A year ago Ukraine’s Orange Revolution peacefully ousted an autocratic, crony-ridden government with a human blockade of central Kiev. Now the movement that put the former Soviet republic on the map of democratic Europe and transfixed the world seems to be in danger of dissolving.
The revolution’s leader, President Viktor Yushchenko, fell out with his second-in-command, Yulia Tymoshenko, and sacked her as prime minister in September. This January, Tymoshenko took her revenge, forcing a no-confidence motion on her successor that threw the government into constitutional limbo. The quarreling among the Orange forces gives the old regime’s defeated presidential candidate, Viktor Yanukovych, a chance to return to the government in a coalition in this month’s parliamentary elections.
Ukraine’s economic growth dropped last year to 3 percent from 2004’s 12 percent. Falling prices for the country’s top exports -- steel and iron -- were partly to blame, but so was the government’s on-again, off-again privatization campaign: Although it reclaimed just two of the dozens of enterprises sold under former president Leonid Kuchma to favored businessmen in opaque tenders, it spread enough trepidation to choke investment throughout Ukrainian industry.
None of this fazes investor and Yushchenko booster Michael Bleyzer: It just gives the private equity entrepreneur more opportunity to buy Ukrainian companies cheaply.
Raised in the eastern Ukrainian city of Kharkov, but a U.S. citizen and resident of Houston since 1978, the 54-year-old Bleyzer left a comfortable perch as a petrochemical consultant for Ernst & Young in the mid-1990s to comb for hidden treasure in the heaps of worn-out assets in his native land. Riding on the coattails of optimism about neighboring Russia and relying on a generous dose of daring, he was able to raise $100 million in 1996 and 1997 from blue-chip investors led by Goldman, Sachs & Co. and UBS. His Kiev-based firm, SigmaBleyzer, quickly sank half the money into 82 Ukrainian companies that were going private, from utilities and turbine makers to ice cream factories.
Then the Russian financial crash of August 1998 hit. That cataclysm dried up any hopes of an early exit for SigmaBleyzer’s investors. On the bright side, it opened up the possibility that Bleyzer could scoop up lots of bargains through private equity investments with the remaining $50 million. From 1999 to 2001, SigmaBleyzer bought controlling interests in, among other enterprises, the cable TV franchise for most of Kiev, with 560,000 customers; the huge ship-repair facility at Sevastopol; Ukraine’s fifth-biggest confectionery producer, in historic Poltava; and a Kiev software developer whose revenues have grown 13-fold in the past five years.
Bleyzer’s patience with his native country looks set to pay off at last, if Yushchenko’s political woes don’t send Ukraine back for another long spell of wandering in the financial wilderness. Kiev’s PFTS stock market index has almost doubled since Ukraine turned Orange. Bleyzer took advantage of the market’s improved liquidity to unload 54 of his 82 original portfolio investments, all but three at a profit, he says. His investors say that they now expect the money they gave SigmaBleyzer in the 1990s to have increased three- or fourfold by the time their ten-year commitments are up.
Now Bleyzer wants to go shopping again. He has raised E100 million ($119 million) of a targeted E250 million, including recommitments from Goldman and UBS. Bleyzer will use the money exclusively for private equity, avoiding musclebound hulks like the Sevastopol shipyard in favor of what he sees as the Ukrainian companies of the future -- communications and software as well as consumer goods and services.
His new mission got a significant vote of confidence in November from the European Bank for Reconstruction and Development, which pledged to put up 20 percent of the money for SigmaBleyzer’s new venture. “SigmaBleyzer has shown it can successfully use private equity in Ukraine, which is not the easiest of markets,” says Peter Stredder, deputy director of the EBRD’s Kiev office.
“Michael’s a man with a vision, a crazy vision, but a vision, and I think he’ll be successful with it,” says Davide Erro, a former Goldman partner who championed Bleyzer’s first funds and now heads Hong Kongbased hedge fund Gandhara Capital. “Ukraine may not be Russia, but it’s a significant market that should benefit from cleaning up the country.”
BLEYZER IS NOT THE ONLY WESTERN INVESTOR betting on Ukraine’s future, but he may be the most exuberant. As crowds gathered to protest Yanukovych’s rigged presidential victory in November 2004, Bleyzer dropped all other pursuits to turn blogging protester. “This is the happiest, friendliest, most incredibly loving and supportive group of people I have ever encountered,” he wrote in one typical dispatch from Kiev.
