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Action Ukraine Report

"THE ACTION UKRAINE REPORT"
An International Newsletter
In-Depth Ukrainian News, Analysis, and Commentary

"The Art of Ukrainian History, Culture, Arts, Business, Religion,
Sports, Government, and Politics, in Ukraine and Around the World"

"THE ACTION UKRAINE REPORT" Year 04, Number 164
The Action Ukraine Coalition (AUC), Washington, D.C.
Ukrainian Federation of America (UFA), Huntingdon Valley, PA
morganw@patriot.net, ArtUkraine.com@starpower.net (ARTUIS)
Washington, D.C.; Kyiv, Ukraine, THURSDAY, September 16, 2004

-----INDEX OF ARTICLES-----
"Major International News Headlines and Articles"

1. "UKRAINE ARMS CUBA AND VENEZUELA"
Abandoning NATO Ambitions?
JANE'S INTELLIGENCE DIGEST
Coulsdon, Surry, UK, Friday, September 17, 2004

2. "YUSHCHENKO'S UKRAINE AND RUSSIAN RELATIONS"
COMMENTARY By Alexander Zinchenko To Our Readers
Deputy Speaker of Ukraine's Parliament
The Moscow Times, Moscow, Russia, Thursday, Sep 16, 2004. Page 9.

3. SOLID ECONOMIC GROWTH PLUS RATING UPLIFT
EQUALS BETTER INVESTMENT IMAGE
Ukraine This Week, IntelliNews, Kyiv, Ukraine, Mon, September 13, 2004

4. UKRAINE'S SPENDING PLAN RAISES FISCAL WORRIES
Government proposes a 28% increase in state spending
By Tom Warner in Kiev
Financial Times, London, UK, Thursday, Sept 16, 2004

5. UKRAINE PRIME MINISTER ANNOUNCES RAISE IN MINIMUM
PENSIONS JUST AHEAD OF PRESIDENTIAL ELECTION
Source: UT1, Kiev, Ukraine, in Ukrainian, 14 Sep 04
BBC Monitoring Service, UK, in English, Tue, Sep 14, 2004

6. KHHIB UKRAINY ORDERED TO TAKE GRAIN FROM TRADERS
Ukrainian News Agency, Kyiv, Ukraine, Wed, September 15, 2004

7. PRESIDENTS OF FOUR COMMON ECONOMIC SPACE
COUNTRIES OPTIMISTIC ABOUT FUTURE
ITAR-TASS, Astana, Kazakhstan, Wed, Sep 15, 2004

8. RUSSIA'S PUTIN ONCE AGAIN HEADS EX-SOVIET BLOC
Putin does not allow Ukraine President Kuchma to retain the head position
Agence France Presse, Moscow, Russia, Wed, September 15, 2004
.
9. COPIES OF UKRAINE OPPOSITION NEWSPAPER DESTROYED
Associated Press, Kiev, Ukraine, Wed, September 15, 2004

10. EUROPEAN WATCHDOG PACE WARNS UKRAINE OVER
PRESIDENTIAL ELECTION, SAYS UKRAINE HAS IGNORED
CALLS FOR FREE AND FAIR ELECTIONS
Interfax-Ukraine news agency, Kiev, in Russian, 16 Sep 04
BBC Monitoring Service, UK, Thursday, Sep 16, 2004

11. EVENTS IN UKRAINE TO MARK FOURTH ANNIVERSARY OF
DISAPPEARANCE OF JOURNALIST GEORGY GONGADZE
UNIAN news agency, Kiev, in Ukrainian, 16 Sep 04
TV 5 Kanal, Kiev, in Ukrainian, 14 Sep 04
Interfax-Ukraine news agency, Kiev, in Russian, 13 Sep 04
Era, Kiev, in Ukrainian, 13 Sep 04
BBC Monitoring Service, UK, in English, Thur, Sep 16, 2004

12. PATRIARCH FILARET: WE'RE PRAYING FOR A FAIR
PRESIDENTIAL ELECTION IN UKRAINE
By Valentina Kolesnyk, Kyiv Post Staff Writer
Kyiv Post, Kyiv, Ukraine, Thursday, Sep 16, 2004
=======================================================
ACTION UKRAINE REPORT-04, No.164 ARTICLE NUMBER ONE
=======================================================
1. "UKRAINE ARMS CUBA AND VENEZUELA"
Abandoning NATO Ambitions?

JANE'S INTELLIGENCE DIGEST
Coulsdon, Surry, UK, Friday, September 17, 2004

Ukraine's arms exports last year stood at US$530-550m, an increase
on the year before when they were officially recorded at $440m. JID's
regional analyst looks at the implications of Kiev's weapons policy.

Ukrainian experts analysing this highly secretive sector of Ukraine's
foreign trade believe that the volume of military exports could rise to an
annual maximum of $700m. Of course, these figures do not include the large
volume of unofficial trade in weapons. Since 1992, Ukrainian arms have
ended up in many conflict zones around the world, including Peru, Sierra
Leone, Afghanistan, Iraq, Yemen, Pakistan, Malaysia and Sri Lanka.

This year's figures for military exports will be heavily boosted by the
establishment of two new markets namely Cuba and Venezuela. Sources
involved in preparing the contracts have informed JID that the first
shipments of military equipment to Cuba and Venezuela are scheduled
to take place sometime during September and October.

The Ukrainian Ministry of Defence has recruited officers with Spanish
language fluency. These experts have been promised additional increments
on their low salaries in return for travelling with the shipments to Cuba
and Venezuela. The officers who are set to accompany the shipments will
include language experts and interpreters, as well as specialists able to
train the Cubans and Venezuelans in the use of the military equipment being
supplied. During September and October it is expected that the military
equipment will be installed on site in both countries.

The volume of equipment to be sent by the oddly-named Ministry of Machine
Building (Ministerstvo mashinostroeniya), which is heavily involved in
Ukraine's military exports, will be equally divided between both countries.

The bulk of the military equipment being sent to Cuba and Venezuela is light
to medium equipment. This includes light infantry weapons coupled with small
and medium sized military vehicles. JID has learned that negotiations are
underway for Ukraine to supply more sensitive and strategically important
military equipment to both Cuba and Venezuela.

Throughout the summer, hundreds of pages of documents to accompany the
weapons shipments have been translated into Spanish and English. These
documents include operating manuals, an inventory and the contracts. It is
understood from sources involved in organising the shipment that the
contracts are for the supply and maintenance of the military equipment, in
addition to training, for between five to 10 years.

