The Odd Couple Of Kiev

KIEV, Ukraine -- When Viktor A. Yushchenko was waging his Orange Revolution bid for Ukraine's presidency late last year, he had no more loyal or effective ally than Yulia V. Tymoshenko. The charismatic 44-year-old businesswoman and politician tirelessly rallied supporters for weeks, giving Yushchenko the time he needed to persuade Ukrainians -- and the world -- that the first round of elections in November was a sham. With Tymoshenko -- her trademark braids circling her head in the traditional Ukrainian style -- at his side, Yushchenko swept the second round in December and became President. In February, he appointed her Prime Minister.

Yushchenko (L) and Tymoshenko during "Orange Revolution"

Four months on, the honeymoon is over. While both politicians are determined to root out corruption and make the government more transparent, they seem to have differing economic visions. Yushchenko, a market liberal, has spent much of his time in office trying to convince the European Union that Ukraine will do whatever it takes to integrate with the West. Tymoshenko, in contrast, is pushing Ukraine along a more socialist path. "She favors a strong government backed by strong control over the economy. They are inherently different in this respect," says Vadym Karasiov, director of Kiev's Global Strategic Institute, an independent think tank.

Things came to a head in late May, when Yushchenko came close to firing Tymoshenko over her decision to cap fuel prices. Yushchenko ordered the caps lifted and urged Tymoshenko and other government ministers to avoid Soviet-style command economics.

The President won that round. But the strong-willed Prime Minister has plenty of cards to play. Tymoshenko's iron-fisted management style has been effective in cleaning up the corruption-ridden economy. And her declarations that the state could and should retain its majority shareholdings in steel plants and oil companies appeal to cash-strapped Ukrainians who despise the tycoons who grabbed state assets in the past decade.

Uncompromising protectionist management has, in fact, helped boost Tymoshenko's approval rating in recent months to 55.3%, according to an April poll by the Kiev International Institute of Sociology. Her nationalist Fatherland party is now a part of Yushchenko's coalition. But Ukraine faces parliamentary elections in just nine months, so if Yushchenko fired Tymoshenko, he would risk turning Fatherland into a dangerous challenger to his Our Ukraine bloc. Says Mykhailo Dobkin, owner of a poultry-processing business and a parliamentary member from the Social Democratic Party of Ukraine: "Tymoshenko's rating is rising sharply, and she smells power."


There's one other reason Yushchenko didn't fire Tymoshenko over the fuel-cap fracas: He needs her to run the government. While the President has spent much of his time abroad appeasing investors with liberal free-market talk, the dirty work has been left to Tymoshenko. Painful challenges, such as reform of a complex tax system, still lie ahead. It's especially important that the government wipe out the special tax breaks secured by the tycoons who struck it rich under the country's previous leadership.

Yet passage of such politically charged reforms requires parliamentary support. Ukraine's legislative house is splintered among Yushchenko's allies, Communists, and tycoons eager to protect their privileges. If Yushchenko can keep his coalition together in next March's elections, he and Tymoshenko could take full control over the new Parliament. If Tymoshenko challenges him, major political battles will emerge. "The government will attempt to keep her in place as Prime Minister rather than face her as a political foe," Karasiov says. Yushchenko put her in her place once, but the fiery Tymoshenko is still a force to be reckoned with.

Source: Business Week