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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" - Number 411
morganw@patriot.net, ArtUkraine.com@starpower.net
FROM: KYIV, UKRAINE, TUESDAY, JANUARY 18, 2005

VIKTOR YUSHCHENKO INAUGURAL PROGRAM
(Best information available to us at this time, subject to change)

DAY ONE----Saturday, January 22 (exact date not set yet)

1. Presidential Swearing-In Ceremony at the Rada - a.m.
2. Armed Forces Event in front of Mariyinskiy Palace - a.m.
3. Public Inauguration and Concert on the Maidan - p.m.
Over one million people expected at this event.
4. Inaugural Concert & Reception, "Ukraina" Palace - p.m.

DAY TWO----Sunday, January 23 (exact date not set yet)

1. Events at one or more of Kyiv's Cathedrals - a.m.
2. Laying of flowers at various monuments- a.m.
3. Diplomatic Receptions - p.m.
4. Privately Sponsored Functions - p.m.
(One source indicated the Maidan event might be held on day
two and the diplomatic events held on day one....stay tuned.)

BE READY TO LEAVE FOR KYIV ON A MOMENT'S NOTICE!

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

1. UKRAINE'S HIGH COURT ADJOURNS UNTIL TOMORROW
One Plus One TV, Kiev, in Ukrainian, 17 Jan 05
BBC Monitoring Service, UK, in English, Mon, Jan 17, 2005

2. HOW UKRAINE'S TOP SPIES CHANGED THE NATION'S PATH
C.J. Chivers reports on a hidden factor within the Orange Revolution.
By C. J. Chivers, The New York Times
New York, New York, Monday, January 17, 2005

3. CHANGES IN UKRAINE
Ukrainians battle for law and order is at same time a
battle for a healthy development of the country
Article by Leszek Balcerowicz, Governor of National Bank of Poland
Translated from "Wprost" (Straight Talk) no. 52/53, 26-31 Dec. 2004

4. EXPERTS NAMING YEKHANUROV, KINAKH, MOROZ, PENZENYK,
POROSHENKO, AND TYMOSHENKO AS POTENTIAL PRIME
MINISTERIAL CANDIDATES IF YUSHCHENKO IS CONFIRMED
Ukrainian News Agency, Kyiv, Ukraine, Mon, Jan 17, 2005

5. "THE PRESIDENT'S CHOICE"
ANALYSIS: By Yulia Mostovaya, Zerkalo Nedeli on the WEB
Kyiv, Ukraine, 1 (529) Saturday, 15 - 21 January 2005

6. "A UKRAINIAN MAGNATE TRIES TO MEND FENCES"
OP-ED By Adrian Karatnycky, The Wall Street Journal
New York, New York, Friday, January 14, 2005

7. UKRAINIAN OUTGOING PRESIDENT'S SON-IN-LAW
DENIES OPPOSITION TO NEW AUTHORITIES
Ukrayinska Pravda web site, Kiev, in Ukrainian 12 Jan 05
BBC Monitoring Service, UK, in English, Friday, Jan 14, 2005
==========================================================
1. UKRAINE'S HIGH COURT ADJOURNS UNTIL TOMORROW

One Plus One TV, Kiev, in Ukrainian, 17 Jan 05
BBC Monitoring Service, UK, in English, Mon, Jan 17, 2005

KIEV - Ukraine's Supreme Court, which is hearing defeated presidential
candidate Viktor Yanukovych's final appeal against the 26 December election
outcome, has adjourned until 0800 gmt tomorrow. During the first day of the
hearing the court rejected numerous motions by the Yanukovych side,
including challenges against the judges, a request to postpone the hearing
and to transfer the case to another court.

Under the law the court has five days to make its ruling. President-elect
Viktor Yushchenko's inauguration cannot go ahead until the court announces
its verdict. -30- [The Action Ukraine Report Monitoring Service]
==========================================================
2. HOW UKRAINE'S TOP SPIES CHANGED THE NATION'S PATH
C.J. Chivers reports on a hidden factor within the Orange Revolution.

By C. J. Chivers, The New York Times
New York, New York, Monday, January 17, 2005

KIEV, Ukraine, Jan. 16 - As protests here against a rigged presidential
election overwhelmed the capital last fall, an alarm sounded at Interior
Ministry bases outside the city. It was just after 10 p.m. on Nov. 28.

More than 10,000 troops scrambled toward trucks. Most had helmets, shields
and clubs. Three thousand carried guns. Many wore black masks. Within 45
minutes, according to their commander, Lt. Gen. Sergei Popkov, they had
distributed ammunition and tear gas and were rushing out the gates.
Advertisement

Kiev was tilting toward a terrible clash, a Soviet-style crackdown that
could have brought civil war. And then, inside Ukraine's clandestine
security apparatus, strange events began to unfold.

While wet snow fell on the rally in Independence Square, an undercover
colonel from the Security Service of Ukraine, or S.B.U., moved among the
protesters' tents. He represented the successor agency to the K.G.B., but
his mission, he said, was not against the protesters. It was to thwart the
mobilizing troops. He warned opposition leaders that a crackdown was afoot.

Simultaneously, senior intelligence officials were madly working their
secure telephones, in one instance cooperating with an army general to
persuade the Interior Ministry to turn back.

The officials issued warnings, saying that using force against peaceful
rallies was illegal and could lead to prosecution and that if ministry
troops came to Kiev, the army and security services would defend civilians,
said an opposition leader who witnessed some of the exchanges and Oleksander
Galaka, head of the military's intelligence service, the G.U.R., who made
some of the calls.

Far behind the scenes, Col. Gen. Ihor P. Smeshko, the S.B.U. chief, was
coordinating several of the contacts, according to Maj. Gen. Vitaly
Romanchenko, leader of the military counterintelligence department, who
said that on the spy chief's orders he warned General Popkov to stop. The
Interior Ministry called off its alarm.

Details of these exchanges, never before reported, provide insight into a
hidden factor in the so-called Orange Revolution, the peaceful protests that
overturned an election and changed the political course of a post-Soviet
state.

Throughout the crisis an inside battle was waged by a clique of Ukraine's
top intelligence officers, who chose not to follow the plan by President
Leonid D. Kuchma's administration to pass power to Prime Minister Viktor
F. Yanukovich, the president's chosen successor. Instead, these senior
officers, known as the siloviki, worked against it.

Such a position is a rare occurrence in former Soviet states, where the
security agencies have often been the most conservative and ruthless
instruments of state power.

Interviews with people involved in these events - opposition leaders,
chairmen of three intelligence agencies and several of their senior
officers, Mr. Kuchma, a senior Western diplomat, members of Parliament, the
interior minister and commander of the ministry's troops - offer a view of
the siloviki's work.

The officers funneled information to Mr. Kuchma's rivals, provided security
to opposition figures and demonstrations, sent choreographed public signals
about their unwillingness to follow the administration's path and engaged in
a psychological tug-of-war with state officials to soften responses against
the protests.

Ultimately, the intelligence agencies worked - usually in secret, sometimes
in public, at times illegally - to block the fraudulent ascension of Mr.
Yanukovich, whom several of the generals loathe. Directly and indirectly,
their work supported Viktor A. Yushchenko, the Western-oriented candidate
who is now the president-elect.

Many factors that sustained the revolution that formed around Mr. Yushchenko
are well known. They include Western support, the protesters' resolve, cash
from wealthy Ukrainians, coaching by foreign activists who had helped topple
presidents in Georgia and Serbia, the unexpected independence of the Supreme
Court and cheerleading by a television station, Channel 5, which Mr. Kuchma
never shut down.

Each influenced the outcome to various degrees. None by itself seems
decisive. The full extent of the siloviki's role is unknown, although Oleg
Ribachuk, Mr. Yushchenko's chief of staff, called it "a very important
element" that aided the opposition "professionally and systemically."

"They were doing this like a preventive operation," he said.
OPPOSITION INSIDE THE S.B.U.
The support did not start with the protests. Long before the election, the
siloviki and the opposition opened quiet lines of communication, including
General Smeshko's assignment last summer of an S.B.U. general as secret
liaison to Mr. Ribachuk.

The 38,000-member S.B.U. is Ukraine's descendant of the Soviet K.G.B.,
and has been sullied by its reputation for blackmail, arms trading and links
with Russian security services and organized crime. It remains highly
factionalized, with cliques loyal to different political camps, and with
remnant ties to its old masters in Moscow.

Its previous chairman, Leonid Derkach, was fired under international
pressure after being accused of organizing the sale of radar systems to
embargoed Iraq. Mr. Kuchma appointed General Smeshko, a generally
Western-oriented official and a career military intelligence officer as
S.B.U. chairman in 2003. The general had previously been posted to embassies
in Washington and Zurich; the move was regarded as an effort to smooth
relations with the West.

Some of the siloviki who worked against the fraudulent election and resisted
the crackdown are part of General Smeshko's military intelligence circle and
had spent parts of their careers working in Western countries or as liaisons
to Western governments.

Mr. Ribachuk said that he ultimately had several S.B.U. contacts, and they
met regularly, sometimes nightly. The officers leaked him documents and
information from Mr. Kuchma and Mr. Yanukovich's offices, he said, and were
sources for much of the material used in the opposition's media campaign.