FURY EXPECTED IN FLORIDA
Washington is likely to respond in a highly negatively manner to such
shipments ahead of the November presidential election, particularly since
Cuban-American voters in the key state of Florida are virulently
anti-Communist and tend to vote Republican. However, some sections of
Ukraine's ruling elite are unlikely to be concerned about a negative
reaction from the US. Such figures have become increasingly influential
since the 2002 parliamentary elections. They include Viktor Medvedchuk,
head of the presidential administration and leader of the Social Democratic
United Party. Medvedchuk is working closely with Russian political advisers
to undermine the pro-Western opposition.

Medvedchuk controls one state-owned and three private television channels
which are running Soviet-style anti-US campaigns which further undermine
Ukraine's waivering support its troop deployment in Iraq. At present Kuchma
is likely to keep the troops in Iraq in the hope that Washington will not
take too tough a stand on the topical issue of election fraud in Ukraine's
forthcoming presidential elections. Prime Minister Viktor Yanukovych,
Kuchma's chosen successor, is considered unlikely to win if free and fair
elections are held.

Nevertheless, exports of highly sensitive military equipment countries in
the US's back-yard could easily backfire. Ukrainian-US relations have only
partially recovered after reaching a low point in 2002/03 when Washington
accused the president of having authorised the sale of Kolchuga military
radars to Iraq in July 2000.

These shipments of military equipment to Cuba and Venezuela come at the
same time as Kuchma is ceding strategic advantages to Russian President
Vladimir Putin in three key areas. This re-orientation towards Moscow may
signal that the Kuchma-Yanukovych-Medvedchuk alliance no longer cares
about any hostile US reaction over military exports to regimes that the US
opposes (and, in the case of Cuba) on which the US imposes a trade embargo.

ABANDONING NATO AMBITIONS?
FIRST, in mid-July, President Kuchma ordered the removal of the articles in
Ukraine's military doctrine that outlined Ukraine's goals of EU and NATO
membership. This step came in response to NATO criticism of Ukraine's
election campaign during its Istanbul summit on 30 June. NATO also refused
to give Ukraine a Membership Action Plan until after the elections and then
only on condition that these are held in a free and fair manner. Kuchma's
move was met with derision because the military doctrine had only been
adopted in mid-June, two weeks before the NATO summit.

SECOND, Ukraine has agreed to the withdrawal of a third of its naval ships
from the one bay it has in Sevastopol to Donuzlav in western Crimea. In the
1997 Russian-Ukrainian treaty that divided the Black Sea Fleet, Ukraine
obtained only one bay while Russia leases four bays over twenty years.

THIRD, Putin has come out openly in favour of Kuchma's chosen successor -
Yanukovych - to win the Ukrainian presidential elections. At their 18 August
summit in Sochi, Kuchma and Putin agreed to a free trade regime. Russia has
taken the first step in this direction by removing VAT on its oil exports to
Ukraine. This would reduce petrol prices in Ukraine by sixteen per cent at a
cost to Russia's budget of nearly $1bn. Kuchma also agreed to a long
standing demand from Moscow that the Commonwealth of Independent States
(CIS) co-ordinate their membership negotiations with the World Trade
Organisation through the newly formed CIS Common Economic Space.
=======================================================
ACTION UKRAINE REPORT-04, No.164: ARTICLE NUMBER TWO
=======================================================
2. "YUSHCHENKO'S UKRAINE AND RUSSIAN RELATIONS"

COMMENTARY By Alexander Zinchenko To Our Readers
Deputy Speaker of Ukraine's Parliament
The Moscow Times, Moscow, Russia
Thursday, September 16, 2004. Page 9.

The recent economic migration of spin-doctors from Russia to Kiev has
done little to differentiate for Ukraine's voters the positive attributes
between the main contenders in the country's presidential election on Oct.
31.

No doubt, there are several distinguished candidates running for the
presidency offering voters a wide range of choices. But with the election
less than two months away, the time has come to present Russian government
officials, business leaders and the public with an objective glimpse into
the policies and programs proposed for Ukrainian voters by the most popular
candidate in the race, Viktor Yushchenko.

According to a poll carried out by the Kiev-based Razumkov Center for
Economic and Political Research, more than three-quarters -- 77 percent --
of Ukraine's 48 million citizens believe the country is heading in the wrong
direction.

Millions live in poverty. Corruption pervades every social institution from
education to medicine and government. Journalists and others who tell the
truth are harassed, persecuted and even murdered. Illegal searches and
seizures have become common at enterprises and businesses that support
democratic opposition parties. Average citizens cannot rely on protection
from law enforcement agencies or a fair and impartial trial in the courts.

Despite President Leonid Kuchma's rhetoric to the contrary, Ukraine's
citizens want change -- peacefully and democratically. We want an end to
government corruption, decent jobs at honest wages, and a president
whom we can trust to make the changes needed in society.

Ukrainians trace their roots to European civilization, historically and
culturally. Politically, we share European values and yearn for the
institutionalization of democracy. With Russia, we share common borders,
family ties and a unique heritage. We are keen to sustain historic economic
relations with Moscow and forge new alliances, both bilateral and
multilateral, benefiting the peoples of both countries.

The choice facing Ukraine's voters this fall is very clear. On the one hand,
Yushchenko's vision for Ukraine proposes a system founded on democratic
values, which will enable each citizen to realize their socioeconomic
potential in a country governed by the rule of law. On the other hand, those
from the ruling regime propose preserving the current autocracy in Ukraine,
which rules over competing financial-industrial groups. Their corrupt
government bureaucrats implement unpopular policies with no respect for
individual liberties and basic human rights.

To prevent voters from choosing between these two alternatives, the Kuchma
regime has turned to lawlessness as a means of remaining in power. The
entire executive branch has been mobilized to use fraud and intimidation to
get out voter support for its candidate, Prime Minister Viktor Yanukovych.

The pre-election period has already demonstrated that the October election
will be neither free nor fair. Media monopolies controlled by clans have
been created to silence criticism from the democratic opposition; free
speech is systematically censored; citizens' rights to free assembly are
breached; and the abuse of state authority at all levels has become common.

Against this cynical backdrop, the Kuchma-Yanukovych regime has
implemented an election strategy that "divides and conquers" the electorate
by portraying the election contest through the state-censored media as one
between East and West.

