One year after Maidan

By bne IntelliNews November 21, 2014

Ben Aris in Moscow -




On November 20 - almost one year to the day since the start of the Maidan protests that brought down President Viktor Yanukovych - a broad coalition deal was finally signed in Ukraine between the leading pro-European parties.

Ukraine’s People’s Front, the Radical Party, Samopomoshch (Self Help), the Petro Poroshenko Bloc and Yulia Timoshenko’s Batkivshchyna signed off on an agreement to establish a coalition in Ukraine’s parliament to complete the transformation from post-Soviet kleptocracy to a liberal pro-market and pro-reform government, hopefully for the benefit of the people, rather than those in power. 

Ukrainian Prime Minister Arseniy Yatsenyuk’s People’s Front won the October 26 parliamentary elections with 22.14% of the vote, while the president's eponymous Petro Poroshenko Bloc came a surprising second with 21.81% of votes.

Amongst the promises made in the deal is to fully investigate the killings on Maidan in February this year. Also on the to-do list is to abolish political immunity and make deputies accountable before the law for corruption and self-serving practices that have plagued Ukraine for two decades. The document also puts integration with the European Union at the core of the government's foreign and economic policies. Last but not least, the coalition will  launch a deep and wide-ranging programme of reforms to pull the economy back from the brink. 

“We see our main task in ensuring the defence potential of Ukraine, economic growth, protection of rights and freedoms of our citizens,” says the document.

The economic reforms are pressing as the country is living hand to mouth on handouts from international financial institutions. The political deal is crucial as the IMF in particular says that it will not transfer any more money until it has seen a creditable reform programme on the table.  An international donor conference that should have brought in billions in aid planned for November has been cancelled and pushed back to the start of next year. 

Now that the political transformation has finished and the entire political apparatus has a fresh and legitimate mandate from the people, the real work begins. However, given Ukraine's complete failure to ever do any reform, irrespective of the colour of the government, those that are holding the purse strings on aid and loans are understandably cautious. Ukraine is one of only two countries in the former Soviet block yet to regain even 1991 levels of income, which remain 20% below even Soviet levels. 

“We will carry out reforms designed to achieve European quality of life for Ukrainian citizens, do away with poverty, develop a competitive economy, have a stable development of the society, favourable conditions for business, new jobs and decline in unemployment, as well as to obtain energy independence, develop the civil society, ensure freedom of speech, fight corruption and restore justice, develop education and science, culture and spirituality,” the coalition deal documents says. 

Ukraine's economy has already collapsed, although no one is actually admitting to it. GDP will contract this year by about 9%, bank non-performing loans are 50%-60% by some estimates, the government is running a 4.2% budget deficit and a large current account deficit, inflation is running at 20%, the hryvna has devalued by half since the start of the year and the country has some $14bn of debts to pay, but only just over $12bn in reserves. 

"The current account deficit has shrunk significantly due to the recession and the exchange rate correction, and might come in at just 2-3% of GDP, down from 9-10% of GDP one year earlier. The bad news is that confidence has collapsed in the UAH and banks, and the capital account of the [balance of payments] seems to be melting," says Tim Ash, head of emerging markets research at Standard Bank. 

Also crucially the debt to GDP ratio is over 60%, which means under the terms of a covenant on Russia's $3bn Eurobond issued in December 2013, the Kremlin can call this bond in at any time and precipitate a financial crash at will. 

Ash, who was in Kyiv this week, believes that Russia will undermine any effort to get Ukraine back on its economic feet until the Kremlin has secured its key demands: no Nato, no EU and no Maidan government.

"My take is that given one of the Russian objectives is to ensure the Maidan movement fails, there will be further escalation on any sign of a stabilisation or improvement in the domestic political/economic scene in Ukraine," Ash said in a note emailed to clients on October 20. "Russia hence remains a destructive party with respect to the crisis in Ukraine - until that is it secures the concessions it has been driving for." 

