Ukraine anxious but keeps its cool about Trump victory

Ukraine anxious but keeps its cool about Trump victory
Ukraine must now wait for any negative effects of Trump election victory on its stand-off with Russia.
By Sergei Kuznetsov in Kyiv November 9, 2016

Ukraine, dependent on US political and financial support, gave a mixed reaction to Republican candidate Donald Trump's victory in the US presidential election, which many Ukrainians fear can further embolden Russia's aggressive actions towards their country. 

At a meeting in Kyiv with US ambassador Marie Yovanovitch, Ukrainian President Petro Poroshenko said he hoped the US under Trump would continue to provide support in the key areas, including "the struggle of Ukrainians against Russian aggression, for freedom and independence, restoration of sovereignty and territorial integrity, as well as in the implementation of large-scale reforms in various spheres, starting from the fight against corruption". 

Other senior officials said it was too early to evaluate any effects of the Republican candidate's shock victory.

"We'll wait and see who will be appointed the US secretary of state, the defence secretary and security adviser ... These points will be an important indicator [of the new US administration's policy towards Ukraine]," Deputy Foreign Minister Vadym Prystaiko told reporters on November 9.

But others gave an immediate bleak appraisal. "Biggest loser in the world tonight is Ukraine," former US ambassador to Russia Michael McFaul tweeted. "Your only hope is to get really serious about reform and keep Europeans supportive," he implored the country.

Ukraine's main concerns are related to possible weakening of US political, diplomatic and financial support to the war-torn country alongside a potential shift in Washington's sanctions against Russia, which annexed the Crimea peninsula in 2014 and has actively supported the mlitary uprising in the country's eastern Donbas region.

US ambassador Yovanovitch hastened to reassure Kyiv that the relations between the two states won't change after the election, noting that both teams in the US presidential raсe demonstrated support for Ukrainian sovereignty and territorial integrity, democracy and cooperation, Interfax reported.

Meanwhile, Ukraine’s Eurobonds slid sharply on the news of Trump’s victory. As prices fell, yields on Ukraine's 10-year dollar-denominated debt rose 0.48% to 8.668% after the election result came through, their biggest rise in a single day since February, when the resignation of the economy minister imperiled the lending programme of the International Monetary Fund (IMF).

Trump not "a king"

In late September, former US defense secretary Leon Panetta stressed that the US checks and balances system prevents any single president from radically changing state policy. "If Trump becomes president, he will have a large problem with fulfilling any of his promises," Panetta told an international conference in Kyiv. "We are not electing a king and we're not electing a person with the powers of a king. The judicial system, the Congress, the Senate - their opinion is important in reaching decisions in the state."

Domestic observers in Ukraine are more cautious over possible changes in US policy after Trump's victory and are trying to quell alarmist forecasts about Ukraine now being left in the cold.

"Contrary to the widespread view, we do not think Trump's victory is a disaster for Ukraine," Zenon Zawada at Kyiv-based brokerage Concorde Capital believes. "US foreign policy towards Ukraine will not change for at least a year. No matter what overtures he makes to Russian President Vladimir Putin, Trump will not be able to implement any major changes because the US Congress firmly supports sanctions for the illegal annexation of Crimea and the military aggression in Donbas."

About half of the Republican Party remains "hostile" towards Trump, Zawada noted. "However, if he has a successful first year and maintains strong public support, most of the Republicans are likely to gradually fall in line with his policies," he added, forecasting that Crimea-related sanctions could begin to be lifted in the second half of 2017.

Former Georgian president Mikheil Saakashvili, who two days before the US vote announced his resignation as governor of the country's southern Odesa region, said after Trump's victory that the politician is "a strong personality with unpredictable policy".

"I know Trump for more than 20 years, we are friends," Saakashvili wrote on his Facebook page. "We [Ukraine] should be cautious and organised more than ever."

Financial worries

Kyiv's financial authorities do not expect any significant impact from Trump's victory on Ukraine's FX market, the deputy governor of the National Bank of Ukraine (NBU), Oleg Churiy, said in a statement published on November 9. "The current situation in the external markets due to results of the US elections can bear limited short-term effect on the state of internal Ukrainian FX market," he underlined.

According to the official, as it was with Brexit earlier this year, increased turbulence in the external markets will affect Ukrainian economics through global commodities markets. In the NBU's opinion, oil prices will react the most to the US elections results.

According to Kyiv's forecasts, prices for grain, oil and metals, which comprise main exports of Ukraine, will react less significantly and will come back over time. "So, in case of their temporary downfall, significant incomings from exports of the new harvest cannot be offset for the Ukrainian FX market," Churiy explained.

The regulator also doesn't expect such volatility of exchange rate, which would create significant risks for inflation to exceed the NBU's targets - 12% +/-3% for 2016 and 8% +/-2% for 2017.

The previous day, the state statistics service Ukrstat reported that inflation in Ukraine accelerated to 2.8% month-on-month (12.4% on the year) in October following 1.8% m/m the previous month (7.9% y/y).