By reviving artificial stereotypes and old animosities, the authorities are
attempting to divert public attention from a decade of economic inequity and
government corruption. Their manipulation of Ukrainians' positive attitudes
toward Russian President Vladimir Putin as a political prop for Yanukovych
is worrisome.

Meanwhile, Yushchenko, the democratic opposition candidate and most
popular politician in the race, is vilified as anti-Russian and erroneously
labeled a Ukrainian nationalist. We are convinced Ukrainian voters will
reject the state's propaganda and prove this strategy wrong.

The same poll that found most Ukrainians believe the country to be headed in
the wrong direction found that 65 percent view relations between Ukraine and
Russia as unstable. To improve these relations, Yushchenko's vision calls
for official contacts between Moscow and Kiev to be founded on the same
system of democratic values being offered Ukrainians this fall.

In contrast to the narrow clan interests and old stereotypes driving
contemporary Ukrainian-Russian relations, Yushchenko's team will focus on
building relations based on a mutual understating of national interests and
economic benefits. This will ensure a truly stable friendship is developed
that leads to strategic partnerships not only in name, but also in content.

Yushchenko's vision for improving future relations between Ukraine and
Russia is based on his already well-established economic policies, which
were implemented when he was Ukraine's prime minister and central bank
chairman.

Yushchenko was the first Ukrainian premier in a decade to increase trade
between Moscow and Kiev. He opened the door to Russian capital
investment in Ukraine and helped resuscitate numerous strategic enterprises
in important industrial sectors, such as energy. Ukraine's gas debts to
Russia were accounted for and a system of payments was developed and
implemented, while stable gas transportation to Europe through Ukraine
benefited governments and consumers.

These positive achievements were the result of transparent, non-
discriminatory and predictable economic policies. Unfortunately, Russian
investors in Ukraine today are again anxious and apprehensive over the
regional clan nationalism that has engulfed Ukrainian policymaking.

There can be no doubt that the current authorities' economic policies are
aimed at squeezing international investors out of lucrative Ukrainian
enterprises and acquiring the spoils for the country's ruling regional
clans.

As president, Yushchenko's policy priorities will be to introduce
qualitatively better relations between Ukraine and Russia, politically and
economically. Membership in the WTO is a major priority for our producers
and traders and modernizing our legal system in line with European norms is
an economic and political imperative.

Our eventual political and economic integration with Europe must be
approached rationally. These common geo-strategic goals can only be
reached by fair, transparent and predictable government policies that foster
competitiveness and efficiencies for the public good. Among the candidates
running for Ukraine's presidency, only Yushchenko has the understanding
and vision to implement policies and build bilateral relations that achieve
these goals.

The presidential election is a chance for Ukrainian citizens to choose
democratic values over autocratic rule. Ukraine's democratic opposition
movement has assembled a wide coalition of political leaders, businessmen
and ordinary citizens who want to renew trust in government. We believe
we will be successful.

Once victory is achieved, Ukraine's relations with Moscow, Warsaw,
Brussels and Washington will be qualitatively better due to their grounding
in national interests, mutual benefits and trust -- attributes that have
been missing during the past decade. (END)
----------------------------------------------------------------------------
Alexander Zinchenko is deputy speaker of Ukraine's parliament, the
Verkhovna Rada, and chairman of Viktor Yushchenko's presidential
campaign. He contributed this comment to The Moscow Times.
----------------------------------------------------------------------------
LINK: http://www.themoscowtimes.com/stories/2004/09/16/009.html
=======================================================
ACTION UKRAINE REPORT-04, No.164: ARTICLE NUMBER THREE
=======================================================
3. SOLID ECONOMIC GROWTH PLUS RATING UPLIFT
EQUALS BETTER INVESTMENT IMAGE

Ukraine This Week, IntelliNews, Kyiv, Ukraine, Mon, September 13, 2004

Presently, Ukrainian enterprises and municipalities are actively abroad
borrowingUkrainian companies and banks are increasing both external and
domestic borrowings. Among larger issues, steel major Metalen placed UAH
200mn (USD 37.6mn) bonds in end-Aug. Banks attract loans for long-term
investment projects. Thus, last week Ukrsibbank got a syndicated credit
worth USD 15mn organized by Raiffeisen Zentralbank. Last month the bank
reached loan agreements with German Commerzbank, HVB, Dresdner Bank,
and Deutsche Bank. The funds would be used to credit Ukrainian enterprises,
which import goods and services from Germany and some other European
countries.

Then, First Ukrainian International Bank and Deutsche Bank AG signed a loan
agreement on providing FUIB with long-term funds for the same purpose. The
list can be extended. Even municipal issuers resumed local bond placements
after a long 5-year period followed after the 1998 crises. Only this year,
Zaporozhie and Donetsk attracted UAH 45mn via bond placement, while
Kirovograd intends to place domestic bonds worth UAH 15mn by the end
of the year. Kharkiv will place USD 70mn eurobonds.

Last but not least, on Sep 1, EBRD opened a USD 120mn credit line to
railroad major Ukrzaliznytsya. This is EBRD's largest loan in Ukraine,
extended to a corporate borrower. Does all this prove the investment climate
in the country is good and improving? We would like to examine factors that
influence investor sentiment more closely.

GDP GROWTH STAYS HIGH, WHILE INDUSTRIAL OUTPUT
GROWTH SLOWS IN JULY
Let us first examine macro data, i.e. characteristics that show actual
economic development of the country. To evaluate the change from the
previous month, please refer to Ukraine This Week dated Jul 19, entitled
"June Macro Data: Too Good to Be True?"

Two of the main parameters are GDP and industrial output growth. According
to State Statistics Committee, GDP growth made up 13.5% y/y over Jan-Jul, as
nominal GDP volume reached UAH 169.12bn. Such unexpectedly strong growth
allowed government to raise its GDP forecast by 1pps to 10.5% y/y for 2004.
This optimism is not shared by the IMF mission, which visited Kyiv in
August. The mission expects GDP growth at 6% this year. We must note that
IMF's forecasts often are quite conservative (focusing on overall assessment
of economic policy) and are updated with a lag. Thus, we stick closer to the
government's estimate.

