"Chocolate King" Petro Poroshenko "shakes hands" to steer Ukraine

Having served in the Cabinets of several governments and built up close relationships with the business community, the new Ukrainian President Petro Poroshenko, 49, is expected to be able to stop the economic downturn and unite the country.

As a successful businessman and known as the "chocolate king" of Eastern Europe's wheat bowl, analysts say Mr. Poroshenko will likely focus on attracting investment capital from the West, but will not ignore the opportunity to cooperate with Russia.

New President Petro Poroshenko. (Source: AFP/VNA)

Start-up

Unlike other political figures who seized state assets in the turbulent years after the collapse of the Soviet Union, Mr Poroshenko is one of a number of successful businessmen who have built their own fortunes.

Poroshenko started out by selling cocoa beans, buying or establishing confectionery factories in Vynnitsa in Ukraine, Lipetsk in southwestern Russia, Klaipeda in Lithuania and Budapest in Hungary, buying several confectionery factories and later merging them into the giant confectionery company Roshen. His fortune was built from there and his surname became his trademark, making him the "chocolate king."

The Roshen brand was invented by his wife Marina, by removing the first and last syllables of his surname Po-roshen-ko. Roshen is ranked 18th in the list of the world's top 100 chocolate manufacturers.

In addition to chocolate, Mr. Poroshenko has also invested in car and bus production, a shipyard and media with the Kanal 5 TV channel and the Korrespondent magazine. With a total asset value of about 1.6 billion USD, Forbes magazine ranks Mr. Poroshenko as one of the 10 richest people in Ukraine.

In the recent presidential election, this billionaire did not hesitate to spend a total of 7 million USD on his campaign.

Not small challenges

Poroshenko’s biggest challenge is to revive the ailing economy and fight chronic corruption. Ukraine’s economy is in recession and has a severe fiscal imbalance, while political tensions and unrest in the east pose major threats to the country’s economic recovery prospects.

The European Bank for Reconstruction and Development (EBRD) has warned that Ukraine faces the risk of falling into a deep recession this year. The EBRD stressed that the crisis in Ukraine is having a negative impact on the economies of both Russia and Ukraine.

The International Monetary Fund (IMF) has warned that Ukraine's economy could shrink by up to 5% this year, even with external support. IMF Managing Director Christine Lagarde expressed concern that the crisis in Ukraine could have "severe" economic consequences for the country and its trading partners, and said that Ukraine needs more support, especially financial, from countries and international financial institutions.

Rating agencies are also predicting a similarly bleak outlook. Fitch predicts that Ukraine’s economy will shrink by around 5% this year. Worse, the recession is occurring while Ukraine is subsidizing most sectors of its economy at an annual rate of 5%.

Energy relations are also a thorny issue. The third “gas war” between Ukraine and Russia in nearly a decade has erupted, when Moscow decided to nearly double the price of gas sold to Kiev from 268.5 USD/1,000 m3 to 485 USD/1,000 m3 starting April 1, and at the same time stop applying preferential prices to this neighboring country. The reason given by Russia is that Kiev still owes up to 5.17 billion USD for gas purchases.

At the 4th trilateral meeting between Ukraine, the EU and Russia on gas held in Brussels (Belgium) on June 2, Russia and Ukraine agreed not to interrupt gas supplies, not to bring the gas issue to the Stockholm International Arbitration Court, and not to switch to a prepayment mechanism until the next trilateral meeting on gas.

That move somewhat made Kiev "breathe easier". However, Russia still pressed Ukraine to pay off the debt of 1.451 billion USD for gas purchases in November-December 2013 (at a price of 385 USD/1,000 m3) as well as the transfer of 500 million USD for gas purchases in April and May, which was reached during negotiations in Berlin on May 30.

In that situation, Mr. Poroshenko said Ukraine will continue to diversify its supply by importing gas from Western European markets, exploiting the country's vast shale gas reserves, despite those resources being mainly concentrated in the eastern region of Ukraine currently controlled by protesters, as well as building natural gas liquefaction facilities.

Relations with Russia and the EU

Even though Ukraine's relations with its Russian partners have deteriorated, with the approach of a pragmatic economist, Mr. Poroshenko certainly will not ignore Russia because of the great value that this relationship can bring.

After winning the election, Mr. Poroshenko said he was ready to negotiate with Russian President Vladimir Putin and called Russia a strategic partner.

However, the obstacle for Mr. Poroshenko is how to make Ukraine lean completely towards the West, while Russia - a large market and important source of energy for Ukraine - is determined to maintain its influence in Ukraine.

Regarding relations with the EU, Mr. Poroshenko said that the economic content of the Association Agreement between Ukraine and the EU must be signed immediately after his inauguration, in order to bring the Agreement into force after the political part of the document was signed by interim Prime Minister Arseny Yatseniuk with the EU on March 21. According to Mr. Poroshenko, this is a necessary condition for the new government in Kiev to implement anti-corruption measures and implement the reform package as soon as possible.

At the EU Informal Summit in Brussels at the end of May, European leaders affirmed that the EU fully supports Mr. Poroshenko and will continue to provide maximum support to Ukraine to stabilize the country and make it capable of coping with external pressures, through a macro-financial assistance program that could amount to 15 billion USD until 2020 that the EU has signed with the interim Ukrainian government.

The first relief payments

On May 7, the Central Bank of Ukraine announced that the country had received the first loan worth 3.2 billion USD from the IMF in a financial aid package of up to 17 billion USD for Kiev.

More than $1 billion from the first tranche will be provided to the Central Bank of Ukraine to help the country strengthen its financial system. The remaining funds will support the Ukrainian budget to stabilize the country's macroeconomic and financial situation.

On May 29, the Ukrainian Ministry of Finance announced that it had received the first tranche of 750 million USD under the "Credit for Development Policy" project within the framework of a 1.5 billion USD loan agreement from the World Bank (WB).

The funds will be used to finance strategic and institutional reforms aimed at overcoming the crisis and stabilizing the country’s financial and economic situation, as well as laying the foundation for sustainable growth in Ukraine. The $1.5 billion loan, signed with the World Bank on May 26, is part of a $3.5 billion support package for Ukraine, which is expected to be disbursed by the end of the year.

However, Ukraine's future still seems quite uncertain because the billions of dollars in aid are accompanied by strict conditions - factors that are believed to be able to "suffocate" the economy, which is in an unprecedented state of uncertainty./.

According to VNA