New York  : London  : Brussels  : Moscow  : Beijing  : Sydney 
 
 
TAGR Sign In
100 Days On, Trouble Hits Orange Kingdom

When Ukraine's newly elected president, Viktor Yushchenko, promised to roll back regional tax breaks granted to business clans who supported his predecessor's regime, Ukrainian businesses and foreign investors cheered. But as Yushchenko passed his 100th day in office Monday, many were grumbling that the sweeping changes were too sudden, too unexpected and badly planned.

"We support the government, but we're against sudden changes in the rules of the game," said Andrei Maysner, an adviser for Eurocar, a Ukrainian firm that assembles Volkswagens, Audis and Skodas for sale on the domestic market. The company was suddenly and unexpectedly stripped of a host of tax privileges as a result of the changes in the tax regime, Maysner said.

"As a whole, their ideology suits us. Unfortunately, some of the realization of this ideology hasn't worked out quite as planned."

It is not just tax policy where the government has ruffled feathers. Over the last three months, the heroes of the Orange Revolution have morphed from idealistic revolutionaries into the party of power. Along with that change came the compromises, tough decisions and disappointments inherent in running a country.

Today, the Ukrainian opposition can run through a laundry list of accusations strikingly similar to those that Western governments hold against Moscow: imprisoning political opponents; spooking businesses with threats of renationalization; forcefully asserting the state's role in the business sphere; and making policy without carefully considering the consequences. Many of the government's biggest problems have come in the economic field, as authorities have scrambled to fill a gaping budget deficit and stamp out inflation.

Yet if the government's unifying orange glow burns less brightly, it is far from extinguished. Much of the ebullience of last December remains in Kiev, and foreign investors' interest in Ukraine rides sky-high -- even if no new major investments have yet been inked.

One of the government's biggest problems has been an apparent lack of coordination between Yushchenko and his hard-charging prime minister, Yulia Tymoshenko. After Yushchenko said in February that a few dozen questionable privatizations might be re-examined, investors gasped when Tymoshenko was widely reported to have said the number might be in the thousands.

Last week, after tough negotiations between Tymoshenko's government and Russian oil companies over price caps on gasoline, former Ukrainian President Leonid Kravchuk predicted Tymoshenko's government might not last the summer. Kravchuk may be from the opposition, but even friends of the administration say internal disorder has hampered the government's ability to present a unified front.

Boris Nemtsov, the liberal Russian politician who serves as an adviser to Yushchenko, said in an interview that "disorganization inside the government [and] the conflict between government and big bureaucracy" were the most pressing problems facing the authorities.

Nemtsov said the government's biggest problem was its inability -- or unwillingness -- to close the book on reviewing past privatizations.

Mere days after taking charge, Yushchenko said the government would soon publish a list of companies whose privatization was suspect and would be re-examined by the courts. That list, once published, would be final, and the question would be forever closed, he said.

Months later, investors are still waiting on tenterhooks for that list -- which Yushchenko said in late April would take a couple more weeks.

Some analysts warn the government appears to be turning the issue into a political football for use in the enormously important 2006 parliamentary elections -- after which the parliament, not the president, will choose the prime minister.

"This is an attack on the oligarchs who were tied to power; to liquidate their political influence by eliminating their economic resources," said Vadim Karasyov, director of the Institute of Global Strategies in Kiev. "But there is also an element of electoral populism."

The lack of a definitive list "indicates arbitrary rule," Nemtsov said, and a willingness to bend to "political expediency ... even when that contradicts the economic interests of the country."

Two other pressing economic problems -- inflation and a yawning budget deficit -- have snowballed into political scandals as the authorities worked desperately to solve them. In an effort to calm inflation, the government slapped temporary price caps on gasoline that were duly ignored by oil companies. Only after tough negotiations did TNK-BP and LUKoil agree to temporarily lower their prices.

Persistent rumors in Kiev that the government bludgeoned TNK-BP into obedience by threatening to renationalize its oil refinery were only increased when Economy Minister Serhiy Teryokhin issued a statement offering the companies a package of proposals, "not only about price formation for oil products but also, for example, guaranteeing Russian investors' rights in the oil and gas sector of Ukraine."

Analysts said that even the appearance of using property rights in negotiations was out of place for a government that promised to create a level playing field for all investors.

"When I hear something like this, it sounds stupid to me," said Andriy Dmytrenko, head of research at Kiev brokerage Dragon Capital. "Property rights are guaranteed by the constitution. Probably what he meant was a state guarantee of this particular deal."

Threatening to renationalize a politically unfriendly company would fly in the face of everything Yushchenko has promised his government would do, Dmytrenko said. "If there was some wrongdoing, you have to investigate and let the court see whether it was privatized rightly or wrongly," he said.

A spokeswoman for TNK-BP in Moscow said the company had no reason to believe its refinery might be seized and reprivatized.

Sergei Ossipenko, a communications adviser to Tymoshenko, said, "I think it's a groundless rumor."

On Friday, TNK-BP vice president Tony Considine raised the stakes by telling the Ukrainian government that his company would consider pulling out of Ukraine if the government continued to regulate prices at the gas pump."If they make us hold prices too low, delivering oil to Ukraine is not economically attractive," he said, Interfax reported.

In another controversial effort to quell inflation, last month the Central Bank let the hryvna rise almost 4 percent in a single day -- a move that, on the one hand, would help make imports cheaper for Ukrainians. But it also took a chunk out of Ukrainians' savings.

"It was shocking," Karasyov said. "It didn't help faith in the government."

On Thursday, about 1,500 protesters took to the streets of Kiev to protest rising prices and the hryvna revaluation.

Yet despite the difficulties, the new government's supporters can also point to a row of accomplishments.

Most analysts agree the media, once shackled under former President Leonid Kuchma, has become freer. The government is readying a complete, if temporary, overhaul of its visa policy for European and U.S. citizens. The government's reform agenda has inspired foreign investors to give the country a closer look. But so far, besides portfolio investors, few have made the plunge.

"No one that we're aware of has written a check," said Jorge Zukoski, president of the American Chamber of Commerce in Ukraine. "But there is a massive amount of interest. Everyone's still putting their ducks in a row."

Larysa Denysenko, director of the Ukraine office of Transparency International, lauded the government for ratifying the Council of Europe's Civil Law Convention Against Corruption and for its new contraband policy. But, she said, "Everything else, especially the president's calls to ban officials from banyas or from going on hunting trips, brings to mind the populism of Kuchma."

She also gave mixed marks to the government for its media policy. While the media have been allowed far more freedom than under Kuchma, their criticisms too frequently go unaddressed, and government has done a poor job of explaining its policies to the public.

Perhaps the most sensational charge being leveled against the new government is that it has used the legal system as a weapon against its critics.

The arrest of Borys Kolesnikov, governor of the eastern region of Donetsk, on charges of extortion and conspiracy to commit murder brought thousands into the streets of Donetsk in protest. Government officials said other Donetsk officials might also be arrested.

But in a sign of how weak opposition to Yushchenko's presidency remains, the protests fizzled out after a few days. Despite the problems and false starts, most Ukrainians support the government. And even those who do not seem prepared to stay off the streets and let the new government do its job -- for now.

(The Moscow Times 03.v.05)

 
News Archive