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Ukraine Political Infighting Impacts Economy

Ukraine's constitutional court has postponed the date of presidential elections from October until January - a move that buys more time for President Viktor Yuschenko who is likely to face a tough re-election challenge. The ruling follows last month's overwhelming vote in parliament to hold the election on October 25 - two months before Mr. Yushchenko's term expires. With his popularity plummeting, political infighting between the president, prime minister and parliament is taking its toll on the economy now undergoing a severe slowdown.

Picture of economic stability

In Kyiv, it looks as though the country's economy is in good shape. The streets are packed with shoppers and street vendors are plying their trade.

But the managing director of the Dragon Investment company, Dmitro Tarabanik, says appearances are deceptive. "Ukraine is on the edge of the cliff, that's very clear," he said. "But what we do see is that there's been a lot of things that have happened already that are sort of managing to keep us more or less stable near this cliff."

What helped was the news that came last month. The International Monetary Fund announced it would release the second tranche of Ukraine's $16.4 billion loan. Yet analysts warn the country's economy is far from being fully stable.

"The crisis can get a lot worse in Ukraine before it gets better and there's a chance that by this fall we will see larger demonstrations, mass arrests - that's quite possible," said Ivan Lozowy, who heads the Institute for Statehood and Democracy in Kyiv. "I think the chances are over 50 percent."

Political infighting greater threat?

Observers say political infighting is the greatest threat to stability. They say that conflicts between Mr. Yushchenko and Prime Minister Yulia Tymoshenko have already paralyzed policymaking - and this is likely to benefit their political rivals.

Especially Victor Yanukovich, the leader of the opposition Party of Regions. He has announced he will run for president and now tops national opinion polls.

One reason for this is that Ukrainians have lost faith in the country's current leaders, according to Leonid Kozhara, a lawmaker for the Party of Regions.

"Unfortunately, in this country the government and president cannot unite their forces and concentrate on purely economic things. They are talking politics all day and they tell you it's a continuous political scandal which is shown on TV channels, on the radio and the people of Ukraine understand that we cannot live in such way anymore," Kozhara said.

Another contender for the presidency is the former parliament speaker, as well as ex-Foreign and Economic minister, 34-year-old Arseni Yatsenuk. Analysts say he represents a moderate force between the pro-Russian camp of Victor Yanukovich and pro-Western Victor Yuschenko. Currently third in the polls, his outlook for Ukraine's economy is optimistic:

"Definitely, we are under certain dramatic conditions with this global crisis, we are heavily affected by this global crisis, I mean not only Ukraine but the entire Eastern Europe," Yatsenuk said. "But it's not for the first time when Ukraine faced the crisis so we are going to overcome it and we are to execute it as a challenge, as an additional option to develop and to promote the country."

Russia monitoring situation

Ukraine's big neighbor Russia, which traditionally considers Ukraine as part of its sphere of influence, is undoubtedly monitoring the situation closely.

Russia's Gazprom has been raising the price of Russian gas for Ukraine sharply since 2005, and that has pushed Ukraine's trade and current accounts into deficit. In January, Russia cut off gas supplies to Ukraine for three weeks over a pricing dispute.

"They weaken the country by splitting, by feeding different groups of influence, by using openly energy as a weapon of international policy, using religious issues and others, cultural and etc. We are facing so many things happening and those things are organized and well thought of in advance unlike the situation in Ukraine," said Oleg Rybachuk, the former advisor to Victor Yushchenko. "Therefore they clearly use to the maximum Ukrainian weaknesses to strengthen their own."

But while Russia might have some influence in political maneuvering leading up to elections, the most important question is how Ukraine, a country of 46 million, manages to deal with the economic crisis. And that, observers say, will not be decided by elections but by how soon Ukraine's political leaders can put aside their differences and push through significant economic reforms.