Ukraine Party Ruined as Soccer Highlights Orange Revolt Flop

Ukraine hoped the European soccer championships would showcase its progress since the Soviet Union collapsed. Instead, it’s shining the spotlight on accusations of political repression, graft and aging infrastructure.

Almost eight years after the bloodless Orange Revolution propelled the country toward closer European integration, the bloc’s leaders are boycotting the tournament, which culminates July 1 in Kiev. They say democratic values have slipped since President Viktor Yanukovych took over in 2010, dislodging the leaders of the protests that overran the capital’s main square.

That’s left Ukraine’s leader, who’s struggling to secure cheaper energy imports from traditional ally Russia and unlock international aid, looking isolated at a time when the economy is losing steam. Halfway into his five-year term, credit markets signal a 44 percent chance of a Ukrainian default, while Societe Generale SA predicts the hryvnia will be devalued.

“Euro 2012 is definitely a chance for Ukraine to improve its international image,” Liza Ermolenko, emerging-markets analyst at London-based Capital Economics Ltd., said June 1. “Unfortunately, it looks more likely that the exact opposite will happen.”

Swaps, Hryvnia

The cost of insuring government debt against non-payment for five years using credit-default swaps has risen to 850 basis points from 460 a year earlier, data compiled by Bloomberg show. The government sees no threat of default, First Deputy Prime Minister Valery Khoroshkovskyi said yesterday.

The hryvnia may be devalued by 10 percent after parliamentary elections in October, according to Vladimir Tsibanov, an economist for Societe Generale’s OAO Rosbank unit in Moscow. It fell to 8.103 as of 3 p.m. in Kiev from 8.0935 yesterday.

Viewers worldwide watched in 2004 as millions of Ukrainians braved freezing temperatures to challenge Viktor Yanukovych’s presidential-election win in what became known as the Orange Revolution. The Kiev tent camps, rebuilt as fan areas for Euro 2012, helped sweep opposition leader Viktor Yushchenko to power in a rerun vote, prompting the EU to pledge closer integration.

Mittal, Raiffeisen

In years that followed, foreign direct investment surged, while billionaire Lakshmi Mittal paid $4.8 billion for Ukraine’s largest steelmaker and Raiffeisen Bank International AG (RBI) made a $1 billion acquisition. Ukraine joined the World Trade Organization in 2008.

Still, Yushchenko’s overhaul became bogged down amid infighting with his Orange Revolution ally Yulia Tymoshenko, allowing Yanukovych to become president in 2010.

Talk of stronger EU ties has run aground after Tymoshenko was handed a seven-year prison sentence in October for abuse of office. The bloc’s leaders say the case is politically motivated and want her released. Yanukovych said in a June 12 interview that her conviction is legally sound.

Ukrainians “are still suffering under dictatorship and repression,” German Chancellor Angela Merkel said May 10. EU Commissioners including Jose Barroso have refused to attend Euro 2012 matches in the country.

Germany defeated the Netherlands 2-1 in Ukraine’s eastern city of Kharkiv yesterday after Portugal beat Denmark 3-2 in Lviv, near the country’s western border with co-host Poland.

‘Offended Ukraine’

“Those who declared the boycott offended Ukraine,” Yanukovych said June 12 in an interview. “Ukraine is a very hospitable country, we’ve been preparing for the tournament for so many years and we’ve fought for the right to host it. Let them put themselves in our shoes.”

The president is also struggling to seal a discount on natural-gas imports from neighboring Russia that would bolster his nation’s public finances and refuses to raise household fuel tariffs to unblock an International Monetary Fund bailout that’s been frozen since last March.

Gross domestic product grew an average 6 percent a year in 2005-2007 before the global financial crisis sparked by Lehman Brothers Inc.’s 2008 collapse triggered a recession. After expanding 5.2 percent in 2011, GDP may rise 1.6 percent this year as Europe’s debt crisis curbs demand for exports such as steel and grain, Fitch Ratings said May 11.

Business Climate

Conditions aren’t conducive for enterprise, according to Mykola Tolmachov, chief executive officer of TMM Real Estate Development Plc, Ukraine’s largest property developer, who said corruption adds as much as 30 percent to his costs.

“The business climate is very difficult,” he said. “It’s very hard to open a new business and to run it. So many people decide to close down.”

Ukraine has slipped to 152nd from 134th in Transparency International’s Corruption Perceptions Index, where a lower score indicates higher perceived levels of graft. That leaves it trailing Uganda and Tajikistan.

Regulation remains cumbersome even after changes made during Yushchenko’s stint as Ukraine’s leader, according to Cargill Inc. Chairman and Chief Executive Officer Gregory Page.

“I expected more from Ukraine” after the Orange Revolution, Page said June 8 in an interview in Kiev. “Things should be easier.”

While the president recognizes global attention will be on Ukraine, he’s called the soccer tournament an opportunity to promote his nation, with airport and railway investments to provide a legacy for economic prosperity.

‘Step Forward’

“For us, Euro 2012 is a chance to show our country to the world,” Yanukovych said May 30. Infrastructure “is a step forward and represents investments for future generations.”

Ukraine has spent 11 billion euros ($13.9 billion) on preparations for the championship, according to London-based Capital Economics Ltd. Still, while stadiums and airports were built and renovated, some projects failed to materialize and others haven’t run smoothly.

A fast-train link between downtown Kiev and the city’s Boryspil airport, planned to ready in time to ferry fans from abroad to their hotels, hasn’t been started.

While fast trains have been introduced between the four Ukrainian host cities to save supporters from tackling journeys of as much as 1,198 kilometers across Soviet-era roads, tickets only became available two weeks ago, giving fans logistical headaches.

“It dragged on from March,” said Peter Dutczyn, a British television editor who works in Kiev and chose a slower overnight train for himself and his friends. “It’s really bad service.”

There were delays June 11 to a fast train and flights to the eastern mining city of Donetsk before the England team’s first game of the tournament, against France.

With the world watching, Euro 2012 isn’t working in Ukraine’s favor, according to Rob Drijkoningen, who helps manage $12 billion in debt as global head of emerging markets at ING Investment Management in The Hague.

“Politically, it’s moving in a direction that’s seen as inappropriate,” he said June 8 in a phone interview. “They’re not getting what they should out of it.”

To contact the reporters on this story: Daryna Krasnolutska in Kiev at dkrasnolutsk@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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