EAST CAPITAL SUMMIT, Prague 9 September: Ukraine back from the brink

The macro picture, which was blighted by the 15% contraction in GDP in 2009, is so much better that the country is now expected to post about 6% growth this year. The crisis has meant the current account deficit has almost been eliminated, while inflation will come in at less than 1% this year. 

The newfound stability in the political sphere since President Viktor Yanukovych assumed the presidency at the start of this year means an ambitious reform programme has been launched, but are the aims achievable? 

The first big test was the conclusion of a new agreement with the IMF on June 3, which is for $15bn for 2 ½ years, essentially giving the country $1.5bn per quarter. Importantly, this money won't be used to finance external deficits, but to help bring the budget deficit of 6.5% this year down to 3.5% next year and for the reform effort. 

A central part of the reform programme is to raise gas prices, which hitherto have been heavily subsidised and were a huge drag on the economy. They were raised 50% from August 1 and will be hiked another 50% from April 1. 

Other measures are a bank recapitalisation worth $5bn, far-reaching deregulation for business, which is especially crucial for the SME segment that suffers from a stifling bureaucracy. "It's quite substantial reform measures being undertaken in Ukraine, it's a strong agenda through problem area still exist," says Aslund. 

For one thing, the country needs more reform of the pension system, the expenditures for which stand at 18% of GDP, the highest in world. Ukraine has promised to cut this to 12% of GDP by 2014, but more needs to be done. There are no serious measures against corruption, and the privatisation programme promised will almost certainly see the assets go to favoured local businessmen. "It's no secret who will get what, it's not a question of open tenders," he said. "The oligarchs restored! The people who run Ukraine are those who own Ukraine."