The Orange Revolution may have been a national catharsis and a popular uprising for freedom and democracy, but it was also a revolt of the millionaires against the billionaires. Central to the revolution were several multimillionaires who hoped to seize the fortunes of the defeated oligarchs. One claimed he put up $150 million for Yushchenko’s election. Although Yushchenko had promised to draw a line between politics and business, he had little choice but to appoint four of these free-spending multimillionaires to top positions in his administration.

But Ukraine’s economic policy under the post-revolution administration has proved nothing short of disastrous. Economic growth plummeted from a 12 percent annual rate in 2004 to 2.8 percent during the first eight months of 2005, driven by a dip in investment and construction. In August, GDP even contracted by 1.6 percent compared with August 2004.

Regardless of the outcome of the next elections, many reasons to be optimistic about Ukraine’s future remain.

Throughout the post-Soviet period, the Ukrainian government has welcomed foreign investment in words, but in reality, foreign investment has been hampered by red tape and opaque regulations. The Tymoshenko government said it wanted to boost foreign direct investment, but its preoccupation with reprivatization proved more pressing. Prime Minister Yekhanurov has emphasized his interest in foreign investment all the more, and investors sense that Ukraine is going from terrible to bad—offering prime opportunities for those less averse to risk. In fact, foreign investors who have persevered, notably in food processing (brewing, tobacco, chocolate and vegetables), have done extremely well because costs are low and competition is limited. The only foreign investors who have succeeded in heavy industry, however, are Russians (although American power company AES owns two regional electricity distributors). In October, Lakshmi Mittal, the world’s third-richest individual, purchased 93 percent of Ukraine’s largest steel mill for $4.8 billion, the country’s largest privitazation deal to date.

While the global decrease in steel prices has hurt Ukraine’s economy, the preponderant blame for its startling deterioration rests with the government’s economic policies. Tymoshenko agitated for the reprivatization of some 3,000 companies, which she planned to nationalize and subsequently sell. The result, however, was that the government undermined all property rights. Its enemies naturally feared nationalization; they halted further investment and even attempted to extract their capital from the country. Their business opponents hoarded cash to be able to purchase the nationalized companies, further dampening investment.

The new government also raised the tax burden sharply, from 36 percent of GDP to 42 percent by abolishing loopholes such as free economic zones. These revenues were needed to finance huge increases in welfare spending and public wages. The old regime had doubled pensions in the midst of the election campaign, and the new regime boosted government salaries by 57 percent.

Tymoshenko further damaged the economy when she very publicly interfered in pricing, trading and property disputes. She held frequent press conferences, lambasting individual businessmen by name. She tried to regulate gasoline, meat and grain prices like an old Soviet manager. Chaos and uncertainty ensued. This populist policy had little in common with Yushchenko’s electoral promises of liberal market reforms. But, in hindsight, these policies seem a natural outcome of revolutionary euphoria and hubris.

Political Upheaval
In early September, however, all hell broke loose. Yushchenko’s chief of staff resigned in protest against the influence of the businessmen surrounding Yushchenko. Meanwhile, Tymoshenko ordered the police to seize a large factory from the oligarch Pinchuk to the apparent advantage of the oligarchic Privat Group, although her decision lacked a legal basis. Pinchuk successfully urged his workers to defend the factory, leading to a tense stalemate. After three days of crisis meetings, Yushchenko made the Solomonic decision to sack everybody, both Tymoshenko and the big businessmen. The general business community and economists alike were relieved to see the revolutionary firebrands depart, and the broader public appreciated the exit of the big businessmen.

As new prime minister, Yushchenko proposed Yuriy Yekhanurov, who appears able to put Ukraine’s economic policies in order. He is an experienced economic politician. As minister of privatization from 1994 to 1997, he carried out Ukraine’s mass privatization. He served as then–Prime Minister Yushchenko’s first deputy from 1999 to 2001, administering the government.

Yekhanurov seems the opposite of Tymoshenko. He has few enemies, keeps a low public profile and is known as an effective administrator. Yushchenko appears to have kept this loyal man in reserve until the revolutionary hotheads burned out. Similarly, he has named his closest collaborator, Oleh Rybachuk, as his chief of staff. The new government is dominated by untainted technocratic politicians rather than extravagant revolutionaries and businessmen. The new government is also supported by nine of the parliament’s 14 party factions, a sound majority.

Although the Yekhanurov government will serve for only a few months before the parliamentary elections in March, it can turn the economic policy around. First, the destabilizing reprivatization campaign will be stopped. It will likely lead to only one or two reprivatizations, while a general amnesty will be declared for other privatizations. Second, a long-promised deregulation scheme, eliminating thousands of laws, will finally be promulgated. Third, the last laws needed for Ukraine’s accession to the World Trade Organization will be swiftly adopted. Fourth, the budget for 2006, which contains some tax cuts, will be enacted. Finally, some overdue financial legislation might be adopted. As investment has been held back by extreme political uncertainty, Ukraine’s investment and growth rate could swiftly recover next year.

Moving forward, the prime antagonists in Ukrainian politics are likely to be Yushchenko and Tymoshenko. Their individual popularity remains roughly equal; it has fallen in parallel. Power will likely consolidate around these two figures, but the current political fragmentation may well persist. Each side has its Orange Revolutionaries as well as its oligarchs. Has Tymoshenko’s revolutionary fire burned out, or was Yushchenko’s bold attempt at post-revolutionary stabilization premature?

Regardless of the outcome of the next elections, many reasons to be optimistic about Ukraine’s future remain. The country has become a democracy, and macroeconomic trends appear secure. The unexploited potential for economic integration with the West is huge, and textile and electronic corporations are now moving from Central Europe to Ukraine in their hunt for cheap labor in Europe. Ukraine’s economy has much more going for it than many people recognize.

Anders Åslund is director of the Russian and Eurasian program at the Carnegie Endowment for Inter national Peace, Washington, D.C., and co-editor of Revolution in Orange, due out in February.