Whether the collaboration was a convergence of political aims, or a
pragmatic understanding by the siloviki that Mr. Yushchenko's prospects were
rising, is subject to dispute. Yulia Tymoshenko, another of Mr. Yushchenko's
closest allies, said many S.B.U. officials, including General Smeshko,
merely hedged their bets. "This was a very complicated game," she said.

Mr. Ribachuk saw it differently. "They are clearly our supporters," he said.
"They risked their lives and careers."

The officers themselves express several motivations. One, said Lt. Gen.
Igor Drizhchany, who runs the S.B.U.'s legal department, was simple.
"At all times we talked of our desire to prevent the shedding of
blood," he said.

But there are also signs that among some officers a desire to block Mr.
Yanukovich was authentic. Having been prime minister for two years, Mr.
Yanukovich was well known. Several S.B.U. officers said the premier, who
was once convicted of robbery and assault and has close links to the corrupt
eastern businessmen who have acquired much of Ukraine's material wealth,
was a man they preferred not to serve, especially if he were to take office
by fraud.

S.B.U. officials and Mr. Ribachuk also said that roughly a week before the
Nov. 21 election, General Smeshko was disgusted enough after a personal
meeting with Mr. Yanukovich that he sought to resign, and vowed never to
work for the premier.

Mr. Kuchma did not accept the resignation, telling the spy chief that if he
left, then a general loyal to Mr. Yanukovich would assume the post, and the
nation would risk bloodshed, General Smeshko and Mr. Kuchma said.

It is not clear whether the president was certain of this, or simply
outmaneuvered General Smeshko to avoid pre-election turmoil. But the spy
chief stayed on.
SENDING SIGNALS
The siloviki's unease with Mr. Yanukovich's candidacy deepened on Nov. 21
when early results indicated the premier was winning the election, but
through widespread fraud.

The S.B.U.'s leadership met in General Smeshko office. Among those present
were General Romanchenko, General Drizhchany, Maj. Gen. Oleksander
Sarnatskyi, the chief of S.B.U.'s cabinet, and Col. Valery Kondratyuk, chief
of liaison to foreign intelligence services.

The group contemplated a public resignation, but decided to try steering the
gathering forces from a clash, and to fight from within. "Today we can save
our faces or our epaulettes, or we can try to save our country," General
Romanchenko and General. Sarnatskyi said they remembered the spy chief
saying.

Whether the full extent of the position and activities of the S.B.U.
leadership was understood at this point by Mr. Kuchma is unclear; S.B.U.
officers said that given the competing factions in their service, and its
infiltration by Russian agents, elements of its work were certainly known.

Kiev was tense. As protests began on Nov. 21, the opposition had the money
and organization for long-term civil disobedience. General Popkov, the
interior commander, said he knew this, and had scheduled an exercise that
massed 15,000 troops in the capital and nearby. He sent several thousand to
barricades and posts at government buildings, and kept more than 10,000 in
reserve.

The government swiftly tried drawing the intelligence chiefs into an image
of state solidarity. On Nov. 22, the prosecutor general's office released a
statement scolding the opposition for organizing the rally. It said the
authorities and the S.B.U. were prepared "to firmly put an end to any
lawlessness."

General Smeshko said he was furious and called the prosecutor to tell him
not to speak for the S.B.U. "It was a falsification," he said. The S.B.U.
countered with a statement saying that it disagreed with the prosecutor,
that citizens had the right to exercise political freedoms and that
political problems could be solved only by a peaceful path.

It was a public crack in Ukraine's law enforcement bodies, and an omen.
On Nov. 24, when the election commission met to certify Mr. Yanukovich's
nominal win, Kiev was so fully blockaded that Mr. Kuchma was unable to
work in his office.

He called for a meeting outside the city, where his government celebrated
its win and several politicians declared that if crowds continued to block
the government, troops should disperse them, three people in the meeting
said.

As General Smeshko sat quietly, his spy agency was delivering a shadow blow.
Even as the election commission deliberated over Mr. Yanukovich's victory,
Ukrayinska Pravda, a news Web site, posted transcripts of conversations from
among members of the Yanukovich campaign.

The officials were discussing plans to rig the election, including padding
the vote. One conversation, recorded on election night, was between Yuri
Levenets, a campaign manager, and a man identified as Valery.

Valery: "We have negative results."
Mr. Levenets: "What do you mean?"
Valery: "48.37 for opposition, 47.64 for us."

Valery later added: "We have agreed to a 3 to 3.5 percent difference in our
favor. We are preparing a table. You will have it by fax."

Mr. Yanukovich won by 2.9 percent. In an interview, Mr. Ribachuk said he
gave the transcripts to Pravda after receiving them from the S.B.U., which
had bugged the Yanukovich campaign.

General Smeshko refused to discuss the tapes in detail. "Officially, the
S.B.U. had nothing to do with the surveillance of Yanukovich campaign
officials," he said. "Such taping would be illegal in this country without
permission from the court. I will say nothing more."

But a member of the siloviki, who spoke on condition of anonymity because
the taping was illegal, acknowledged the surveillance but said it was too
delicate for General Smeshko to confirm. "Those who did this, they did not
intend to become heroes," the officer said. "They wanted only to prevent a
falsified election."

Not long after Pravda posted the transcript, General Smeshko left the
meeting with Mr. Kuchma and headed to a S.B.U. safe house in Kiev for a
secret liaison with Mr. Yushchenko, the opposition leader.

The meeting had self-evident ironies. Mr. Yushchenko, nearly incapacitated
after being poisoned by dioxin in the summer, a crime that remains unsolved,
had publicly linked the poisoning to a meeting with General Smeshko and
another S.B.U. general.

Now he wanted another talk. The group met in a tiny room, behind a
drawn yellow curtain, and ate fruit. Present were General Sarnatskyi,
General Smeshko and General Romanchenko, as well as Mr. Yushchenko,
Mr. Ribachuk and another Yushchenko ally.

Two agreements were struck, both sides say.

Mr. Yushchenko requested more security for his campaign. General
Smeshko agreed to provide him eight specialists from the elite Alpha
counterterrorism unit - a highly unusual step - and to arrange former
S.B.U. members to guard the campaign.

Then the group also agreed that the S.B.U. must publicly show that it
was on the side of the law, not a candidate - an implicit message the
agency was unwilling to abuse power for the premier.

As the meeting ended, Mr. Yushchenko, who is an amateur artist, gave
General Smeshko one of his landscape paintings. The spy chief and the
opposition leader embraced.

Back at the S.B.U. headquarters, General Smeshko and the siloviki
decided that to send a signal to the public they would send officers to read
a statement to the protesters. Mr. Yushchenko appeared the next night,
Nov. 25, with five members of S.B.U.

Their statement was indirectly but clearly pro-opposition. It said
concerns about the election were valid, and addressed the Supreme Court,
which had just announced that it would review complaints of electoral fraud.
The officers urged the judges to work objectively.

Then they addressed police officers and soldiers. "Do not forget that
you are called to serve the people," their statement said. "The S.B.U.
considers its main assignment is to protect the people, no matter the source
of the threat. Be with us!"

It was a rare moment for officers used to anonymity and reflected how
deeply opposition sentiments had reached into Ukrainian society. In
interviews, two officers from the stage, Lt. Gen. Oleksander Skibinetsky, a
reservist, and Lt. Gen. Oleksander Skipalsky, who is retired, were asked if
their families influenced their decisions.

"Both of our wives were in the square," General Skibinetsky said.
General Skipalsky said: "My wife. And my daughter, too."

The signal seemed to have had its desired effect. The next morning,
cadets from the Interior Ministry's academy joined the opposition, marching
to the barricades to try to persuade the officers on duty to join them. A
few carried flowers.
THE BATTLE FOR KUCHMA
The state was leaking power. The next day, Nov. 27, Mr. Kuchma
summoned General Smeshko to a meeting at Koncha Zaspa, a government
sanitarium outside Kiev.

In a conference room were Mr. Yanukovich and politicians from eastern
regions supporting him, with the leader of the Interior Ministry, or M.V.D.,
Mykola Bilokon, one of Mr. Kuchma's loyalists, who made no secret of his
support for the premier.

Mr. Yanukovich confronted Mr. Kuchma, asking if he was betraying them,
four people in the meeting said. Then came demands: schedule an
inauguration, declare a state of emergency, unblock government buildings.

Mr. Kuchma icily addressed his former protégé. "You have become very
brave, Viktor Feyodovich, to speak to me in this manner," he said, according
to Mr. Bilokon and General Smeshko. "It would be best for you to show this
bravery on Independence Square."

General Smeshko intervened to offer the S.B.U.'s assessment of the
situation, warning the premier that few of Ukraine's troops, if ordered,
would fight the people. He also said that even if soldiers followed an
order, a crackdown would not succeed because demonstrators would resist.
Then he challenged Mr. Yanukovich.

"Viktor Feyodovich, if you are ready for a state of emergency, you can
give this order," he said. "Here is Bilokon," he continued. "The head of the
M.V.D. You will be giving him, as chairman of the government, a written
order to unblock the buildings? You will do this?"

Mr. Yanukovich was silent. General Smeshko waited. "You have
answered," he continued, according to people in the meeting. "You will
not do it. Let us not speak nonsense. There is no sense in using force."

Mr. Kuchma left the room to take a phone call, then returned with a
state television crew. Mr. Yanukovich slammed down his pen and left.