During an interview with Institutional Investor in Kiev that turns into a six-hour peroration on his eventful life and varied career, Bleyzer lays out his theory of “hybrid investing.” Political engagement -- whether through funding his own free-market think tank, the Bleyzer Foundation, or underwriting an inaugural ball for President Yushchenko -- is an integral part of making money in a place like Ukraine, he says. The spiritual catharsis from the Orange uprising will propel Ukraine, and SigmaBleyzer, forward regardless of what happens in this month’s election, he argues.
“There’s a very low probability of the old style of government coming back into power,” he says, holding forth in his functionally renovated Kiev office on the ground floor of a Stalin-era apartment building. “Even if the worst of the old regime did come back, they would have to behave differently. Ukraine is one of the most vibrant societies in the world right now because of the Orange Revolution.” Yushchenko has pledged to yield much of his executive power to the new Verkhovna Rada, or Parliament, elevating the next prime minister to at least his equal. That person, polls indicate, will need backing from no fewer than two of the three leading parties -- Yushchenko’s Our Ukraine People’s Union, Yanukovych’s Party of the Regions and Tymoshenko’s eponymous bloc -- setting the stage for an unpredictable round of horse-trading.
Ukraine, a country of 48 million people, reached its 15th year of independence in 2005 with a per capita income of $1,300, less than half that of neighboring Russia, and a ranking of 107 out of 158 countries in Transparency International’s 2005 corruption perceptions index. Still, that was an improvement from 122 in 2004, indicating Yushchenko is making progress toward the rule of law. And Ukraine’s poverty, matched incongruously with high education levels, could entice investors looking for a low-cost supplier to Russia or the European Union, which Ukraine abuts.
Multinational investors lured by this comparative advantage include Indian steel tycoon Lakshmi Mittal of Mittal Steel (currently trying to buy archrival Arcelor), who paid a stunning $4.8 billion in October for top Ukrainian steel producer Krivorizhstal Steel Works-- the first enterprise seized by the Yushchenko government from the cronies of former president Kuchma and privatized. (The original owners, including Kuchma’s son-in-law, had paid $800 million for it.)
European banks have acquired three of their top five Ukrainian counterparts in the past seven months. In August, Austria’s Raiffeisen International Bank agreed to pay $1 billion for 94 percent of Ukraine’s No. 2 bank, Aval, at an aggressive valuation of 3.7 times book value; BNP Paribas followed in December, buying 51 percent of No. 5 UkrSibbank for $300 million to $350 million. Italy’s Banca Intesa dug deeper still, paying a reported $1.15 billion last month, or about seven times book, for 88 percent of No. 4 Ukrsotsbank.
In private equity, though, Bleyzer is among a handful of pioneers. His longest-standing competitor is the U.S. government
financed Western NIS Enterprise Fund (for New Independent States), which has invested $90 million in Ukraine over the past decade. Most of that went into light manufacturing or service companies, such as Kiev-based International Mortgage Bank and the Shvidko fast-food restaurant chain, which fights off McDonald’s with pelmeni (meat dumplings) and instant borscht. Western NIS, one of a string of investment vehicles funded by Washington throughout post-Communist Eastern Europe, is now trying to supplement its $150 million commitment from Congress with private capital. A smaller rival, Euroventures Ukraine Fund, is backed principally by the EBRD but also gets support from the World Bank’s International Finance Corp. and the Dutch government. Last year Euroventures added $35 million to its original $30 million kitty.
The limited competition among private equity investors in Ukraine is no surprise when one listens to the war stories told by Bleyzer and his younger brother Lev, 49, who followed Michael to the U.S. and then back to Ukraine as a partner in SigmaBleyzer. When the firm took control of Sevastopol Shipyard in 1999, that enterprise had not been paid for three years by its main customers -- the Russian and Ukrainian navies. Lev, who characterizes his job as “staying in the background and cracking heads occasionally while Michael does the talking,” seized half-a-dozen warships in dry dock from both nations as collateral, weathering the admirals’ invective until they came up with the cash.
