"WE USED TO KNEEL BEFORE THE PEOPLE IN POWER"

UKRAINE HAS BEEN TRANSFORMED BY THE POLITICAL TURMOIL OF RECENT MONTHS
If Viktor Yushchenko does win the presidency in next week's rerun election he faces huge challenges, write Stefan Wagstyl and Tom Warner

By Stefan Wagstyl and Tom Warner
Financial Times, London, UK, Tue, December 21 2004

Viktor Yanukovich, Ukraine's prime minister, and Viktor Yushchenko, the opposition leader, last night confronted each other in a television debate, their only face-to-face meeting before Sunday's rerun of the country's disputed presidential election. The atmosphere was formal, but there was no disguising the tensions in Europe's most important political drama of 2004.

Mr Yushchenko has emerged from weeks of crisis as the favourite to win. But the tough-talking Mr Yanukovich is not giving up. And if he loses, he is likely to appeal to the courts, as Mr Yushchenko did last time. Whatever happens on December 26, Ukraine's biggest political crisis since it won independence from the Soviet Union in 1991 will rumble on into 2005.

If Mr Yushchenko wins he faces big challenges, including building a genuine democracy, developing a free market economy and uniting a divided country. He must cope with the legacy of the decade-long authoritarian rule of President Leonid Kuchma. Abroad, he must deal with Russia, which has openly backed Mr Yanukovich, and try to fulfil his hopes of better ties with the west, especially the European Union.

Russia and the west will have to decide how to engage with a new Ukraine. If Mr Yushchenko wins and consolidates his victory, the "Orange Revolution" could set a powerful democratic precedent for neighbouring states, including Russia. But if Mr Yanukovich wins or if a Yushchenko presidency runs into trouble, it could be Russian-style "managed democracy" that triumphs in the region.

Kalman Mizsei, regional director for the United Nations Development Programme for Europe and the former Soviet Union, says: "This country really has to fight for its identity. But I think that [events in] Ukraine will have an effect on the whole region."

The country that the election winner will govern will be quite different from the one that went into the presidential election campaign this summer. Most Ukrainians expected that Mr Kuchma would end his 10 years in power by ensuring the succession of his hand-picked successor, Mr Yanukovich. The administrative machine was organised to manipulate television and dragoon managers into bullying their staff to back the prime minister. Russian and Ukrainian business were encouraged to provide support.

When this failed to win enough votes, the authorities rigged the ballot and Mr Yanukovich was officially declared winner in the November 21 poll. But he had underestimated Mr Yushchenko and the extent of public discontent. The opposition leader, who had served Mr Kuchma as central bank governor and prime minister before striking out on his own in politics, prepared carefully for the election by building a broad coalition. The campaign suffered a big setback when Mr Yushchenko was poisoned, allegedly while dining with Ukrainian secret police chiefs. The 50-year-old opposition leader was left badly disfigured. But he became even more determined to overthrow Mr Kuchma.

When Mr Yushchenko realised the election was being stolen he called out his supporters. They came in their tens of thousands and did not leave until the poll had been declared invalid, a new date set and a package of reforms enacted to try to prevent frauds. A few thousand remain in place in central Kiev.

This was the "Orange Revolution" that has changed Ukraine. To an extent it was pre-planned, as Mr Yushchenko's campaign managers had made contingencies for a fraudulent result. But mostly the protests were spontaneous: so large that they surprised even Mr Yushchenko's supporters. At their peak, 500,000 crowded into central Kiev, creating a rolling carnival of orange hats, scarves and banners.

Mr Kuchma had insisted there would be no "Georgian scenario". His officials argued that Mr Kuchma was much more secure than Eduard Shevardnadze, Georgia's former president, and that Ukrainians were more passive than Georgians.

They were wrong. A nation battered into submission by war and oppression in the 20th century threw off its mental shackles. As Nadia Berezovska, a middle-aged postmistress who joined the protests, said: "We used to go down on our knees before the people in power, but now we have got to our feet."

Whatever happens in the election, Ukraine has been transformed. Any attempt to re-impose authoritarian rule would face serious resistance. People are already trying to institutionalise the change. For example, in the provinces local leaders are demanding administrative decentralisation. It is easy to see this as a danger, especially with the political division of the country between a Russia-oriented east that has supported Mr Yanukovich and central and western regions that mostly back Mr Yushchenko.

However, east and west share a belief that Mr Kuchma has concentrated too much power in Kiev. Hryhory Nemyrya , chairman of the Renaissance Foundation, a west-oriented Kiev think tank, says that in this proliferation of local initiatives "civil society is being born". his wave of popular enthusiasm creates political challenges. Expectations are running high and disappointments are almost inevitable. As the likely election winner, Mr Yushchenko faces many hurdles.