The government's position was set: there would be no martial law. It
was formalized the next day, on Nov. 28, when the National Security and
Defense Council voted to solve the crisis through peaceful means.

"This was the key decision," Mr. Kuchma later said. "I realized what
it meant to de-block government building by force in these conditions. It
could not be done without bloodshed."
FIGHTING A CRACKDOWN
Although there seemed to be a consensus at the council, a crackdown
remained possible, either as a response to opposition provocation, or by
secret, unexpressed agenda.

Emotions had been rising and falling in Kiev, and within hours of the
council meeting, they surged again when Ms. Tymoshenko, a Yushchenko ally,
warned demonstrators that there would be an effort to unblock the government
buildings. She urged more people to defend them.

General Popkov, the commander of interior troops, said he was notified
of Ms. Tymoshenko's words and the crowd's restlessness, and ordered the
alarm. The mobilization began.

Precisely what followed, and why, remains unclear, as does who gave
the order, and by what means. General Popkov insists that he alone was
engaged in a calculated bluff, and thus made certain his signal would be
instantly seen.

Holding up his mobile phone, he said, "I deliberately gave the order
on this phone, which is bugged."

Whether General Popkov's phone was bugged is not publicly known. But
General Romanchenko said his agents in the interior units watched the
preparations; simultaneously, S.B.U officers said, their agents in the
Interior Ministry's communications center heard radio traffic about
preparations to march. Bedlam, and battles of nerves, ensued.

Reports of the alarm were relayed to the S.B.U. command, which
notified the opposition, its officers on Independence Square, and then the
American Embassy.

The opposition called the American ambassador John E. Herbst, who
called Viktor Pinchuk, Mr. Kuchma's son-in-law, to find out what was
happening, Mr. Pinchuk said.

Mr. Pinchuk said he called Viktor Medvedchuk, chief of Mr. Kuchma's
administration, who called the interior minister at home. Mr. Bilokon said
he did not know what was happening. "I was really worried," Mr. Bilokon
said, in an interview. "How, without my knowledge, was this order given?"

Secretary of State Colin L. Powell soon telephoned Mr. Kuchma, who did
not take the call.

Outside, the S.B.U. was mobilizing. Several hundred intelligence
officers were already among the protesters, S.B.U officials say. Some were
pretending to be demonstrators themselves. Concealed surveillance teams were
videotaping the crowd. Snipers peered down from roofs. Counterterrorism
teams huddled in nearby apartments and unmarked trucks. Groups in vehicles
roamed the roads to Kiev, trying to determine the direction of the troops'
advance.

Among the protesters' tents, an S.B.U. colonel who had spent the week
as a liaison to the demonstration organizers alerted the organizers that
troops were on their way.

His next mission was to meet the troops as they drew near, he said, to
warn their officers that a crackdown without written orders was illegal. He
said he also planned to warn them that the S.B.U. had surveillance units
watching Kiev, and all actions would be videotaped for use as evidence
later.

The fear, he said, was intense. Some intelligence officers thought of
China's crushing of the pro-democracy protesters in 1989 in Beijing. Others
thought of the Romanian revolution in 1989, when, after troops fired on
demonstrators, the people fought back, eventually capturing and killing
President Nicolae Ceausescu and his wife.

"We could not believe it could occur to somebody to draw the first
drop of blood, which would have been the detonator of a big explosion," said
the colonel, a deputy chief of Ukraine's counterterrorism forces, who by
Ukrainian law is forbidden to have his name published. "It could unleash a
civil war in our country. Absolutely, sincerely, we were prepared to do
everything in our power to stop it."

While all sides pressed for information and advantage, a group of the
siloviki and Ms. Tymoshenko met at the headquarters of the military
intelligence service, the G.U.R.

Among them were Mr. Galaka, the G.U.R. chief, General Drizhchany, Colonel
Kondratyuk and General Romanchenko, who said he called the S.B.U.
headquarters for instructions. "Chairman Smeshko told me to call General
Popkov, and find out why the alert had been called," he said.
An extraordinary exchange followed. The counterintelligence chief called the
troop commander, whom he had known for years, and asked what were the
grounds for the alert. "He said it was his decision," General Romanchenko
said. "I said to General Popkov that he had to have a written order to raise
troops on full alert, and since he did not have this order he would have to
call back the troops."

Simultaneously, from his office at S.B.U. headquarters, General Smeshko
called Mr. Bilokon, who sought assurances the opposition would not seize
buildings, both men said. General Smeshko called him back and gave that
assurance, shifting responsibility to himself if buildings were overrun.
Other officers said that after about an hour, Col. Gen. Oleksander Petruk,
the army chief of staff, arrived at the military intelligence service's
office. The intelligence officer pressed him for help. He said the army
would not deploy inside Ukraine. "He said it would not be done," Colonel
Kondratyuk said. General Petruk's staff did not return phone messages
seeking an interview.

Ms. Tymoshenko said she watched with amazement as the siloviki and then
General Petruk made calls and warned the Interior Ministry "that they are on
the side of the people, and will defend the people, and that the M.V.D. will
have to deal not only with unarmed people and youth if it comes to Kiev, but
with the army" and the special forces inside the intelligence agencies.

Eventually, General Popkov folded. "He said he was carrying out orders and
he was not a key figure," Ms. Tymoshenko said. First the trucks stopped on
the shoulder of the road. Then the alarm was called off.

General Drizhchany, and others, said that because so many calls were made
that night by and to so many people, it was impossible to tell which calls
were decisive. More likely, he said, was that the calls had a cumulative
effect.

While different accounts of the mobilization agree on many points, they
clash on critical questions. Who ordered the alarm? Who called the troops
back?

General Popkov said both decisions were solely his. This is the official
version, which the siloviki, the opposition and the Western diplomat dismiss
as absurd. "What he did was not a drill," said Mr. Galaka.

Only three people, they say, had authority to give such an order: Mr.
Kuchma, Mr. Yanukovich and Mr. Medvedchuk. Mr. Kuchma denies a role.
Mr. Yanukovich and Mr. Medvedchuk did not reply to requests for interviews.

Ms. Tymoshenko said she witnessed a turning point. Once the siloviki
thwarted the alarm, the administration learned that it did not have sole
influence over the last guarantor of power: the men with the guns.
After a peaceful uprising in Georgia in 2003 deposed President Eduard
Shevardnadze, in part with help from the authorities, she said she was
envious of a country with officers willing to resist corrupt power.

"I had always thought that all of our generals were very loyal to Kuchma and
were pragmatic," she said. "All of a sudden I made this discovery. We had
generals on the side of the people." -30-
-----------------------------------------------------------------------
http://www.nytimes.com/2005/01/17/international/europe/17ukraine.html?th
==========================================================
3. CHANGES IN UKRAINE
Ukrainians battle for law and order is at same time a
battle for a healthy development of the country

Article by Leszek Balcerowicz, Governor of National Bank of Poland
Translated from "Wprost" (Straight Talk) no. 52/53, 26-31 Dec. 2004

I belong to millions of Poles, who are watching with tension, sympathy and
admiration the peaceful battle of Ukrainians for honesty, democracy, law and
order in their country. We know how important - first of all for themselves,
but also for Poland, Europe and the world - it will be if these values
finally triumph. Watching important historical events in Ukraine right in
front of our eyes, let's have a bird's view of this country's changes after
regaining independence.
INDEPENDENCE ON A BRAKE
Accessible data suggest that starting conditions in Poland and Ukraine were
not that different. In both countries GNP per capita was about 5 thousand
USD (calculated by purchasing power parity). Today this index is more than
two times higher in Poland. Both countries at the beginning had to struggle
with very high inflation, which in both cases was caused by a huge deficit
in public finances, covered by issuing "empty money". Ukraine was a more
urbanized country: the percentage of urban population in 1991 was 67% in
Ukraine and 63% in Poland. At the same time though, the Ukrainian economy
had much stronger ties with the Russian economy. We had similar infant
mortality rates: 18 cases for 1000 live births in Ukraine, 15 in Poland. In
2003 this rate was 17 in Ukraine and only 8 in our country.

After the break-up of the Soviet Union, Ukraine had a much more difficult
task than Poland. The extent of necessary system changes were much bigger
there, and the readiness to execute them much lower than here. As Tadeusz A.
Olszanski in his superb book "The Hardship of Independence: Ukraine at the
Turn of the Century" writes: "Neither the society, nor elites of Ukraine
were prepared for, or even imagined independence". And further: "And all
of a sudden, they had to rule and simultaneously create a country."

This sort of a situation was enough for Ukraine not to -unlike Poland -
begin its independent existence with a big dose of market and stabilizing
reforms. The changes in this direction were rather slow and wavering, which
was conducive to the development of various pathologies and slow
development. Up to the year 2000 registered national income was declining,
although, undoubtedly the "grey" zone was growing.
YUSHCHENKO'S BROOM
The turning point took place after 1998. In December of 1999 president
Kuchma appointed Viktor Yushchenko as the prime minister. Previously
Yushchenko was the head of the Ukrainian central bank. Yushchenko's
government accelerated the reform process and simultaneously- under a banner
"clean energy" - got down to eliminating the huge abuse in oil and gas
trading with Russia. Funds regained that way are estimated at 4 billion USD.
The very brave and determined Julia Tymoshenko, Yushchenko's deputy,
played a big role in this work.