At a tractor engine plant acquired in Makeevka, a gritty town in the Donbass, eastern Ukraine’s coal mining and steelmaking heartland, SigmaBleyzer went through four CEOs before finding one who did not “send money to the wrong pocket,” reports Diana Smakhtina, a Kharkov university economics professor whom Bleyzer drafted early on as SigmaBleyzer’s chief of corporate governance.
At Sevastopol the firm has collected debts from military customers, paid workers two years’ worth of back wages and refocused on repairing commercial ships, which now provide 90 percent of the revenue. SigmaBleyzer recently sold 75 percent of the yard for six times what it paid for it, Bleyzer says.
Ukraine’s fierce 2004 presidential election campaign took its toll on SigmaBleyzer’s assets. At Poltava Confectionery, CEO Valery Plaksy faced random power outages throughout much of the year -- reprisal from local authorities, he says, for his refusal to contribute to the Yanukovych campaign.
Poltava Confectionery has increased revenue fivefold, to about $60 million a year, since SigmaBleyzer took control in 2000, Bleyzer says. Earnings before interest, taxes, depreciation and amortization have jumped sixfold, to $6 million. The company invested $4 million in a spanking new factory on Poltava’s outskirts, where Little Squirrel Chocolates and Happiness to You brand butter cookies whir off shiny Italian-built assembly lines into trucks that roll up off a nearby highway. This is a century’s leap forward from the cramped, jury-rigged Soviet structure Bleyzer purchased.
The worst trouble came at the Bleyzer brothers’ biggest investment, Volia (meaning “free will”) Cable in Kiev. The top two managers were imprisoned for ten days in the summer of 2004 on trumped-up charges of distributing pornography and laundering money. The obscenity in question? An after-midnight Playboy Channel feed that also ran on most other cable systems in Ukraine. As for the money laundering, it involved alleged profits reaped from providing the channel.
The real issue, Bleyzer says, was that Volia resisted the government’s demands to stop transmitting Channel Five, the privately owned TV network that covered the insurgent Yushchenko while state media blacked him out. Ukraine’s thenprosecutor general also had intended to grab the franchise for some of his friends, Bleyzer contends.
At Volia the Bleyzers have focused on switching customers from analog cable at regulated prices to digital cable at market rates. They invested in new infrastructure from Norway’s Conax and in customer service in the form of a modern call center where operators field 8,000 inquiries a day to stem confusion about the new packages and bills. It paid off as average monthly revenue per user jumped from $1 in 2000 to more than $7. Upwards of 30,000 customers have added high-speed Internet at an average $35 per month, and 50 new ones are signing up every day.
Not all of SigmaBleyzer’s investments start out as problem children. At Kiev-based technology works Softline Co., revenue from systems integration and proprietary software has been spurred by such clients as cell phone provider Kyivstar and the Ukrainian Ministry of Labor. Annual sales expanded from $700,000 when SigmaBleyzer bought Softline five years ago to $10 million in 2005, according to CEO Yuri Savitsky, one of a number of people whose lives have been changed by Bleyzer’s powers of persuasion.
“Other investment funds offered more money, but they wanted to bury us in paperwork and a ten-year plan,” says Savitsky, 40, who started Softline ten years ago with schoolmates from Kiev Polytechnic Institute. “Michael came and it took us four minutes to agree.”
The rewards for ground-floor investments in Ukraine can match the risks, at least to judge by Bleyzer’s numbers. He predicts the entire $50 million he has invested in private equity will match the sixfold returns of the Sevastopol shipyard. SigmaBleyzer, as an operator of U.S. “Regulation D” funds restricted to professional investors, does not publish running net asset values.
The Orange Revolution is gradually improving Ukraine’s business climate, Bleyzer says, emphasizing the “gradually.” “Politicians here may say the words, but they demonstrate by their actions that they haven’t accepted the market yet,” he observes. “The population at large has the same problem.”
Deregulating cable TV rates in Kiev, for example, took years of wrangling with city hall and a pledge to provide 30,000 World War II veterans with analog service for the old $1 monthly fee. Bleyzer is girding for long talks with more mayors as he tries to leverage his anticipated second-wave funding into a national franchise for Volia. He is betting on reaching reasonable compromises with the politicians.
