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Action Ukraine Report

"THE ACTION UKRAINE REPORT - AUR"
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"

URGENT, DECISIVE, QUICK, EFFECTIVE ACTION NEEDED IMMEDIATELY
A ten-point action plan for rapid economic progress presented
Too many words and not enough implementation

(1) The speeches are great but big businessmen want to see things
happen on the ground level," said James Gallagher, senior vice president
for Nestle SA's central and eastern Europe division.

(2) "The window is closing - so I think (these tasks) are a now thing," said
Paul Ostling, chief operating officer for Ernst & Young.

(3) Some forum participants remained unconvinced. "There are too many
words and not enough implementation," said Bohdan Hawrylyshyn,
head of Kiev's International Management Institute. "This country could
blow a great opportunity."

(4) Professor Klaus Schwab, Founder and Executive Chairman of the
World Economic Forum said. "The Ukrainian government must seize
this window of opportunity to deliver reforms in a fast, decisive and
comprehensive manner."

"THE ACTION UKRAINE REPORT - AUR" - Number 505
Mr. E. Morgan Williams, Publisher and Editor
morganw@patriot.net, ArtUkraine.com@starpower.net
Washington, D.C. and Kyiv, Ukraine, MONDAY, June 20, 2005

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

1. BUSINESS LEADERS DELIVER A TEN-POINT ACTION PLAN FOR QUICK
AND DECISIVE ACTION TO PRESIDENT YUSHCHENKO OF UKRAINE
Mark Adams, Communication
World Economic Forum's Ukraine Roundtable
Kyiv, Ukraine, Friday, June 17, 2005

2. UKRAINE ENCOURAGED TO CARRY OUT FAST, EFFECTIVE REFORMS
TO CAPITALIZE ON INTEREST OF INTERNATIONAL BUSINESS
Economic forum warns the window of opportunity is fast closing
Mara D. Bellaby, AP Worldstream
Associated Press, Kiev, Ukraine, Fri, Jun 17, 2005

3. UKRAINIAN PRESIDENT ONCE AGAIN PLEDGES FAVOURABLE
CLIMATE FOR INVESTORS
UT1 State TV, Kiev, in Ukrainian 1545 gmt 17 Jun 05
BBC Monitoring Service, UK, in English, Fri, June 17, 2005

4. UKRAINIAN PRIME MINISTER TYMOSHENKO MAKES FINAL PITCH
TO INTERNATIONAL BUSINESS LEADERS, PRESIDENTS
Natasha Lisova, AP Worldstream
Associated Press, Kiev, Ukraine, Fri, Jun 17, 2005

5. WORLD ECONOMIC FORUM RECOMMENDS YUSHCHENKO TO
COMPENSATE INVESTORS FOR DAMAGES INCURRED FROM
ABOLISHING FREE ECONOMIC ZONES
Ukrainian News Agency, Kyiv, Ukraine, Fri, June 17, 2005

6. KINAKH FOR PREFERENCES FOR EFFECTIVE PROJECTS WITHIN
FREE ECONOMIC ZONES (FEZs) AND PRIORITY DEV TERRITORIES (PDTs)
Liudmyla Martnyova, Ukrainian News Agency, Kyiv, Ukraine, May 3, 2005

7. UKRAINIAN DEPUTY PREMIER WANTS TAX BREAKS REINSTATED
UT1 State TV, Kiev, in Ukrainian 1500 gmt 19 Jun 05
BBC Monitoring Service, UK, in English, Sun, Jun 19, 2005

8. YUSHCHENKO PROPOSES INVESTORS CREATE COUNCIL OF
INVESTORS UNDER THE PRESIDENT WITH OWN SECRETARIAT
Ukrainian News Agency, Kyiv, Ukraine, Sat, June 18, 2005

9. UKRAINIAN MEMBER OF RADA PINCHUK CALLS ON PRESIDENT
YUSHCHENKO TO ESTABLISH REAL MARKET ECONOMY IN UKRAINE
Ukrainian News Agency, Kyiv, Ukraine, Sat, June 18, 2005

10. UKRAINIAN PRESIDENT, STEEL TYCOON EXCHANGE
VERBAL BLOWS AT BUSINESS FORUM
TV 5 Kanal, Kiev, in Ukrainian 1800 gmt 17 Jun 05
BBC Monitoring Service, UK, in English, Fri, June 17, 2005

11. UKRAINE'S LARGEST STEEL MILL TO GO BACK ON SALE
AFTER APPEAL COURT DECISION
By Tom Warner and Stefan Wagstyl in Kiev
Financial Times, London, UK, Monday, June 20 2005

