Investing in Ukraine

If there was ever a country practiced in alchemizing opportunity into ruin, that country is Ukraine.

Ukraine's entire history has been one of being steamrolled by larger foreign powers. Poland and the USSR fought over Ukraine during 1918-21, before the USSR won most of it. The Nazis held Ukraine for three years; such was anti-Soviet sentiment, stemming from two systematic purges, that Ukrainian sentiment initially favored the Nazi conquerors, before the Nazis outdid even the Soviets in their pillaging. After the fall of the Berlin Wall, Ukraine's economy suffered worst of all the post-Soviet CIS states. GDP contracted 60 percent from its 1989 levels, and hyperinflation destroyed the savings of most Ukrainians.

Some semblance of stability returned with the presidency of Leonid Kuchma, although his presidency was characterized by election fraud and state-sponsored racketeering, not unlike Ukraine's northern neighbor, Belarus.

The Orange Revolution: the self-immolation of a movement

By 2004, at the end of Leonid Kuchma's second term, discontent with the current ruling regime boiled over when Viktor Yuschenko, a threatening opposition candidate to Kuchma's handpicked successor, Viktor Yanukovych, was poisoned and suffered severe facial disfigurement. He nonetheless survived, and became a rallying figure for the Party of Yulia Timoshenko and other opposition movements. Yanukovych "won" the election amid widespread substantiated allegations of fraud. Anti-Yanukovych protesters took to the streets in massive numbers, wearing the orange scarves and clothing that gave the movement its name, the "Orange Revolution." As Viktor Yuschenko and especially Yulia Timoshenko rallied their supporters daily, Kuchma bowed to universal pressure and called a new election, which Yuschenko won with approximately 54 percent of the vote.

Infighting between Yuschenko's and "Iron Yulia" Timoshenko's factions torpedoed investors' hopes for reforms. The oligarchs who had blinked during the Orange protests shifted their support back to Viktor Yanukovych, who crushed the Orange parties in the 2006 parliamentary elections. Since then, Yanukovych has slowly cut away Viktor Yuschenko's power.

Economic stagnation

Through all the strife, the Ukrainian economy has fared miserably. Ukraine has a population of approximately 46 million, GDP of $81 billion, and a nominal per capita GDP of $1700. (North Korea's is $1010.) Even after adjusting for purchasing power parity (PPP), Ukraine ranks below such war-torn, undeveloped economies as Colombia, Algeria and Namibia.

Current chaos

After Yanukovych won the 2006 elections, he used legislation to gradually strip Yuschenko of his power (Yuschenko is still the president of Ukraine). As of this writing, Ukraine is extremely close to civil war: Yuschenko fired a pro-Yanukovych prosecutor, violating a law passed by Yanukovych; troops from the Interior Ministry threw their support to Yanukovych; and Yuschenko brought in an elite commando unit to enforce his dismissal of Yanukovych's loyalist. As Yuschenko has the apparent support of the army (but not public opinion), Russia's Vladimir Putin waits in the background - to potentially roll troops into Ukraine, to save the Ukrainian people from their bickering politicians.

Nothing is clear right now as far as Ukraine is concerned, with one exception: investors should stay away until Ukrainian politics calms down.