BLEYZER DOESN’T HAVE TO BE doing this. The young man born Mikhail Bleyzer had all the credentials for conventional success. He graduated from college in 1973 in Kharkov, Ukraine’s second-biggest city, with a population of 2 million. His father was a thoracic surgeon esteemed throughout the U.S.S.R. Mikhail earned a master’s degree in digital electronics and quantum physics at the Kharkov Institute of Radioelectronics. But his resume didn’t matter as much as an unspoken shift in Leonid Brezhnev’s Soviet Union against allowing Jews into high places, particularly in the military-related research that was the typical destination for a young physicist.
When Mikhail received his first postgraduation assignment -- supporting irrigation in the Turkmenistan desert -- he decided to try for a new life. In 1978, as U.S.-Soviet détente briefly flourished and the Kremlin adopted a policy that Bleyzer affectionately recalls as “Jews for grain,” he succeeded. Not wanting to follow the mass of Russian emigrants to New York City’s Brighton Beach neighborhood, he chose Houston, after getting a chance tip about the oil boom there. He arrived with his wife, three-year-old daughter and a suitcase and spent the first month indoors watching television news and talk shows as a crash course in conversational English.
Bleyzer says of the U.S.S.R.: “I hated that place when I left. It was inconceivable to me that I would ever come back.”
Once Bleyzer had watched enough TV, a kindly volunteer from Jewish Family Services of Houston taught him how to use classified want ads; he found out later it was Leon Weiner, eponymous owner of a department store chain (now closed). Bleyzer’s first call about a job produced an offer from navigation-system manufactuer Litton Industries for $12,500 a year. But before he started, another volunteer arranged for Bleyzer to visit Exxon Corp.'s huge Baytown refinery. The oil company doubled the Litton offer for a post as process-control engineer.
Bleyzer spent 13 years at Exxon, ending up in Brussels as information technology manager for petrochemical operations in Europe and Asia. He left in 1992 to join Ernst & Young’s Brussels office as a consultant. Lev and the Bleyzer parents had joined Michael in Houston in 1981. The early 1990s found Lev working as a manager at a Dillard’s department store, and Dr. Bleyzer requalified to practice as a physician in the U.S. He ended his career working as a psychiatrist in Chattanooga, Tennessee.
On the day the Berlin Wall fell in 1989, Michael Bleyzer met a young entrepreneur from Kharkov named Valery Dema, who was visiting Brussels. The two men kept in touch until 1993, when Bleyzer paid his first return visit to Ukraine, finding conditions “much worse than I remembered.” By that time Dema, whose initial business was producing rock concerts and managing bands, had built a protean conglomerate of 69 companies ranging from trucking to insurance in 12 of the post-Soviet republics.
In 1994, Bleyzer quit Ernst & Young and decided to spend a year back in Kharkov as Dema’s partner. He mulled options for focusing Dema’s far-flung holdings, leaning toward financial services and particularly insurance, which scarcely existed in Ukraine at the time. But in 1995, when then-president Kuchma launched a crash program of selling off state enterprises for “vouchers” distributed to the population, Bleyzer persuaded Dema to liquidate everything he owned and pour the funds into privatization.
“Sometimes if you trust somebody, you do what they say even if you don’t immediately see the sense of it,” recalls Dema, 43, who is the third partner in SigmaBleyzer. “Michael completely changed the psychology of our company.”
Bleyzer also discovered a knack for winning the trust of financiers far beyond Kharkov. “I had a simple criterion for selecting potential investors in 1996'97,” he quips. “Anyone who had at least a billion dollars and knew where Ukraine was on the map.”
It took him a year of phone calls, but he finally broke through to a partner in Goldman Sachs’ Houston office. The Goldman banker in turn networked with emerging-markets specialists in London to talk up Bleyzer. With $100 million in SigmaBleyzer’s coffers, most of Ukraine Inc. coming up for sale and emerging-markets investors in a feeding frenzy, the only concern appeared to be how to invest the money fast enough.
“We looked at 50,000 companies, which would send out spreadsheets by fax with mostly irrelevant information, and invested in 82,” Bleyzer recalls. “The Russian stock market was moving very fast then, and everybody expected Ukraine to follow. It would have worked wonderfully if not for 1998.”