12. MP PINCHUK PREDICTS FAILURE DURING ATTEMPT TO
RE-PRIVATIZE KRYVORIZHSTAL BECAUSE OF PROPERTY RISKS
Everybody understands that this is a bluff, a joke
Ukrainian News Agency, Kyiv, Ukraine, Fri, June 17, 2005

13. UKRAINE COULD CHALLENGE A DOZEN PAST PRIVATIZATIONS
AFX Europe (Focus), Kiev, Ukraine, Fri, Jun 17, 2005

14. RUSSIAN NATIONAL RESERVE CORPORATION TO SUSPEND
INVESTMENT PROJECTS IN UKRAINE DUE TO DETORIORATING
BUSINESS CLIMATE
Ukrainian News Agency, Kyiv, Ukraine, Mon, June 13, 2005

15. PRESIDENT YUSHCHENKO CONFIRMS CALENDAR OF EVENTS
ON UKRAINE'S ACCESSION TO WTO
Khrystyna Protsiv, Ukrainian News Agency, Kiev, Ukraine, June 17, 2005

16. YUSHCHENKO HOPES RADA WILL APPROVE GOVERNMENTAL
LAWS FOR WTO ACCESSION BEFORE END OF SESSION ON JULY 8
Ukrainian News Agency, Kiev, Ukraine, Sat, June 18, 2005

17. UKRAINE HOPES TO SECURE WTO MEMBERSHIP IN OCTOBER
MosNews, Moscow, Russia, Saturday, June 18, 2005

18. RADA FIRST DEPUTY SPEAKER PREDICTS REFUSAL TO SUPPORT
VAST MAJORITY OF DRAFT LAWS FOR JOINING WTO
The draft bills are incomplete, have imperfections, full of politics
Ukrainian News Agency, Kyiv, Ukraine, Fri, June 17, 2005

19. YUSHCHENKO INTRODUCE IN 2006 SINGLE SOCIAL TAX OF 20%
Yushchenko does not want to be stung in his back
Ukrayinska Pravda, Kyiv, Ukraine, Sat, June 18, 2005

20. UKRAINIAN JUSTICE MINISTER ZVARYCH DISCUSSES LEGAL
REFORM WITH US AMBASSADOR HERBST
UNIAN news agency, Kiev, in Ukrainian, 16 Jun 05
BBC Monitoring Service, UK, in English, Thu, June 16, 2005

21. US TO EXTEND ADDITIONAL USD 2.8 MILLION FOR DEVELOPMENT
OF UKRAINIAN LAW ENFORCEMENT AGENCIES
Ukrainian News Agency, Kyiv, Ukraine, Fri, June 17, 2005 (18:38)

22. UKRAINIAN DEPUTY PRIME MINISTER TOMENKO SUPPORTS GIVING
RUSSIAN STATUS OF SECOND OFFICIAL LANGUAGE
ICTV television, Kiev, in Ukrainian 1500 gmt 19 Jun 05
BBC Monitoring Service, UK, in English, Sun, Jun 19, 2005

23. GEORGIAN LEADER SAYS NEW EMBASSY IN KIEV "DREAM COME TRUE"
Imedi TV, Tbilisi, in Georgian 1500 gmt 17 Jun 05
BBC Monitoring Service, UK, in English, Fri, June 17, 2005

24. UKRAINE AND AUSTRIA SEEKING TO ENHANCE COOPERATION
IN TOURISM AND CULTURE
Ukrainian News Agency, Kyiv, Ukraine, Fri, June 17, 2005

25. "UKRAINE DESERVES EU MEMBERSHIP"
OP-ED: By Yuliya Tymoshenko, Prime Minister of Ukraine
The Korea Herald, Seoul, Korea, Monday, June 20, 2005

26. RUSSIA STARTS BLACKMAILING UKRAINE REGARDING
ECONOMIC AGREEMENTS
Ukrayinska Pravda, Kyiv, Ukraine, Sat, June 18, 2005

27. RUSSIAN EXPERT FORECASTS POLITICAL CRISIS IN UKRAINE
New reckless economic policy will lead to a crisis
RIA Novosti, Moscow, Russia, Thu, June 16, 2005

28. SOCIAL DEMOCRAT-UNITED LEADER MEDVEDCHUK AWAITS HIS FATE
By Taras Kuzio, Eurasia Daily Monitor
Volume 2, Issue 118, Jamestown Foundation
Washington, D.C., Friday, June 17, 2005

29. "RUSSIA: A ROAD MAP FOR REFORM"
By Grigory Yavlinsky, Moscow Times
Moscow, Russia, Friday, June 17, 2005
===============================================================
1. BUSINESS LEADERS DELIVER A TEN-POINT ACTION PLAN FOR QUICK
AND DECISIVE ACTION TO PRESIDENT YUSHCHENKO OF UKRAINE
World Economic Forum Founder calls for the delivery of
"fast, decisive and comprehensive reforms"
Some steps must be implemented before July 1, 2005

Mark Adams, Communication
World Economic Forum's Ukraine Roundtable
Kyiv, Ukraine, Friday, June 17, 2005

KYIV - A ten-point action plan for rapid economic progress has been
presented to President Victor Yushchenko of Ukraine on the final day of the
World Economic Forum's Ukraine Roundtable. Some 250 participants in
the Roundtable proposed a framework for the urgent measures to improve
investor confidence.