As for industrial production, it rose 9.5% y/y in August. However, there are
reasons to worry as industrial output decreased 2.2% m/m over the month. Y/y
growth slowed to 14.4% over Jan-Aug from 14.7% in Jan-Jul. Machine building,
building materials and pulp&paper have slowed the most. We think the high
base may have influenced the y/y rate, but overall slowdown might be
expected soon. EconMin forecasts that IP growth will make up 14% over
full-2004.
UNEMPLOYMENT RATE IS SLIDING
A rather optimistic picture can be observed in unemployment and real wages.
The average wage rose 1.1% m/m in July, making up UAH 607.97 or USD 114.39.
At the same time, over Jan-Jul average wage surged 27.3% y/y to UAH 551.66l.
Worth noting, the total number of permanent employees stayed flat at 11.33mn
people. Average working hours made up 133 per month, which is 2.6% less than
in June and 1.4% lower than in Jul 2003. This points to improved labor
productivity, in our view.

Besides, total wage debt dropped 20.9% y/y in Jan-Jul and decreased 11.9%
m/m in July, making up UAH 1.4bn (USD 0.26bn) as of Aug 1. At that, previous
year wage debt accounted for 77.1% of the total, while this year wage debt -

22.9%. 7.8% (or 878,400 people) of permanent staff did not receive salary in
time as of Aug 1.

To our reckoning, large revenues from privatization allow government to
spend more resources on social transfers, in particular to decrease wage
arrears. The official unemployment rate keeps decreasing.

Accelerating PPI inflation pushes up consumer pricesNow, what if we look at
PPI and CPI inflation? It is a well known fact that PPI overestimates, while
CPI underestimates inflation. In both cases we will base our conclusions on
State Stat Committee's data. In August PPI inflation made up 1.6% m/m, while
producer prices rose by a substantial 16.2% ytd over Jan-Aug. In
manufacturing, prices rose by 1.9% m/m. Since the beginning of the year,
manufacturing price growth made up 18.2%. Highest price growth was observed
in coke and oil products (60.9% ytd), metal mining and smelting (26.5% ytd),
and transportation equipment production (13.4%). In extraction, price growth
made up 10.8% ytd, energy resources - 15.6% ytd, non-energy material
production - 3% ytd. There was 9.5% ytd price growth in production of
electricity, gas and water. Thus, PPI inflation remains to be solid, making
input costs dramatically high. This, in turn, results in the IP growth
slowdown.

CPI inflation made up -0.1% m/m in August (although initially EconMin
forecasted -0.5%) against 0% (-1.0%) in July. Food prices declined by 0.4%,
while both non-foods and services rose by 0.3% each. Since the beginning of
the year, consumer prices rose by 4.3%, including 4.8% in food prices, 3.2%
in non-foods, and 3.6% in services. Obviously, government is unlikely to
keep CPI inflation in the forecasted 5.8-6.3% eop range in 2004. Naturally,
on Sep 3, EconMin raised the inflation forecast for 2004 to 7-7.6% eop.

It is supposed that new figures will be examined by government this week.
PPI and CPI inflation acceleration was so significant that EconMin at first
announced this year's inflation forecast can be raised to 8%. Still, even
the new target inflation might be at risk. Unfortunately, authorities are
applying administrative price pressure ahead of the presidential elections.
This can distort inflation data.

Both domestic and foreign public debt decrease steadilyAccording to FinMin
data, Ukrainian external debt slid 0.6% m/m or USD 49.3mn to USD 8.55bn
(26.8% of Jan-Jul GDP) in July. Domestic debt declined 0.09% m/m or UAH
18.8mn (USD 3.54mn) to UAH 21.23bn (12.6% of GDP). Total public debt
decreased 0.48% m/m or UAH 321.1mn to UAH 66.67bn (39.4% of GDP).

External debt declined 0.08%, while domestic debt rose by 3.45% over
Jan-Jul. Total public debt rose by 0.8% ytd. Worth noting, in 2003 total
debt rose by 2.6% or UAH 1.67bn to UAH 66.13bn.

Significant economic growth causes sovereign rating outlook uplift by
Moody's, coupled with corporate upgrades The observed solid economic growth
made international rating agencies revisit Ukrainian ratings. Thus, Fitch
assigned individual rating D/E to state export-import bank Ukreximbank.
Besides, on May 25, Ukreximbank was assigned the following ratings:
long-term B+/Stable, short-term B, support rating 4. Afterwards, Moody's
assigned B2/NP/Stable ratings to both long and short-term FX deposits in
Kreditprombank. The bank received an E+/Stable financial strength rating
(FSR).

Still, Kreditprombank's rating is constrained by the difficult and
potentially volatile operating environment in Ukraine. Besides, the agency
changed outlooks to positive for the B2 long-term currency deposit ratings
assigned to the following local banks: Bank Nadra, Forum Bank, Ekrexim-
bamk, Ukrsibbank, Ukrsotsbank, and VABank.

The change in the outlooks came right after and was attributed to Moody's
raising the outlook on Ukraine's sovereign ratings to positive from stable.
The upgrade involves Ukraine's B1 foreign-currency country ceiling for
bonds, the B1 rating on state medium- and long-term bonds both in foreign
and domestic currency, and B2 for the country ceiling for FX bank deposits.
Moody's stresses the outstanding macroeconomic performance of the country,
which helped FX reserves to grow significantly and improved debt ratios
notably.

Overall investment climate seems to be attractive, but presidential
elections create uncertainty. In the context of positive macro data and
recent rating upgrades, we are positive about business climate development
prospects. Borrowing is increasing (as noted in introduction), and that
means companies need money for investment projects. This highlights the
fact the economy has a number of attractive projects, which will spur
economic development in the future. Still, in spite of the encouraging
trends, the slowdown of industrial output growth is worth watching.

Most importantly, one should not forget the forthcoming presidential
elections, which intensify political risk. That said, we maintain an overall
positive outlook. Even if privatization of key enterprises is revisited (in
case of oppositional Viktor Yuschenko's victory), the overall course of
market reforms is unlikely to be derailed. While current authorities are
guilty of making a number of not market-friendly moves themselves.
======================================================
ACTION UKRAINE REPORT-04, No.164: ARTICLE NUMBER FOUR
=======================================================
4. UKRAINE'S SPENDING PLAN RAISES FISCAL WORRIES
Government proposes a 28% increase in state spending

By Tom Warner in Kiev
Financial Times, London, UK, Thursday, Sept 16, 2004

KIEV - Ukraine's government has proposed a 28 per cent increase in state
spending next year, adding to worries about a loosening of fiscal policy
connected to October's presidential elections.

