs (43)

  Prime minister: Mykola Azarov

  First deputy prime minister: Serhiy Arbuzov

  Deputy prime minister: Yuriy Boyko

  Deputy prime minister: Kostyantyn Hryschenko

  Deputy prime minister: Oleksandr Vilkul

  Key ministers

  Agrarian policy: Mykola Prysyazhnyuk

  Culture: Mykhailo Kulynyak

  Defence: Pavlo Lebedev

  Education, youth & sports: Dmytro Tabachnyk

  Emergencies: Viktor Baloha

  Energy & coal industry: Eduard Stavitsky

  Environment & natural resources: Oleh Proskuriatov

  Finance: Yury Kolobov

  Foreign affairs: Leonid Kozhara

  Health: Raisa Bohatyryova

  Interior: Vitaliy Zakharchenko

  Justice: Oleksandr Lavrinovich

  Chair of parliament

  Volodymyr Rybak

  Central bank governor

  Ihor Sorkin

  March 11, 2013

• Outlook

  Ukraine: Key developments

  Outlook for 2013-17

  • Following the parliamentary election in October 2012, the government is again led by the Party of Regions of the president, Viktor Yanukovych.
  • A reduced parliamentary majority and the failure to include a sufficiently wide range of business groups in the government could affect government effectiveness and stability.
  • The United Opposition and the Ukrainian Democratic Alliance for Reform may find it increasingly uncomfortable to work closely with fellow opposition party Freedom, unless it tempers its extreme nationalist stance.
  • Financial assistance is vital; an IMF programme could be secured in early 2013. A decision on whether Ukraine will proceed to ratification of its EU association agreement this year will be made in May.
  • Renewed efforts towards fiscal consolidation are possible in 2013. An attempt at a controlled devaluation is now likely in March or April.
  • The economy grew by just 0.1% in real terms in 2012, according to official data. Growth will strengthen modestly in 2013-17 with improving external conditions, to an annual average of just over 3%.
  • Average inflation will rise sharply in 2013, owing mainly to devaluation and an increase in utility tariffs, but will drop towards 5.5% in 2016-17.
  • The Economist Intelligence Unit estimates that the current-account deficit widened to 8.4% of GDP in 2012, the largest on record. We forecast that it will shrink slowly in 2013-17 as a share of GDP, amid modest external recovery.

  Review

  • A high-profile meeting of EU leaders with Mr Yanukovych at the end of February concluded with calls for "tangible progress" on political and economic reforms by early May.
  • Ukraine has fallen to 80th position out of 167 countries in our 2012 democracy index, from 79th in 2011. This is part of a pattern of worsening democratic practice across many east European countries.
  • An IMF visit ended inconclusively in early February. Soon afterwards, the government raised another US$1bn on international bond markets.
  • The deficit on the consolidated budget, excluding subsidies for state energy company Naftogaz, widened to a very large HRN50bn (US$6.3bn; about 3.6% of GDP) in 2012-well above the targeted ceiling.
  • International reserves rose modestly in January, but in February the hryvnya has shown signs of volatility.

  March 11, 2013

Economy:

• Background

  Ukraine: Country fact sheet

  Fact sheet

  Annual data	2011a	Historical averages (%)	2007-11
  Population (m)	45.6	Population growth	-0.5
  GDP (US$ bn; market exchange rate)	165.2	Real GDP growth	0.6
  GDP (US$ bn; purchasing power parity)	329.8b	Real domestic demand growth	3.1
  GDP per head (US$; market exchange rate)	3,624	Inflation	14.1
  GDP per head (US$; purchasing power parity)	7,233b	Current-account balance (% of GDP)	-4.1
  Exchange rate (av) HRN:US$	7.97	FDI inflows (% of GDP)	5.2
  a Actual. b The Economist Intelligence Unit estimates.

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  Background: Ukraine declared independence from the Soviet Union in 1991. The first president, Leonid Kravchuk, focused on state-building at the expense of reforms. Leonid Kuchma, his successor, accepted the need for IMF-backed reforms, but his tense relations with parliament hampered progress. Mr Kuchma's scandal-ridden second term was characterised by backsliding on democratisation and an increasingly powerful role for "oligarchic" elites. The election of the opposition leader, Viktor Yushchenko, as president in December 2004 led to greater political openness, but power struggles with the government and parliament severely impeded policymaking, and vested interests remain strong. Mr Yushchenko's erstwhile opponent, Viktor Yanukovych, won the presidential election in early 2010.

