VIKTOR YUSHCHENKO, the popular opposition candidate for Ukraine’s presidency, faces acting Prime Minister Viktor Yanukovych, who has fewer supporters but is backed by outgoing President Leonid Kuchma.

Authorities had beefed up military presence around the capital city for an unscheduled military parade held two days before the Oct. 31 presidential elections. Meanwhile, concerned citizens rushed to change their local savings into foreign currency, which triggered the nation’s central bank to dump the equivalent of EUR 2.3 billion of its EUR 9.4 billion foreign reserves onto the market to keep the local currency stable.

The scenario sounded like a disastrous situation in some dictator-controlled third world country distant from mainland Europe, yet this tense and cloudy presidential campaign was held in a country of nearly 50 million on the borders of the newly expanded European Union (EU).

Yushchenko is running neck-and-neck with acting Prime Minister Viktor Yanukovych, who has the backing of outgoing President Leonid Kuchma, but struggles to generate crowds of supporters. No candidate tallied more than 50 percent in the Oct. 31 round of voting. Yanukovych and Yushchenko will face off in the second round Nov. 21. Vote counts for Yushchenko and Yanukovych have so far been nearly even – around 40 percent each.

On the EU borderland

Ukraine lies just east of three new EU member countries and south of dictator-controlled Belarus and Vladimir Putin's Russia.

Ukraine, which according to legend means “Borderland,” also separates Europe from the Far East and borders troubled Moldova and its breakaway Transdniester region, where Russian troops are stationed as peacekeepers.

Poisoned or not, opposition leader Yushchenko, a Western-leaning liberal, benefits from a nationwide popularity rating of more than 40 percent, with support above 85 percent in western parts of Ukraine. He is a force to be reckoned with, as his appearance at rallies consistently generates crowds ranging from tens of thousands to over 100,000.

Western observers, including the OSCE, PACE and US-based Freedom House, dubbed the Oct. 31 vote as unfair and full of violations skewed in Yanukovych’s favor. Yushchenko’s bloc claimed the vote count was rigged and that their candidate in reality received almost 50 percent support. Whoever wins the runoff will replace Kuchma, who has overseen the country since taking over as president in 1994.

Like Kuchma, Yanukovych is backed by Ukraine's business elite, many of which turned into billionaires virtually overnight during Ukraine's 13 years of what pundits termed, the years of “crony capitalism.”

At rallies, Yushchenko routinely refers to Ukraine’s new billionaires as “bandits who belong in prison.” The rhetoric has earned him points among supporters, but strained relations with the nation’s powerbrokers, who, through monopoly control of television media, have smeared Yushchenko. His detractors have also labeled him an agent of the United States, as Yushchenko is married to an American woman with Ukrainian roots.

The duel between Yushchenko and Yanukovych has polarized the country. Yanukovych, who, as prime minister, sold key assets through privileged sales to Ukraine’s elite, raised pensions through what economists described as risky economic policies and implemented strict government regulation of prices on food to earn votes. Yanukovych has promised voters closer ties with Russia, including the possibility of dual Russian-Ukrainian citizenship.

He has also pledged to make Russian, popular in eastern Ukraine, a second state language to Ukrainian, which is widely spoken in the Yushchenko-fond western regions of the country. The pre-election process has even been marred by episodes of violence whichmanyfear could escalate into a full-blown revolution.

Observers call poll “undemocratic”

The pre-election campaign was labeled unfair and undemocratic by Western observers. US Ambassador John Herbst criticized “harassment” of businesses affiliated with the Yushchenko-led opposition, which are routinely singled out by tax inspectors and regulators. Herbst and other Western observers also chastised what they describe as unfair media coverage strongly skewed in Yanukovych’s favor.

During the Oct. 31 first-round vote, authorities allegedly pressured students and employees to vote for Yanukovych, and used tactics that made it difficult for Yushchenko voters to cast their ballots. To add to the confusion, recent militia raids uncovered explosives at Western-funded non-governmental organizations (NGOs) intended to spread democracy. The NGOs claim the militia planted explosives as part of an effort to discredit their work, which includes uncovering election violations.

Violation reports rebuked

Stepan Havrysh, coordinator of Yanukovych’s campaign, downplayed allegations of violations and blamed Yushchenko for polarizing the country.

“I don’t think most of the reports of violations are backed up by truth, and the rest are merely exaggerations. Let’s not play with explosives. This is part of a black PR campaign used by Yushchenko to fuel protest in the West in order to put pressure on Ukraine. A Pandora’s box is being opened up and we have no idea what will come out of it.”

