Davos Diary: Ukraine’s New Leader Struggles to Woo Foreign Investors

Ukrainian President Petro Poroshenko had a hard time pitching his country as an attractive investment destination to the world leaders and business executives gathered at the at the annual meeting of the World Economic Forum in Davos, Switzerland.

Part of the problem: the former confectioner known as the Chocolate King was trying to send two conflicting messages simultaneously. One, Russian troops in Ukraine pose an imminent threat and the West should rally to support Kiev. And two, ignore that bully to our east and pour money money into a Ukraine brimming with investment opportunities.

Poroshenko told a half-full auditorium that 9,000 Russian troops with heavy artillery were making themselves at home in the eastern part of his country. Still, his message was that peace was close at hand if Moscow would cooperate in lowering tensions. With fighting flaring up again in recent days — including at a key eastern airport — there is little sign that Russian strongman Vladimir Putin is truly ready to put some of his conciliatory words into practice by working to find a diplomatic solution to the violence.

“Close the border and withdrawal all the foreign troops from my territory,” Poroshenko said in an implicit message to Putin. “If this is not an aggression, what is aggression?”

Despite Russia’s occupation of eastern Ukraine, Poroshenko said that his country was more united and pro-European than ever before. He said Russia would be unsuccessful in its ploy to wait out Western support until “Ukraine fatigue” sets in. He also thanked Davos attendees for their support of Ukraine, even though his comments drew only infrequent applause.

Poroshenko did manage to secure at least one deal, it seems. But his precarious position was still clear as he gave a shout-out during his speech to that investor, who he said that he said committed to put $600 million in Ukraine this year. “Am I right?” he asked the investor in the front row. He called for the room to clap as Ukraine’s would-be benefactor presumably assented.

In addition to the private support of Davos’s titans of business, Poroshenko said that the country also needed a “pillow” from the International Monetary Fund to support his government while it made painful economic reforms, including cutting energy subsidies and cracking down on corruption.  The president was set to meet with IMF chief Christine Lagarde while in Davos about securing another loan to see the country through the next few months.

The conflict with Russia in eastern Ukraine and Moscow’s annexation of the Crimean peninsula in March drove the economy into recession and pushed the currency down almost 50 percent against the U.S. dollar in 2014. The IMF promised $17 billion in loans last March, but Kiev has struggled to make progress with the economic reforms mandated by the organization amidst ongoing fighting with Russian troops in the east. Nonetheless, Poroshenko told Bloomberg he hoped to have the next aid package secured within the next two weeks.

Tim Ash, Standard Bank Group’s head of emerging markets research, said markets might need to see more than monetary support for Ukraine given Russia’s unwillingness to retreat or come to the negotiating table.

Falling prices for Ukrainian bonds Wednesday “suggests that investors are not even convinced now that even with a big new money financing deal that Ukraine is sustainable as long as Russia continues to show a willingness to ‘intervene’ in eastern Ukraine,” Ash said in an email. “No amount of IMF money will work if the Russians continue to be a pain, which they will.”

The political and the economic problems are inextricably intertwined. Poroshenko’s Davos investment campaign was cut short — he had to head back to Ukraine because of escalating fighting in the east.

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