WORLD_ UKRAINE_ Ukraine's new leader faces economic challenge

Ukraine's new leader faces economic challenge

Gazprom and Ukraine near deal on energy as Petro Poroshenko attempts to rebuild fragile economy

By Susan Noakes, CBC News

Posted: May 26, 2014 1:08 PM ET
Last Updated: May 26, 2014 3:10 PM ET

Ukraine's new president has said his first priority is ending the violence, but the economy is a close second for voters. (Efrem Lukatsky/Associated Press)

The newly elected Ukrainian president Petro Poroshenko steps into the position having promised his countrymen he will end violence and fix the Ukrainian economy.

That means facing pro-Russian separatists, wooing Ukrainian businessmen and resolving an energy crisis over Russian imports of natural gas.

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Poroshenko, a billionaire who made his money through a chocolate company, is an experienced politician who has sat as an independent for the last three years.

“He’s been very pro-European, anti-corruption for a number of years,” says Marta Dyczok, a Canadian professor of political science who monitored the Ukraine electrions.

“He doesn’t have a political party, so the question will be how he can pull together a coalition of different parties,” she said in an interview with CBC’s The Current.

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While Poroshenko has said his first task will be to end the violence that plagues many areas in eastern Ukraine, voters are also counting on him to fix a troubled economy, Dyczok said.

“He is a very successful businessman and Ukraine’s economy is the second most important issue after ending violence,” she said.

As a politician and a businessman, Poroshenko is known for pragmatism. His ties to both Russian oligarchs and Ukraine’s business elite are believed to be an advantage as he struggles to keep the economy operating.

Ukraine's crisis began in 2013 when trade talks with the EU became a divisive issue and led to mass protests against then president Viktor Yanukovich. Since then, Yanukovich has fled to Russia, pro-Russia separatists have taken control of Crimea and sanctions from the West have eaten into the economies of both Russia and the Ukraine.

Ukraine’s treasury is empty and the business sector has been hurt by Russian efforts to block Ukrainian products. Business activities have slowed and companies admit they’ve put new development, expansion and investment on hold.

Gazprom deal possible

But more pressing may be a June 3 deadline set by Russian natural gas provider Gazprom to pay its gas bill or be cut off. The country is dependent on Russia for its energy.

On Monday, European Union's energy commissioner said Russia and Ukraine had reached a tentative deal over Ukraine's gas debt, with state energy company NAK Naftogaz Ukrainy agreeing to pay Gazprom $2 billion.

Poroshenko could be headed into EU-brokered talks in Berlin on Friday with Russia to decide on the price his country will pay for gas in future.

In April, Gazprom cancelled the price discount offered on Russian gas and Russia imposed an export duty.

The price of gas to Ukraine rose to $485 per 1,000 cubic meters in the first week of April from $268.50 in the first quarter.

If Gazprom made good on its threat to cut off access to gas, it could lead to a disruption in gas supply to the rest of Europe, as pipelines pass across Ukrainian territory. Europe gets a third of its gas from Russia, half of which flows through Ukraine. .

Gazprom would like to keep its European customers, despite Russia’s anti-EU rhetoric, which may account for the EU's success in brokering between the two nations.

Poroshenko's business ties

Poroshenko’s business ties may smooth the way in opening a dialogue with Russia, especially now that Vladimir Putin says he is “ready to work” with new leadership in Ukraine, says Maria Lipton, a political analyst with the Carnegie Moscow Centre.

But she warns that Russia’s primary concern will be protecting its western border.

If Poroshenko insists on having Crimea returned to Ukraine, he faces resistance from Russia, she told CBC News.

Lipman said he also will have a challenge in managing the Ukrainian economy "which is in a very tough situation right now.”

But Ukraine’s business class is optimistic, hoping a new democratically elected leader will end the standoff with Russia – their biggest market – and make it possible to build ties with the West in a less charged environment.



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