Russia’s August 1998 bond default and currency plunge did minimal damage to Ukraine’s underlyng economy; although it contracted 2 percent that year, by 2000 it was growing at a 6 percent annual clip. But it devastated confidence and forced Bleyzer to use all his eloquence to prevent a panic flight by investors. Almost all of SigmaBleyzer’s original 82 minority stakes became illiquid after 1998.
“Michael is one of the best salesmen I’ve ever met,” says Brian Best, an American who was SigmaBleyzer’s director of private equity for five years before starting his own Kiev-based firm, Rubicon Capital, in 2003. “It really came across during a meeting with one hedge fund in New York that wanted a distribution of capital after the crash. These people were like sharks, and it was amazing to watch Michael keep his cool and persuade them to keep theirs.”
With his next round of funds, which will be heavily weighted toward Ukraine but also mandated to invest in Bulgaria and Romania, Bleyzer plans to avoid distressed industrial assets like the Sevastopol shipyard. They are too capital-intensive, he says, and there is too much competition for the better properties both from Ukraine’s homegrown oligarchs, who are becoming more active as the threat of privatization dwindles, and deep-pocketed foreigners from Russia and beyond. SigmaBleyzer, he reasons, can keep getting bang for the buck in low-overhead companies serving Ukraine’s laggard but fast-growing internal market, whether with cable, chocolate or software.
Bleyzer is bearish on Ukraine’s giant neighbor from a political standpoint. “I’m very concerned with Russia right now,” he says. “It’s clearly moving to become more totalitarian.” But economically, he is counting on Ukraine to follow Russia’s shift of recent years, with consumer sectors joining resource producers as an equal or greater engine of growth and a string of consumer companies going public at valuations in the hundreds of millions.
By investing in Ukraine, Bleyzer hopes to force the metamorphosis that is driving such value-creation in Russia: the replacement of Soviet-trained managers who understand production but little else with contemporary businesspeople who have been exposed to Western training and practices.
Such a generational shift is on view at Poltava Confectionery, where CEO Plaksy’s father was the last Soviet-era general director and somehow kept the plant ticking over through the lean 1990s.
“He was a great engineer but understood nothing about marketing or finance,” Plaksy, 44, says dispassionately of his forebear. The CEO, by contrast, earned an MBA at the International Management Institute in Kiev, added postgraduate work at the University of Illinois, then worked for several years with Moscow-based private equity fund Baring Vostok Capital Partners before the Bleyzer brothers talked him into coming home and relieving his dad.
The Bleyzer family, for its part, has returned in spirit to Ukraine over the years, even if Michael and his wife, Natasha, still call Houston home. Natasha runs a portfolio of charitable activities in her homeland: Projects include funding an orphanage for blind children in Kharkov and backing a memorial at Drobitsky Yar outside the city, where Nazi occupiers massacred 30,000 Jews.
Michael’s personal contribution to Ukraine is the Bleyzer Foundation, headed by the World Bank’s former chief of station in Kiev, Ediberto Segura. But Bleyzer also devotes time and energy to his passion for underwater photography. His various offices are decorated with blowups of exotic sea creatures snapped off French Polynesia and Papua New Guinea.
Bleyzer’s colleagues and rivals in Kiev don’t dispute his enthusiasm -- for scuba diving or for deal making. But they do wonder whether it overrides his business sense on occasion, particularly with regard to staffing. SigmaBleyzer carries 100 full-time employees, including such exotics as a government relations chief in Washington. “When [Bleyzer investment] Volia Cable was attacked by the prosecutor general and his thugs in the summer of 2004, having access to Washington helped a lot,” Bleyzer says, without adding any details.
SigmaBleyzer “is a very overbloated structure that can’t be supported by a standard 2 percent management fee,” says Tomas Fiala, chief executive of Kiev-based investment bank Dragon Capital.
Bleyzer retorts that his personnel, including 90 Ukrainians who, he says, cost less than ten expatriates, more than pay for themselves, if only by finding buyers for the fund’s minority positions without relying on intermediaries. “Our competitors who outsource trading to brokers pay ten times the price they ought to,” he contends.
