The Six-Year Battle is Over

Today Viktor Yanukovych, the opposition candidate from Party of Regions (PoR) and the winner of the 7 February presidential election was sworn in at the Verkhovna Rada, the Ukrainian parliament as the fourth president of independent Ukraine. Prior to taking the oath of loyal service to Ukraine in the parliament, Yanukovych was blessed by the head of the Russian Orthodox Church, Patriarch Kirill, in a service at Kiev's Caves monastery.

Until a few days ago it was not clear if the swearing-in ceremony would take place this month since the losing candidate, current prime minister Yulia Tymoshenko from the Yulia Tymoshenko Bloc (BYT), refused to accept that Yanukovych won the race with a mere 3.48%, gathering 48.95% of votes against her 45.47%. She did not opt to stage another Orange Revolution as she had previously threatened to do. She recognised her inability to rally the masses behind her, and so decided to appeal to the country's Supreme Administrative Court demanding a vote recount in some of the eastern Ukrainian polling stations. On 22 February Tymoshenko unexpectedly withdrew her case from the court stating that the latter had indicated reluctance to consider their numerous witness statements on voting irregularities in Donetsk, Lugansk regions. Tymoshenko's move was to save her from admitting the court's ruling which meant accepting Yanukovych's legitimacy. Tymoshenko has reiterated that she does not recognise Yanukovych as a legitimate president and she is left with no other choice but to remain prime minister. With today's swearing-in ceremony, Tymoshenko has lost all hope of winning the presidential office.

The international community has taken its final verdict by congratulating Ukraine for the high quality of the elections and welcoming Yanukovych as the new Ukrainian president. Yanukovych embarked on the campaign for presidential post in 2004, but his victory at polls was disputed and taken away in the third round by the now former president Viktor Yushchenko. In 2010 he finally achieved his goal.

Man with No Real Plan

"The pro-Western parties lost and the Russia-favoured candidate won"—this is the most widespread description of the 2010 presidential election. It also reflects the only clear policy that Yanukovych had during his pre-election campaign—improving relations with Russia. Of course what the oversimplification of the political developments in Ukraine overlooks is that Tymoshenko was also set to improve relations with Russia. However the 2010 race was not about political platforms or ideology but perceptions of the personalities as well as voter fatigue with the squabbling Tymoshenko and Yushchenko. Yanukovych has made broad and bold promises of a prosperous Ukraine if elected, just like Tymoshenko, but he does not have any clear plan. He and experts associated with the PoR have planned a programme that contains several policy measures which clearly make sense and would fit well into any reform-minded agenda. Measures include restructuring banks and improving regulatory standards, adopting a new and simplified tax code, revisiting business regulation in order to reduce bureaucracy and graft, and developing Ukraine's agrobusiness by lifting the moratorium on sales of agricultural land. All that sounds nice, and similar to Tymoshenko's pledges but is ultimately dwarfed by the question of how the state budget will be funded in 2010, since a massive fiscal deficit has been built up, which will send the deficit ratio way above 10% of GDP in 2010 if all obligations are met, especially as far as recent legislation on social expenditures is concerned. This is clearly not sustainable. Curbing both spending and raising revenues is necessary to realign the budget reality.

Yanukovych is likely to have more reactive than proactive policies—responding to troubles as they come. Certainly the paramount problem now is the economy. Ukraine's economy has stabilised further during the second half of 2009, but the pace of the initial rebound in the second quarter was not sustained. In fact, the recovery, measured quarter-on-quarter, has been losing traction until the end of the year, with the economy barely growing at all in the final quarter. It remains crucially dependent on exports, which makes it vulnerable to a relapse of global and especially European growth in 2010. Very cautious fiscal planning would thus be warranted in order to stabilise public sector finances and lure the International Monetary Fund (IMF) back into the boat.

The new president is therefore facing daunting challenges, the solution of which is only partly in his sphere of influence. The new administration has only put up measures which either lack substance or do not go far enough. In a report to his successor, outgoing President Viktor Yushchenko has proposed to cut bonus payments to public-sector employees and strengthen tax control, but these measures alone will not narrow the budget gap enough. The sad truth is that the new administration will either have to back down from its generous welfare promises and raise retail gas prices, or continue with financing the budget deficit by printing money while hoping that foreign reserves are sufficient to maintain foreign exchange liquidity until a more forceful recovery will lead to an export rebound that would eventually pull the economy out of the doldrums. It seems unlikely that the IMF will resume support to Ukraine under the latter scenario, though, which will raise default risks substantially.

In terms of foreign and security policy, despite the wide speculation that Yanukovych is going to practically surrender Ukraine's interests to Russia, the new president has already signalled that his policy will be more balanced. His first official visit will be not to Moscow but to Brussels, the seat of the European Union (EU). The deep divisions in Ukrainian society over leaning dramatically to the West or to Russia are likely to keep the new president's foreign policy balanced and away from forming major military and political alliances.

Outlook and Implications

Yanukovych is not facing an easy presidency. Not only because of the severe economic crisis that the country plunged into in the wake of global recession but also because he did not secure an outright majority at the election. Furthermore, he is going to face the wrath of Yulia Tymoshenko if she enters opposition. She is very likely to use every opportunity to unseat Yanukovych. He has been considering candidates for the premiership and Tymoshenko is not in the list. Had Yanukovych known that the margin between him and Tymoshenko would be less than 10% he would have perhaps floated the idea of her retaining the premiership—a partnership which would have been the most beneficial for dealing with Ukraine's problems.

However this is not an option now. Yanukovych is likely to have the following prime ministerial candidates—Volodymyr Lytvyn, the current parliamentary speaker and leader of parliamentary Lytvyn's Bloc; Yuri Ekhanurov from Our Ukraine-People's Self Defence Bloc (Yushchenko's supporters); Arseniy Yatsenyuk, the fourth runner in the 2010 presidential election; the PoR Deputy Chairman Nikolai Azarov, a more likely candidate also favoured by the financer of Yanukovych's campaign, Ukrainian oligarch Rinat Akhmetov. Serhiy Tyhypko, the third runner in the 2010 presidential election, seems a competent candidate but he does not fit Yanukovych's plans, as he has to solidify his power in the parliament, where his party has only 34% of seats. It seems that the new president may have to give away the premiership to secure a parliamentary majority. This is all needed to oust Tymoshenko, the next major obstacle for Yanukovych. His economic agenda will remain obstructed as long as Tymoshenko remains in office and he lacks a parliamentary majority. The political crisis would be extended, with the eventual outcome being highly uncertain, and a default some time in 2011 not excluded.

It seems that political stability is not a prospect in Ukraine any time soon, which means that its politicians need to learn to navigate in the tricky political waters of politics and learn to remain less focused on their narrow personal goals and more on Ukraine's national interests.