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Ukraine: Democracy, Stability and Reform

Thu, May 29 2008, 14:32 GMT
by Lars Rasmussen

Danske Bank A/S


  • • We attended the European Bank of Reconstruction and Development’s (EBRD) Annual Meeting and Business Forum in Kiev, Ukraine on 17-19 May. In the following pages we report on our experiences from the trip, and present our expectations for the Ukrainian economy in the medium term.

  • • Ukraine has been gradually transforming itself into a free democracy since 1991. The non-violent “Orange Revolution” in 2004-05 was a milestone in this process that saw the Ukrainian people protest against the massive corruption, voter intimidation and direct electoral fraud that marred the presidential elections in 2004.

  • • The political transformation of Ukraine following the Orange Revolution has been rather uneven, and the country has had several governments in the last four years due acrimonious clashes between the acting president, Viktor Yushchenko, the prime minister, Yulia Tymoshenko, and the pro-Russian former prime minister, Viktor Yanukovych. What is needed now is political stability that will allow the reform process to speed up.

  • • After several years of strong growth, the economy has moved into overheating territory, with inflation soaring above 30% – the highest rate in Europe. The trade deficit is widening as imports accelerate, and public spending is very expansionary. Thus, there are good reasons to cool the private sector.

  • • Ukrainian policymakers are very aware of this, but political tensions and a rather passive Ukrainian central bank (NBU) mean our expectations are limited with respect to policy tightening. Failure to tighten may well mean the Ukrainian economy facing a rather hard landing. Indeed, any tightening action may already be too late. Meanwhile, we expect growth to slow to roughly 5.5%-6.0% y/y in 2008 – a view we share with the EBRD, which cut its 2008 growth forecast for Ukraine to 5.5% y/y from 6.0% y/y after the conference.

Published on  Thu, May 29 2008, 14:42 GMT


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