Ukrainians Tune Out Of Political Bickering

KIEV, Ukraine -- When Viktor Yushchenko, Ukraine’s pro-west president, dissolved parliament in April, he hoped an election would clear the air, punish corruption and end a deadlock dating back to the 2004 Orange Revolution.

Viktor Yushchenko

It has not turned out that way. Nearly three months after the September 30 poll, the country is still without a government, and politicians are still embroiled in murky coalition-building manoeuvres.

For weeks, Mr Yushchenko’s Our Ukraine party has been holding talks about forming a government with the party headed by Yulia Tymoshenko, Mr Yushchenko’s Orange Revolution ally. But negotiations have been hampered by the two leaders’ rivalry, which erupted in 2005 when Mr Yushchenko sacked Ms Tymoshenko as his prime minister.

They are also fiercely opposed by Viktor Yanukovich, the acting prime minister, and his Regions party, which remains the biggest single parliamentary grouping.

Together, Mr Yushchenko and Ms Tymoshenko’s forces hold 227 seats in the 450-member assembly. But the Orange camp’s fragility was exposed in parliament last week when Mr Yushchenko’s motion to make Ms Tymoshenko prime minister secured only 225 votes.

In farcical scenes, the security services were called to check the electronic voting machine but found nothing amiss. A repeat vote on Ms Tymoshenko’s candidacy is scheduled for Tuesday.

There is speculation in Kiev that although Ms Tymoshenko shares Mr Yushchenko’s western-oriented ideas, the president might prefer a coalition with the less volatile Mr Yanukovich. Meanwhile, Ms Tymoshenko may decide to bide her time in opposition to magnify her chances of winning the next presidential election in 2010.

Ukrainian voters tuned out of the political saga long ago, preferring to enjoy the fruits of an economy now in its eighth year of unprecedented growth, with a 7 per cent rise forecast for 2007.

But investors worry the power struggle will delay badly needed reforms and undermine further growth. “The political turmoil that has been a hallmark of 2007 has unfortunately begun to have a negative impact on both current investors, who are looking to strengthen their operations, and for new investors who would like to enter the market,” says Jorge Zukoski, president of the American Chamber of Commerce in Ukraine.

Edilberto Segura, chief economist in Kiev at the private equity firm Sigma Bleyzer, warns, “Past sources of growth are being exhausted . . . New sources of economic growth will be needed. New investments will be needed.”

Ukraine has attracted record amounts of foreign direct investment since the Orange Revolution, including about $7bn (€4.8bn, £3.5bn) this year, but its accumulated total of $26.9bn since 1991 is, on a per capita basis, still far below the figures of its central European neighbours. Accession to the World Trade Organisation, a basic step towards internationalising trade and investment, has yet to be completed.

The new government may avoid another gas dispute with Russia as the outgoing government signed a 2008 deal this month. But this envisions the third sharp price rise for fuel imports in as many years and economists say inflation, expected to end the year at 16 per cent, could take off.

Meanwhile, bickering lawmakers have yet to pass next year’s budget, or adopt tax relief for Naftogaz, the state-owned energy company, on the verge of a technical default on eurobonds placed with investors.

A default could raise the cost of corporate and sovereign debt for Ukraine, a country that has borrowed heavily on world markets in recent years.

In the chaos, influential oligarchs have prospered, but other investors are nervous. They fear corruption is rising again and dealing with officials is becoming more difficult. With nobody clearly in charge, there is nobody to turn to.

The worry is that even if a new government is formed soon it will be weak – and will become weaker as the 2010 presidential poll approaches.

Source: Financial Times