Thanks to these actions the budget situation improved and for the first
time, since 1991, people started regularly getting their old age and
disability pensions. Yushchenko became the most popular politician in
Ukraine. And probably that is why in May 2000 he was dismissed, and
replaced by Viktor Yanukovych. The former prime minister created a party
"Our Ukraine", which got the majority of votes in the 2002 election (almost
24%), while Tymoshenko party got 7,3%
SUPPOSED GROWTH
Meanwhile, the economic situation was improving. "Official" GNP increased
from 1999 to 2003 by 33%. Inflation decreased from 28% in 2000 to 5,2% in
2003. International trade accelerated; exports increased by 80% in the years
1999-2003, imports by almost 85%. At the same time - mostly because of money
transfers from Ukrainians working abroad - Ukraine got a substantial surplus
in its current account. Public finances were close to in balance, except in
2004, when, prior to the election, social expenses were visibly increased
(the deficit was the price for doing it). It is also worth mentioning, that
the good budget situation was caused mainly by high economic growth, which
produced fast growing tax revenues, entirely allocated to growing expenses.

A decline of the economic growth pace - and this should always be taken into
account - may therefore disclose big budget problems in Ukraine. In spite of
economic growth acceleration after 1999, registered GNP amounted in 2003
only to 51% of GNP from 1989 (135% in Poland). An important role in the
economic situation improvement was also played by metal price increases in
world markets - the Ukrainian steel industry took advantage of this. Quite a
large role for reforms introduced from 1999 should also be considered. The
importance of each of these factors in the improvement in the economic
situation is difficult to measure and can be discussed.

Without questioning reformist progress, it can be said although, that -
taking into account almost all main indicators of institutional conditions
and management quality - Ukraine has a lower position than the countries of
Central - Eastern Europe. The general economic freedom index, calculated by
the Fraser Institute, amounted to 5,3 for Ukraine for the year 2002 (the
average for Central Europe was 6,9; for Poland 6,4). The law system quality
index, including property rights protection reached a level of 4,4 in
Ukraine, the average: 6,2, Poland: 5,9. Ukraine has also very rigid work law
rules, much more restrictive than most of Central and Eastern Europe
countries.
CLANS OF UKRAINE
Yet these and other indices do not show the essence of the system that has
been created in Ukraine. The essence namely relies on strong concentration
of economic, politic and media power in hands of few groups, called clans by
Tadeusz A. Olszanski. Political and economical life has been dominated by
relations (fights, cooperation) between them. Exclusion of foreign capital
from the privatisation of big companies contributed to the creation of the
clans.

On the battle field only local oligarchs remained, who were purchasing the
national heritage at much lower prices than those, if other investors had
been allowed to participate in the tenders. (I don't know if our local
critics of participation of foreign capital in the Polish transformation
realize what the consequences of blocking the access of foreign capital
could be.)

Oligarchic arrangements, created in Ukraine, remain in conflict with
equality under law, which is an inseparable attribute of law and order and
free competition. Clan members take advantage of their privileged positions,
while others must struggle with bureaucratic rules and often corrupt
administration. Therefore Ukraine's battle for law and order is at the same
time a battle for healthy development. -30-
==========================================================
4. EXPERTS NAMING YEKHANUROV, KINAKH, MOROZ, PENZENYK,
POROSHENKO, AND TYMOSHENKO AS POTENTIAL PRIME
MINISTERIAL CANDIDATES IF YUSHCHENKO IS CONFIRMED

Ukrainian News Agency, Kyiv, Ukraine, Mon, Jan 17, 2005

KYIV - Political experts are naming Yurii Yekhanurov, Anatolii Kinakh,
Oleksandr Moroz, Viktor Pynzenyk, Petro Poroshenko, and Yulia Tymoshenko
as the potential candidates for the post of prime minister if Viktor
Yuschenko is confirmed as the president of Ukraine.

According to Yaroslav Pavlovskyi, an expert with the Agency for Situation
Modeling, nomination of any of the above-named people has its own logic.
According to him, the relevant agreements on cooperation were concluded with
some of them during the presidential election campaign, others made maximum
efforts to ensure victory, while others have always had their prime
ministerial ambitions.

According to Pavlovskyi, if Yuschenko is to consider the possibility of his
prime ministerial nominee being approved by the parliament he needs to
nominate a person with the maximum possible level of trust.

"In this case, the odiousness of Tymoshenko is an obstacle to her. The best
candidates under these circumstances are Poroshenko and Moroz,"
Pavlovskyi said.

If Yuschenko wants to form a government made up of professionals, then
Pavlovskyi believes that the possible prime ministerial candidates are
Yekhanurov or a surprise candidate who is unknown to many people.

"However, in my opinion, during formation of the Cabinet of Ministers
Yuschenko will attempt to synthesize the principles of political and
economic appropriateness based on the level of trust in the person.
Therefore, in my opinion, Petro Poroshenko has the best chances,"
Pavlovskyi said.

Volodymyr Polokhalo, the editor-in-chief of the Politychna Dumka journal,
named Kinakh, Moroz, and Tymoshenko among the possible candidates
for the post of prime minister, arguing that they have a sufficient level of
authority in broad political circles and among the business elite.

According to Polokhalo, most experts and scientists are inclined to believe
that Yuschenko will nominate Tymoshenko to the parliament as his prime
ministerial candidate. "She is the only one who has supported him from the
very start," Polokhalo said. At the same time, Polokhalo expressed doubt
whether Yuschenko would listen to the opinions of experts and scientists.

Mykhailo Pohrebynskyi, the director of the Kyiv Center for Political
Research and Conflict Resolution, suggested that Yuschenko would choose
between two candidates. "One is to appoint a political prime minister. To
demonstrate his inclination to fulfill his promises. And the prime minister
that will be accepted in the east and the west. That is Moroz... a
transitional prime minister," Pohrebynskyi said.

According to him, the second candidate is Yekhanurov. "A person without
political ambitions, who will implement Yuschenko's economic course, on
whom he can count... It could be another person similar to Yekhanurov,"
Pohrebynskyi said.

Yekhanurov, Pynzenyk, and Poroshenko are members of the Our Ukraine
parliamentary fraction; Moroz is the leader of the Socialist Party,
Tymoshenko is the leader of the Yulia Tymoshenko Coalition. Kinakh is the
leader of the Party of Industrialists and Entrepreneurs. -30-
==========================================================
5. "THE PRESIDENT'S CHOICE"

ANALYSIS: By Yulia Mostovaya, Zerkalo Nedeli on the WEB
Kyiv, Ukraine, 1 (529) Saturday, 15 - 21 January 2005

The old government is going: on the way out, it is stealing what is still
there in the state ownership, transferring public funds into offshore
accounts, antedating privatization deals, appointing dozens of officials to
new positions, destroying information in state agencies’ databases and
burning documents by the tons. This adds another top-priority task facing
the new government to the long list that has already been compiled, namely,
to revise all decisions the public administration made after 1 November
2004.

At the same time, the new government will have to address far more complex
and wide-ranging challenges. Not only has [Viktor Yanukovych’s
representative in the Central Election Committee] Nestor Shufrych given the
old government a chance to cover up its tracks and the new team a chance to
go skiing for a couple of days, but he also diverted public attention from
the fact that Viktor Yushchenko is losing momentum. Even prior to the first
round, the candidate should have articulated his vision of the future
Cabinet, unveiling his plans on the prime minister and heads of key
ministries and agencies. However, Ukraine is not that well-developed a
democracy, and the “People’s Power” coalition would not have stood the
test of portfolio distribution in the course of the campaign.

Therefore, Yushchenko’s reluctance to discuss the Cabinet membership at that
stage could be justifiable. Yet now that the election has been won and every
world leader, except for Bush and Putin, has saluted Yushchenko as the
president elect; now that every Ukrainian family coming home from work
debates the best prime-ministerial options; now that both Eastern and
Western Ukraine are looking enquiringly at the newly-elected leader for the
answers, Viktor Yushchenko is in no hurry to nominate the new government
members.

The “People’s Power” coalition leader has had ample time to make up his mind
vis-a-vis the implementers of his “10 Steps for the People” Action Plan.
Given previous agreements about the Socialist Party and Yuliya Tymoshenko
Bloc’s quotas in the next Cabinet, Viktor Yushchenko should have known what
positions his bloc will retain. By this time, he should have made his choice
of prime minister, particularly in view of the proximity of the 2006
parliamentary elections that are going to be a milestone in assessing his
performance as a president. Under the circumstances, Yushchenko must be well
aware that every day matters, as his loss of momentum now threatens to turn
into a loss of actual power in 2006.

Furthermore, Yushchenko is known as a slow decision-maker: it took him a
long time to decide whether he should run for the presidency; it took him a
long time to decide whether he should form the “Our Ukraine” bloc and what
kind of bloc it should be, and it took him even longer to decide whether he
should go into opposition to the Kuchma regime. He is equally slow making
personnel decisions: you will remember the long and painful process of
replacing Roman Bezsmertny as his campaign manager. As matters stand,
Yushchenko cannot afford this style any more.

On the one hand, the break he has taken to select a prime minister from the
short list enables him to see how scrupulous, or unscrupulous, the
candidates are in the means they use to reach their ends. This became
especially evident, not only to Yushchenko but to millions of our
compatriots as well, after the top candidates appeared in TV talk-shows. On
the other hand, the break Yushchenko has taken made some people think
they can bring pressure to bear on the president-elect.

