Whoever wins election on 25 May will face tough task of enforcing harsh austerity measures in return for $18bn aid
Ukraine's controversial opposition leader Yulia Tymoshenko has formally joined the race to become president, on the same day as the huge task facing the new leadership was underscored by a tough IMF aid package that will foist deep austerity on the country.
Tymoshenko, the gas tycoon turned Orange revolution leader who ended up in jail under the previous regime only to be released into the euphoria of the Maidan protests, pledged to represent both halves of the fractured country.
"I will be the candidate of Ukrainian unity," the 53-year-old said. "The west and centre of Ukraine has always voted for me, but I was born in the east, in Dnipropetrovsk."
But it remains unclear how popular Tymoshenko is, and whether she can appeal to both the nationalists in the west and the pro-Russian elements in the east. The latest opinion polls on the presidential race show oligarch Petro Poroshenko, known as the "chocolate king", and former heavyweight boxer Vitaly Klitschko in first and second place, respectively, well ahead of Tymoshenko.
Whoever wins the vote on 25 May will face a tough task. The International Monetary Fund on Thursday offered a bailout of up to bn (£10.9bn) over two years, in return for harsh economic reforms that may well worsen living standards for the already impoverished population. Further IMF aid will be unlocked if austerity measures are passed, including a sharp rise in the cost of domestic energy. In a first vote on Thursday night, the Ukrainian parliament approved a law required for the IMF bailout.
In explaining why the the IMF conditions had been accepted, the prime minister, Arseny Yatseniuk, told parliament Ukraine was on the edge of bankruptcy and its economy could shrink by up to 10% this year without austerity measures. With the measures in place, GDP would only contract by 3%, he predicted.
When he started the job last month, Yatseniuk called his government a "kamikaze" one because of the painful reforms it would undertake. The IMF conditions are sure to further erode the political support for Yatseniuk and Tymoshenko, although experts differ as to how much.
Apart from the hike of up to 50% percent in the price of gas for consumers, Ukraine's state-controlled natural gas provider announced a 40% gas price increase for local heating companies, starting on 1 July. The government also accepted a flexible exchange rate for its currency, the hryvnia, that has been fuelling inflation. An inflation rate of 12-14% is being predicted for the year.
Sergei Kiselyov, an economics expert from the school of political analysis at the Kiev-Mohilyanskaya Academy, said inflation and higher gas rates for heating companies would "hit a lot harder" than the hike in consumer gas prices, which average only 7.5 hryvnia (38p) per person per month. The average person pays 200 hryvnia per month to heat a 50 sq metre apartment, but this will rise to 280 hryvnia. The average monthly wage is 3,148 hryvnia, more than half of which goes towards food.
Combined with the rising prices of imported products, this would cause people's purchasing power and economic position to fall, Kiselyov said.
"I don't think half the population will live below the poverty line but the majority of the population will be worse off economically, that's understood," he said.
According to Vasily Koltashov, an economist at the Institute of Globalisation and Social Movements in Moscow, the IMF's austerity measures were harsher than those implemented in Portugal and Greece. They were "aimed at placing all consequences of the Ukrainian economic crisis on the shoulders of the Ukrainian people," he said. "But Ukrainians differ from the Portuguese and the Greeks because they don't have many savings left. Wages now in Ukraine are, as a rule, not enough to feed a family, and the devaluation of the hryvnia will make it totally impossible."
The worsening economic situation would lead to greater social unrest and could even result in parts of southern and eastern Ukraine following Crimea's example and moving to join Russia, Koltashov said. "People won't fall into depression, they'll resist … and this may take on a pro-Russian tone, not because Russia is good and is calling them to do it, but because people see Crimea joining Russia as a way to jump off a burning train, to get out of the Ukrainian crisis."
Russia's economic backlashRussia is also feeling the economic crunch of the Ukraine crisis and its takeover of Crimea, with wealth leaching from the country at a rate rarely seen before.
The economic development minister, Alexei Ulyukayev, said on Thursday that capital flight amounted to $60bn in the first quarter and would likely reach at least $100bn by the end of the year, up from $62bn last year. As a result, GDP growth would shrink even further to 0.6% and investments would drop to -1.3%, he predicted.
Also on Thursday, S&P changed the outlook on the credit ratings of the Russian state-controlled oil and gas companies Gazprom, Lukoil, Rosneft and Transneft from "stable" to "negative".
The economic slump has yet to affect Vladimir Putin's approval rating, however. The latest poll showed 82.3% of Russians thought he was doing a good job. Putin's rating has risen by more than 20% since the start of the year.
UkraineEuropeInternational Monetary Fund (IMF)EconomicsYulia TymoshenkoAlec Luhntheguardian.com © 2014 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds |
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