Thursday, March 24, 2005

Orange Revolution The Day After

In Kiev, things are starting to settle down after the intense drama of the Orange Revolution that ousted the corrupt Kuchma regime and installed the Viktor Yushenko presidency.

What happens in Ukraine will be of profound importance in the years ahead.

It will challenge all of Europe as the country seeks full membership of the structures of European and Atlantic integration, and it will challenge Russia as an open and democratic political system is secured towards its South and as Ukraine provides investment opportunities competing with those of problematic Russia.

That's why I spent a few days in Kiev taking stock of the situation.

The political attention has rapidly shifted to the March 2006 elections to the Rada - the parliament. In combination with the constitutional changes that will bring more powers to the Rada and the Prime Minister, these will decide the political course of Ukraine in the years ahead.

The government under Prime Minister Yuliya Tymochenko has presented a budget which obviously has the elections in mind. The genereous pre-election promises of the previous regime of increases in pensions and wages are not only honoured, but also increased upon. The result is that there is a serious risk of a deterioation in the fiscal situation and an increase in inflation in the years ahead.

But much of the political debate is consumed by the issue of what to do with the Kuchma cronies that got control of large parts of the Ukrainian economy, not least in the country's resource-rich and more Russian-oriented Eastern areas.

Yuliya Tumochenko leaves no doubt that she is determined to get these men down to size during the years to come, although she listens to warnings that uncertainty on property rights might well scare of the needed Western investors. At the end of the day, we are likely to see a limited number of the most horrendous cases acted upon by the Courts, but not very much more.

In the meantime, Russian investors afraid of the old patterns of behaviour in the Kremlin are rushing into Ukraine, where Ukrainian oligarchs afraid of the new powers in Kiev are only too keen to sell parts of their assets. The Orange Revolution is immediately resulting in a marked increase in the Russian economic presence in the country.

But there is nothing wrong in this. And over time Western investments are likely to start increasing. If economic reforms are pursued with the vigour that is now talked about, the country gradually moves towards the European Union and there is a reasonable political stability, Ukraine is likely to be one of the premier production locations in Europe in the decAdes ahead.

While Foreign Minister Tarasyk speaks about the country's ambitions for NATO membership, Deputy Prime Minister Rybachuck is eloquent on their plans to move step by step towards membership of the European Union. While public support for the former is distinctly limited at the moment, the European Union is seen as a guarantee of both freedom and prosperity in the years ahead.

Nothing of this will come either easy or fast. The European Union will be in a rather nervous state until the issues surrounding the Constitutional Treaty have been sorted out. And the accession negotiations with Turkey, scheduled to start October 3rd, are not making things much easier.

But in the middle of this, it is important that the European Union in the one way or the other during this year acknowledges the European aspirations of Ukraine.

Nothing of this can be seen or discussed without taking in the wider context. It is likely that we will see Kiev emerging as a center of democracy in the region, from which inspiration will radiate not the least to Belarus and Moldova.

And it is unavoidable that the political and economic example set in the Ukraine will have a profound effect on developments in Russia in the years ahead.

All the more reason to stay tuned - and to give support.