President Viktor Yushchenko

In recent years, Ukraine has seen a people’s revolution, progressive new leadership and a staggering economic upswing that has drawn attention from the US and EU. What does the future hold?

In autumn 2004, the world watched as the post-Soviet nation of Ukraine gathered on frozen streets in mass demonstrations known as the Orange Revolution. For weeks, millions protested against mass election fraud triggered by a divisive election campaign and rallied behind candidate Viktor Yushchenko.

“I remember three years ago when you switched on any channel, you saw one massive block of news, which was managed from the president’s seat,” recalls Mr. Yushchenko. “It was not just misinforming the nation, but we were simply losing the chance to choose between the worst and the best.”

Since Mr. Yushchenko swept to power, the Ukrainian political establishment has renewed a commitment to economic reform, democratic governance, and transparency. Infamous government-mandated censorship – known as temniki – ceased. Visa requirements for EU and US citizens were scrapped and annual tourist numbers swelled to 27 million. Budget revenues increased as businesses moved from the shadow economy. Over 5,000 regulatory procedures were enacted to European standards. Shady insider privatization deals were revised and sold to international bidders at market values.

Driven by steel, chemicals, and agricultural commodities, exports are increasing in value. Recently, the World Bank raised its outlook for GDP expansion in 2008 from 5.5% to 6%. The latest Global Competitiveness Report issued by the World Economic Forum ranked Ukraine alongside emerging market heavyweights Brazil, Vietnam, and the Philippines.

In May, Ukraine became the 152nd member of the World Trade Organization, heralding a new level of global economic integration. Foreign investors and Ukrainian companies are confident that this status will heighten investment prospects, strengthen intellectual property rights and spur needed capital for research and development initiatives.

While the Orange Revolution swept away a brand of post-Soviet authoritarianism, it created room for political dissent and gridlock. Three years ago, the government of erstwhile “orange” ally Prime Minister Yulia Tymoshenko collapsed, bringing Mr. Yushchenko’s rival Viktor Yanukovych to power. After snap elections last year, Ms. Tymoshenko returned as Prime Minister – with a fragile coalition government hanging in the balance.

After Ms. Tymoshenko sided with her political opponents to curb presidential powers, Mr. Yushchenko withdrew his party from the coalition in September. While the Prime Minister seeks to build a new cabinet majority, Mr. Yushchenko may call fresh elections by mid-October if a new majority fails to coalesce.
But Mr. Yushchenko emphasizes that his country’s ongoing political turmoil signals the growing pains of a young democracy. “I would say that honest elections are like lighting a torch for this country. I am convinced that we will continue to achieve great progress in the freedom of speech within a system of democratic values.”

So far, partisan politics have not detracted the entry of international capital into banking, retail, real estate, and other sectors. In the first half of 2008, foreign direct investment jumped to $6.9 billion after the economy attracted a record $7.9 billion in 2007.

“When I came into this position, per capita investments were $91 and now it is $692,” says Mr. Yushchenko. “It is still too small, but it is more than three years ago. The pace of its growth shows that right now we are attractive to foreign businesses, including American ones.”

In 2006, the EU became Ukraine’s largest trade and investment partner. Bilateral trade has doubled since 2003, topping €34.8 billion last year. Pipelines stretching across Ukrainian territory serve as arteries for vital oil and natural gas to Europe. During September’s Ukraine-EU summit, an association agreement was signed, signaling deeper integration between Kiev and the 27-nation bloc. Both sides are accelerating efforts to ink a Free Trade Agreement.
Bordering an expanded EU, Western integration is an unwavering priority of the government. “Concerning external policy issues, our bilateral rapprochement and European integration is very important to us. During the last three years we managed to achieve great results in this respect. It resulted not only in qualitative changes in general, but a new qualitative policy as well,” adds Mr. Yushchenko.

Both Brussels and Washington continue to support Kiev’s Euro-Atlantic aspirations. Ukraine first outlined its priorities to join NATO in 1994 when it became a member of the alliance’s Partnership for Peace program. Although NATO has not extended a coveted Membership Action Plan, the antechamber for joining, full integration is on the horizon.

“Talking about the Membership Action Plan, as a sovereign country we think that there is no better solution for our national sovereignty and our territorial integrity as the model of collective security. NATO integration is very important for Ukraine and this policy is not directed against anyone. However, our goal is to provide solid security for Ukraine, and it is natural that we count on the support of all our partners, including the US.”

More work is to be done for the government to create more business-friendly legislation, nurture the development of capital markets, and tackle corruption – a hangover from the Soviet system. “One and a half years ago, six draft laws were issued on the fight against corruption. I addressed public organizations with an appeal to launch an effective national campaign against corruption. I am confident that we will do it. We are talking about these issues and we know our challenge.”