A draft state budget unveiled to parliament yesterday would authorise 92.7bn
hryvna ($17.5bn, Euro14.3bn, £9.8bn) of central government spending, up from
72bn hryvna this year.

Mykola Azarov, Ukraine's finance minister, told the Financial Times recently
that rapid economic growth, increased privatisation income and a movement of
business "from the shadows" was allowing the government to boost spending
without creating any budget deficit. He said increasing pensions and state
workers' salaries were top priorities.

Separately, Viktor Yanukovich, prime minister, announced in a campaign
speech this week that he was immediately doubling the minimum pension to $54
(Euro 44, £30) a month. Mr Yanukovich, who is supported by the outgoing
president, Leonid Kuchma, is trailing in opinion polls behind an opposition
candidate, Viktor Yuschenko. "We are not doing this because of the
elections. We are doing this because the possibility has arisen," Mr Azarov
said.

The big increase envisioned in the draft 2005 budget would come on top of a
12.5 per cent increase to this year's budget approved by parliament in June.
That move led the International Monetary Fund to freeze a planned $600m loan
agreement. Last month, the IMF said the "loosening of fiscal policy" was
inappropriate and "imparts a demand stimulus at a time when the economy is
already booming".

Analysts said the government had the resources to fund its 12.5 per cent
budget increase, thanks to 13.6 per cent economic growth in January to
August, the recent sale of the country's largest steel mill, and a rise in
the government's general revenues of 13.5 per cent in the first half of this
year. Analysts said the government's latest announcements were unrealistic.

"This looks more like a draft pre-election budget than a real budget," said
Andrei Blinov, an economist at Kiev's International Centre for Policy
Studies. Mr Blinov said the new government would probably "completely
revise" the budget after the elections, scheduled for October 31, with a
second round likely on November 14.
==========================================================
ACTION UKRAINE REPORT-04, No.164: ARTICLE NUMBER FIVE
==========================================================
5. UKRAINE PRIME MINISTER ANNOUNCES RAISE IN MINIMUM
PENSIONS JUST AHEAD OF PRESIDENTIAL ELECTION

Source: UT1, Kiev, Ukraine, in Ukrainian, 14 Sep 04
BBC Monitoring Service, UK, in English, Sep 14, 2004

KIEV - [Presenter] The government will raise minimum pensions to 284
hryvnyas [53 dollars], the subsistence level, starting from September [as
received]. Prime Minister [and presidential candidate] Viktor Yanukovych
made the announcement during a meeting with the public in Berdychev,
Zhytomyr Region.

Right now the minimum pension is 137 hryvnyas. The prime minister also
promised that fuel prices will not rise this year. A memorandum to this
effect was signed last week during a meeting between government officials
and oil traders. Yanukovych also believes there are no grounds to raise
utility rates now. He said the government will react swiftly to any attempts
to raise tariffs and sue the offending utility companies. The prime minister
promised that the decision to raise pensions will be approved at the next
cabinet meeting.

[Yanukovych, addressing a meeting, holding a smiling pensioner by the hand]
We have roughly a half of the cabinet here, and the head of the Pension
Fund. Let us adopt a decision, right now [applause in the audience], and
take a decision at the next cabinet meeting to raise pensions to the
subsistence level. (END)
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ACTION UKRAINE REPORT-04, No.164: ARTICLE NUMBER SIX
=======================================================
6. KHHIB UKRAINY ORDERED TO TAKE GRAIN FROM ALL TRADERS

Ukrainian News Agency, Kyiv, Ukraine, Wed, September 15, 2004

KIEV - The Antimonopoly Committee of Ukraine [AMCU] has made it
incumbent on state-run company Khlib Ukrainy [Bread of Ukraine] to take
for storage grain from all traders. Ukrainian News learned this from the
Antimonopoly Committee press service.

By this decision, the Committee put a stop to illegal performance of SJSC
Khlib Ukrainy violating competition rules in grain market, the press service
said. "This company having a great number of elevators has begun to receive
newly harvested grain for storage only from direct producers, unfoundedly
depriving of this opportunity other grain traders. The situation was
returned to normal after intervention of the Cabinet of Ministers," the
report says.

As Ukrainian News reported, in August the Ukrainian Grain Association
bringing together over 80% of grain traders handed over to the Antimonopoly
Committee the regulatory documents of executive bodies that violate
anti-monopoly law on the grain market.

Earlier the AMCU admonished grain traders against engaging in actions, which
might weaken competition on the grain market. In particular, the AMCU mainly
warned grain traders against coordinated setting of prices, division of the
market according to territorial principle, and using different conditions
for parity agreements with entrepreneurs.

By Monday, September 13, agricultural enterprises harvested 35.676 million
tons of grain and leguminous crops (except for maize). In 2003, farmers
reaped 20.22 million tons of grain, which was 47.87% or 18.57 million tons
less than in 2002. The annual demand for bread grain on the domestic market
is nearly 7 million tons. (END)
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ACTION UKRAINE REPORT-04, No.164: ARTICLE NUMBER SEVEN
=======================================================
7. PRESIDENTS OF FOUR COMMON ECONOMIC SPACE
COUNTRIES OPTIMISTIC ABOUT FUTURE

ITAR-TASS, Astana, Kazakhstan, Wed, Sep 15, 2004

ASTANA -- The presidents of Russia, Ukraine, Kazakhstan and Belarus
are optimistic about the future of the Common Economic Space being formed.
They expressed this optimism at the news conference upon the conclusion of
the talks on Wednesday.

Nursultan Nazarbayev, the host of the meeting, expects that in ten
years the borders between the CES countries will be open and the common
customs space and free movement of capital will become reality. He said in
all the years of the existence of the Commonwealth of Independent States
"the wish for closer integration was in the air, while the countries were
drifting farther apart". "If we take into account the fact that it took the
European Union about 50 years to form it, we are moving faster", he
remarked.

Russian President Vladimir Putin holds that the future largely depends
on the pace at which the legal base of the CES is formed. "It would be great
achievement if all the documents be coordinated and signed by July 1, 2005",
he said. "We need to coordinate the lacking documents by the end of 2005 to
take the next step after creating the free trade zone and embark on a more
profound form of integration", he said.

