Ukraine: When The Going Gets Tough

KIEV, Ukraine -- If democratic revolutions prospered on aspirations and the feel-good factor alone, Ukraine would soon be one of the world's leading nations. But they don't. So it is just as well that Prime Minister Yulia Tymoshenko is a tough cookie.

Her collaborator, President Viktor Yushchenko, was the dignified leader of the Orange Revolution, which defeated an attempt by his opponents to steal victory in last year's presidential election. Yushchenko deserves the accolades he has received in Brussels and Washington for mobilizing Ukraine's popular democratic will.

PM Tymoshenko with President Yushchenko

A new sense of pride is palpable in this country, even in those areas of the predominantly Russian-speaking east that are supposedly hostile to Yushchenko. Nonetheless, Ukraine's new leaders are confronted with immense problems. Yushchenko's predecessor, Leonid Kuchma, succeeded in dragging Ukraine into a pit of venality and corruption, and it seems increasingly clear that Tymoshenko's iron determination will be a key factor in whether Ukraine will be able to start cleansing itself in the post-Orange era.

She has addressed her two major domestic issues with gusto. At the heart of Ukraine's problems and Kuchma's legacy lie a tax regime that is an open invitation for Ukraine's superrich oligarchs to cheat the state of revenues and a customs operation that claimed to protect Ukrainian industry with high tariffs but in reality benefited only large-scale fraudsters and smugglers.

A more equitable tax regime and a "No to Contraband" campaign was Tymoshenko's bold answer to this. She drastically lowered tariffs on a range of key products, wiping out at a stroke the incentives for people to move goods illegally across Ukraine's borders. She has also ordered an overhaul of the notoriously corrupt Customs Service.

Her second problem contains greater dangers but also a couple of awkward moral dilemmas: The influence and financial clout of the oligarchs who indulged in everything from grand larceny, extortion and (most people believe) murder to amass huge fortunes under Kuchma.

This month, Tymoshenko sent out the most dramatic message possible when her interior minister ordered the arrest of the Donetsk regional governor, a close ally of the richest of all oligarchs, Rinat Akhmetov. More arrests could follow. The danger for Yushchenko and Tymoshenko is whether the oligarchs will take this lying down.

Then there are those moral dilemmas. Tymoshenko herself is believed to have made more than $1 billion during the Kuchma period before falling into disfavor and ending up in jail on corruption charges. At some point, if she is to avoid accusations of using the justice system as an instrument of revenge, she will have to define what was criminal behavior in the past decade and what was not. Furthermore, the new leadership will eventually have to decide whether to open an investigation against Kuchma himself, whom everybody recognizes as the great ringmaster of corruption.

In foreign policy, Ukraine needs to take particular care with Russia. However attractive the European Union's warm embrace might be, it is a very distant one. Ukraine stands far down a long line of EU aspirants, and politically and economically its relationship with Russia is central to its past, present and future. And however triumphal Yushchenko's U.S. reception might have been, Congress doesn't pay Ukraine's bills - especially its gas bill. And gas is the very stuff of Ukraine's relationship with its eastern neighbor.

Last week, President Vladimir Putin and Gerhard Schröder, the German chancellor, signed an agreement to build a gas pipeline through the Baltic Sea. By 2010, this will end Ukraine's virtual monopoly over the transit route supplying Russian and Central Asian gas to Western Europe. Ukraine is dependent on revenues from the transit to subsidize its own hugely inefficient gas consumption. The situation is even more bleak because the deal under which Turkmenistan sells cheap gas to Ukraine ends next year, and the Turkmens insist they will charge much more in the future. The new Baltic pipeline deal looks very much like Russia putting the squeeze on Ukraine where the country is most vulnerable.

The Orange Revolution was an inspiring spectacle, but it humiliated Putin, who campaigned openly for Yushchenko's opponent while Yushchenko and Tymoshenko celebrated the values of the West. And a corrupt bureaucracy, powerful oligarchs and a mighty neighbor with huge influence over the economy means that Ukraine faces a very rough ride over the next few years.

It does so, however, with confidence in its democratic credentials, and that gives it real hope for the first time in a decade.