ANNUAL REPORT JUNE 2010
FEDERATION OF EURO-ASIAN STOCK EXCHANGES
UKRAINIAN STOCK EXCHANGE
ECONOMIC AND POLITICAL DEVELOPMENTS
General Political Environment
On December 26 2004, the so-called Orange
Revolution brought President Viktor
Yushchenko and his Our Ukraine (NU) party to
power in coalition with other liberal democratic
parties, in particular the Bloc Yulia Tymoshenko
(BYuT) led by Mr. Yushchenko’s ally and
principal rival Yulia Tymoshenko. Since that
time Ukraine has experienced profound
political instability characterised by the bitter
rivalries within the former Orange forces.
Ukrainian politics are dominated by regional
interests including oligarchs who enjoy political
and economic power. The 2004 election
changed the balance of power in the country
by shifting power away from these eastern
oligarchs. With Mr. Yushchenko, a more pro-
Western leader in place, the government
began to tackle corruption, however it has not
been entirely successful in these efforts.
Reform has been uncoordinated, especially at
the level of institutions which has contributed
to instability and the present deadlock in
Ukrainian politics. The current political climate
in Ukraine is one that moves from crisis to
crisis. The profoundly vitriolic relationship that
has developed over the past four years
between President Yushchenko, his allies and
close advisors, and PM Tymoshenko and her
allies is a key factor behind the current political
crisis which closely parallels the country’s
current economic crisis.
In early April 2007, Mr. Yushchenko issued a
presidential decree to dissolve the Rada and
force parliamentary elections in mid-May to
ostensibly solidify his position. This was initially
thwarted by Mr. Yanukovich and members of
the Rada allied with the PoR. Elections were
held on 30 September 2007 resulting in the
PoR being returned with the largest number of
seats (175). However, an agreement between
NU and the BYuT to form a renewed coalition
with their combined 228 seats brought a
fractious Tymoshenko-Yushchenko coalition
back to power. BYuT was the dominant party in
the coalition and Yulia Tymoshenko was
returned as PM following a very narrow
confirmation vote in the Rada in which several
NU deputies failed to back her candidacy. The
deep personal animosity between Mr.
Yushchenko and Mrs. Tymoshenko bred
instability in the coalition and led to policy
paralysis. This paralysis led to the collapse of
the coalition in mid-September 2008 and the
subsequent dissolution of the Rada and
calling of snap elections by President
Yushchenko. These were put off and a new
(though old) coalition of BYuT, NU-NS, and the
Volodymyr Lytvyn Bloc with some new cabinet
members took office in Dec. 2008. As the
global economic crisis took hold in Ukraine the
degree of political instability and weak
leadership was exposed. The current political
situation in Ukraine reveals a country in deep
crisis. The seriousness of the economic
situation is reflected through the depreciating
currency; the IMF’s intervention to shore up a
collapsing banking sector and provide fiscal
support; depressed commodity prices’ impact
on the steel sector; and anticipated private
sector defaults.
Investment Environment
The government is committed to attracting
foreign investment to Ukraine. Most sectors
are fully open to FDI, however some
restrictions remain in key sectors including
banking and telecoms. There is widespread
corruption at all levels of the system, aided
and abetted by an unwieldy Soviet-era
bureaucracy where vested interests can stifle
investment. The risk of FDI being challenged
by oligarchic interests and their political allies
is a continuing challenge. Given the desire of
the government and the political parties to
address governance issues there has been
conspicuously little attention directed towards
regulating investors, thus the investment
environment continues to function with little by
way of encumbrances. Ukraine acceded to
membership in the WTO in February 2008 and
is currently negotiating a free trade agreement
with the EU; its largest trading partner. Much
needed reforms to the judicial system are on
hold at present contributing to some
deficiencies in the rule of law in Ukraine.*
* http://www.edc.ca/english/docs/gukraine_e.pdf
Key Information Contacts
Securities and Stock Market State Commission www.ssmsc.gov.ua
Ministry of Finance www.minfin.gov.ua
State Property Fund of Ukraine www.spfu.gov.ua
State Committee of Financial Monitoring www.sdfm.gov.ua
State Commission for Regulation of Financial Services’ Market in Ukraine www.dfp.gov.ua
REAL GDP
(UAH millions)
CONSUMER PRICES (% CHANGE PA; AV)
(%)
800
30
700
25
600
500
20
400
15
300
200
10
100
0
5
2005
PAGE 160
2006
2007
2008
2009
2010
2005
2006
2007
2008
2009
2010