Ukrainian President Leonid Kuchma believes the CES countries must
develop their own potentials and need not take offence that the European
Union does not see them as its possible new members. "We have certain
potentials, and they can only be realized in conditions of the market
economy', he said. "We must become the centre of attraction".

Belarussian President Alexander Lukashenko does not look into future
but expects the CES countries to decide the tasks they set themselves. He
believes that they have everything to form the Common Economic Space -
"the wish, the political will and the infrastructure". It has been announced
that the next summit of member-countries of the CES will be held on
December 15, 2004. (END)
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ACTION UKRAINE REPORT-04, No. 164, ARTICLE NUMBER EIGHT
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8. RUSSIA'S PUTIN ONCE AGAIN HEADS EX-SOVIET BLOC
Putin does not allow Ukraine President Kuchma to retain the head position

Agence France Presse, Moscow, Russia, Wed, September 15, 2004

MOSCOW (AFP) - President Vladimir Putin took over once again as head
of the CIS ex-Soviet bloc at a summit in the Kazakh capital Astana, the
Interfax news agency reported. Russian leaders have traditionally headed the
Commonwealth of Independent States, a loose grouping of 12 former Soviet
republics, since its creation in 1991 after the collapse of the Soviet
Union.

But in January 2003, Putin handed over the chairmanship to Ukrainian
President Leonid Kuchma, marking the first time that a non-Russian leader
was at its helm.

This was seen as a move to shore up Kuchma, then under international and
domestic pressure over US accusations he had approved arms sales to
Saddam Hussein regime in Iraq. The Russian leader said at the time it had
been "a mistake" for Moscow to insist hitherto on retaining the CIS
presidency, and that it would now rotate among the organisation's members.

At the opening of the summit Thursday, Kuchma said the fight against
international terrorism would take center stage at the meeting and said the
leaders at Astana were determined to "unite their efforts to fight it". The
summit comes two weeks after the bloody school hostage siege at Beslan
blamed on rebels from Russia's breakaway Chechnya region that
culminated in the deaths of 339 people -- half of them children.

Kuchma branded it as "a challenge not only to the Russian Federation but to
the entire civilized world". "We are unanimous in believing that modern
terrorism poses a threat to all countries, and it is necessary to combine
efforts to fight it," he was quoted as saying by Interfax.

"We confirm our firm resolve to do all we can to effectively fight
international terrorism in all of its forms," Kuchma said.
Russia has long sought to use the ex-Soviet club as a means to extend its
influence in Moscow's former satellite republics, but it has remained little
more than a talking-shop.

This time, as usual at CIS summits, there were no-shows. Turkmenistan's
reclusive President Saparmurat Niyazov declined to attend due to a prior
medical appointment. The Moldovan leader Vladimir Voronin also stayed
away from Astana, criticising the 12-nation organisation as ineffective.

He said the Astana talks would be dominated by a meeting of four former
Soviet states -- Russia, Belarus, Kazakhstan and Ukraine -- which aim to
establish an economic zone called the Common Economic Space (CES). The
commonwealth includes all the former Soviet republics except for the three
Baltic states Estonia, Latvia and Lithuania, which have recently joined NATO
and the European Union. (END)
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ACTION UKRAINE REPORT-04, No. 164: ARTICLE NUMBER NINE
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9. COPIES OF UKRAINE OPPOSITION NEWSPAPER DESTROYED

Associated Press, Kiev, Ukraine, Wed, September 15, 2004

KIEV --A group of men in Ukrainian police uniforms destroyed thousands
of copies of an opposition weekly, a news agency reported Wednesday.

In the latest in a series of attacks against the opposition press in the
former Soviet republic, the uniformed men raided the offices of a printing
company in the eastern city of Dnipropetrovsk where they destroyed 17,000
copies of the Lits, or Face, weekly, said Elena Garaguts, the editor
in-chief, according to the Unian news agency.

Garaguts said the attack could have been connected with the magazine's
critical writing about Viktor Yanukovych, Ukraine's prime minister and a
key candidate in the October 31 presidential vote. "This was half of our
circulation ... luckily the other half was distributed," Garaguts was quoted
as saying. She offered no other details, the report said.

Ukrainian police officials in Dnipropetrovsk couldn't immediately be reached
to comment. Concerns about journalists' safety have soared again in Ukraine
ahead of the presidential vote, which is considered a crucial determiner of
the nation's future.

The vote is expected to be a showdown between Yanukovych who has outgoing
President Leonid Kuchma's backing and the country's most popular opposition
leader Viktor Yushchenko, a Western-leaning politician.

Western governments and human rights groups have accused Kuchma and his
allies of cracking down on the independent media and involvement in the 2000
killing of anti-corruption journalist Heorhiy Gongadze, as well as several
other suspicious deaths of journalists and opposition activists. Ukraine's
media watchdogs have reported that more than a dozen journalists have been
attacked this year.

Reporters Without Borders, a key international media watchdog, on Wed-
esday demanded a public trial for all involved in Gongadze's death. "It is
time for the judicial process to move on to the next stage -a public and
fair trial," its statement said.

Earlier this year, Ukrainian prosecutors announced that a suspect admitted
beheading Gongadze in a forest outside Kiev. A parliamentary commission
has announced it would recommend criminal proceedings against Kuchma for
masterminding Gongadze's slaying. Kuchma has repeatedly denied any
involvement.

Ukrainian journalists and opposition activists plan to mark the fourth
anniversary of Gongadze's abduction with a vigil Thursday in front of the
house where the journalist was last seen four years ago. (END)
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ACTION UKRAINE REPORT-04, No.164: ARTICLE NUMBER TEN
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10. EUROPEAN WATCHDOG PACE WARNS UKRAINE OVER
PRESIDENTIAL ELECTION, SAYS UKRAINE HAS IGNORED
CALLS FOR FREE AND FAIR ELECTIONS

Interfax-Ukraine news agency, Kiev, in Russian, 16 Sep 04
BBC Monitoring Service, UK, Thursday, Sep 16, 2004

KIEV - The Monitoring Committee of the Council of Europe's Parliamentary
Assembly [PACE] adopted a statement regarding the pre-election situation
in Ukraine late yesterday. The statement contained specific criticism and
recommendations.