However, Ash reports that from the conversations he has had with business people and government officials that there is no willingness in Kyiv to make any concessions to Moscow, especially after 4,000 people have paid for the transformation with their lives – including 1,000 that have died since the ceasefire deal was signed in Minsk on September 5. 

"Poroshenko's "live free or die" motive appears still to be flying strong in Kyiv, indeed, after meeting 40-50 of Ukraine's political, media and business elite over the past few days, I encountered no-one who was willing to compromise on these core principals/values under pressure from Russia, and interestingly even if the West still let's Ukraine down," Ash wrote. 

The only reason that international investors have not pulled the plug is that Ukraine is still hooked up to the international financial community life support system in theory, even if the cash has been temporarily turned off. 

As the real work begins many investors are frankly sceptical  if Ukraine can pull a radical economic reform off. The Georgian reform guru Kakha Bendukidze, who was hired to advise the government but unfortunately died earlier this month ( was openly scathing of the government's commitment to make a change. "I tell people in the government about eliminating the energy subsidies, but I hear back that the people won't be happy," he told Bloomberg. "Who needs them when the government's sole function these days is to take money from the International Monetary Fund and pass them on in payment for Russian gas?" he asks.

More worrying there are reports of deep divisions between the coalition partners, especially between the Yatsenyuk and Poroshenko wings. One of the big arguments that is going to be had is Poroshenko's desire to change the constitution (for a third time) to return powers to the president that were only recently returned to the Rada. Likewise, this government seems as reluctant to pass on the cost of things like gas tariffs – a key IMF demand -- to the population as all the previous governments because of what that will do to its popularity, according to reports. 

At the same time many of the "heroes of Maidan" who were brought into the government from the streets to oversee and supervise the reform process have already quit, saying the government is not committed to the promises it made. 

"There is much talk of Ukraine first delivering on structural targets, but a failure to recognise that macro stabilisation is a pre-requisite for structural reform - stabilising the exchange rate and banking/financial sector should be the number one and immediate priority. But I don't sense enough urgency therein," says Ash. 

In the meantime a banking crisis is visible on the horizon and further falls for the currency unless some fresh cash to prop it up is received soon. Despite the National Bank of Ukraine's insistence it has been making dollars available for exchange, reports from the ground say that cash dollars are impossible to come by in Kyiv and embarrassingly even the governor of the central bank was unable to exchange hryvna for dollars at a commercial bank in front of the press pack earlier this month. 

"Western official creditors appear to be behind the curve in terms of assessing the seriousness of the situation on the ground in terms of the economic/financial situation. Ukraine needs speedy, and large scale support ASAP to avert financial and economic collapse, with severe political, geopolitical, social and security implications," concludes Ash. 

Related Articles

Drum rolls in the great disappearing act of Russia's banks

Jason Corcoran in Moscow - Russian banks are disappearing at the fastest rate ever as the country's deepening recession makes it easier for the central bank to expose money laundering, dodgy lending ... more

Kremlin: No evidence in Olympic doping allegations against Russia

bne IntelliNews - The Kremlin supported by national sports authorities has brushed aside "groundless" allegations of a mass doping scam involving Russian athletes after the World Anti-Doping Agency ... more

PROFILE: Day of reckoning comes for eccentric owner of Russian bank Uralsib

Jason Corcoran in Moscow - Revelations and mysticism may have been the stock-in-trade of Nikolai Tsvetkov’s management style, but ultimately they didn’t help him to hold on to his ... more

Register here to continue reading this article and 2 more for free or 12 months full access inc. Magazine and Weekly Newspaper for just $119/year.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

IntelliNews Pro subscribers click here

Thank you. Please complete your registration by confirming your email address. A confirmation email has been sent to the email address you provided.

Thank you for purchasing a bne IntelliNews subscription. We look forward to serving you as one of our paid subscribers. An email confirmation will be sent to the email address you have provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

If you have any questions please contact us at

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

IntelliNews Pro subscribers click here

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

Thank you. Please complete your registration by confirming your email address. The confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.