Business Regardless

Economic News

22 Jul 2010
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On June 5, President Viktor Yushchenko signed a decree ordering the dissolution of the Ukrainian parliament and set the election date for September 30, 2007. He also ordered the Central Election Commission to make preparations for the election and asked the parliament to provide the necessary funds for election operations.



In most countries that decree might have set into motion a series of fairly mundane actions leading to a fairly predictable result. Based on recent experience in Ukraine, the decree is likely to lead to another round of charges, countercharges, recriminations and little or no action.



There have been so many decrees initiated by the president, so many meetings of the main political players - the president, the prime minister, the parliament speaker and Yulia Tymoshenko, the main opposition leader - that no one is quite sure which agreement, if any, is operative and whether or not there will be elections or just the continuing muddle of the past few months.



In addition to the endless power struggle between President Yushchenko and Prime Minister Viktor Yanukovych, there has been the saga revolving around the appointment of the prosecutor general. The sitting prosecutor was fired in April, a former prosecutor named, the new appointee fired - followed by scenes of opposing authorities in fist fights over who would physically occupy the prosecutor general's office.



On June 1, Yushchenko reinstated Oleksandr Medvedko, the prosecutor general unseated in April. It appears that the renaming of the pro-Yanukovych prosecutor general was traded for the appointment of a pro-Yushchenko head of the Central Election Commission, but that is merely speculation.



In the meantime, Vasyl Tsushko, the minister of interior who personally led the elite Berkut forces to take control of the prosecutor general's office by force, was hospitalised after a heart attack and at last report, remains in a serious condition. The minister's lawyer, Tatyana Montyan, claims that the minister was poisoned and a pro-Tsushko member of parliament has threatened to name the persons believed responsible for the alleged poisoning.



Most observers believe that largest faction in parliament, the Party of the Regions led by Yanukovych, is likely to win the largest number of seats in the new parliament, but may be forced once again to seek coalition partners.



The big winner is expected to be Yulia Tymoshenko, who previously served as minister, vice prime minister and prime minister. Her confrontational style is expected to allow her to win votes from the Socialists, the Communists, but also from the pro-presidential Our Ukraine faction. The assumption that Tymoshenko may rally Our Ukraine voters is based on the broad national consensus that Yushchenko and the pro-presidential faction have been ineffective.



The casual observer might assume that the endless political turmoil that has embroiled Ukraine would affect business. However, the reality is quite different and there is no evidence that political chaos and business vitality are at odds.



European banks have made strong inroads to Ukraine, either through takeovers or expansion. Austria's Raiffeisen bank group bought Ukraine's second largest bank, Aval, and more recently, sold its existing Raiffeisen Bank Ukraina to Hungary's OTP.



Russian banks, flush with energy dollars, are also becoming more active in the market. On June 5, Russia's Sberbank announced it had signed an agreement worth $160m to purchase Ukraine's NRB Bank.



Sberbank said it would change NRB's name to SBR and develop its retail operations by opening branches throughout the country. To that end, Sberbank said it intended to increase its capitalisation to $137m.



Such international giants as Coca Cola, McDonalds, Cargill, Bunge, Kraft, Nestle, Citibank, British American Tobacco, Metro Cash&Carry, and Procter&Gamble have made substantial investments in Ukraine and expanded their initial operations.



For instance, Coca Cola continues to regularly upgrade and expand the operations of its largest bottling plant built just outside Kiev at an initial cost of $270m. Bunge, one of the world's largest producer of processed oilseeds, has substantially increased its investment with improvements and expansion of the Dnipropetrovsk Oil Extraction Plant, acquired in 2002 for $150m.

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