The committee again asked the Ukrainian authorities to "abstain from
unconstitutional acts or actions in view of constitutional reform" and to
"carry out free and fair presidential elections", the Institute of Mass
Information reported today. Otherwise Ukraine may face suspension of its
delegation and, possibly, its status as a member of the Council of Europe
may be questioned.

The monitoring committee recalled that it had urged the Ukrainian
authorities to conduct the election process with absolute impartiality and
allow all candidates to compete on fair and equal grounds. The committee
regretted that its calls seem to have been ignored. This conclusion was made
by the committee's co-rapporteurs Hanne Severinsen and Renate Wohlwend,
who visited the Dnipropetrovsk and Donetsk regions in August.

The committee called on the Ukrainian authorities to urgently amend the law
on presidential elections in order to grant domestic non-partisan
organizations whose statutory aim is election observation a right to observe
the elections equal to that of international observers and candidates'
representatives.

The committee also urged to ensure that the composition of leadership
positions in territorial election commissions and polling station
commissions respect a fair balance between candidates, and to define in
electoral law the consequences of candidates' withdrawal as regards their
representation in electoral commissions.

The committee urged the Ukrainian authorities to adopt regulations
clarifying the rights of Ukrainian voters living abroad and relevant voting
procedures, so as to ensure that no candidate is restricted in presenting
his views and qualifications to the citizens, including conducting public
meetings and events throughout the country as well as billboard advertising,
and that all candidates enjoy unimpeded access to the mass media on a
non-discriminatory basis, and to organize impartial debates between the
candidates on state television.

The committee believes that the law should guarantee that there is no
harassment of media and journalists, and in particular that the moratorium
on media inspections is maintained by all controlling bodies during the
election campaign. The practice of participation of civil servants in the
campaign, and the use of public resources for the purpose of campaigning
should be stopped.

Electoral commissions should be provided with necessary equipment,
premises and training. The Ukrainian authorities have to refrain from any
interference in the process of election disputes consideration by courts and
provide judges with sufficient training on the electoral law.

The committee is also concerned by the small number of international
observers to be deployed by various international organizations and foreign
states (around 800 for the whole country). [Passage omitted: another
fact-finding mission is scheduled for 26-29 September] (END)
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ACTION UKRAINE REPORT-04, No.164: ARTICLE NUMBER ELEVEN
========================================================
11. EVENTS IN UKRAINE TO MARK FOURTH ANNIVERSARY OF
DISAPPEARANCE OF JOURNALIST GEORGY GONGADZE

UNIAN news agency, Kiev, in Ukrainian, 16 Sep 04
TV 5 Kanal, Kiev, in Ukrainian, 14 Sep 04
Interfax-Ukraine news agency, Kiev, in Russian, 13 Sep 04
Era, Kiev, in Ukrainian, 13 Sep 04
BBC Monitoring Service, UK, in English, Thur, Sep 16, 2004

KIEV - The Ukrainian opposition has begun a series of events on 16 September
to mark the fourth anniversary of the disappearance of campaigning
journalist Heorhiy (Georgy) Gongadze, UNIAN news agency has reported.

Some 200 people have gathered in the western city of Lviv, holding portraits
of Gongadze and other journalists who died in recent years. Gongadze's
mother Lesya is among the protesters. Another rally will be held at a
Gongadze memorial in woods outside Kiev, where the journalist's beheaded
body was found. The parties of two leading opposition candidates in the
presidential election campaign, Viktor Yushchenko and Oleksandr Moroz,
will picket the offices of two biggest national television channels, which
they accuse of pro-government bias and distorted coverage of the Gongadze
investigation. They will also stage a rally in Kiev's central Khreshchatyk
Street, UNIAN said.

Gongadze's murder triggered Ukraine's biggest scandal since independence
after a former presidential guard released secret audio recordings
apparently implicating President Leonid Kuchma in the journalist's
disappearance and a host of other crimes. The government vehemently denies
the charges.

Earlier this week the Interior Ministry said there was no evidence that
Gongadze had been under police surveillance up until his disappearance,
Ukraine's 5 Kanal television said. The ministry launched an internal inquiry
in July, after Britain's The Independent published an article based on
leaked case materials in which officers told the Prosecutor-General's Office
that they had been shadowing Gongadze.

The results of a government-commissioned test on the scandalous recordings
released on 13 September said the recordings had been doctored and it was
impossible to confirm that the voices on them belong to President Kuchma and
his allies, Radio Era reported. But the Ukrainian opposition and
international rights groups questioned the validity of the test,
Interfax-Ukraine news agency said.

Western partners have repeatedly criticized Ukraine for lack of progress in
the Gongadze investigation. (END)
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ACTION UKRAINE REPORT-04, No.164: ARTICLE NUMBER TWELVE
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12. PATRIARCH FILARET: WE'RE PRAYING FOR A FAIR
PRESIDENTIAL ELECTION IN UKRAINE

By Valentina Kolesnyk, Kyiv Post Staff Writer
Kyiv Post, Kyiv, Ukraine, Thursday, Sep 16, 2004

Patriarch Filaret, who leads the Ukrainian Orthodox Church - Kyiv
Patriarchate, the country's second-largest church, is controversial for a
churchman. After he declared the UOC-KP's autocephaly in 1992, he was
declared a renegade by the Russian Orthodox Church.

Today Filaret is both criticized and admired for his goal of establishing a
unified Orthodox Church in Ukraine. Filaret was interviewed at the UOC-
KP's offices on Sept. 6.

