A victory by Yulia Tymoshenko is Ukraine's presidential elections would mean a faster resumption of the International Monetary Fund's austerity program, but whoever comes out ahead will be forced to stick to the plan because of the country's heavy debts and the steep economic contraction of 2009, analysts said.
A win by Viktor Yanukovych, meanwhile, is more likely to lead to a weaker currency, they added.
As Ukrainians go to the polls Sunday, none of the 18 presidential candidates is expected to win the first round outright with the required majority, and the runoff next month is likely to be between Tymoshenko, the current prime minister, and Yanukovych, a former prime minister who lost power during the "orange revolution" of 2004-2005.
A strong showing for Yanukovych, who has the support of the metals exporters that represent much of the country's economy, could bring about a weaker Ukrainian hryvnia that would increase the miners' and steelmakers' profit margins. For her part, Tymoshenko in the past has supported a strong currency. Both are promising reforms long delayed by political divisions as well as renewed relations with the IMF, which were cut off when Tymoshenko's former ally, President Viktor Yushchenko, signed a wage and pension increase into law.
The rivalry between Yushchenko and Tymoshenko resulted in delayed disbursement of $3.9 billion from the IMF until after the elections, thus boosting the importance of renewed relations with the fund as soon as possible. This could happen more quickly if Tymoshenko wins, according to analysts.
Any major policy move demands substantial compromises between the president and prime minister, and both of the current leaders lack substantial support in the Rada, or parliament.
With a Yanukovych victory, "a minority government or broad coalition would struggle to push through tough measures to get the IMF program back on track," Neena Altaf from JPMorgan Chase & Co. said, adding that Yanukovych would probably end up having to call early parliamentary elections, delaying the IMF program until the third quarter. That probably wouldn't affect Ukraine's ability to service its debt, but payments for natural gas could become a problem.
But Tymoshenko might be able to put together a workable coalition without the need for early elections, paving the way for IMF-geared reforms.
To unlock the IMF financing, Ukraine would need to bring its budget deficit close to the target of 6% of gross domestic product, compared with an estimated 7.0% to 7.5% currently. The Rada has yet to adopt the 2010 budget.
"The country's fiscal situation remains the biggest concern for 2010, as the lack of political consolidation contributes to the risk of imprudent policy choices," said analysts at Moscow-based Troika Dialog.
Ukraine's private and public sector have to repay between $23 billion and $25 billion in debt in 2010, but there are few fears that the government wouldn't make good on its obligations.
"We continue to believe that the risk of sovereign default is low, despite a potentially longer delay to the IMF program," JPMorgan analyst said. Total external sovereign debt payments amount to less than $1.5 billion for the whole of 2010, while international reserves are running at more than $27 billion.
"Because of the light repayment schedule, it is still not prohibitively costly to honor sovereign debt obligations," Moscow-based Renaissance Capital said, adding that "as long as there is the ability to pay, there will be a willingness to do so."
Paying for badly needed Russian natural gas may be more difficult.
Naftogaz, the Ukrainian natural gas company, has said it will pay the gas bills in full to avert any repetition of past crises that saw Russia turn off the flow of gas, triggering supply disruptions in Europe.
Yet Naftogaz, whose revenue comes from poorly collected payments for locally sold gas at subsidized prices, has had to rely on the IMF's money to pay for the latest deliveries.
October and November gas imports were paid for using the IMF's special drawing rights allocation of $2.1 billion, and the IMF reduced Ukraine's reserve floor by $2 billion, helping to pay for gas through March.
To secure the further payments, whoever is elected president would need the Rada's support to boost domestic gas prices as soon as possible.
However, despite their differences, any candidate's win would bring Ukraine a bit more stability as long as the losing party doesn't start questioning the results and taking people to the streets, as was the case five years ago.
"We see no reason for investors to prefer either figure, as any outcome will lead to political stability nationwide and an enhanced framework for political compromise as Ukraine will have a dual-polar political environment instead of the current tri-polar situation," analysts Maria Maiboroda and Andriy Nesteruk at Kiev-based Phoenix Capital said.