NEW YORK, Dec. 7 (UPI) -- Both the Ukrainian Supreme Court and the parliament have responded to what might be called the people's on-the-street "re-election campaign" since the flawed vote Nov. 21 in the Ukraine. The next 72 hours should determine whether outgoing President Leonid Kuchma turns east, and tries to brazen out a posture of victory for his favored successor with Kremlin tanks -- or looks west, and to keeping Ukraine in once piece, by bowing to the court's order to hold a re-vote by Dec. 26.
If one has to guess -- and international investors are taking a position on such matters whether they like it or not -- the smart money will stay invested. This observation applies to both Ukraine itself, and the Central and Eastern European states affected by the crisis.
Indeed, "Bottom Line" would buy the dips, as we advised earlier this year in election crisis in the Philippines, India, and Taiwan. (See, for example, "Democracy Agonistes -- investment strategies," UPI, March 25, and our May followup on India, "Gandhi's Un-power grab.")
This assessment is a hip-shot on a country we've not followed closely because, frankly, it's difficult to place money there, directly or indirectly. But when a number of investors asked, from Nov. 15 to Dec. 1, what our best guess was, we consistently answered, "up."
That call has played out so far. Indeed, surprisingly, the Ukrainian market rallied more than 10 percent from August into the November 21 debacle, and since -- despite the turmoil -- has risen another 5 percent. (C.f. Dragon Capital's helpful "KP-Dragon Index" at: www.dragon-capital.com/markets.php)
Like investors in Iraq -- up nearly 50 percent since summer in spite of (or is it because of?) democratic birth pains -- it may be that all those Ukrainians who are voting with their feet for fresh elections, are voting with their hryvnias (the Ukrainian currency )that things will work out in the end.
Three reasons they're probably right:
-- 1. Kuchma's meeting with Russia's Vladimir Putin on Thursday. Putin's rhetoric afterwards was tough, heaping scorn on the idea the sovereign countries should have to revote. But he reportedly gave nothing of substance.
-- 2. This was evident in Kuchma's body language in the hours after the meeting, talking about the difficulties of holding another election (but therefore, implicitly conceding something on principle) and delaying the deposition of his ousted prime minister voted by parliament (but not attempting to block it indefinitely).
To put down the domestic and international momentum for a re-election, Kuchma needed to do what Messrs. Alawi and Bush did to calls for a six-month delay in elections in Iraq -- namely, swat them down promptly and decisively. He didn't.
-- 3. Even the allies of Prime Minister Viktor Yanukovych have wavered in parliament, Yanukovich losing some of their votes in parliament, and failing to generate the kind of street presence enjoyed by opponent. Both he and opposition leader Viktor Yushchenko have called for non-violence, a call their supporters have generally followed.
The key in the coming days will be what each of them has to say to supporters about respecting the results if there is a re-election. And, more broadly, about the future of the country -- regardless of the results.
Whoever loses, many will still feel cheated. Fortunately, the mechanics of a re-vote, if one goes ahead, will tend to force each candidate to agree to respect the results this time -- and to promise transparency for international observers across the entire country, not just selected parts.
If either candidate fails to do this, it will cost him support, an image of "I'm for democracy only if I like the result." That candidate will lose. Neither wants to, so both will endorse the process in advance.
Whoever wins, Ukraine is a 52-48 split, roughly, a U.S.-like sea of red pro-Russian and blue pro-European districts. "Ukraine that existed before the elections no longer exists," Kuchma observed on Friday. "It has been split up into two sides with absolutely opposite opinions."
This has prompted more than one investor to worry that Ukraine might pull a Czechoslovakia, splitting the country in two. This is a reason for concern.
Indeed, on December 5, voters in the Donetsk region of eastern Ukraine will hold a referendum on forming an independent republic. The council in the Donbass coalfield voted 156-1 to stage the vote in response to efforts to overturn Yanukovych's (hotly debated) victory.
Once again, however, the prospect of a fair vote that keeps the country together will tend to bring both sides to renounce secession plans -- and call on supporters to vote, and support the winner, for a unified Ukraine. Again, either candidate who fails to do so is likely to lose significant support on the margin, and provide the winner with enough of a mandate to keep the country together.
Will the bitter forces of division seen in Ukraine then disappear? No, no more than all those blue state U.S. voters are happy with another four years of George Bush.
But as that example suggests, there is a good chance Ukrainians can agree to disagree. And to agree that there's a process by which they settle disagreements, no matter how close, without splitting up the country: fair, democratic elections.
Bullish (if pressed for an opinion) on Ukraine a quarter ago, a month ago, and a week ago, "Bottom Line" sees no reason to panic and pull out now. We're in the country and the region.
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Gregory Fossedal manages international investment strategy for Emerging Markets Group. His clients may (and usually do) hold long and short positions in many of the investment securities and opportunities mentioned in his reports. "The Bottom Line" is compiled from sources we believe to be reliable, but no representation is made that they are necessarily accurate or complete. Investors should perform their own due diligence and consult their own professional advisor before buying or selling any securities. Mr. Fossedal's opinions are entirely his own, and are not necessarily those of UPI or EMG. Furthermore, they are subject to change without notice.