More fundamental than head count to SigmaBleyzer’s prospects is the matter of who will manage Ukraine over the next few years and in what manner. Yushchenko’s popularity slid last year, when he let a personal rivalry between thenprime minister Tymoshenko and then-national security council chief Petro Poroshenko spin out of control and sink the first Orange government. The president may have taken a further knock from his gas agreement with Russia, which hiked the price Ukraine pays from $55 per 1,000 cubic meters to $95. Polls indicate that Yanukovych’s Party of Regions, which seemed thoroughly vanquished a year ago, will control the biggest bloc in the new Rada, though Yushchenko, Tymoshenko and other Orange allies could still form a governing coalition if they manage to reunite.
The ambitious Tymoshenko is considered unlikely to rejoin Yushchenko unless she gets the premiership back. That possibility brings little joy to the business community, considering that in her first seven months on the job, she clumsily tried to control gas and meat prices, stoked confrontation with Russia and resisted a quick solution to the privatization issue. A pragmatic Yushchenko-Yanukovych coalition, on the other hand, would smack of a betrayal of Orange ideals and of giving free rein to the Kuchma-era crony capitalists whose takeover of state property helped provoke the revolution in the first place.
Bleyzer contends that the noisy freedom in Ukraine today is far preferable to the stifling authoritarianism that prevailed before the Orange Revolution.
“There is a lot of public debate over the election but no concentrated pressure on businesses and people to produce certain results,” he notes. “That is a huge difference between the old regime and the new reality. Ukraine is finally taking classes in democracy after a ten-year delay.”
Bleyzer and other Ukraine optimists argue strenuously that successful post-Communist countries, including Poland and the Czech Republic -- were also afflicted by volatile and byzantine electoral politics. Yet their societies surged forward once they were released from totalitarian subservience and aligned their destinies with the West. For Ukraine this release came in late 2004, Bleyzer and his fellow believers assert, and no force on the horizon can reforge the broken mental shackles.
There are less-abstract reasons to be sanguine. Despite the turmoil, the new government has had considerable success with its core policy of rooting out tax privileges enjoyed by politically favored businesses and redistributing the proceeds to the masses. State revenue jumped 34 percent in the first nine months of 2005, keeping the budget in surplus despite increases in pensions and public sector salaries. Extra income from the state is pushing up private sector wages and boosting consumption (by 17 percent last year, according to the Bleyzer Foundation). That’s a mixed blessing according to Poltava Confectionery’s Plaksy.
“With all this money people are getting from the government, no one wants to work anymore,” the candy factory chief grumbles. “My wage costs have gone up 50 percent in the past six months. I have to pay $150 [a month] even for unskilled labor.”
Softline’s Savitsky is scrambling to find programmers at $2,000 a month, a wage high enough (relative to living costs) to lure Ukrainian techies back from Europe and the U.S. and stem what had been a crippling brain drain, he says.
From a foreign investor’s perspective, though, those costs still sound pretty reasonable. Bleyzer has to hope the numbers can be heard above the din of politics.
The president’s man on politics, people and power
Ukrainian President Viktor Yushchenko showed he could still rally international opinion during his New Year’s face-off over natural gas prices with Russian state company Gazprom. Outrage in Western Europe over disrupted gas supplies forced Moscow to back down from its position of halting deliveries to Ukraine, through which Russian gas flows to the European Union.
But within Ukraine, Yushchenko’s agreement to pay Russia about 70 percent more for fuel deepened the already gaping political wounds he and his allies in the 2004 Orange Revolution inflicted on themselves once in power. Legislators led by former prime minister and top Yushchenko ally Yulia Tymoshenko passed a no-confidence motion on new premier Yuri Yekhanurov. Yushchenko refused to dismiss Yekhanurov, leaving Ukraine in constitutional no-man’s land as it limps toward the March 26 parliamentary elections.
The opposition party captained by Yushchenko’s electoral adversary, former prime minister Viktor Yanukovych, is the predicted top vote-getter this month. Changes to the constitution make the election critical. It will usher in a vaguely defined parliamentary republic, where many of the president’s powers devolve onto the next prime minister. Yushchenko and Tymoshenko could probably still control Parliament if they repair their rift. But the president canned the charismatic “Orange Princess” after only seven months last September amid a welter of corruption charges flung between their respective entourages.