  Political structure: Constitutional changes to reduce the powers of the presidency relative to parliament took effect at the start of 2006, giving parliamentarians the leading role in forming the cabinet. However, the transition to a more parliamentary system sparked power struggles between the president and the government. Following an appeal by Mr Yanukovych, in late 2010 the Constitutional Court rescinded the constitutional reform of 2006. The president can now determine the candidacy of the prime minister independently of parliament, and also has the right to appoint and dismiss cabinet members and can dismiss the government without parliament's consent.

  Policy issues: Following agreement in late 2008 on a US$16.4bn IMF programme to help to stabilise the economy, Ukraine's compliance with the IMF's terms was extremely poor. Since the parliamentary election in October 2012, fiscal and exchange-rate policies have returned to the top of the agenda. In the run-up to the election, the budget balance deteriorated. The fixing of the hryvnya against the US dollar has cost around one-third of foreign-exchange reserves over the past year. The external deficit has widened markedly. The 2013 budget envisages some tightening compared with 2012. An attempt at a controlled devaluation of the hryvnya remains likely. Reducing dependence on Russian fuel imports will continue. Medium-term challenges include improving the poor business climate.

  Taxation: Personal income is taxed at 15% and 17%. The corporate tax rate has come down to 19% in 2013 and value-added tax is 20%.

  Foreign trade: Ukraine remains dependent on Russia for most of its energy imports, and Russia is still an important market for Ukrainian metals and machine-building. Ukraine has nevertheless made progress in diversifying into new markets, including the EU and Asia. Exports to Europe exceed those to Russia, but are dominated by products of low value added.

  Major exports 2011	% of total	Major imports 2011	% of total
  Non-precious metals	32.3	Fuel & energy, incl ores	36.4
  Food, beverages & agricultural products	18.7	Machinery & equipment	24.3
  Machinery & equipment	17.4	Chemicals	9.7
  Fuel & energy, incl ores	15.0	Food, beverages & agricultural products	7.7
  Leading markets 2011	% of total	Leading suppliers 2011	% of total
  Russia	26.9	Russia	28.7
  Turkey	5.8	Germany	8.4
  Italy	4.6	China	8.3
  Poland	3.8	Poland	5.0

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  March 12, 2013

• Structure

  Ukraine: Economic structure

  Data and charts: Annual trends charts

  
  

  

  March 11, 2013

• Outlook

  Ukraine: Country outlook

  Ukraine: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: The government appointed in December 2012 was, like its predecessor, drawn mainly from the Party of Regions (PoR) of the president, Viktor Yanukovych. Many members of the new cabinet have been chosen from the president's inner circle (known as "the family") and from politicians associated with leading east Ukrainian business groups. The new government's strength in parliament will be bolstered by the support of the Communist Party of Ukraine (CPU) and a large number of nominally independent deputies. Nonetheless, the government has a reduced parliamentary majority, which could hamper its legislative effectiveness. Its political effectiveness may be hindered by failure to include in government representatives from a wider range of business groups.

  ELECTION WATCH: The PoR came first in the parliamentary election in October 2012, with 30% backing on the party lists and around half of the seats in the single-mandate constituencies. This took its total representation in the 450-seat parliament to 185. The CPU saw the number of its seats rise to 32, from 25 at the 2007 election. However, the PoR may rely primarily on the nominally independent parliamentarians, who between them won 43 seats, and some small parties, which won seven between them. The polls in five electoral districts in which the outcomes were indecisive are to be run again in 2013. According to credible international organisations, the main flaws in the electoral process were in the run-up to the vote, and included unequal access to media and resources, as well as harassment and intimidation. The United Opposition, based around Yuliya Tymoshenko's Fatherland party, won 101 seats in the election. The Ukrainian Democratic Alliance for Reform took 40 seats and Freedom won 37.

