Fri. Apr 19th, 2019

Ukraine before the mirror: few letters and five years of hardship

Ukraine before the mirror: few letters and five years of hardship

The word gas derives from the Greek chaos. It was coined by the Flemish chemist Van Helmont, and both perfectly define the reality of Ukraine today. Broadly speaking, the photograph is the following: the country, in respiration thanks to a millionaire rescue from the IMF, Europe and the US, holds presidential and parliamentary elections this year, so it will not have a Government defined before the end of 2019 He has avoided bankruptcy for now, but his budget, which must pay a huge debt, depends on the income from the gas that crosses from Russia to the European Union through its territory. And this transit contract ends on December 31, with Moscow taking the plunge to negotiate its renewal because Germany projects gas pipelines on safer routes. And in the background, a civil war stalled in Donbass and the loss of Crimea. With this panorama, Ukraine is examining this Sunday.

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The transit contract was signed ten years ago by then Prime Minister Yulia Timoshenko, who is now second to the presidency in the polls. The so-called "Gas Princess" entered the prison in 2011 because that agreement was "too beneficial" for Russia, according to rival Viktor Yanukovych, who fled after Maidan's violence. In the polls it is surpassed by the actor and comedian Volodymyr Zelensky, champion of the indignant and related to Igor Kolomoisky, an oligarch exiled due to the intervention of his Privatbank, which left a hole of 5.600 million dollars in the Ukrainian accounts, and has sued Russia for the nationalization of its companies in the Crimea. The third candidate is the current president, Petro Poroshenko, surrounded by corruption and a staunch enemy of Moscow. If none is imposed by majority, there will be a second round in April, although we will have to wait until the legislative elections on October 27 to definitively clarify the political panorama.

The winner will define future relations with Russia. Gas plays a key role for a country suffocated by a public debt of around 75% of GDP, "a very high figure by the standards of an emerging economy," according to the European think tank Bruegel. Kiev will have to pay its creditors about 36,000 million dollars in the next three years, of which about 15,400 million correspond to this exercise. To achieve this, it depends on the transit of Russian gas through its border, which means around 3,000 million dollars a year for its coffers, 3% of its GDP.

However, the tap closes for Kiev. In addition to the "TurkStream", the EU, led by Germany, together with Russia is building the "Nord Stream" gas pipeline to guarantee its energy security. Once the Baltic road enters service, which is not feasible before 2021, the Ukrainian channel will have no meaning.

Boycott threat

Until then, Kiev is interested in continuing to be the bridge between both parties, and for this the Ukrainian Naftogaz has offered to reduce their rates by half. However, the negotiation is tough: first, a revision of invoices for 11,500 million filed against Gazprom by changes in market prices is to be resolved in a court in Stockholm; Second, Moscow demands that this demand be annulled and delays the negotiations in the hope of having a government more favorable to their interests. In addition, it can cut the gas to Europe in winter. However, Ukraine has found an ally in the US, which has threatened to boycott the Baltic gas pipeline through its sanctions against Russia.

"Nobody knows what is about to happen. Russia could be interested in winning Timoshenko, it would be easier for Gazprom to negotiate with her », says Balazs Jarabik, researcher of the" think tank "Carnegie Endowment. "However, the victory of Poroshenko is not ruled out. For the war, Ukraine has been firmly oriented towards Europe, and the polarization '' Poroshenko or Putin '' is working, "says the expert. "25% of the voters are undecided, and Zelensky raises doubts about the most important issues," he adds. The key will be in the Ukrainians' pocket, suffocated by the conditions of the IMF despite being at the tail of Europe. «Until Poroshenko has offered populist aid to households to pay for gas», underlines Jarabik

This March, the $ 17,500,000 bailout program the IMF granted in 2015 after the fall of the Yanukovych government would have concluded. However, in mid-2017 he was suspended due to Kiev's refusal to apply his demands. However, this did not prevent another aid of 3,900 million to 14 months to be renegotiated last December. "With notable exceptions, the efforts to create a more dynamic, open and competitive economy have fallen short," admitted the agency that runs Christine Lagarde to grant the new credit. For its part, the European Union has offered 2,800 million euros in 2015 and 500 million this year.

Unlike the help given by the IMF to other countries such as Greece or Argentina, with Ukraine "its conditionality went far beyond the traditional macroeconomic criterion, addressing issues of governance such as corruption and justice reform," says Marek Dabrowski, Bruegel analyst. "The international community is increasingly disappointed with the slow progress of the reforms and the inability to limit corruption," he adds.

Ukraine had five basic pillars to reform: an unsustainable pension system, ending gas subsidies completely, privatizing everything privatizable, balancing accounts and taking real measures against corruption, its endemic evil.

The IMF's critique of this is devastating: "Although new institutions have been created, anti-corruption reforms have not yielded concrete results and continue to face strong opposition. No high-level public office has been condemned. This can be attributed to the significant weaknesses of the judicial system, widely perceived as corrupt by public opinion ».

Regarding the price of gas, historically subsidized for households and factories, the current government tries to convince the IMF not to raise it after doing 25% in October of last year. It would be his death at the polls. For his part, Tymoshenko has focused his campaign on not complying with this requirement of the IMF. According to Reuters, the gas bill has multiplied 13 times since 2013.

Regarding pensions, where minimums are around 50 euros, the IMF asks for another reform, since the intense emigration of these years has sunk the labor force to one contributor per pensioner in the country.

In any case, the future government has a difficult ballot. Not only should you regain the confidence of the markets, but also of your own citizens. According to a Gallup poll, only 9% of Ukrainians trust their Government. And only 12% in a clean election.

Supportive emigrants

If Ukraine moves forward it is thanks to its long-suffering emigrants. Its central bank estimates that its remittances accounted for around 8% of GDP in 2018, some 11,000 million euros, a figure that multiplies the aid offered by the International Monetary Fund (IMF) and the European Union. According to the data collected by the Center For Economic Strategy, some four million Ukrainians work outside. Of them, 2.7 million do so permanently.

Thanks to the visa-free regime with the European Union, the country that has benefited most from the Ukrainian workforce has been Poland, which employs 40% after shooting its number from 200,000 to around one million, many of them temporary. Russia, on the other hand, welcomes one in four Ukrainians. And although only 16% of migrants have higher education, Ukrainian computer scientists outnumber those in any other Eastern European country. According to data from the National Institute of Statistics, 98,422 Ukrainians lived in Spain in the first half of 2018.


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