Default on Bald Mountain

Victor Yushchenko: The world does not recognize economic parameters painted in rosy tones

The readiness of the International Monetary Fund to help Kyiv, as expected, was met with the impossibility of providing this assistance. Yesterday was marked by another scandal at the top of the Ukrainian government - the country's Finance Minister Viktor Pynzenyk resigned, and President Viktor Yushchenko and Prime Minister Yulia Tymoshenko continued to pour out accusations at each other. “The political consensus needed to implement the IMF program is fragile, while the global and regional macroeconomic situation has further deteriorated since the last rating downgrade in October 2008,” said Fitch Ratings, which announced a downgrade of long-term credit ratings yesterday. default of the issuer of Ukraine in local and foreign currency to level “B” with a negative forecast.

As is known, the IMF Board of Directors in November last year approved an agreement with Ukraine providing for the allocation of a stabilization loan in the amount of $16.4 billion. The first tranche of $4.5 billion was provided to the National Bank of Ukraine immediately. Experts even then expressed doubts that Kyiv would be able to adhere to the action program agreed with the IMF and it would come to receiving the second tranche. Recent months have passed in Mrs. Tymoshenko's demands to dismiss the head of the National Bank, Vladimir Stelmakh, and in the government's fruitless attempts to adjust the budget approved by parliament in accordance with the changed economic situation. As a result, the foundation’s mission, after three weeks in Kyiv and attempts to negotiate with the government, left the Ukrainian capital. In all likelihood, she will not be able to recommend the fund's board of directors to allocate the next tranche of the loan.

“I regret that three days ago the mission of the International Monetary Fund left Ukraine. The effective communication that should have taken place between the Ukrainian government and the mission did not take place. There is only one problem - the world does not recognize the economic parameters painted in rosy tones,” Viktor Yushchenko said yesterday in an interview with the Ukrainian weekly Korrespondent.

And answering a direct question from journalists from the German agency DPA about whether Ukraine is in danger of default, Mr. Yushchenko said neither “yes” nor “no.” He again appealed to problems with government and the budget: “The answer lies in how strong our fiscal policy will be. How realistic will it be? How ambitious. And the most important thing is how balanced the budget will be.” Noting that “there are political factors” (“the prime minister has made the presidential elections a priority”), the Ukrainian president summarized: “If we take the right responsible steps, I assure you, there will be no problems - we will be able to overcome this crisis, we will be able to get positive result. But if the government continues to be occupied only with populism and play politics, the economic result will also be, but completely different.”

IMF official David Hawley explained at a briefing in Washington yesterday that the fund's specialists have not yet been able to come to an understanding with the Ukrainian authorities on how to finance the budget deficit. “...Various options for financial and budgetary approaches are being considered that would help stabilize the economy without undermining public finances,” ITAR-TASS quotes Mr. Hawley as saying. The IMF official also commented on the resignation of Viktor Pinzenyk. This resignation, according to Hawley, only confirms the need for “strong crisis management” in Ukraine.

Mr. Pynzenyk is believed to have been committed to making major adjustments to the budget to make it more realistic, but was completely overruled by Ms. Tymoshenko. Yesterday she did not spare harsh words in the back of the outgoing minister: “Not all officials can withstand the challenges of the global financial crisis, not all officials can work in extreme conditions, not all officials can adequately respond to challenges. And therefore the weakest ones leave their fighting positions, they go and do other things.”

As is known, Ms. Tymoshenko’s own “battle positions” lately have been on the gas front, where she hoped to deliver decisive blows to the current president of the country. Viktor Yushchenko yesterday approved by his decree the decisions of the National Security and Defense Council, the scandalous meeting of which took place on February 10. The decree calls the transition to a direct long-term contract for gas supplies with Russia an important element of ensuring “energy security of both Ukraine and Europe.” At the same time, the base price of $450 per thousand cubic meters is called “economically unjustified,” “one of the highest in Europe,” and “inconsistent with the level approved by the directives of the President of Ukraine.” Among the instructions there is an order to the Prosecutor General of Ukraine and the country's security service to conduct investigations into the compliance of the actions of Ukrainian government officials (read Yulia Tymoshenko, the head of Naftogaz Oleg Dubina and his first deputy Igor Didenko) when signing contracts with Gazprom for the supply and transit of gas up to 2019. In addition, the document contains a lot of instructions to the government, starting with the approval by Sunday, February 15, of the gas balance of Ukraine, the financial plan of Naftogaz and the submission of proposals to parliament on budgetary subventions for the oil and gas state concern and ending with the preparation of a new energy strategy for the country by April 1, 2009 and the project for reforming fuel and energy markets.