Against this turbulent backdrop, Institutional Investor Contributing Editor Craig Mellow sat down to talk with Oleh Rybachuk, Yushchenko’s chief of staff and oldest political ally. Rybachuk, 47, a former banker and trade diplomat, has been by his boss’s side for 14 years -- through Yushchenko’s terms as national bank chairman, prime minister, insurgent opposition leader and now president.
Institutional Investor: A year after the Orange Revolution, disappointment seems to be in the air. Are you disappointed?
Rybachuk: No. We have a different country with a different life, different moral standards, starting with freedom of speech. We have lots of problems, but in one year we have changed so many things which were never changed.
The next parliamentary election will again be about whether we would like to see Ukraine as a normal European country or as a post-Soviet piece of . . . something. We are absolutely positive that the so-called pro-Orange political forces will win, because the support for our ideas and values has not dropped.
After the election do you see a reuniting of President Yushchenko’s Our Ukraine party and ousted prime minister Tymoshenko’s bloc?
This is unavoidable. Yulia clearly understands that politicians, for all their ambitions and egos, do respond to public opinion.
But won’t Mrs. Tymoshenko’s price be becoming the prime minister again?
She has said publicly that it is irresponsible to trade positions now. We have to win elections. I can only agree.
Is there no possibility of a coalition between Yushchenko’s party and Yanukovych’s Party of Regions?
It’s highly improbable.
A lot of people seem to think that Viktor Yushchenko is too nice to run Ukraine.
Some people do believe you need an iron hand. But Ukrainians at large have a different mentality. We were always run by soft guys before joining the Russian empire. The first democratic constitution in the world -- 70 or 80 years before America’s -- was a Ukrainian one. Our Cossack leader was elected, then impeached. We have a collective tradition of running this country. It was never a monarchy.
But Yushchenko’s letting a feud erupt between his two top deputies, Mrs. Tymoshenko and former security council chief Petro Poroshenko -- letting a personal rivalry smash the government within seven months. That can’t be considered good for the country.
Yes, but that is the result of people who used to live by a different system of coordinates. That happened not because Yushchenko is not a skilled democrat. It happened because Yushchenko is a democrat. He fired both.
We now have a government [under Prime Minister Yuri Yekhanurov] that is not involved in self-promotion or thinking about elections only. We have restored investor confidence. We have an absolutely successful privatization [of Kryvorizhstal Steel Works]. We are talking about $9 billion in investments this year alone, more than in all the years of independence in Ukraine. Western banks once closed even rep offices here. Now they are bringing billions of dollars looking for large Ukrainian banks to buy. We have dropped all limits for foreign versus national capital, and all this pays back.
We have this saying that a politician who has been bitten is three times more valuable. And in this case, I guess we have bitten ourselves.
Tell me about some of the other achievements in the first year of Orange power.
The largest increase in social payments in Ukrainian history. All the promises made by the previous government before elections were implemented, if you can imagine a 58 percent rise in the salaries of public servants, a tenfold rise in payments for newborn babies. We have the budget deficit under control. We have inflation under control at 10 percent.
On the budget side, what is the magic?
Easy. We started the fight with corruption. When we stopped contraband, within a few weeks there was a 300 percent increase in customs revenues. Anywhere you go, businessmen started paying taxes. For the first time in Ukrainian history, we had a roundtable with the 50 biggest businessmen. We said: “We promise you that we are not going to use our administrative power against you because you have been voting against us. But you have to pay taxes.”
Economic growth slowed last year.
This is another reason why Yushchenko had to fire the Yulia Tymoshenko government. That government was sharply criticized for irresponsible economic policy, administrative interference in the economy. I was personally surprised that this young lady, very democratic, is in her management style a hard-core Commie.
What role will the president play after the election and the constitutional changes?
It’s absolutely clear that this is messy. The constitutional changes were never meant to make the country’s life clear. [Former president Leonid] Kuchma, who insisted on those changes, had one point in mind: how to stay in the country for the next term. We were always against these changes. We voted for the package to avoid bloodshed.
What big issues occupy the president?
He knows exactly what steps are to be taken for life to be changed dramatically -- business life, legal life. He was the best prime minister, best central banker. He has all the vision, but he has clear resistance. He has to be patient with managing the country.