KP: Your Holiness, how would you characterize Orthodoxy's situation in
today's Ukraine?
PF: The Orthodox Church is still drastically divided. But among the Orthodox
churches - that is, the Ukrainian Orthodox Church-Moscow Patriarchate
(UOC-MP), the Ukrainian Orthodox Church - Kyiv Patriarchate (UOC-KP)
and the smaller Ukrainian Autocephalous Orthodox Church, the Kyiv
Patriarchate
is by now the largest church by the number of believers. According to recent
polls, it's supported by around 50 percent of Orthodox believers.
However, the number of parishes is almost two times less than in the UOC-MP,
because our top and local authorities rather favor the MP. And we have
conflicts on that basis: Many MP parishes would like to pass along to the
KP, but they're not allowed to by the church and temporal authorities,
although according to the law the church community has a right to choose
which church to subordinate itself.
KP: Where does the discord between the Orthodox churches lie?
PF: As for dogma in all of these churches, it doesn't differ, it's Orthodox.
What divides us is a different approach to the future of the Ukrainian
Orthodox Church in Ukraine.
The KP says that as far as the sovereign Ukrainian state exists, there
should be an independent (autocephalous) and unified Ukrainian church. That'
s natural. In other predominantly Orthodox states (Greece, Bulgaria,
Serbia), the national churches have declared independence. However, the
UOC-MP claims that there is no way for the Ukrainian Orthodox church to
separate from the Moscow Patriarchate. But we don't live in one country any
more. I guess the MP now wants to maintain its power and is holding a
defensive position.
KP: Since 1992, the UOC-KP's autocephaly hasn't been officially recognized.
How is that process going? What's the biggest obstacle?
PF: The UOC-KP can be recognized as autocephalous by the ecumenical
Orthodox Patriarchate in Constantinople. But given the Orthodox churches'
split in Ukraine, the authorities' support would matter a lot. But they
don't insist
that the UOC-KP is recognized mainly because they (as well as the ecumenical
patriarch) are afraid to spoil the relationship with the Russian Orthodox
Church, which is the most influential. Though I guess they understand how
advantageous it is to have a strong and unified Ukrainian church.
KP: Does the fact that the UOC-KP's autocephaly is not recognized bring
restrictions?
PF: Not at all. Like many other unrecognized Orthodox churches the KP
remains and acts as a full-fledged Orthodox church: All the services and
sacraments are kept the same. No one can forbid us to serve and to believe.
Many of the now-recognized churches haven't been acknowledged for a long
time. For instance, the Russian Orthodox Church hasn't been canonized for
the longest time - 141 years. And now UOC-KP holds the second place after
the Russian Orthodox Church in number of perishes, so sooner or later we'll
be recognized. We can wait.
KP: Even as you strive for autocephaly for the KP, you advocate creating a
unified Ukrainian Orthodox Church.
PF: Yes, because the autocephalous KP should become a foundation for that
unified church. In our predominantly Orthodox country the unified UOC will
obviously be advantageous, because when the church is split, society is
split, too. The unified church would consolidate all of society, which is
what Ukraine badly needs today. And it would be better for the Orthodox
Church, because now an average Orthodox believer doesn't know which church
to choose, and he simply stays home to pray. This situation is exploited by
some totalitarian and dangerous sects who win over the believers, and
certain political forces that don't want Ukraine to become a strong European
country.
The biggest opponent is of course MP, which hasn't agreed so far to lose a
big part of its body. So we're doing our best to increase the number of
parishes, attract new believers and simply absorb the MP parishes to become
the religious majority in Ukraine.
KP: And you aspire to be patriarch of the unified church.
PF: There is no reason to change a patriarch unless a new person is elected
at the synod. If the synod elects, say, Patriarch Volodymyr [the UOC-MP], I
wouldn't object, because my goal is the formation of the unified church.
KP: Given the current situation, it doesn't look possible in the near
future.
PF: Unfortunately, yes. To unite, the UOC-MP should first drop out of the
Russian Orthodox Church, and they're far from that. Also, our authorities'
are very timid on this issue. Recently President Kuchma has recognized the
importance of that move. But they only declare it, while not taking real
steps.
KP: Are you too dependent on the state?
PF: Well, historically it was monarchs who were interested in these issues.
They sent delegations to the Ecumenical Patriarch and asked for recognition
for their national churches. For instance, Yaroslav the Wise reached an
agreement that the local Orthodox metropolitans should be elected locally
without Constantinople's consent.
I guess it's crucial to prevent a foreign state from influencing your
country through the common church.
KP: You claim that UOC-KP takes the state position. Can you voice your
support for political forces you think are working in the interests of the
state and the people, especially given the election that's coming up?
PF: The principle of the separation of church and state doesn't mean that
the church should be separated from society, which is how it used to be in
Soviet times. In a democratic country the church should have a right to
influence society.
It means that we generally care about society's interests and needs. And
first of all we care that Ukraine remains an independent state. So by no
means will we support people like Natalia Vitrenko and her party, who are
interested in reunion with Russia or a rebirth of the USSR. Neither can we
support those political forces that, while advocating independence for
Ukraine, don't show concern for the people's interests.
We announce in our parishes that the church supports democratic candidates
and the parties that support the state and care about the people's
interests but it's up to believers themselves to decide whom to vote for.
KP: You once said that the church would support the candidate who would
support the church. Now it seems evident that of the two main candidates,
Viktor Yushchenko shows sympathy for the KP while Viktor Yanukovych
supports the MP.
PF: Again, we can't officially announce whom we support: That's why we
encourage our parishes to give their voices for a worthy candidate. But we
stress that it would be good for the church if the candidate who supports it
wins the election, because he would encourage creation of a unified
Ukrainian Orthodox church. And I think that most our parishioners have
already chosen whom to vote for, which we have no right to control.
At the recent synod we issued a resolution saying that the KP will pray for
a free and fair presidential election. We pray that God enlightens people's
minds and doesn't let voters sell their votes for buckwheat, money or other
gifts, and make the wrong decision. We pray that God sends to both
candidates and voters sincere and true love for their country.
KP: What's the church's attitude to the fact that one of the main
candidates, Viktor Yanukovych, has been twice convicted?
PF: Well, there is the parliament resolution that a person convicted for a
crime cannot run for president. That's why his team is now trying to prove
that his convictions have been canceled.
KP: Will the UOC-KP's situation change for the worse if the candidate who
doesn't support you comes to power?
PF: It's hard to predict what will come out of this. Sometimes it happens
that the election program is written in one way, but when elected the person
is forced to act in another way. The higher the post is, the more it
obliges. The top official is not free. Even if the candidate doesn't want to
support the KP, circumstances will force him to do so when elected
president. It would be short-sighted to neglect the fact that most Orthodox
believers support the KP.
KP: On the other side, the higher the post, the greater the chance to abuse
power.
PF: Yes, but shouldn't we strive to elect a person strong enough not to
abuse power, but to use it in the people's interests? If that person is
morally stable, spiritually strong and has a well-developed conscience, he
won't allow himself to abuse the power. And we tell our parishioners to
elect this kind of person as president. (END)
========================================================
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PUBLISHER AND EDITOR
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"POWER TENDS TO CORRUPT,
ABSOLUTE POWER CORRUPTS ABSOLUTELY"
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historian of the late nineteenth and early twentieth centuries.
True then, true today, true always.
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