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Ukraine’s Move to West Stalls Amid Political Feud (Update1)




Ukraine’s Move to West Stalls Amid Political Feud (Update1) 

By James M. Gomez and Daryna Krasnolutska

July 11 (Bloomberg) — In December 2004, pensioner Vladyslav Leontovych joined hundreds of thousands of fellow Ukrainians in Kiev’s central square to help overturn a rigged presidential election and usher in the Orange Revolution.

“There was this fantastic national uprising, we had such unity,” says Leontovych, 85, as he hands out “Ukraine in NATO” flyers near the 61-meter (200-foot) Independence Monument. These days, he says, “People are playing politics instead of working.”

Almost four years after teaming up to push Ukraine toward European Union and NATO membership, President Viktor Yushchenko and Prime Minister Yulia Timoshenko are at war with each other — once again. Their clash this time has brought parliament to a standstill, boosted inflation and public spending, delayed state asset sales to such companies as HSBC Holdings Plc and Royal Dutch Shell Plc and stalled Ukraine’s NATO bid.

“Ukraine’s political elite have put off serious reforms to concentrate on personal power struggles,” says Geoffrey Smith, chief analyst at Moscow-basedRenaissance Capital brokerage’s Kiev office. “This is a dangerous mindset.”

The 29.3 percent June inflation rate is Europe’s highest, while the economy’s 6 percent annual growth rate in the first quarter is the slowest in two years. Timoshenko’s government has delayed selling VAT UkrTelecom and ammonia producer Odeskyi Pryportovyi Zavod, worth at least 8.92 billion hryvnia ($1.81 billion).

Democratic Rule

Hopes were high when Yushchenko and Timoshenko emerged from the revolution at the beginning of 2005 as heads of state and government. They were supposed to edge Ukraine further away from Russia’s sphere, raise living standards and strengthen democratic rule in the nation of 46 million people.

Then Yushchenko fired Timoshenko in September 2005 after she frightened investors by threatening to retake control of former state-owned companies. The blonde-braided Timoshenko, now 47, joined forces with Viktor Yanukovych, who lost the presidency to Yushchenko in the December 2004 elections, and helped bring down Yushchenko’s government in 2006.

Yushchenko brought her back to the premiership in December 2007 after parliamentary elections, as the better alternative to Yanukovych.

The latest breakdown occurred after two lawmakers quit Timoshenko’s coalition on June 6 over complaints about how the government was being run. That ended her majority, leaving the coalition with 225 seats in the 450-member Parliament.

Assembly Blocked

Timoshenko’s allies physically blocked the assembly’s chamber on June 19, a day after the president reversed her cabinet’s decision to withdraw a license for Houston-based Vanco Energy Co. to explore for natural gas and oil in the Black Sea. They blocked it again on July 8 and 9.

To Olexander Lytvynenko, a researcher at the Ukrainian Centre for Economic & Political Studies in Kiev, Timoshenko’s motivation is power, which has bounced between the heads of state and government through various constitutional changes.

“Her target was and remains to grab as much power in the country as she can, no matter what post she has,” Lytvynenko says. “If the premier has more power, then she wants to be premier. If it’s the president, then she wants to be president. Yushchenko is trying to constrain her.”

Spending Spree

Timoshenko’s cabinet raised spending 49 percent in the first five months of this year compared with the same period a year ago, especially on social programs. Yushchenko, 54, called the budget “careless work” and said on July 9 that he would veto amendments to increase spending.

Yushchenko countered yesterday by submitting his own budget revision, focusing on boosting investment and state asset sales to increase revenue, his press office said in an e-mailed statement. The office didn’t immediately provide details of the document.

The popularity of Yushchenko, former head of the central bank, was at 5.8 percent in a June 6-16 survey by the Kiev-based International Institute of Sociology. Timoshenko garnered 18 percent.

Lytvynenko says Yushchenko’s decline can be traced to diminished prospects that Ukraine will join the EU and the North Atlantic Treaty Organization. Ireland’s rejection of the EU treaty put enlargement on hold and NATO leaders in April denied Ukraine special pre-membership status because of political instability.

“He didn’t fulfill his promises,” says Lytvynenko. “Yushchenko was the person who had the highest support in 2005 and he lost everything.”

`Strong Supporter’

Oleksandr Shlapak, first deputy head of Yushchenko’s presidential office, blamed Timoshenko for the split in a June 26 interview in Kiev, though he said the president would still govern with her.

“There are serious differences,” Shlapak said. “The president is a strong supporter of western values. The premier, in my mind, has another view.”

Timoshenko laid the blame on Yushchenko.

“I want to ask the president to stop ruining the government,” she told theCabinet on May 28, according to a transcript. The conflict “has reached its zenith.” She also criticized Yushchenko’s state asset sale plans as nontransparent without saying how.

Yanukovych, 58, has a support rating of 24.2 percent, according to the same poll. He favors closer ties with Russia, which Yushchenko and Timoshenko oppose.

London-based HSBC, Europe’s largest bank by market value, has seen its bid for Odeskyi Pryportovyi Zavod delayed three times. Plans for The Hague-based Shell, Europe’s largest oil producer, to invest in Black Sea oil have not been approved.

“The government is ruining the economy, everything. I want Yanukovych,” says Alla Dmitriyeva, a 53-year-old businesswoman, between sips of espresso in a downtown cafe. “Our government is a nut house.”

To contact the reporters on this story: James M. Gomez in Prague at[email protected]Daryna Krasnolutska in Kiev at[email protected]

Last Updated: July 11, 2008 03:23 EDT

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