Thus, Anatoly Kinakh’s Party of Entrepreneurs and Industrialists and
Association of Employers is demanding that Yushchenko appoint their leader
to the position in question, Yuriy Kostenko’s Ukrainian Popular Party is
publicly persuading Yushchenko that their leader is the best choice, and the
Socialist Party is sending out press releases featuring Moroz as the only
possible prime minister. Dnipropetrovsk Oblast Council suggests Shvets would
be the optimal governor, Luhansk representatives opt for Yefremov and so on
and so forth. The prime ministerial candidates have got enough time to both
present their economic platforms and scathe their opponents.

Today, there are at least three lists of would-be Cabinet members that the
authorized and unauthorized politicians and the candidates themselves have
compiled, purportedly, on Yushchenko’s commission. At least two hundred
MPs have been in touch with various “centres of clout” to get assured they
will be nominated as ministers. Some of them will, obviously, be
disappointed later, when their ambitions fail to be achieved, which is bad,
since the president will need their legislative support in implementing his
electoral programme. Amazingly, these lists contain the names of candidates
for the posts over which the president has an exclusive authority, such as
the Foreign Ministry, Defence Ministry, State Tax Administration,
Security Service, prosecutor General’s Office, State Property Fund.

Olexander Zinchenko, Yushchenko’s campaign manager, and Anatoliy Kinakh
state that the team is still discussing the future Cabinet’s priorities and
operation principles. Isn’t that incredible, given that the priorities
should have been established before that campaign was launched on 4 July and
the presidential candidate registered his platform with the CEC, while the
principles should have been agreed upon before the “Force of People”
coalition was announced? Moreover, Yushchenko voiced those principles some
time ago: new faces in power, separation of business and public
administration, a broad coalition of various political forces, openness and
transparency, focus on social programmes, the priority of national interests
over personal or corporate ones, etc.

The above statement is an attempt to conceal the team’s inability to reach a
compromise. Some observers believe Viktor Yushchenko has taken a break in
order to spur his allies to do that on their own accord, and to ascertain
the need for his own involvement in the process. That may be true, but it
does not explain why Yushchenko, having promised on 5 January to name the
prime minister in a few days, has not yet done so. Ideally, right after the
re-run of the second round he should have made a statement to the following
effect: “I trust the future prime minister X to negotiate the Cabinet
composition with our allies according to previously agreed quotas”. However,
he did not do that. Instead, the coalition set up a working group, headed by
Zinchenko and intended to help the potential candidates come to a consensus.
It does not look like they have. Nor does it look like the working group
managed to bring the Cabinet forming principles in conformity with those
declared by Yushchenko during his campaign.

Olexander Zinchenko and Petro Poroshenko maintain that the new government
will not engage in “witch hunting”, which may account for their desire to
invite Mykola Azarov into the new Cabinet, or let Sviatoslav Piskun remain
Prosecutor General for an indefinite period of time. Yushchenko, however,
underscored on several occasions that the key ministers and governors should
not represent the old government. Deputy ministers or deputy governors who
proved proficient, honest and able to deliver what is expected of them could
keep their positions. As for the first persons in central public agencies or
regional administrations, the question is why they participated in the
vote-rigging by the executive authorities, why they did not resign then, but
showed up in the Maidan amongst Yushchenko’s allies after he won.

Yushchenko seems to realize there is a problem. He also seems to apprehend
that many professionals associated with the outgoing authorities can offer
their valuable experience and expertise to the new government, and he must
be looking for a way to accept this offer without losing face and
credibility.

Concurrently, Viktor Yushchenko is facing a challenge of maintaining a
“personnel” balance between the government and Parliament. The matter is
that the major candidates for ministerial and gubernatorial positions are
MPs. More than that, these are the brightest representatives of “our
Ukraine”, Yuliya Tymoshanko’s Bloc, the Socialists and the few political
forces that gave a helping hand to the “People’s Power” at the final stage
of their struggle. Suppose, MPs are appointed to the Cabinet and the
Socialist faction loses Lutsenko, Vinsky, Shybko, Nikolayenko, Semeniuk,
Yuliya Tymoshenko’s Bloc has to function without Tymoshenko herself and
Turchynov, Shevchuk goes from People’s Democratic Party faction, while
Poroshenko, Pynzenyk, Rybachuk, Tarasiuk, Kostenko, Martynenko, Tretyakov,
Bezssmertny, Filenko, Stetskiv, Morozov, Bilozir, Yekhanurov, Kachur,
Chervonenko, Oliynyk and others leave the “OU” faction; who will stay in
Parliament to implement the President’s legislative strategy and expedite
the coalition’s interests within the Supreme Rada?

Besides, on leaving the Rada those politicians will be replaced with
second-echelon members of their respective bloc and party lists, who, for
the most part, are non-entities to the public at large. Therefore,
parliamentarians’ massive migration to the bodies of executive power is
bound to enfeeble the legislature, first and foremost, the pro-Yushchenko
coalition. The new president should bear this in mind.

Another problem likely to arise in connection with the MPs’ exodus from the
Rada is the lack of popular personae to stump in the 2006 campaign. Who will
canvass for “Our Ukraine” - Chervoniy, Karmazin, Taniuk or Manchulenko? Will
Bilorus and Shkil be the faces of Yuliya Tymoshenko’s Bloc in that election?
Can you imagine the Socialists’ campaign without Lutsenko? Should the former
MPs go onto the campaign trail to back up their less experienced colleagues,
the new opposition will use every possible pretext to accuse the new
authorities of resorting to administrative pressure.

So, while shaping his future Cabinet, Yushchenko has to think about the
percentage in it of absolutely new figures, with no previous involvement in
parliamentarian activities. He also has to think of the percentage of the
new-old characters in the government, i.e. the people who served in
government at different times of their careers but ended up in the
opposition to the regime, as well as of the percentage of very important MPs
that can be invited to the Cabinet without causing too much damage to the
Rada. The task is onerous, since the new government must be effective, but
so must the new parliamentary majority that will have to stand up to the
masters of parliamentary intrigues - the Communists, “Regions of Ukraine”
and SDPU(o).

Yushchenko can apply different approaches in selecting a prime minister,
both with their pros and cons. The first approach is to appoint a strong
premier, and the second is to appoint a so-called “technical” prime
minister. The candidates from the first category are Petro Poroshenko and
Yuliya Tymoshenko. Some experts would, probably, consider Kinakh and
Moroz as belonging to the cohort, but Kinakh has already been prime
minister, and Moroz will never be the one. So we will briefly consider the
two former candidates.

Petro Poroshenko has everything it takes to make a strong and effective
prime minister. Comparing him with the previous Ukrainian heads of
government, one can say that he, unlike Kuchma, knows what NATO and
English are about; unlike Marchuk, he is good at economics; unlike Kinakh,
he is independent; and unlike Yushchenko, he is extremely energized and
enterprising. As rumour has it, during the campaign he never went to bed
before three in the morning and was back in the office by eight. Unlike
Pustovoitenko, he can say “no” to his bosses and insist on revising
decisions made without his consent; unlike Yanukovych, he is intelligent.

In principle, he understands the Cabinet’s role and objectives, particularly
in the light of the 2006 elections. Poroshenko is as vigorous and dynamic as
Yuliya Tymoshenko, but he is not so keen on arm-wrestling. He dislikes open
conflicts, and avails himself of a much wider range of political levers than
charm and vigour.

Poroshenko’s contribution toViktor Yushchenko’s campaign was precious. Of
course, there were lapses that could be blamed on him personally, such as
poor collecting of district commissions’ minutes for the alternative ballot
count, insufficient legal support of the campaign entrusted to him,
summoning Yushchenko to the CEC premises on the night of the notorious
fight… Nevertheless, his activity on the hustings was the most fruitful,
which accounts for certain problems he is having at the moment as a prime
ministerial candidate. Yushchenko might think that the businessmen who took
part in his campaign and the “People’s Power” coalition should have no
further obligations to him. They have already done a lot, contributed too
much effort and money, suffered too many business losses and forgone
benefits.

Having got to Parliament as part of Yushchenko’s team, those businessmen
have already “repaid all their debts” and resisted the unprecedented
pressure of the authorities throughout the campaign. But for the 2006
elections, no one would ever mention mutual commitments again. Poroshenko
is one of the most independent players, and Yushchenko must be aware of it.
Besides, Poroshenko is commonly known to be on very good terms with
[Speaker] Lytvyn, and the tandem of premier Poroshenko and Speaker Lytvyn
could limit the new president’s political clout.

Petro Poroshenko seems to belong to those strong politicians who prefer to
have dependent, obedient and industrious subordinates. Hence his intention
to employ Azarov in the new government: the latter will, undoubtedly, be
happy to fulfill Premier Poroshenko’s every order. Hence his lobbying for
Zinchenko as a new Secretary of the Council for National Security and
Defence (Poroshenko was the first to suggest hiring Zinchenko to manage
Yushchenko’s election campaign). Hence the acceptance of Piskun as a new-old
Prosecutor General. Hence the desire to invite to the Cabinet as many MPs
actively engaged in business as possible.