  INTERNATIONAL RELATIONS: Ukraine's uneasy relationship with the EU has been brought back into focus by the parliamentary election. Ukraine signed a deal with the EU on free trade and political association in 2012, but ratification has been delayed because of EU concerns about a deterioration in democratic practice under Mr Yanukovych. The EU sees the treatment of Ms Tymoshenko, a jailed former prime minister, as symptomatic of politicisation of the judiciary. Concerns have been raised that negative assessments of the election could push Ukraine back towards Russia. This appears unlikely. Influential business groups around the Ukrainian president continue to view EU membership as a long-term objective. Closer links with the EU offer lucrative trade and investment opportunities. Moreover, securing visa-free travel would be popular in Ukraine and could boost the support for the government. Mounting economic imbalances, growing financial strains and looming debt repayments will add to the incentives to agree a new lending programme with the IMF in early 2013. The EU remains keen to draw Ukraine to the West--not least, as part of its integrated energy structure--but not at the price of appearing to go soft on resurgent political authoritarianism.

  POLICY TRENDS: Fiscal and exchange-rate policies have returned to the top of the agenda. In the run-up to the election the budget deficit was allowed to deteriorate. The fixing of the hryvnya against the US dollar cost around one-quarter of foreign-exchange reserves in 2012. The high interest rates needed to support the currency have deterred borrowing, even as the external economic picture has worsened. Plans for public finances in 2013 will probably have to be revised to tackle the thorny issue of domestic gas price tariffs. An attempt at a controlled devaluation of the hryvnya remains likely; in determining its extent, the authorities will have to balance the goal of supporting export growth against the possible damage to growth of increasing the burden for Ukrainian holders of foreign-currency loans. The government probably hopes to put in place the conditions to prevent external destabilisation before it eases its grip on the currency. Core among these conditions would be the resumption of a lending programme with the IMF. In response to mounting financial and economic pressures, including concern about looming debt repayment, leading credit-rating agencies downgraded Ukrainian sovereign debt in December. These developments will create strong incentives for reconciliation with Western multilateral organisations in order to re-establish economic credibility and to gain access to cheaper financing.

  ECONOMIC GROWTH: Economic growth in 2012 decelerated to just 0.1%, according to official data, from 5.2% in 2011. The abrupt economic slowdown in 2012 reflected an absence in the second half of the main drivers of growth in January-June--including investment and visitor spending on the Euro 2012 football championships--as well as a worsening external performance. The downturn spread to the domestic economy as weakening foreign prospects and rising policy uncertainty at home began to sap business confidence. In combination with high interest rates, this lay behind a fall in private investment that added to the woes of manufacturing and hit construction especially hard. Economic performance would have been worse but for the artificial boost to household consumption from a pre-election public spending spree. This was not sustained in the fourth quarter, and the continued irresolution of official economic policy will have damaged private investment further.

  INFLATION: The return of deflation at the end of 2012 took average inflation for the year to just 0.6%, well below the long-term annual average of around 10%, and much lower than the 8% recorded in 2011. Weak price growth in 2012 is explained by falling food prices early in the year and by government efforts, following a poor grain harvest, to restrain food prices and utility costs ahead of the parliamentary election in October. The spread of the economic slowdown to the domestic economy in the second half will have also been a factor.

  EXCHANGE RATES: The official rate of the hryvnya has been steady since May 2011. Significant intervention by the National Bank of Ukraine (the central bank) has been linked to concern about the impact of devaluation, as large shares of public and private loans are in foreign currency. The hryvnya came under stronger downward pressure after the general election in October 2012. Resisting depreciation pressures has come at considerable cost in terms of foreign reserves and domestic lending. Reserves rose modestly in January, and in February the government raised an additional US$1bn on international bond markets. Most of this will have been accounted for in repayments to the IMF, however, rather than added to reserves.

  EXTERNAL SECTOR: The strengthening of demand for investment and consumer goods widened the trade deficit in 2011, along with the current-account deficit, which grew to US$10.2bn (6.2% of GDP). In 2012 the high cost of fuel imports has continued to weigh on the external balance. Lower average steel prices and weaker global demand reduced returns on exports. The shortfall on the current account widened to US$14.4bn in 2012. The Economist Intelligence Unit estimates a current-account deficit of around 8.4% of GDP in 2012--the largest in the post-Soviet era. This is forecast to shrink as external demand recovers weakly, but to average more than 6% of GDP annually in 2013-17. A weakening in the country's external position was further indicated by the outturn in net foreign direct investment inflows in 2012, which fell from US$4.6bn in 2011 to US$4.3bn, the lowest level since 2004.

