Eight months after an "Orange Revolution" installed a new reform-minded government in Ukraine, some investors believe the country is floundering while neighbouring Russia is making hay.

The bloodless revolution which helped sweep the pro-western Viktor Yushchenko to victory in presidential elections last December was a stunning reversal for the Kremlin, which pulled out all the stops to back his opponent Viktor Yanukovich.

Yushchenko's government, with its promise to modernise Ukraine and lead it into the European Union, fired the imagination of foreign investors, upset by the Kremlin-inspired destruction of Russia's private oil company YUKOS.

But perceptions have changed fast. And reforms may have been put on hold pending a parliamentary election next March on which virtually all the
country's political forces are focused.

"Six months ago, everyone thought the Orange Revolution would be a disaster for Russia," said Tim Ash, Managing Director for Emerging Markets at Bear
Stearns in London. "Russia has moved on and the Ukrainians seem to have messed things up," he added.

Portfolio investors, who bought up Ukraine securities in the aftermath of the revolution, have taken fright after months of government infighting and what they see as policy paralysis, made worse by a corrupt and unresponsive civil service.

"The Cinderella has not turned into a princess," said Katia Malofeeva, an analyst at Renaissance capital, a Moscow investment bank. "It was a case of excessive expectations."

A muddled review of controversial privatisations made under Yushchenko's predecessor, Leonid Kuchma, and divisions in the government over how to conduct exchange rate policy have added to the sense of disarray.

"The new government is divided and does not have a coherent plan," said Vlad Sobell, senior economist at the Daiwa Institute of Research in London.

Meanwhile in Russia, where memories of the YUKOS affair have started to fade, equity markets are enjoying a resurgence and a string of big Russian companies have floated shares on the London stock exchange.

Andrew Hurst, Reuters


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