The new opposition is looking forward to Poroshenko’s appointment to the
prime ministerial position. For one thing, it will mean a breach of the
principle of separating business and politics, declared by Yushchenko. For
another, the opposition-to-be expects Poroshenko to succumb to temptations
associated with the premier’s powers. The new opposition is positive that
Poroshenko, as well as all other businessmen in Yushchenko’s team likely to
get to the government, will rush to remedy the almost mortal financial
wounds inflicted on them by Kuchma’s regime in the course of the previous
parliamentary and presidential elections.

As fellow human beings, we can sympathize with them - the authorities
mistreated them, not only violating their rights and freedoms, but very
often also breaking the law. Yet millions of people did not vote for their
financial rehabilitation. So once the new opposition contrives to stir a
public scandal, no matter how insignificant, Yushchenko’s and his team’s
ratings could crash.

Of course, the situation is not all black-and-white; it has many shades to
it. The businessmen from “Our Ukraine” close to Poroshenko are determined
to restore justice in many dubious schemes realized by Akhmetov, Pinchuk,
Yaroslavsky, Medvedchuk and some others. The correction of
privatization-relating decisions, should it be carried out in strict
compliance with the law, can become the new authorities’ trump card. In some
sense, it is an economically sound, but double-edged solution. If the new
government’s economic policy proves ineffective, which may cost it votes at
the parliamentary elections, the redistribution of property belonging to the
most odious agents of the old regime, both at the national and at the
regional levels, will help mobilize electoral support.

It could cause tension between Prime Minister Petro Poroshenko and Speaker
Lytvyn, whose faction is currently swelling at the expense of the formerly
pro-Kuchma majority. Those MPs will seek the Speaker’s protection, whereas
some of Yushchenko’s supporters will pursue the opposite aims. Any alliances
of today, including that between Poroshenko and Lytvyn, will have to stand
the test of time and joint work, and that is going to be a tough test for
them both.

On the other hand, Poroshenko and Lytvyn need each other. They are both
interested in preserving their respective posts after the parliamentary
elections and, what is more, the constitutional reform implementation. Thus,
they have to maintain the existing balance. As for Yushchenko, he will have
to find his place in this arrangement, and it is up to him to ensure a
principal significance of this place.

The new president will have to think over the presently unanswered question
if he is a major political force in the country. The Ukrainian political
elite have held their breath, waiting. Lytvyn’s faction is growing by day.
The Speaker starts every parliamentary session with announcements of MPs’
deserting ex-majority factions. However, they do not hasten to join the
winner-factions - “Our Ukraine”, Yuliya Tymoshenko’s Bloc or the Socialists.
They either beef up Lytvyn’s faction or the group of unallied MPs watching
vigilantly for the future hub of power: Yushchenko, Lytvyn or the Prime
Minister? Yushchenko is to answer the question with his decisions and
actions. If he continues to move slowly, the lawmakers will line up to join
other factions.

This game is tough, allowing for no faux pas. The people of Ukraine can
appreciate a Vaclav Havel-like president, yet the elite, accustomed to
Kuchma’s harshness will not. Therefore, Yushchenko needs a pushy prime
minister, capable of maintaining a balance of popular and unpopular
decisions and securing the executive power’s efficacy. Poroshenko can cope
with the task, provided his pockets are sewn shut. The question is whether
Yushchenko will trust him to undertake it.

The above applies to Yuliya Tymoshenko, although Yushchenko’s relations
with her are specific in a different way. When entering into an agreement on
cooperation in the election campaign, the two leaders also signed a secret
protocol. There is no denying its existence. The protocol obligates
Yushchenko to nominate Tymoshenko as prime minister, put her name to a
vote in the Rada and guarantee a 100 per cent support of his faction “Our
Ukraine”. Unless Yushchenko does exactly that, he will break his promise.
Strictly speaking, Tymoshenko has not fully met her commitments either.

It is true, she worked hard during the campaign, especially before the first
round, speaking at five or six rallies a day. She spent weeks on end in the
regions, and nonetheless failed to deliver an adequate result in
Dnipropetrovsk, Donetsk and Luhansk oblasts, of which her bloc was in
charge. Some experts argue Viktor Yushchenko has always taken Tymoshenko’s
prospects of becoming premier with a grain of salt. Yuliya Tymoshenko, being
a wise and experienced politician, has always realized that.

Therefore, she used Yushchenko’s election campaign to her best advantage as
a public politician. The Maidan was a pinnacle in her self-promotion.
Besides, she knows full well about the Kremlin’s cautious, to say the least,
attitude to Yushchenko and the ensuing need for the latter to choose a
premier acceptable for Moscow, predominantly for the sake of the national
economy. Tymoshenko is not such a candidate, not because she cannot
cooperate with Moscow, but because Moscow does not want to work with
her. We do not know the exact nature of this idiosyncrasy. It could not be
the mock criminal action taken by the Russian prosecution against our MP.

Yet it is an established fact that the Kremlin cannot stand Yuliya
Tymoshenko. According to some sources, when [Speaker] Lytvyn met with Putin
last weekend, the Russian President dropped a hint that, although Moscow had
no intention to influence the top personnel selection process in Ukraine,
if the Ukrainian government got a head who had problems with the Russian law
enforcement, Moscow would have to call back their ambassador for
indefinitely long consultations and make sure the Ukrainian prime minister
and representatives of the Russian law enforcement never crossed paths with
each other.

Thus, Moscow is problem number ONE for Yuliya Tymoshenko. Her number
TWO problem is her autonomy. No one in this country has the slightest doubt
that Tymoshenko will always work for her own political result. In the
context of the 2006 elections, though, and provided Yushchenko refuses to
create his party, she may ally her bloc with “Our Ukraine” again, in which
case she should realize that what she does as a premier is a common cause.

Then she will be able sensibly to distribute effort and resources in order
to cover the whole distance. Her number THREE problem is her unrestrained
energy. Like nuclear power, it can be used to heat houses, or it can explode
a bomb. And it is hard to predict in which of the two capacities she will
operate tomorrow or the day after tomorrow. Tymoshenko can be a benefit
for the country as an effective head of government if the law and mightier
players set strict rules of the game. If she is placed in a position
allowing her to set those rules at the top of executive power, we can be in
for trouble. Sometimes her ideas are exceptionally prudent and practical,
but sometimes they are too audacious, to put it mildly.

Notwithstanding the above potential problems, Yushchenko needs Tymoshenko
as an ally. She is a strong and daring public politician, a consummate
professional, practiced in both commercial activity and public service. She
has an unusual mobilizing potential and she will not take “impossible” for
an answer. There is practically nothing to make her give in. That is why the
old regime’s representatives are afraid of her. However, Tymoshenko was the
first to make a reconciliatory step towards them, which helped to ease the
panic in the Yushchenko opponents’ camp, on the one hand, and gave Yuliya
Tymoshenko a chance to appear on the “Ukraine” Channel and withstand the
several-hour siege of a live interview in a hostile environment.

Yuliya Tymoshenko hopes to become prime minister, but she can also accept
another job offer, say, that of the NCSD Secretary. In this case the Council
for National Security and Defense can regain the weight and significance it
used to have in the times of Volodymyr Horbulin. Yuliya Tymoshenko would
thus get a position worthy of her industriousness and drive, sufficient
leverage to affect the situation in the country, an opportunity to control
the executive power and a direct access to the president.

Those were pluses and minuses associated with strong premiers. Yet we
cannot rule out that Yushchenko will opt for the so-called “technical” prime
minister, a second-echelon figure, the president’s envoy in the executive
power. Some experts come up with the name of Viktor Pynzenyk. He is neither
a good manager, nor an independent leader. Many would characterize his
economic ideas as arguable, but sound. Viktor Yushchenko, though, may want
to ask him a couple of tough questions. FIRST is the monopolization of the
“OU” brand by his “Reform and Order” Party. SECOND is Pynzenyk’s
wholehearted support of the constitutional reform, about which Yushchenko
himself is lukewarm. THIRD, Yushchenko will have to work hard to change the
public perception of himself and his team in Eastern and Southern Ukraine.
He can do that in humanitarian matters. He can also do that in economic
terms - if his government is effective. Viktor Pynzenyk, on the contrary,
will never be able to improve his public image (like Chubais in Russia). He
can work wonders for the common good, but his name will remain synonymous
with the economic problems of the early 1990s. Yushchenko should not forget
this.

If it comes to appointing a “technical” prime minister, Yushchenko will want
a person he can trust. Those are few, particularly amongst well-known
politicians. That is why it will be a person without a record of serving in
top official positions and a large financial capital, or a burning desire to
acquire it, for that matter. Amongst a handful of eligible people is Oleh
Rybachuk who headed the NBU International Department under Governor
Yushchenko and then managed the office of Prime Minister Yushchenko. He is
Vice President of the Black Sea Bank for Trade and Development in Salonika
and Member of the Ukrainian Parliament. He was head of presidential
candidate Yushchenko’s office during the election campaign.

Some sources report that Oleh Rybachuk has already been offered a position
of vice prime minister for European integration. Over the last years he,
alongside Tarasiuk and Poroshenko, has been conducting international
negotiations on Yushchenko’s behalf, establishing contacts with influential
politicians throughout the world, and holding briefings for foreign
diplomats in Kyiv.