  March 11, 2013

• Forecast

  Ukraine: Country forecast summary

  Country forecast overview: Highlights

  • Following a parliamentary election in October 2012, the new government is again led by the Party of Regions of the president, Viktor Yanukovych. A reduced parliamentary majority and the failure to include a wide enough range of business groups in the government could affect government effectiveness and stability.
  • A high-profile meeting of EU leaders with Mr Yanukovych at the end of February concluded with calls for "tangible progress" on political and economic reforms. A decision on whether Ukraine will proceed to ratification of its EU association agreement this year will be made in May.
  • Relations with Russia have been strained. In December 2012 a planned presidential visit to Russia was cancelled and a visit by Mr Yanukovych to Moscow in early March apparently produced no results. In January 2013 Russian state gas company Gazprom billed Ukraine US$7bn for gas that it failed to import in 2012.
  • In 2010 the IMF executive board approved a new, two-and-a-half-year lending programme, worth US$15.4bn. Disbursements have been frozen because of the government's reluctance to raise gas tariffs. An IMF visit ended inconclusively in early February. Shortly afterwards, the government raised another US$1bn on international bond markets. Nevertheless, an array of financial pressures and looming debt obligations still favour compromise with the Fund, and a programme could be secured in the next two to three months.
  • The defence of the hryvnya has come at a high cost, and the impact of administrative measures on stabilising the currency has been brief. An attempt at a controlled devaluation, possibly in March or April, remains likely. International reserves rose modestly in January 2013, but in February the hryvnya showed signs of volatility.
  • Pre-election policies made the 2012 budget target hard to meet, but renewed efforts towards fiscal consolidation are possible in 2013.
  • Real GDP grew by just 0.1% in real terms in 2012, according to official data. Growth will strengthen modestly in 2013-17, to an annual average of just over 3%. Inflation fell to an average of 0.6% in 2012, but will pick up considerably in 2013.
  • The current-account deficit widened to US$14.4bn in 2012, around 8.4% of estimated GDP for the year. It is forecast to shrink as a share of GDP in 2013-17.

  Country forecast overview: Key indicators

  Key indicators	2012	2013	2014	2015	2016	2017
  Real GDP growth (%)	0.1	1.9	3.3	3.5	3.7	3.5
  Consumer price inflation (%)	0.6	7.5	6.5	6.4	5.5	5.6
  Consolidated budget balance (% of GDP)	-5.0	-4.4	-4.0	-3.7	-3.5	-3.2
  Current-account balance (% of GDP)	-8.4	-6.8	-6.5	-6.2	-5.8	-5.2
  Commercial banks' prime rate (av; %)	19.0	16.0	16.0	14.0	14.0	14.0
  Exchange rate HRN:US$ (av)	7.99	8.59	8.64	8.54	8.41	8.19
  Exchange rate HRN:€ (av)	10.27	11.43	11.34	10.85	10.59	10.33

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  March 12, 2013

View detailed map

Country Briefing

Land area

603,700 sq km, of which about 55% is cultivated

Population

45.8m (end-2009)

Main towns

Population in '000 (December 2001 census):

 Kiev (capital): 2,602

 Kharkiv: 1,470

 Dnipropetrovsk: 1,065

 Odessa: 1,029

 Donetsk: 1,016

Climate

Situated in the central part of the northern temperate zone, Ukraine has a moderate continental climate with four distinct seasons. The southern coast of Crimea has a Mediterranean climate. The average annual temperature in Kiev is 7.2°C. The coldest month is January, when the average temperature is 5.8°C, and the hottest month is July, when the average temperature is 19.3°C. Precipitation in the Kiev region averages 600 mm per year

Language

Ukrainian, a member of the East Slavonic group, is the official language; however, Russian is equally widely spoken in eastern Ukraine, Kiev and parts of the countryside

Measures

Metric system

Currency

The hryvnya replaced the karbovanets on September 2nd 1996 at a rate of HRN1:Krb100,000

Time

Two hours ahead of GMT

Public holidays

January 1st (New Year); January 7th (Christmas, Orthodox Church calendar); March 8th (International Women's Day); April 15th (Easter), May 1st (Labour Day); May 9th (Victory Day); June 3rd (Trinity Day), June 28th (Constitution Day); August 24th (Independence Day)

January 15, 2013