Ukraine at Crossroads

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Ukraine at Crossroads

In February, the winter Olympic Games brought athletes from around the world together in Russia, but in Ukraine, Russia’s neighbor to the southwest, the story has been one of division. Violent clashes between pro-EU (European Union) protesters and government forces in the past few months have focused the eyes of the world on the former-Soviet state after (now former) President Yanukovych had refused to sign an Association Pact forging closer ties to the EU and decided instead to accept funding from Russia.

These incidents are extremely tragic, and we sympathize with the people there during this time of chaos. We are watching developments closely as they unfold, including the most recent tensions in the Crimean peninsula. While it’s impossible to determine how the situation will play out, as an investor, I believe Ukraine’s strategic importance to both Russia and the EU could help ensure its survival, its solvency—and its potential long-term success.

Ukraine today is clearly at a crossroads, and its market has been volatile. We expect ongoing noise and political tensions will continue there for a while. Central power in Ukraine is in disarray while, in many regions, local governors have either resigned or have effectively stopped managing their territories due to uncertainty in the capital city of Kiev. Ukraine’s parliament (Rada) has wasted no time proposing new legislative reforms, including one to limit presidential powers. Speaker Alexander Turchinov is serving as acting president until elections are held in late May.

While the opposition has taken control, the country is fairly divided between east and west and between views of whether it should move closer to the EU or closer to Russia. That divided view among the Ukrainians is expressed in the political rhetoric and, unfortunately for the people there, I don’t think there’s going to be a quick solution. You can see the political dividing lines in Ukraine drawn in its electoral map; the parts of the country oriented farther westward, toward Europe, have been the areas where the most fervent protests have taken place. Closer to the Russian border on the east, you’ll find more Russian-speaking Ukrainians, and more support for the more pro-Russian policies of former President Yanukovych.

 

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