Economy and politics

A memorandum on economic policy was sent to the IMF this week, Ukrainian officials have announced. The memorandum describes a number of actions aimed at stabilizing the economic situation in the country. The key points of the document will be announced once it is signed by the President, Prime-Minister, the Governor of the National Bank and the Minister of Finance.

The economic crisis has been unwinding rapidly in Ukraine, forcing many economists to revise their earlier forecasts regarding the macroeconomic scenarios in 2009. Namely, the depth of the real sector downturn, the substantial devaluation of the hryvnia caused by panic on the foreign exchange market, and a weak government response to changing economic conditions are among the factors that were not entirely anticipated by either domestic or foreign analysts.

Belarus (literally translated as ‘White Rus’) is a landlocked economy in transition, located in Eastern Europe and neighboring Ukraine, the Russian Federation, Latvia, Lithuania and Poland.

The President of Uzbekistan recently signed the “2009 Investment Program”. The overall 2009 CapEx will amount to USD 7.8 bln including USD 1.4 bln FDI. USD 0.9 bln FDI will be invested in the oil & gas sector. Implications of the 2009 investment program include: the building of new roads, bridges, gas and water pipelines; the building of new public health and educational structures and other establishments; the modernization of several industrial enterprises. As a result, we assume that particular companies will be the focus and benefit from the investments in Uzbekistan next year:

Despite his previous decision regarding Parliament’s dismissal (see Sokrat October 9 flashnote), President Viktor Yuschenko put his decree on hold temporarily to ensure that Parliament passes a series of emergency anti-crisis measures. After accepting the President’s version of the anti-crisis legislation in the first reading last week, the Parliament finally passed a law on Friday, October 31, 2008. The law was supported by 243 MPs out of 450.

After consultations with major political forces on Wednesday, October 8, 2008, President of Ukraine Viktor Yuschenko dissolved the Ukrainian Parliament. The appropriate TV message was broadcasted late night on October 8, 2008 and today, the decree appeared on the President’s website.

From mid-2007 till now, it has been a difficult period for the global economy. Despite not being fully integrated into the global economic system, the Ukrainian economy has felt the influence of the economic crisis. In this report we analyze the performance of the Ukrainian economy in 2008 so far and give our forecast for the macroeconomic performance towards the end of 2008 and onwards.Executive summary The Ukrainian real sector grew at impressive rates in 2000-2007. While we anticipate that the global financial crisis and the anti-inflationary war will somewhat slow down the GDP, real GDP growth will nevertheless stay between 5 and 6.5% for the next five years. The machinery, trade and transportation sectors will continue to be the main driving forces of the real sector’s growth. The performance of the chemical and metallurgical sectors will depend heavily on global markets, while Ukrainian agriculture may get a boost if the Parliament lifts the land trade moratorium. As we anticipate world steel prices to decline and imported natural gas prices to rise, we forecast the worsening of an already high trade balance deficit, driving a slight UAH devaluation in 2009. Despite record inflation in late-2007 to early 2008, we see clear signals of price stabilization, driven by the economy’s cool-down and the government’s anti-inflationary policies. While we anticipate inflation to stay double-digit until 2010, we view the recent summer deflation as the beginning of a CPI growth rate slowdown. While Ukraine observed the collapse of the Parliament’s coalition in September 2008, we anticipate the consolidation of major political forces as we witness a very effective current lawmaking process in the Parliament, coordinated by recent foes – the Bloc of Yuliya Tymoshenko and Party of Regions. While we see some possibility of the President dissolving Parliament, we do not consider the odds of this happening to be very high.

Ukraine’s Parliament has finished vacations and commenced its new session on Tuesday, September 2. The day finished with the collapse of the majority coalition and an escalation of the conflict between President Viktor Yuschenko, goaded into the confrontation by the Head of his Administration, Viktor Baloga, and Prime Minister, Yuliya Tymoshenko as Tymoshenko used the opposition Party of Regions, led by Viktor Yanukovych, to pass several legislative amendments limiting the President’s power.

Applying financial analysis to the Ukrainian economy’s aggregated assets and liabilities data allows for the identification of industry-specific prospects and challenges. In this report we take a look at the aggregated economy-wide assets and liabilities data along with data on key sectors of the Ukrainian economy.

The State Statistics Committee of Ukraine has announced CPI figures for July 2008. CPI fell 0.5% MoM, thus indicating monthly deflation for the first time since March 2006 and breaking the deflation record set six years ago. Therefore, YTD inflation went down to 14.9% (compared to 15.5% in June) and YoY inflation decreased to 26.8% (compared to 29.3% a month ago).