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Russian bail-out, gas discount to help Ukraine with financial woes, experts say

December 18, 2013, 19:03 UTC+3 18
It will allow the government to adopt the state budget, maybe even a balanced budget that may become an impetus for development
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© ITAR-TASS/Maxim Nikitin

KIEV, December 18 (Itar-Tass) - Russian-Ukrainian agreements just signed in Moscow do not only resolve Ukraine’s current economic problems, but also enable the country to determine a strategy and start modernizing a number of sectors, most experts say in the wake of Ukrainian President Viktor Yanukovich’s visit to Moscow December 17.

“The signing of economic accords with Russia is considerably straightening out the economic situation in Ukraine,” the president of the analytical centre Politics Igor Popov believes. “First, it will allow the government to adopt the state budget, maybe even a balanced budget that may become an impetus for development, as the key figure the budget is based on is the Russian gas price.” Since it has been reduced, the specialist added, Ukraine will have considerable spare funds that may be reallocated for development projects.

Russian price discounts will help modernize Ukrainian utilities infrastructure and thermal complex without hiking tariffs for the population, says independent expert in the energy market, former Naftogaz of Ukraine press officer Valentin Zemlyansky, said. “Ukraine has some time to modernize utilities and thermal power without raising tariffs,” he said. Zemlyansky added gas price reduction would have a positive effect on the Naftogaz of Ukraine’s financial position, as heating utilities would be gradually repaying debts to the Ukrainian gas monopoly.

The director of the Institute of Global Strategies, Vadim Karasyov, believes Russia’s bail-out of $15 billion will rescue Ukraine from default.

“As a holder of Ukrainian sovereign bonds, Russia will not let Ukraine face a default,” the political scientist said, adding Ukraine acquired “a breathing space financially, but should use it wisely.”

According to some pundits, the Russian loan relieves Ukraine of the need to seek the IMF's financial aid, also expected in an amount of $15 billion. “The loan will help close the current fiscal year and face the next year without worries. It will secure the government against the threat of default,” a former finance minister, Igor Umansky, believes.

Meanwhile, abandoning talks with the IMF, analysts believe, will enable the Ukrainian government to not only refrain from unpopular measures, but also maintain the exchange rate of the national currency, the hrivnya (it has fallen from 8.03 hryvnias a dollar to 8.33 hryvnias a dollar in the interbank currency market this year), as well as to set free money supply growth. Ukrainian enterprises have long asked the National Bank of Ukraine for affordable lending in hryvnias, but such requests previously drew strong objections from the IMF.

The abolition of restrictions in bilateral trade agreed by the two presidents renders further negotiations of the EU association agreement meaningless for Yanukovich, the director for economic programmes of the Razumkov Centre Vasily Yurchishin believes. “Formally, the Moscow agreements do not close the door for talks with the EU. But by binding Ukraine to its market Russia is narrowing its own room for maneuver, so the chances of an association agreement are becoming slimmer,” he said.

The director of the Kiev-based Gorshenin Institute of Management Issues, Konstantin Bondarenko, sees the Moscow deal as Ukraine’s tactical victory. However, strategic success, the expert believes, “will depend on when and under what circumstances the EU Association Agreement is signed, and this agreement “is on the table and, as high-ranking European officials said, may be signed any day soon.

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