Ukraine’s Comedy Candidate Cringe

Ukraine shares struggled to stay positive on the MSCI frontier before the first round of presidential elections, where a well-known comedian leads 40 rivals in surveys ahead of incumbent Poroshenko and previous occupant Tymoshenko. The frontrunner Zelensky has no detailed campaign platform beyond establishment mocking, but reminds voters that television personalities without political experience triumphed in the US and elsewhere, although he has been accused of close association with oligarchs who dominate the media. The incumbent has highlighted a mixed reform track record, as the latest IMF program is due to expire later this year, and his willingness to confront Russia on the fifth anniversary of Crimea’s seizure as the east of the country continues in civil war. Tymoshenko, after emerging with a burnished reputation for opposing the Yakunovych regime landing her in prison, has been haunted by old state oil company corruption allegations as she assumes a populist economic policy stance. Her anti-Fund position and spending promises come as the constitutional court threw out the anti-corruption law passed to satisfy international donors and energy subsidy reductions were further delayed. Pre-election budget strains led the government to re-open a 2028 external bond but sell it directly to JP Morgan’s trading desk given larger investor doubts about growth and servicing. Prospects for GDP warrants paying off are mixed with 3% expansion forecast this year on flat EU exports and domestic consumption. Inflation is just below double digits and the currency rebound against the dollar is expected to stall after the polls. The current account deficit is stuck at 10% of GDP with remittances and international aid the main bridges as foreign direct and portfolio investment falter. External financing needs are 40% of output annually, with gross reserves only $20 billion, and another banking system rescue may be in order with the bad loan ratio still 50%. Nationalization and fraud charges against the biggest private competitor Privatbank controlled by the oligarch Kolomonsky have entered campaign debate as he owns the comedian’s TV channel and rumors fly that he is pulling the strings. Average citizens are angry at frozen living standards and the Russia conflict but have also reportedly been targeted by Moscow disinformation to sway their preferences toward the neophyte who may be inclined to friendlier relations than other chief candidates in the mix as sworn enemies. The split widened early in the election cycle with Ukraine’s Orthodox Church formally severing ties, and a consensus that the US and Europe should stiffen trade and financial sanctions after five years of battle claiming tens of thousands of lives and displacing even more.

Russian shares were up 10% on the MSCI Index through February following a sovereign ratings downgrade, but growth is only in the 1% range on a precipitous FDI drop in anticipation of further cross-border commercial curbs. 5% inflation, pension retirement age delay and higher value added tax have slashed President Putin’s popularity rating to 60%. With the balanced budget, he unveiled new social spending to regain momentum, while dismissing international investor criticism over the detention of veteran private equity executive Calvey, caught in a bank dispute with a Kremlin ally. Over three decades he managed to avoid controversy while maintaining a top reputation for performance and integrity, and colleagues invited to the summer St. Petersburg economic forum have chosen their own boycott to convey a message.

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