"The participants are impressed with the remarkable reforms the new
government has already undertaken and their expectations are now high,"
said Professor Klaus Schwab, Founder and Executive Chairman of the
World Economic Forum. "The Ukrainian government must seize this
window of opportunity to deliver reforms in a fast, decisive and
comprehensive manner."

"Based on infrastructure, location and people, Ukraine has the potential to
become the key production site of Eastern Europe but the challenges are
tremendous," he said. "If the Ukraine were to achieve a growth rate of
6-7% - which would require massive foreign investment - Ukraine would
need 15 years to catch up with income levels of Hungary ," Professor
Schwab noted.

The ten-point action plan contains broad policy issues which participants
said must be driven forward by a coherent government programme. The
areas participants highlighted included improved corporate governance,
extensive reform of the public administration, concerns over state
intervention in business - particularly regarding the issue of
privatizations, clearer government policies and a strengthening of Ukraine's
international role.

The plan outlined specific steps some of which must be implemented before
1 July 2005, the planned start of the Ukrainian Parliament's two-month
summer vacation, in order to push for the earliest possible WTO accession,
increase foreign direct investment and improve the general business
environment in Ukraine.

The TEN points can be summarized as follows:

1. Enact all legal changes needed for WTO entry before the parliament's
summer break.
2. Create a unit of specialists to support foreign investors.
3. Implement the foreseen one-stop procedure for starting new businesses.
4. Eliminate excessive and overlapping regulation.
5. Repeal the Economic Code and enact the Commercial Law Reform.
6. Enact the Financial Securities Law which is essential for shareholder
protection.
7. Implement international accounting standards (IFRS).
8. Pass necessary tax reforms to increase Ukraine 's competitiveness
and generate, in the long run, higher tax revenues.
9. Make efforts to enhance management and business skills and to
encourage the transfer of knowledge and technologies from abroad.
10. Fight corruption.

Participants in the World Economic Forum's Ukraine Roundtable had other
pieces of advice for Ukraine 's new government: " Stop trying to reinvent
the wheel. Stop any arguments that Ukraine is different than other countries
and that you need to find a specific 'Ukrainian Solution' to everything.
Ukraine and its citizen are just as normal as everyone in the Euro-Atlantic
world.

Copy the successful reforms of the Baltics, Eastern Europe and Georgia, and
use now the experience and know-how of those who have already defined
solutions and already made proposals for drafting legislative reform needed
for economic growth and job creation," the communiqué said.

"Also, do not accept as an excuse for avoiding tough reform measures the
fact that Ukraine's economy is already growing substantially. One essential
factor for this growth has been the favourable external situation, notably
the rise in commodity prices. It is only comprehensive reforms which will
create sustained high growth rates."

In an earlier address to the participants, Prime Minister Yuliya Tymoshenko,
sought to woo investors by detailing a raft of political and economic
reforms the government is implementing. The prime minister promised to
respect private property and the rule of law.

"Ukraine is ready to open the door wide to you, and I appeal to all business
in Ukraine that we operate in a fair way with no conditionalities," she
said.

Prime Minister Tymoshenko addressed the controversial issue of
privatizations saying that they would be conducted "according to the
constitution and laws". Regarding the re-privatization of Ukraine 's largest
steel mill, Kryvorizhstal, Tymoshenko said it had been "returned to state
hands and will be privatized again in a model way."

