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| World Marketplace |
After the Revolution
Anders Åslund
01/01/2006
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Ukraine’s December 2004 Orange Revolution was an epic event. Amid a sea of
orange flags and placards, the beautiful, charismatic former gas-trading
tycoon—and soon to be prime minister—Yulia Tymoshenko stood triumphantly beside
democratic presidential candidate Viktor Yushchenko, who looked like a beast,
his face disfigured by dioxin poisoning at the hands of his political
opponents.
Yushchenko had chosen orange as his campaign color because it
symbolized nothing else—and this was to be a revolution like no other. The
Ukrainian people had arisen in protest after the old regime stole Yushchenko’s
election victory the month before, spurring the country’s courts to step in and
order another election, which Yushchenko won. Ukraine’s revolution became an
international media phenomenon and brought this country of 47 million to the
attention of the world.
TOP VIEW
Ukraine’s heady Orange Revolution of 2004 has given way to political and
economic uncertainty in the former Soviet satellite. President Viktor
Yushchenko’s decision to remove Yulia Tymoshenko—his revolutionary partner and
the country’s prime minister—and others from office in September 2005 led many
to wonder when the country will collapse. But Ukraine’s democracy is slowly
maturing as Yushchenko strives to thwart an economic freefall and political
corruption. As the country looks ahead to its elections in March, there is reason to be optimistic about the future. |
But this beautiful saga seemed at an end on September
8, 2005, when President Yushchenko sacked the Tymoshenko government. Populists
everywhere despaired over the division between the revolutionaries. But the
qualities required for revolution do not serve ordinary government well.
Ukrainian economic policies after the Orange Revolution were disastrous. Ukraine
could not afford the ongoing and extravagant public quarrels between Yushchenko
and Tymoshenko, who had shown her ineptitude as prime minister. The country
needed a competent government able to pursue a sensible economic policy. There
is reason to hope that the new prime minister, Yuriy Yekhanurov, can deliver
this. Impressively, the newborn Ukrainian democracy proved strong enough to oust
this government after only seven months. Rather than falling apart, Ukraine is
gradually coming together.
Between 2000 and 2004, Ukraine enjoyed an annual
average GDP growth of 8.4 percent, spearheaded by an industrial growth rate of
12.5 percent per year. In the past two years, capital investment surged by no
less than 30 percent, and exports grew even faster. Even now, the capital, Kiev,
looks like one huge construction site, with cranes punctuating the horizon.
Ukraine’s dominant industry is steel, situated in the eastern portion of the
country. For raw materials, Ukraine has both coal mines and iron ore. The
country also inherited the best of the Soviet machine-building industry, and
much of it is now recovering from the collapse of the Soviet system. New
food-processing and light industries have also grown.
But Ukraine continues
to suffer from pervasive corruption and a state bureaucracy that can be both
intrusive and ineffective. Only in 2000, when Yushchenko was prime minister and
after a decade of decay, did Ukraine finally liberalize sufficiently to
unshackle the economy enough to spur growth. Despite his measures, today Ukraine
still has rudimentary economic and market regulations; it lacks even such
elementary laws as one on joint-stock companies. Minority shareholders have no
rights, even on paper. To make matters worse, the courts are considered
notoriously corrupt.
Millionaires Versus Billionaires
Gradually, the most valuable factories
have been privatized, and sooner than anyone expected, their ownership has been
consolidated. Naturally, the owners of large steelworks have become very
wealthy, with many becoming billionaires. As in Russia, these tycoons are called
oligarchs. The biggest oligarchic groups are located in the east, the heartland
of steel and mining. In the city of Donetsk, two metallurgical mastodons face
off. Rinat Akhmetov’s System Capital Management has 160,000 employees, while
Vitaly Haiduk and Sergei Taruta’s Industrial Union of Donbass has 90,000. In the
city of Dnepropetrovsk, Viktor Pinchuk’s steel pipe company, Interpipe, spars
with Ihor Kolomoisky’s Privat Group. All these individuals are newly minted
billionaires.
They have acquired their property through relationships with
government officials, and such relationships cost a lot of money in direct
contributions or campaign financing. Indeed, the Ukrainian oligarchs have come
to dominate politics far more than their Russian counterparts. During the 2004
presidential elections, the candidate of the establishment, Viktor Yanukovich,
was Akhmetov’s man. His campaign contributions from Russian and Ukrainian
businessmen totaled between $600 million and $900 million. (George W. Bush’s
last campaign spent $670 million, although the United States has a GDP that is
more than 100 times greater than Ukraine’s.)
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