Tight-lipped government officials and diplomats in Kiev admit to being uncertain of how events will unravel.

At any rate, tensions are rising. At a recent rally attended by more than 100,000 Yushchenko supporters in Kiev, fighting broke out between opposition supporters and mysterious provocateurs, who later turned out to be members of law enforcement. The incident mirrors others of its kind, which insiders fear is part of a strategy designed to fuel chaos in the hopes of ultimately canceling the elections all together. In such a scenario, Kuchma would retain power, while his supporters would attempt to push constitutional reforms into legislation that would effectively prevent Yushchenko from getting close to the reigns of power. There are two legislative options: reducing the powers of the presidency to ensure Yushchenko retains largely symbolic powers when elections are re-held, or adopting changes to the constitution authorizing the Parliament, not the people, to elect the president. Others fear the chaos is designed to keep Western democracies at bay in their relations with Ukraine, ensuring Russia tightens its grip in the region.

Long-term alliances

Miraculously, growing political uncertainty and ambiguity about the country’s long term alliances have not strongly affected Ukraine’s economy, which has been booming. GDP has grown an annual 7 percent on average in the past four years and is set to surge by 13 percent this year.

Yet purchasing power in the country is limited, with salaries of EUR 55 common in some regions and pensions dwindling to lows of EUR 50. Moreover, Kuchma’s government has, in its eight-year reign, failed to tackle rampant corruption which has kept more than half the economy in the shadows.

Bribing government officials to circumvent bureaucracy is customary. Many in the country blame the nation’s elite for their pains, alleging that the well-connected have reaped the country’s riches and left them with scraps. In his campaign against the “criminal ruling power,” Yushchenko promised to bring fairness, higher wages and a trustworthy leadership.

He even pledged to force the ruling elite to pay hundreds of millions of euros in compensation from the botched privatization of Kryvorizhstal, Europe’s largest steel mill. The mill was privatized this summer for EUR 630 million to a consortium controlled by Kuchma’s son-in-law, Viktor Pinchuk, and Rinat Akhmetov, a businessman from Yanukovych’s region. A technicality kept foreign steel firms out of the bidding, even though they offered as much as EUR 1.1 billion and promises of almost a billion more in investments.

An enemy to some

Yushchenko’s sharp tongue has earned him points with the population, but made him enemy No. 1 with Ukraine’s rich and famous. Ironically, some of them could benefit from a fair election ending in a Yushchenko presidency. His victory would serve as a signal to Western investors that all is well in Ukraine. As a result, the over EUR 2.3 billion empire built up by Pinchuk and Akhmetov, already undervalued in connection with the nation’s poor image, would increase and possibly double in value.

One thing is for certain, the divisions between Yushchenko and Ukraine’s newly rich are deep. Yushchenko-ally Petro Poroshenko, a deputy, described them as: “Criminals who want to own the country - not businessmen!”

The politically ravaged country has only attracted about EUR 6.3 billion in foreign direct investment since declaring independence from the USSR in 1991 – a tiny fraction of the more than EUR 55 billion pumped into neighboring Poland. Foreign investors are only recently beginning to take notice of Ukraine’s remarkable growth and huge potential. Some, like German supermarket chain operator MetroCash&Carry, and furniture giantIKEA, have ignored signs of political instability and adopted a long-term approach which they hope will help them beat competitors to the market. Metro has, in the past two years, spent close toEUR80 million in the country, building several superstores. IKEA recently announced plans to spread its furniture stores throughout Ukraine and build shopping malls.

Their investments are sure to bring large returns in the long term, but escalating protests and possibly a revolution could keep other investors at bay for years to come.

Poroshenko, co-owner of a diversified business holding which claims to have suffered the wrath of unruly tax inspections and other forms of harassment, stands to loose his riches if Yushchenko fails. Extended political chaos could, in fact, bring Ukraine’s entire economy to a halt, if nationwide protests come to be. Poroshenko insists this is a battle worth fighting for.

“We are not going to give up. We won’t call the people to spur a revolution, but we can’t leave them hanging on the streets if they go out and protest. Its not about money, the stakes are too high,” Poroshenko said. “We are the only former Soviet republic with a strong opposition which is fighting for a real democracy. Look at all the other republics, Russia, Belarus, Tajikistan and so forth. They are all dictatorships or quasi democracies. They don’t have an opposition in their countries. We do and we still have a chance.”