Ukraine Eyes EU ‘Reset’ After Elections to Forge Closer Ties

Ukraine is striving to ensure this week’s parliamentary elections meet international standards in a bid to “reset” relations with the European Union and sign an accord on closer ties, its first deputy prime minister said.

The former Soviet republic has invited about 5,000 election observers and entrusted exit polls to independent companies, Valeriy Khoroshkovskiy said Oct. 18 in an interview. After opposition leader Yulia Tymoshenko’s imprisonment delayed indefinitely an Association Agreement with the EU, the ballot may provide the impetus to complete it, he said.

“We’re aware of the importance of holding honest, democratic and fair elections,” Khoroshkovskiy said in his office in the capital, Kiev. “I’m sure that if the elections are recognized as free and democratic our partners will meet us halfway. We expect to sign the agreement.”

Tymoshenko says her seven-year sentence for abuse of office while premier was aimed at keeping her out of the Oct. 28 vote, charges President Viktor Yanukovych denies. The EU deems the case politically motivated and refuses to sign the Association Agreement, which includes a free-trade pact. The 27-member bloc and the U.S. have urged Ukraine to hold free elections.

For Ukraine, signing the accord would represent “a point of no return, allowing us to move quickly, without looking back, into European society,” Khoroshkovskiy said.

Poll Lead

Yanukovych’s Party of Regions was backed by 23.3 percent of voters, while Tymoshenko’s Batkivshchyna was supported by 15.1 percent, a Sept. 18-Oct. 4 survey by the Kiev-based Democratic Initiative Fund showed.

World boxing champion Vitali Klitschko’s UDAR, which means punch, had 16 percent, nationalist party Svoboda had 5.1 percent, and the communists, part of an existing coalition with Yanukovych’s party, had 10.1 percent, according to the poll of 2,043 eligible voters, whose margin of error was 2.2 percent.

Ukraine’s economy, which grew 5.2 percent last year, is slowing, with industrial output plunging 7 percent from a year earlier in September on weaker global demand for metals.

“We’re disappointed by these numbers,” Khoroshkovskiy said. “We feel the recession in our main trading partners, including the EU.”

GDP Estimate

Gross domestic product may expand about 1 percent this year, compared with a previous government forecast for 3.7 percent growth, he said.

The hryvnia, which has lost 1.4 percent against the dollar this year, rose today to 8.1578 as of 11:50 a.m. in Kiev, data complied by Bloomberg show. Government bonds due 2017 advanced, pushing yields down to 7.220 percent, the lowest level since Oct. 17.

Ukraine’s rating in the World Bank’s annual Doing Business survey improved 15 places, the Washington-based lender said today on its website. Still, the country ranks 137 out of 185 nations, below the 73 average for eastern Europe and Central Asia, according to the World Bank.

Ukraine is seeking to resume cooperation with the International Monetary Fund and unlock and prolong a frozen $15.4 billion lending program, which expires this year.

“Our expectation is that we’ll be able to agree on an extension of the current program through 2013,” Khoroshkovskiy said. Doing so is preferable to a new loan “as a new program would have new requirements, which would be harder to meet.”

Heating Tariffs

The existing program was halted last March after the government refused to raise household utility tariffs, a step the IMF had sought to lower subsidies to state energy company NAK Naftogaz Ukrainy.

“Household heating tariffs are the only problem,” Khoroshkovskiy said. The government plans to keep tariffs unchanged this winter before “completing a plan that will improve the utility-sector situation.”

Excluding Naftogaz, next year’s budget deficit won’t exceed 1.7 percent, according to Khoroshkovskiy, who said a valuation of the company’s pipelines will be completed by Dec. 1 with a view to reorganizing it.

“After we have the price, we’ll discuss the future of pipeline transport,” he said. “We will see whether to form a consortium. It may be an IPO or conversion into a company with clear shareholders.”

To contact the reporters on this story: Daryna Krasnolutska in Kiev at dkrasnolutsk@bloomberg.net; Andrew Langley in London at alangley1@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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