February 25, 2010 / 12:20 PM / 9 years ago

New Ukraine president gives right investor signals

* Yanukovich stresses need for stability, clarity

* State interference in economy is ‘road to nowhere’

* Tough times ahead as Kiev seeks to bring back IMF

By Sabina Zawadzki

KIEV, Feb 25 (Reuters) - Ukrainian President Viktor Yanukovich sent positive signals to foreign investors in his inaugural speech on Thursday, but whether the ex-Soviet company manager succeeds in bringing them back remains to be seen.

Yanukovich was sworn in on Thursday after a bitter campaign against his election rival, Prime Minister Yulia Tymoshenko, and faces the tough task of consolidating his power to produce a stable government that can bring back vital IMF lending.

In his first speech as president, he said Ukraine faced “colossal debts, poverty, a collapsing economy, corruption”, and vowed to win the trust of investors.

“What is needed for investors and international financial institutions to renew their trust in Ukraine is securing internal stability, overcoming corruption, restoring clear, and most importantly, constant rules of relations between the state and business,” Yanukovich said.

He said his aim was not to strengthen the state’s role in the economy “but the government’s participation in the creation of effective market mechanisms”.

“I am certain that direct interference by the state in the economy — its manual control — is a road to nowhere,” he said.

Although managing the economy is not the remit of the president, investors hope Yanukovich’s victory ushers in a period of political stability that would allow the government to focus on shoring up the state’s finances and economic growth.

The International Monetary Fund suspended its $16.4 billion bailout at the end of last year in the wake of fierce political rows and broken spending promises. About $10.5 billion has been disbursed to date.

The finance ministry said a technical mission from the IMF is due to arrive in April 7. These missions are usually a prelude to a full-blown visit, after which a decision on resuming lending could be made. Yanukovich’s Regions party instigated rises in the minimum wage, passed by parliament, that were the last straw for the IMF. The government had already reneged on a promise to raise domestic gas prices, which would have helped the state’s finances.

“(Yanukovich’s) statements point clearly in the direction of more stability, obviously a positive, as this is something that foreign investors have lost sight of in the past years,” said Simon Quijano-Evans of brokerage Chevreux.

The Regions party is now trying to form a new coalition to oust that of Tymoshenko. If it does, and succeeds in forming a new government, talks with the IMF could resume.

“He will have to make some difficult decisions early in his regime, in particular on gas price hikes and reining in pension/wage promises, to bring the IMF programme back on track,” said Tim Ash, head of CEEMEA research at Royal Bank of Scotland. “This will be a key short-term test of his willingness to bite the bullet.”

Editing by Mark Trevelyan

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