As for his managerial skills, he cannot boast any. To tell the truth, his
chief has not served as a role-model in this regard. Of course, Rybachuk is
not ready to become a fully-fledged premier, in the conventional sense of
the term. But who says conventions cannot be revised? Besides, Oleh
Rybachuk, better than anyone else, meets the requirements announced by
Yushchenko: he has no business of his own, he does not lead a political
party, and he does not represent any clan (either pro-governmental or
opposition). He is from the new generation of politicians, easy-going and
sociable, he speaks perfect English, he has extensive contacts in Moscow,
Warsaw, Brussels and Washington, he is a pet of the press and, most
importantly, he enjoys Yushchenko’s confidence.

Should Oleh Rybachuk (or Olexander Zinchenko, who is also being considered
as a candidate for “technical” premiership) be nominated for the position,
the actual management of the economy and control of the executive power
will be concentrated in the hands of several vice prime ministers. In
theory, those can include Petro Poroshenko and Yuliya Tymoshenko. The
president will have to see to it that the strong vice prime ministers work
solely to promote Ukraine’s national interests.

Of course, Viktor Yushchenko should accelerate his decision-making, wisely
allocate his scarce cadre to various branches of power, set clear priorities
and get down to work. His time is condensed: the budget correction was
initially planed for late January - early February; and now it will have to
be postponed till March, and may last till April. Regions are waiting for
new governors. The new ministers will have to bring themselves abreast of
the economic situation, revise the previous decisions, if need be, and start
making new ones that will produce positive practical results. In the
meantime, the former authorities will recover from their defeat and form a
strong opposition to the new government.

Hopes that voters pin on Yushchenko and his team are exceedingly great. So
are the hopes for the Yushchenko team’s failure that the outgoing officials
and their Russian supporters cherish. The team’s success will open up new
opportunities, not only for Ukraine, but also for a host of other countries
which did not believe, prior to 26 November, that the people could win a
battle with the regime. Now they are watching us closely for the outcome of
this victory. -30- [Action Ukraine Report Monitoring Service]
----------------------------------------------------------------------------
LINK: http://www.mirror-weekly.com/ie/show/529/48930/
==========================================================
6. "A UKRAINIAN MAGNATE TRIES TO MEND FENCES"

OP-ED: By Adrian Karatnycky, The Wall Street Journal
New York, New York, Friday, January 14, 2005

DONETSK, Ukraine -- Ukraine's Orange revolution is nearly complete.
Reformer Viktor Yushchenko is days away from inauguration. But the future of
Mr. Yushchenko's presidency and Ukraine 's transition to stable democracy
will in large measure depend on how he handles relations with Ukraine 's
Russian-speaking East and South -- areas that overwhelmingly backed his
opponent, Viktor Yanukovych.

From this perspective -- Mr. Yushchenko apart -- no man is more important to
Ukraine 's fate than Rinat Akhmetov, at age 38, Ukraine 's richest man. With
a net worth of over $ 3 billion dollars, Mr. Akhmetov is ranked by the
Polish weekly Wprost as the ex-Communist world's second-richest tycoon. The
son of a coalminer from Tatarstan, Mr Akhmetov also is a son of the Donbass,
Ukraine 's eastern mining and industrial region. He was the main financial
backer of the region's favorite son, ex-Prime Minister and election-day
loser Viktor Yanukovich.

This backing might suggest that the election of Mr. Yushchenko is a huge
setback to Mr. Akhmetov's interests. Yet on the day I met him last month in
the lobby of his stylishly-appointed five-star Donetsk Palace Hotel, Mr.
Akhmetov projected high confidence. That Mr. Akhmetov is ready to go
on the record is an encouraging sign that Mr. Yushchenko's victory is
creating an environment of greater transparency and accountability.

Ukraine 's Orange Revolution was launched as a result of massive voter
fraud, but it gained momentum due to public anger at crony capitalism and
high-level corruption. As the Carnegie Endowment's Anders Aslund put it,
Ukraine 's last election was a struggle between the country's billionaires,
who have benefited from government favors, and the country's newest
millionaires and middle classes, who have not. Many of Mr. Yushchenko's
supporters are convinced that many of Ukraine 's economic magnates
acquired their wealth illegitimately -- if not criminally -- and want the
new government to vigorously prosecute illegal financial transactions.

Mr. Akhmetov responds to critics by asserting that his fortune stems from
risk-taking in the first years after the U.S.SR.'s collapse. In 1995, he
created the Dongorbank and used the bank's modest assets to buy up
Ukraine's unprofitable industrial enterprises at a time of high inflation
and economic decline. "We bought the Yenakayevo metallurgical factory for
$6 million," he notes. "It was in a horrible state with an external debt of
$300 million. The factory produced one million tons of steel per year and
should have died." Then came Mr. Akhmetov. "Now there is no debt. We've
invested $450 million in the workplace. It produces 2.5 million tons of
steel per year and will soon produce 4 million tons," he relates. Other
enterprises were also bought on the cheap at distress prices.

President-to-be Yushchenko has declared that the questionable circumstances
of the privatization of some enterprises in Mr. Akhmetov's orbit will be
strictly and thoroughly reviewed, particularly the recent privatization of
Kryvorizhstal (bought in partnership with Viktor Pinchuk, son-in-law of
Ukraine 's outgoing President Leonid Kuchma, with a bid $800 million lower
than that of a consortium led by U.S. Steel).

But in our conversation, Mr. Akhmetov defends the provenance of his economic
empire. Through his privately held System Capital Management, Mr. Akhmetov
owns an array of steel, metallurgical, coal and entertainment enterprises
that employ 300,000 workers. He also is owner of the Donetsk Shakhtar soccer
team (which competes in Europe's elite UEFA Champions League); the city's
luxury hotel; a regional mobile phone company; a national television
station; and a major local bank. And he's building a new soccer stadium for
$250 million: "A vote of confidence," he says, "in Ukraine 's future."

As he seeks to normalize relations with the incoming Yushchenko team, Mr.
Akmehtov is sending reassuring signals about his desire to stay out of
politics, while making clear that he will oppose any efforts to create a
rift between the more ethnically Ukrainian, and Ukrainian-speaking, western
and central regions of Ukraine (which strongly support Mr.Yushchenko) and
the Russian-speaking east, which supported Mr. Yanukovich. "I am
categorically against efforts to divide the country," he asserts. "We are
one state and we need to live in a united country... But I am for a balance
of powers between the center and the regions," Mr. Akhmetov continues.

Mr. Akhmetov argues that Ukraine 's leaders must now work cooperatively
to reduce "serious" and "real" tensions between eastern and western
Ukraine. As part of this effort, he recently invited the outspoken
opposition leader Yuliya Tymoshenko to Donetsk to take part in a live
televised encounter with local residents.

As for his properties, Mr. Akhmetov says he is confident he will prevail
because President-to-be Yushchenko "is a person who respects the rule of
law." The Yushchenko inner circle believes the Ukrainian state was
shortchanged -- if not robbed -- of much-needed revenues. However, they
worry that a protracted fight over such properties would result in investor

uncertainty and scare off foreign investors. Instead of extended
litigations, Ukraine 's incoming leaders favor dealing with magnates like
Mr. Akhmetov through the country's strong anti-monopoly mechanisms. They
also appear interested in a publicly negotiated agreement through which
magnates would compensate the state treasury, helping reduce a budget
deficit that has grown since election-year social spending increases. Mr.
Akhmetov and his business colleague Viktor Pinchuk have sent signals they
are willing to consider compensating the treasury.

While there is anxiety, disappointment, and anger over Mr. Yushchenko's
victory among some citizens and many officials in the Donbass, Mr. Akhmetov
is signaling his backing for a pragmatic response. Such a stance opens the
prospects for a constructive relationship between Ukraine 's next President
and the magnate who exerts huge influence in a region that opposed Mr.
Yushchenko and where ongoing tensions could disrupt his ambitious reform
agenda.

This, in turn, suggests the possibility of a soft landing for an emerging
democracy that has been through a tumultuous fall and winter. -30-
----------------------------------------------------------------------------
Mr. Karatnycky, counselor and senior scholar at the New York-based
Freedom House, interviewed Mr. Akhmetov in Donestk on Dec. 28.
==========================================================
7. UKRAINIAN OUTGOING PRESIDENT'S SON-IN-LAW
DENIES OPPOSITION TO NEW AUTHORITIES

Ukrayinska Pravda web site, Kiev, in Ukrainian 12 Jan 05
BBC Monitoring Service, UK, in English, Friday, Jan 14, 2005

The tycoon MP and President Leonid Kuchma's son-in-law, Viktor Pinchuk,
has said that he does not intend to go into opposition under the presidency
of Viktor Yushchenko. Speaking in a rare interview, he said that he has
normal relations with Yushchenko and will accept any legal decisions
regarding his controversial purchase of steel giant Kryvorizhstal. However,
he insisted that he had paid a fair price for it and saw no need to pay
extra.

He reiterated that business and politics should be separate and that he
would not stand for parliament in the next election. Pinchuk also denied
he had been banned from entering the United States.

