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Ukraine’s economy and its political crisis
06/04/07
MOSCOW. (Vyacheslav Vashanov for RIA Novosti) –

The Ukrainian government, led by Prime Minister Viktor Yanukovych, has managed to stabilize the economic situation in the country in a short period of time.
Thanks to the government's efforts, Ukraine's GDP grew by 6.7% in 2006. Budget revenues in the first quarter of 2007 increased by 36% compared with the same period last year.
Ukraine's First Deputy Prime Minister and Finance Minister Mykola Azarov and Economic Minister Anatoly Kinakh have said there were no signs of social or economic instability in the country, so there was no reason to dissolve parliament. The government fully controls the exchange rate and prices. Inflation was 0.7% in March and 1.8% in the first quarter of the year. Preliminary government statistics confirm that the economy has been growing rapidly.
Ukraine's business contacts with Russia are also developing quite successfully. According to available information, the Ukrainian Fuel and Energy Ministry has completed work on an annual protocol to the intergovernmental agreement on additional measures to ensure transit of Russian natural gas. Russia's Federal Agency for Atomic Energy is expected to sign a cooperation agreement with Ukratomprom, a Ukrainian nuclear power company.
Overall, there are all the necessary conditions for Russian-Ukrainian economic cooperation: both are big markets for each other's products. Ukraine also plays an important role as a transport corridor for Russian products exported to the West, especially by pipelines.
Ukraine is Russia's biggest trade partner among former-Soviet states. Russian-Ukrainian trade turnover was $24.2 billion last year, accounting for 37.4% of Russia's trade with former-Soviet countries. Apart from energy, Russia exports equipment, vehicles and chemical products to Ukraine.
The biggest contribution to the growth of Ukrainian exports to Russia came from the Ukrainian steel industry. In January-March 2007, Ukrainian steel and mining enterprises increased their output of rolled stock by 12% and of pipes by 22%.
In the medium term, the countries plan to eliminate the their trade imbalance, resulting from the high proportion of commodities in Ukrainian exports to Russia and from Ukraine's dependence on Russian energy resources.
Russia and Ukraine also plan to further develop their cooperation in the fuel and energy sector, including oil transportation and an international consortium for the development and management of Ukraine's gas transportation network. Another important part of bilateral relations is the aircraft and space sector, where the two countries are implementing large joint projects.
The political crisis in Ukraine, including the dismissal of the cabinet and a possible dissolution of the parliament, will have serious economic consequences. There are several alternatives for the development of Ukrainian-Russian economic cooperation.
One of the possible scenarios is that President Viktor Yushchenko will further his goal and dissolve the parliament. In this case it is unclear when a new parliament would be elected and, consequently, a legitimate government appointed. The absence of a cabinet might paralyze the work of the executive branch and economic agencies both in Kiev and in the regions. Under those circumstances, relations with Russia could be frozen indefinitely. The agreements reached earlier on gas prices, energy transportation and other key issues of economic cooperation would be revised. Russia would also have to forget about its plans to set up a single economic space with Ukraine's participation.
Another option is that Yushchenko's decree on the parliament dissolution will be found illegal. The incumbent Rada and Yanukovych's government will continue their work as the victors. Under these new circumstances, the united team of parliament and the government may take some pro-Russian measures. These could deal with Ukraine's entry to NATO, the status of the Russian language, the Black Sea Fleet, the deployment of a U.S. anti-missile defense system, active participation in the single economic space, and closer economic cooperation with Russia in general.
And there is yet another scenario: the conflicting parties will reach a compromise and the crisis will gradually fade away.

Vyacheslav Vashanov is head of the Research Center for CIS Economic Problems and member of the RIA Novosti Expert Council.
The opinions expressed in this article are the author’s and do not necessarily represent those of RIA Novosti. –0-