Tim Ash suggests reasons there is no Russia deal – yet

2013/12/7 12:00:06

“I would add an over-riding factor in all the above scenarios…there seems to be very little trust between the two sides - and particularly I think Putin and Russia are doubtful at this stage whether Yanukovych can deliver or keep to any agreement between the two sides.”

 


LONDON, Dec 7, 2013 (UBO) - London-based emerging markets economist Timothy Ash, who has been following events in Ukraine intensely through occasional visits and his large network of contacts in the country, provided the following comments late yesterday regarding questions as to why there is still no deal with Ukraine on Customs Union membership in spite of Putin threats and promises:

 

A question I keep asking myself is why Russia has not come forward before now with a bailout programme for Ukraine and the Yanukovych administration. Indeed, it is amazing that something was not unveiled on November 21 when the Yanukovych administration announced that it was pulling out of talks with the EU over an AA/DCFTA. The expectation then - even voiced by the opposition - was that some back room deal, involving a big ticket bailout had been done. But still nothing has been unveiled. The obvious question is if a deal had been done, why then has nothing been announced/unveiled. The only conclusion one can credibly draw is that no deal was in fact finalised, or if it was events since on the ground in Ukraine have changed the dynamics and are now making securing the final text difficult.

 

Thinking through the various reasons for the delay, I can perhaps suggest the following:

 

A) Putin is unsure whether Yanukovych can deliver any such agreement - likely to involve Ukraine's signature on a Customs Union agreement, and is increasingly worried that Yanukovych is unlikely to survive through on-going street demonstrations. Perhaps there would be nothing worse for Putin than the ignominy of signing a deal, to see Yanukovych fall and the agreement fail to be implemented. He is perhaps then waiting to see if Yanukovych can deliver stability on the domestic political scene, before giving the green light for a bailout. I guess it could be argued now that the Yanukovych administration is now unlikely to survive without a Russian deal, so again why the delay?

 

B) There is simply no trust between the two sides, and the fine detail of reaching an agreement is simply too difficult to do. Herein from a Russian perspective Ukraine has promised much in the past but delivered little on its agenda, so Putin this time maybe be playing very hardball to ensure that he gets everything he wants, and is willing to drag negotiations out as long as it takes.

 

C) Perhaps Yanukovych himself is playing for time, unwilling to commit, mindful as above that he would find it near impossible to sell a Russia deal at home which would involve membership of the CIS CU, and perhaps the surrender of control of strategic assets, such as energy pipelines. We think that Moscow is no longer in the game of prolonging the agony over negotiations with Ukraine, i.e. it does not want to give Yanukovych any more time, and an opportunity to muddle through, but wants its objectives met now, rather than for another promise of delivery at some future date.

 

D) Maybe this is still a case of the two sides haggling over the price, and specific assets to go under the hammer.

 

E) Perhaps Russia is expecting the economic situation in Ukraine to deteriorate further from here, and is expecting to get everything it wants but at a much lower price very shortly.

 

I would add an over-riding factor in all the above scenarios though in that there seems to be very little trust between the two sides - and particularly I think Putin and Russia are doubtful at this stage whether Yanukovych can deliver or keep to any agreement between the two sides. Perhaps this reflects the fact that because of the on-going street demonstrations the Yanukovych administration is hardly in charge of domestic events now in Ukraine.

 

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The above commentary represents a personal view, is not investment advice or Standard Bank research, but may contain extracts from published research.

 

 

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