Political situation

Despite a vote by the Verkhovna Rada to dismiss the Cabinet of Ministers, the Government will continue to work in its current configuration until the elections. The Government still has not explained to Ukrainians why it signed the gas agreement it signed with Russia. The opposition, on the other hand, has wasted no time doing so. Lack of consensus about the future of political reforms is making it difficult to resolve the conflict between the Government and the legislature and is likely to hinder the establishment of a stable coalition Government after the elections. The Party of the Regions continues to lead the race. In their election campaigns, most political forces are not presenting any platforms for public debate but are instead appealing to voters’ emotions.

The resolution of the gas conflict has not ended the confrontation between Ukraine and Russia. The crisis in Ukrainian–Russian relations is now spreading to all areas of bilateral activity. The gas conflict brought Ukraine and the EU somewhat closer. The EU has included Ukraine, as its neighbor, in the Action Plan for increasing the security of energy supplies in Europe. The US has delayed its decision to grant Ukraine market economy status until mid February.

Against the background of an election campaign, the Verkhovna Rada has expanded the category of beneficiaries for utility and transit services. Benefits for “children of the war” will now extend to nearly 16.5% of the population of Ukraine. Despite the rising cost of imported natural gas, the Rada also froze rates for residential services, public transit, and residential natural gas and electricity. The Government has set up a joint venture between NAK NaftoGaz Ukrainy and RosUkrEnergo to supply gas on the domestic market in Ukraine. At the same time, information published in the press about additional agreements signed 4 January 2005 in Moscow cast the shadow of corruption on the main negotiators and President Viktor Yushchenko.

Consumer confidence has improved again. Contrary to seasonal trends, prices grew very little in January. The higher price of imported gas is not likely to have much of a direct impact on consumer prices. Because of the uncertainty resulting from gas talks with Russia and the dismissal of the Government, downward pressure on the hryvnia has increased.

Updated

February 9, 2006

See also

Political Commentary archive