Ukraine’s Packed Winter Wallop
Ukrainian shares continued a 50 percent loss in the cellar of European frontier markets as the ruling party kept its parliamentary majority and fought off a challenge by a new group founded by champion boxer Klitschko in a contest widely criticized by foreign observers. The main opposition leader Tymoshenko was in jail on a 7-year sentence and the communist and rightist extremes improved their showings at Regions expense. Energy supplier Gazprom reacted to the results by refusing any winter gas price renegotiation as Russia tries to push membership in the Eurasia Union with Belarus and Kazakhstan as a quid pro quo. The IMF in turn is still pressing for 30-50 percent tariff hikes for households and utilities under its $15 billion lapsed program which has not scheduled a return mission. International reserves fell almost 10 percent on Fund repayment and dollar flight surrounding the elections, as 20-percent range devaluation is routinely cited to counter fiscal and current account deficits at 6 percent of GDP. The economy is on the verge of recession with slumping agricultural and steel exports and no more construction and infrastructure support from football event preparation. The government has managed sporadic Eurobond placements but local buyers have shunned both hyrvnia and foreign-currency denominated offerings. Credit growth has been anemic as overseas-owned banks deleverage and a de facto ban on retail FX lending is in place on a stagnant deposit base. Following his party’s victory President Yanukovych is now positioning for the next 2014 competition for the top post. He will introduce lower income taxes and business facilitation measures but has ruled out near-term currency and food and commodity price adjustments. The sovereign B rating has been stable and thinly-traded CDS spreads have been steady. The central bank will impose stricter rules for surrendering company euro earnings but insists outright controls are not contemplated. Ties with the EU are frozen over corruption and democracy reservations and debt crisis focus shelving partnership and free trade agreement prospects.
A wheat export ban to go into effect mid-November will anger other countries, as the same stance in 2010 was viewed as an Arab Spring contributor. For Egypt bread and other subsidies are a major topic for fiscal consolidation steps to be contained in an almost $5 billion IMF facility which could be finalized by December. The current budget will overshoot the projected 8 percent of GDP gap and inflation could again tip into double digits with higher staple costs. Tourism and Suez Canal revenues remain weak and international reserves are precarious at $15 billion or three months’ imports despite recent fund infusions from Qatar and Turkey. Constitution rewriting is hung up over clashes between Islamic party and other representatives over religious provisions as the Cairo exchange with a 50 percent advance is at the opposite performance extreme on nonetheless moderating tension.