The first is the poll itself. Everything points to a much more honest vote than last time, but one that will still not be completely fair. The will of the Kuchma government to resist popular support for Mr Yushchenko has been broken. Most officials in Kiev, governors and lower-level administrators in central and western regions have likewise given up the game.

The key organisers of election fraud and of unfair tactics have left the scene, including the prosecutor general, the interior minister and the central election commission chairman. Other senior figures in Mr Kuchma's administration have deserted Mr Yanukovich: they are headed by Viktor Pinchuk, a business oligarch and Mr Kuchma's son-in-law. But the prime minister has retained the support of business leaders in the eastern Donbas industrial region, including Rinat Akhmetov, Ukraine's richest man, and Viktor Medvedchuk, the head of the presidential administration and a
powerful businessman. Mr Kuchma himself seems to be oscillating between the two groups.

Safeguards against fraud have been dramatically improved. Electoral reforms passed earlier this month limit the scope for cheating. The Central Election Commission and local election commissions are being reconstituted. International observers are coming in even larger numbers than last month (see above).

It is therefore unlikely that there will be large-scale cheating anywhere except in the Donbas region. Mr Yanukovich's strategy is not to win but to confirm himself as the political leader of Donetsk and Luhansk regions and establish himself as the head of the national opposition to Mr Yushchenko. He expects big wins in Donetsk and Luhansk in Ukraine's far east, where he scored more than 90 per cent last time. The test will be how much support he wins in the centre and south.

Mr Yanukovich will also want to undermine the validity of the result by seizing on any evidence of wrongdoing by Mr Yushchenko's supporters, so he can later claim he was cheated.

Assuming Mr Yushchenko wins, his next challenge will be forming his government. His coalition was largely formed to overthrow Mr Kuchma and, once Mr Kuchma has gone, tensions will inevitably emerge. Mr Yushchenko's allies include Olexander Moroz, the Socialist party leader, Anatoliy Kinakh, a former prime minister and an important defector from the Kuchma camp, and Yulia Tymoshenko, a former deputy prime minister in Mr Yushchenko's reformist government of 1999-2001.

Ms Tymoshenko is a controversial figure, having made a fortune in the early 1990s trading in the state-controlled gas market. With her firebrand speeches she has played a big role in the "Orange Revolution". But her radical views - she has called for a wholesale review of past privatisations - clash with Mr Yushchenko's conciliatory approach. She is also tainted by corruption claims dating back to the mid-1990s, which she dismisses as political attacks. Building a government around Ms Tymoshenko will be difficult. Building one without her might be even harder.

To make matters worse Mr Yushchenko will have only a few months before constitutional changes take effect. Agreed with Mr Kuchma earlier this month, these involve transferring power from the presidency to parliament, starting later this year and ending in the spring of 2006, just after the next parliamentary election.

In principle, Mr Yushchenko supports the reforms because they make any return to authoritarianism more difficult. But in practice, the changes will greatly complicate political life.

The job will be made tougher by Mr Yushchenko's determination to allow prosecutors to investigate crimes of the Kuchma era - notably his own poisoning and the murder in 2000 of opposition journalist Georgy Gongadze. How fast the investigators work and whom they target could easily cause arguments among the coalition partners.

Ukraine's east-west tensions will require careful handling. During the current crisis, leaders in the Donbas have made separatist threats but they are not a serious danger. The division between a nationalist Ukrainian-speaking west and a Russia-oriented Russian-speaking east has declined since independence, largely as a result of Mr Kuchma's efforts to build a single nation. Mr Yushchenko hopes planned administrative devolution will satisfy the demands for regional autonomy.

The economy will require rapid remedial action. After coming close to economic collapse in the 1990s, Ukraine has recently staged a strong recovery, with 12 per cent gross domestic product growth expected this year. However, even Mr Kuchma's ministers are predicting a sharp slowdown next year, cutting a forecast 8.6 per cent growth to 6.5 per cent. Boosted by a pre-election public spending spree, inflation and government borrowing are rising.

Yushchenko also faces serious structural economic questions. He has promised to resist calls for the wholesale revision of privatisation, saying he wants to concentrate on the future. But he plans to review the state's $800m sale of the Kryvorizhstal steel mill, acquired this year by Mr Pinchuk and Mr Akhmetov. Drawing a line between this deal and others, while encouraging new investment, will be tricky.

International relations will require urgent action. Mr Yushchenko wants better ties with the west, which have suffered from the reluctance of the US and the EU to engage with Mr Kuchma's regime. Ukrainians will hope for rapid change, especially in relations with Brussels.

