Ukraine braced for presidential run-off

The Ukrainian opposition leader, Viktor Yanukovich, and Prime Minister Yulia Tymoshenko will face each other in a run-off presidential election on 7 February, with the results from Sunday's first round suggesting a close contest ahead.

The election will define how Ukraine, a former Soviet republic of 46 million people wedged between the European Union and Russia, handles relations with its powerful neighbours, and may help unfreeze IMF aid for its ailing economy.

The IMF froze its lending at the end of last year when parliament and incumbent President Viktor Yushchenko, defeated on Sunday, agreed to raise the minimum wage - breaching government promises to keep the budget deficit under control.

The global lender said it wants the pay rises retracted, subsidised household gas prices increased and a state budget for 2010 passed before it can lend to Ukraine again.

But for that, a functioning government and parliament needs to exist and analysts say this may happen at the earlierst in April and perhaps not until the summer, because the result may be challenged and an eventual winner may want to call a parliamentary election to consolidate his or her power.

A victory for Yanukovich would mark a turnaround for the 59-year-old, discredited in them 2004 presidential election after he was declared winner of a fraudulent poll. His support comes from the Russian-speaking south and east, the industrial heart of Ukraine and home to its oligarchs.

To consolidate power, Yanukovich's Regions Party would try to muster a coalition in parliament to form a government.

One way of ensuring this would be to ask Yushchenko's Our Ukraine Party to join. Such a "grand coalition" had been touted for years but nothing has come of it. Yushchenko most recently said he would not collaborate with Yanukovich.

In the meantime, the government of Tymoshenko remains in place, and she may agree to stay on as premier if asked.

Alternatively, Yanukovich could call a snap parliamentary election, the third in five years, to seek an outright majority or bring in new forces as partners for the Regions Party.

Analysts say Yanukovich's administration would exercise tighter central control and be cautious of reform, reminiscent of former President Leonid Kuchma, Yushchenko's predecessor.

Yanukovich's foreign policy is expected to avoid total subordination to Russian demands - despite Moscow's previous backing of him - or a total break with NATO although he has said he would not push for membership.

Wealthy businessmen are likely to retain a tight grip on the economy and the main enterprises and to hold sway over politics.

If Yanukovich loses he may well disappear from the political landscape and the Regions Party may come close to a split.

Tymoshenko, from the eastern city of Dnipropetrovsk but with support in Western and Central Ukraine, says only she can unite the country. She promised not to dissolve parliament, claiming to be able to create a coalition "within three minutes".

Analysts say she may have broader geographical appeal while her pragmatism may allow her to strike a deal with the Regions Party to consolidate her power in parliament.

The cost of staging a new election would be an incentive to strike a deal fast. Once the political impasse is solved, the chances of the IMF restarting its bailout programme with a $3.8 billion tranche would be far higher.

Nevertheless, a Tymoshenko-Yanukovich tie has also been touted and failed, and there is no guarantee the two rivals would be able to agree. Tymoshenko's ambition for control may also lead her to call a snap parliamentary election.

Tymoshenko, who has a strong populist streak, is not expected to push through fundamental structural reforms that the former Soviet republic has long needed. She has reneged on a promise to the IMF to raise household gas prices.

But she may hand that unpopular task to the government and dissociate herself from the outcome.

Once despised by Moscow for her role in the 2004 Orange Revolution and diatribes against corruption in the gas sector, she has cordial ties with Russian Prime Minister Vladimir Putin.

She is expected to balance better relations with Moscow - which deteriorated under Yushchenko - with strong ties to the EU and Washington. But the issue of NATO membership will be left alone for now.

Former Central Bank chief Sergey Tigipko and former Foreign Minister Arseniy Yatsenyuk scored 13 and 7 percent respectively.

Both created parties just before the presidential election and so are not represented in parliament. An election to the assembly is likely to allow their supporters to gain seats and change the landscape of parliament and its parties.

This means Yanukovich and Tymoshenko are likely to want to woo the pair of them - although both have declined to lend support to either. Tigipko and Yatsenyuk may be offered the premiership or ministerial positions for their support.