The Prime Minister of Ukraine said yesterday that she had not yet had time to familiarize herself with the text of the decision, explaining this as a “difficult working day.” “I’m generally not superstitious, although sometimes some state meetings, as, for example, at the National Security and Defense Council, are a little similar to the events on Bald Mountain,” she said. Mrs. Tymoshenko did not fail to repeat publicly that the National Security and Defense Council was meeting in order to return the Swiss trader RosUkrEnergo to the scheme, or at least not to allow the government and Naftogaz to transfer 11 billion cubic meters of gas located in underground storage facilities on the territory of Ukraine to the state company. “I want to emphasize once again that everything that happened at the NSDC meeting was torpedoing gas agreements that were signed (in Moscow - Ed. ), and beneficial for Ukraine,” RIA Novosti quotes the Ukrainian prime minister. - And this was the desire to return RosUkrEnergo and return the ill-gotten volumes of natural gas that allegedly belong to RosukrEnergo - 11 billion cubic meters in storage facilities in Ukraine. This is what the NSDC meeting was dedicated to.” According to her, these 11 billion cubic meters were planned to be used by “at least three political forces for their presidential election campaign, that’s why there is such hysteria, that’s why there are such meetings of the National Security and Defense Council.” And her “right hand”, First Deputy Prime Minister Oleksandr Turchynov, said that the government is working on Naftogaz’s financial plan even without instructions from the president.

Let us recall that on February 10, at a meeting of the National Security and Defense Council, Mr. Yushchenko extremely harshly criticized the actions of the government of Yulia Tymoshenko in the gas sector, accused of failure to comply with its directives and ignoring national interests. The head of the Cabinet of Ministers left the meeting to make a special statement for the press, in which she called the National Security and Defense Council a “roof” for corruption schemes and an attempt to defend the interests of the intermediary in the gas market, represented by RosUkrEnergo. With her accusations, she, in particular, achieved that, in general, the secret decision of the council was forced to be made public.

Despite the fact that Deputy Secretary of the National Security and Defense Council Stepan Gavrish swore that there was not a word about RUE in the text, the document signed by Viktor Yushchenko contained two paragraphs directly related to the Swiss trader. The Government of Ukraine has been instructed to report on how Naftogaz will function in the conditions of the impossibility of alienating property rights from RosUkrEnergo for 11 billion cubic meters of gas located in underground gas storage facilities. As is known, the government is trying to offset this gas against RUE’s $1.7 billion debt to Naftogaz. The right to claim this debt was purchased by the Ukrainian concern from Gazprom as part of a package of agreements signed on January 19-20 in Moscow.

In addition, the National Security and Defense Council instructed the government to conduct, together with the council staff, an analysis of Naftogaz’s activities, including an audit of ownership rights to gas located in underground storage facilities, and to present a report at the council meeting on April 1.

The National Bank of Ukraine (NBU) refused to sell currency to banks that conduct transactions on the interbank foreign exchange market at a rate above average. This was reported in a letter from the NBU, which was signed by the acting head of the NBU, Anatoly Shapovalov. According to the letter, with banks that systematically carry out foreign exchange transactions at a rate higher than the market average, the general agreement on transactions on the interbank foreign exchange market will be suspended, and other measures of influence will be applied against them. At the same time, according to the NBU, banks themselves are interested in maintaining a stable exchange rate, as they already realize that borrowers have significant difficulties in repaying foreign currency loans even at the current exchange rate. Since the beginning of February 2009, the NBU has allocated $724 million to support the hryvnia exchange rate. Yesterday, the dollar was worth 7.7 hryvnia. INTERFAX-UKRAINE

Andrey DENISOV, Alexey GRIVACHS