The following is an excerpt from the Pinchuk's interview as reported by
Leonid Amchuk and published on the Ukrayinska Pravda web site on 12
January; subheadings have been inserted editorially:

Viktor Pinchuk has been one of the stars of [opposition presidential
candidate Viktor] Yushchenko's rallies for six months. In a negative sense.
Yushchenko constantly, at every meeting with voters and in all TV
appearances recalled the dishonourable privatization of [steel giant]
Kryvorizhstal. Furthermore, he always added that it was done by the
"president's son-in-law". Yushchenko also stressed that it would never be
forgiven, and that a special commission would deal with the question of the
return of Kryvorizhstal. On Wednesday [12 January] the president's
son-in-law came into parliament. Pinchuk found himself surrounded by several
journalists, and he gave them an interview. [Passage omitted: anticipating
interview]

The first question that Pinchuk answered was about the position of the new
authorities with regard to big or even oligarchic business:
[Pinchuk] I will welcome any actions that are within the supremacy of the
law and will have a normal attitude to them. If a review of privatization
issues is conducted within the framework of the law, rather than political
actions, then I will have a normal reaction to that. Well, let's see\ý
[ellipsis as published]
[Correspondent] Including Kryvorizhstal?
[Pinchuk] Of course.
[Correspondent] Are you prepared to pay more for it?
NO GROUNDS TO QUESTION CONTROVERSIAL STEELWORK SALE
[Pinchuk] Wait a minute, I'm prepared for anything within the law! Why
should there be something more to pay? Why should I pay extra? Let them show
this within the framework of the law!
I believe that as an investor I did everything completely legally.
[Passage omitted: repeats this]
[Correspondent] How will relations be built between financial industrial
groups and the new authorities?
[Pinchuk] I believe that business should engage in business and the
authorities should engage in politics. The authorities should promote the
progress of Ukrainian business, including abroad. For example, we have
investment projects in Georgia, and I am counting on the fact that the new
authorities will back us there.
[Correspondent] So there is no question of your going into opposition?
[Pinchuk] No. I don't intend to be in opposition. In opposition to what?! It
seems that under the new authorities our interests coincide. I am interested
in a democratic, open society and the supremacy of law. I want everyone to
pay taxes from A to Z; I want everything to be fine!
[Correspondent] Will Yushchenko succeed in that?
[Pinchuk] I think that he has a big chance. Whether he uses it or not
depends on his team. I think he could succeed. I believe large business will
support him in these endeavours.
[Correspondent] Will you stand for the next parliament?
[Pinchuk] I have said that business should be separate from politics. And I
will be consistent here. I have said that I do not intend to stand for the
next parliament under one condition: if the new authorities do not persecute
big business, if there will be no need to go and hide there.
[Correspondent] Would additional payment for Kryvorizhstal amount to
persecution of big business?
[Pinchuk] I don't understand what you mean by additional payment! We
paid a fair price. If they show us that we did something wrong, we'll try to
correct it.
[Passage omitted: repetition]
[Correspondent] What if the contract is terminated and a new tender
announced, will you bid again?
[Pinchuk] Let us take it one stage at a time. I believe that as an investor
we did everything right, fair and square. All those statements were election
statements. I would have said even more -
I want to make it clear: twice as much was paid for Kryvorizhstal as for all
of Ukraine's other metal companies put together. Do you understand?
Therefore the issue of Kryvorizhstal is a political bargaining chip. It was
right for using in the election campaign, maybe. But further on one should
look at it professionally. If they look at it professionally, it may turn
out to have been the most successful sale in Ukraine's history!
If it is shown that the investor did something unlawfully and the investor
should take some action within the framework of the law - well, let it be
so. I will act exclusively within the framework of the laws. Civilized laws!
[Correspondent] Who, in your opinion, is the best prime minister under
Yushchenko?
[Pinchuk] I'm not going to answer that question. Parliament will approve
Viktor Yushchenko's nominee, I think.
NORMAL RELATIONS WITH NEW PRESIDENT
[Correspondent] What is your relationship with Yushchenko? Normal, friendly
or none at all?
[Pinchuk] Well, I think that I have a normal relationship with him. I have
said this before the campaign. I was interviewed in summer when I said I did
not idealize either candidate (Yushchenko or Yanukovych) and I did not
believe either of them to be a nationwide leader. But I am on good terms
with both of them, those of respect. Whoever has won should be our
president, and we must try to help him.
[Correspondent] Would you not like to be a member of the government?
[Pinchuk] No. I consider myself a businessman.
[Passage omitted: more on this]
NO BAN ON US ENTRY
[Correspondent] Before the elections there was report that the American
authorities had put you on a black list. Since then have you tried to get an
American visa, and did you succeed?
[Pinchuk] I have been in the USA several times since then, including at the
invitation of Bill and Hilary Clinton, when I was present at the opening of
the Bill Clinton Library. Since then I was invited by former US President
George Bush to visit his library and to meet Governor Shwarzenegger in his
library. But I didn't have the time - it was several days before the second
round, so I didn't go.
[Passage omitted: his various US visas]
I only read about this [being blacklisted] in Ukrayinska Pravda and the
Washington Times. Well, according to what American people told me, this is
not true. But I have no other information.
[Passage omitted: collaboration with US film director Steven Spielberg on a
film in Ukraine]
Business and politics should be separate
[Correspondent] You are called an oligarch. [Tycoon Hryhoriy] Surkis sees
nothing wrong with this, but do you consider yourself an oligarch?
[Pinchuk] I don't know what it means\ý [ellipsis as published]
[Correspondent] Well, an owner of factories, newspapers, steamships\ý
[ellipsis as published]
[Pinchuk] I don't see anything wrong in that. (Laughs) And you can't see
anything wrong in it. If you were the owner of a factory\ý [ellipsis as
published]
[Correspondent] Oligarchs put pressure on business via politics.
[Pinchuk] That's bad. It's bad. It's bad\ý [ellipsis as published] the
influence of business on politics is a bad thing. Therefore you know that at
the beginning of last year I said there should be a separation. I was one of
the first in this country to say it. And I will be consistent.
If the government does not try again to push business into politics to
protect its rights and interests, I believe business must be removed from
politics very far and very carefully.
[Correspondent] Were you not worried over the past two months regarding the
events of the revolution?
[Pinchuk] In what sense? I was worried lest there be bloodshed. Everyone who
had responsibility to the country or their family should have been worried
at that time.
[Passage omitted: more in this vein]
PRESIDENT KUCHMA'S FUTURE
[Correspondent] What will happen to Leonid Kuchma in a month's time?
[Pinchuk] He will head the "Ukrayina" fund. As I understand it, there are
two main directions there. One is to promote, as I heard him say
"restoration of the unity of the country". Because today there has been an
east-west split that is unnatural for us. We understand why it happened, but
it is unnatural and should be stopped.
And the second direction is to help talented young people who should be
educated here, stay here and direct their brains to the good of Ukraine,
rather than some other countries where they can be paid more or provided
with better conditions.
[Correspondent] Will Interpipe [Pinchuk's company] also be a sponsor of the
fund?
[Pinchuk] I personally, of course, will take part in it. But many other
people will take part.
[Correspondent] Does Leonid Kuchma plan to stand for parliament?
[Pinchuk] I don't know, lads.
[Correspondent] Will he retain his political influence?
[Pinchuk] Well, nobody can retain the influence that he had as president of
the country. I mean, the president of the country is the president of the
country. And any former president of a country - Clinton, Carter, Bush -
never has the same influence as the current president. This is natural\ý
[ellipsis as published]
[Correspondent] The opposition was talking about judicial persecution of
Kuchma.
[Pinchuk] Well, it is a sign of uncivilized behaviour for anyone to engage
in persecution. I believe that we are a modern European state, and such
things are not characteristic of European democracies.
PERSONAL WEALTH
[Correspondent] You are considered one of the richest people in Ukraine and
even in Europe you are on the rich list. Do you agree with that rating?
[Pinchuk] I don't know how they assess it. In civilized countries there is a
stock market where you can see how much your shares are worth. You can
multiply that by the number of shares and find out the value of what you
own. But we have no capital market. In other words, the value of what
someone owns is not known. It can be assessed when you are paid. All these
ratings are fairy tales, empty chat. You can assess things this way or
that\ý [ellipsis as published]
If a businessman goes to the market and offers his property for sale and
says, "I want to sell it for one rouble" but he gets 70 kopecks for it, then
his property is worth 70 kopecks, not one rouble. But I don't intend to sell
anything, so it's difficult for me to assess. Only the market can determine
things. (Turns to a journalist) Do you understand that or not?
[Correspondent] Does that mean that you don't know how much your business is
worth?
[Pinchuk] For myself I know. But that does not mean that people will pay
that much for it. (Turns to journalists) Let's round this off.
FUTURE OF PARLIAMENTARY MAJORITY
[Correspondent] Previously the parliamentary majority was formed in order to
protect the interests of the business elite. What will the situation be like
now?
[Pinchuk] Now the majority should be formed to carry out decisions that the
country needs. Not for the business elite.
[Correspondent] Do you believe that this is how it will be?
[Pinchuk] I only hope so. But it may become a reality after the
parliamentary elections. Can we end now?
[Correspondent] The last question. Previously you said that you had held
talks to prevent bloodshed\ý [ellipsis as published] Have you held talks
with Yushchenko over the past two or three months?
[Pinchuk] I was able to facilitate the holding of such talks.
[Correspondent] Between Yushchenko and someone?
[Pinchuk] That was the last question, but here you are asking yet another
one. That's all. -30- [The Action Ukraine Report Monitoring Service]
==========================================================
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