But the EU has ruled out what Ukrainians most want - an early promise of eventual membership. At this month's EU summit, leaders rejected Poland's proposals for a special relationship with a democratic Ukraine. Instead, Kiev may secure modest aid increases, quicker recognition of market economy status and support for joining the World Trade Organisation.

Mr Yushchenko may make more progress with Nato, which has run a partnership programme with Kiev for some time. Mr Yushchenko's colleagues hope for entry in two years, but the obstacles are formidable - not least Russia's likely opposition.

Mr Yushchenko says he wants good ties with Moscow. But the difficulties are immense. President Vladimir Putin's officials see the former Soviet Union as Russia's sphere of influence and regard western involvement as an intrusion. They are furious at what they see as "losing" Ukraine to Mr Yushchenko and seem certain to continue backing Mr Yanukovich. At their disposal they have powerful weapons, including political and economic ties and security service links.

The Baltic states offer examples of how Russia interferes in the politics of former Soviet republics. In Lithuania, Rolandas Paksas, a populist politician backed by Russian money, last year won the presidency. He was impeached and replaced this year because of alleged links with Russian intelligence and Russian organised crime. In Latvia and Estonia, Russian ministers exploit the difficulties of ethnic Russian minorities. Ukraine, which was ruled from Moscow for centuries, seems even more open to manipulation.

Coming from a small village not far from the Ukrainian-Russian border, Mr Yushchenko understands the challenge Russia represents. Nothing will help more in his dealings with the Kremlin than an emphatic victory on Sunday.

Petro Poroshenko, the 39-year-old owner of Ukraine's largest confectionery company who played a leading role in the "Orange Revolution", says he is determined to prove that business and politics in his country do not have to be intimately intertwined.

As one of the top figures in Viktor Yushchenko's team, Mr Poroshenko is expected to get an important job - possibly the post of prime minister - if the opposition leader wins the presidency. That is putting Mr Poroshenko and his business holdings in the limelight. "I think we will have an opportunity to prove that we did not go to the government just for positions. We really want to create a democratic system," says Mr Poroshenko, the chairman of the parliamentary budget committee.

Supporters of Viktor Yanukovich, the incumbent prime minister and Mr Yushchenko's opponent, say the elections are a contest between two "clans" of business people, some of whom were satisfied with their relationship with the current government and others who were jealous. Mr Yushchenko' supporters reject that view and say a new generation of business leaders has accepted the principles of free-market democracy, such as a level playing field and the rule of law.

Mr Poroshenko says he is not involved in managing his own businesses, having put his shares into trust after he was first elected to parliament in 1998. However, he remains chairman of the non-executive "public council" of his television channel, Channel 5. Although its broadcasts reach only parts of the country, Channel 5 has emerged during the election campaign as one of Ukraine's three most-watched television channels. It broadcast live coverage of the protests in downtown Kiev, which were initially ignored by almost all other channels. "Before these elections, only 3 to 6 per cent of people were interested in political news. Today the figure is around 50 per cent," Mr Poroshenko says.

One obvious difference between the businessmen around Mr Yushchenko and those close to Mr Yanukovich and Leonid Kuchma, the outgoing president, is in the scale of their holdings. Ukraine's richest men - including Mr Kuchma's son-in-law, Viktor Pinchuk, and Rinat Akhmetov, a coal and steel baron allied to Mr Yanukovich - control business empires with annual sales in the billions of dollars. The business people behind Mr Yanukovich are involved mainly in heavy industry or commodities, while Mr Yushchenko's supporters in business are more likely to be involved in consumer goods and services.

Roshen, Mr Poroshenko's confectionery company, recorded $274m of sales last year. The figures for his other companies - including a bank, a shipyard, a small car plant and a brewery - are relatively modest.

Mr Poroshenko says the new cabinet should set clear rules for all businesses. His priority is to collect more taxes from big businesses, including the private empires that emerged under Mr Kuchma and the remaining big state companies - such as the national railways and Naftogaz, the oil and gas company - which he alleges have become vehicles for diverting state funds.

Another financial challenge is the state pension fund, which is being quickly drained by a huge pension increase that Mr Yanukovich pushed through just before the elections. The Mr Poroshenko says the solution is to follow up with increases to state salaries in order to boost the pension fund's income, although he acknowledges that the strategy will spur inflation to some extent.

Mr Poroshenko is known as a moderate with an eye for strategic compromises. He pushed strongly for the agreement with Mr Kuchma earlier this month that ended public protests in Kiev. The resulting constitutional changes - giving more power to the parliament and the cabinet - could become crucial after parliamentary elections in 2006. Mr Poroshenko says: "We have at least a year to prove ourselves."