Monday, 8 October 2007

Future is not Orange for Ukraine’s elections

Financial News

By Jason Corcoran

08 Oct 2007

Letter from Kiev

Any signs of Ukraine’s Orange Revolution have long since been pulped away, judging by voter apathy and widespread cynicism on the streets of Kiev last week.

A local newspaper said the three leading political forces could bring up to half a million people to the city’s main square on polling day to protest or protect the results of the country’s fourth election in three years.

However, political demonstrators, in their distinctive orange and blue colours, were far outnumbered by shoppers, buskers and visitors enjoying the weather. Instead of banging on the gates of power, the city’s youth were marching to Dynamo Kiev’s stadium to watch their team play FC Naftovyk.

Local sources suggested protesters from the Orange block and the pro-Russian Party of the Regions were being paid up to $25 a day to hold up flags and shout slogans – a far cry from the heady days of 2004 when hundreds of thousands took to the streets in nightly protests, dubbed the Orange Revolution.

The popular pro-democratic movement swept pro-western reformists Viktor Yushchenko and Yulia Tymoshenko into power and deposed the Kremlin’s Viktor Yanukovich. A year later, Yanukovich was back as Prime Minister after winning the country’s first free parliamentary elections. The three main protagonists have since engaged in a power struggle, which has eroded public confidence in politicians.

Perhaps the most remarkable aspect of life in Ukraine in the past three years has been the surge in the economy’s progress. While the indices of Russia’s stock exchanges appear wedded to whether President Vladimir Putin stays or goes, Ukraine’s markets have powered on, regardless of the vacuum at the top.

PFTS, Ukraine’s stock exchange, was the world’s best-performing index in the first six months this year, with a gain of 100%, according to Bank of America research.

Consumer demand led to GDP growth of 7.1% last year and predictions of 4.5% for this year, according to the International Monetary Fund. The inflow of foreign direct investment has jumped to €4.1bn against €1.3bn in 2003. Credit rating agency Fitch last week cited rising incomes, fast-growing bank credit and high steel prices as supporting ratings in a time of political uncertainty.

Germany’s Commerzbank, France’s Crédit Agricole and Austria’s Raiffeisen have piled into the growing retail banking market though mergers and acquisitions. But their investment banking counterparts have been less keen.

Credit Suisse opened a representative office in April while Russia’s Renaissance Capital has a full-service operation, competing with domestic market leaders Dragon Capital and Concorde.

Initial public offering activity has risen since 2004 with more than a dozen companies selling shares at home and abroad and a further 30 are in the queue. Firms wanting to list have several options. London is favourite while Russian exchanges RTS and Micex are increasing their efforts to win business.

A tug of war between Kiev and Moscow is nothing new since Ukraine gained independence from the Soviet Union. Ukraine’s sometimes fractious relationship with Russia was highlighted last week when energy group Gazprom again threatened to cut off gas supplies. A stand-off last winter led to supply cuts and accusations that Russia was using energy as a political weapon.

The country’s new leadership will have to resolve that dispute as well as the regional and linguistic differences between the Ukrainian-speaking west and the eastern and southern regions, where Russian predominates.

With the Yushchenko and Tymoshenko double act looking set to return to power, Ukrainians might be advised to take a shot of Russian vodka with their orange juice.

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