Energy independence from Russia is a strategic goal of the new government,
Tymochenko said, and invited business leaders at the Roundtable to invest
in oil, natural gas and nuclear power projects. -30-
----------------------------------------------------------------------------------------------------
The World Economic Forum is an independent international organization
committed to improving the state of the world by engaging leaders in
partnerships to shape global, regional and industry agendas. Incorporated
as a foundation in 1971, and based in Geneva, Switzerland, the World
Economic Forum is impartial and not-for-profit; it is tied to no political,
partisan or national interests. (http://www.weforum.org)

Contact: Mark Adams, Director of Communications
Kyiv Tel.: + 380 44 496 8560; Kyiv Mobile: +380 50 462 8304
Kyiv Fax: + 380 44 496 8595; Tel.: +41 (0)79 615 1671
Fax: +41 (0)22 869 1394 mark.adams@weforum.org
http://www.weforum.org
--------------------------------------------------------------------------------------------------------
FOOTNOTE: This is really little new about the ten recommendations.
They have been stated before many times by a variety of organizations
and individuals. The problem is the Ukrainian's governments ability to
focus, organize and implement the delivery of real economic and business
reforms in a professional and timely manner. [EDITOR]
===============================================================
2. UKRAINE ENCOURAGED TO CARRY OUT FAST, EFFECTIVE REFORMS
TO CAPITALIZE ON INTEREST OF INTERNATIONAL BUSINESS
Economic forum warns the window of opportunity is fast closing

Mara D. Bellaby, AP Worldstream
Associated Press, Kiev, Ukraine, Fri, Jun 17, 2005

KIEV - Investors called on Ukraine's new government Friday to use the
momentum from last year's Orange Revolution to make fast, effective and
irreversible reforms, warning that the window of opportunity for this
ex-Soviet republic is fast closing.

The two-day World Economic Forum on Ukraine wrapped up with investors
giving an upbeat assessment of what they'd seen from the government's first
five months in power: a balanced budget, reduced inflation, the scrapping of
some regulatory hurdles and a willingness to listen.

But the list of changes they are still waiting to see was also long: a
commitment by authorities not to meddle in business, more success in the
fight against corruption, less bureaucracy and red tape.

"Ukraine has a very good image in the world after the Orange Revolution.
There are high expectations," said Klaus Schwab, executive chairman of the
World Economic Forum, which is best known for its annual meeting in the
Swiss resort of Davos. "But the challenges for Ukraine are tremendous, let's
not forget it."

The forum's participants, which included five presidents and dozens of
business leaders, gave President Viktor Yushchenko's government a list of
recommendations. All shared one thing in common: speed was critical.

"The window is closing - so I think (these tasks) are a now thing," said
Paul Ostling, chief operating officer for Ernst & Young.

Yushchenko told the investors he was grateful for the input, but also noted
that it was equally important to remember "where we are, what is the
starting point for us." He said that in his 130 days in power, he fired
18,000 bureaucrats, raised pensions and state salaries, and began efforts to
shine light on the 55 percent of the Ukrainian economy that operates outside
of government reach.

"The new Ukrainian government is only 4 1/2 months old," Yushchenko said.
"You are the first pioneers."

Among the list of measures that investors said they wanted to see was a
commitment not to impose price controls and clarity over government plans to
revisit some of the old administration's privatization deals. The
participants also said the government shouldn't consume its energy trying to
pursue past misdeeds and instead should focus on the future.

Yushchenko, however, was uncompromising. "The ones who were stealing
billions yesterday will be the first who will want to breath this fresh
air," he said.

Prime Minister Yulia Tymoshenko had earlier tried to stem concerns that the
privatization probes signaled the start of a campaign to re-nationalize the
properties. "I ask you not to have any fear about this," Tymoshenko said.
"We don't have such a philosophy. We don't have such an ideology. We don't
have money in the budget for this."

She noted, however, that many Ukrainians support rescinding some of the past
deals that were completed "with very crude violations of the law and very
dishonestly." But she said courts must decide and the government would
support allowing the current owners to pay additional money to hold onto the
businesses.

Participants also laid out other tasks, including passing all the
legislation necessary for entry to the World Trade Organization before
parliament's summer break, setting up a one-stop procedure for starting new
businesses, implementing international accounting standards and reducing
social and business profit taxes.

"Ukraine's investment climate is typical for the first year after a
revolution," said Alexander Livshits, former Russian finance minister and
deputy general director of Russian Aluminum. Russia is one of Ukraine's
main investors. "Ukrainians will improve their investment climate if the
government actually does what it promises."

Ukraine, located between the European Union and Russia, had one of
Europe's fastest growing economies last year, registering gross domestic
product growth of above 12 percent. This year, officials are predicting
around 6 to 8 percent growth, a result of falling prices for metals, which
remain Ukraine's main export, and the turmoil of last year's election and
the new government's transition.

Foreign investment, however, has always been low. Last year, Ukraine
received US$1.7 billion (Euro 1.4 billion) in direct foreign investment, a
figure that economists consider a minuscule amount compared to its
US$65 billion (Euro 53 billion) GDP.

"The speeches are great but big businessmen want to see things happen
on the ground level," said James Gallagher, senior vice president for
Nestle SA's central and eastern Europe division. -30-
===============================================================
3. UKRAINIAN PRESIDENT ONCE AGAIN PLEDGES FAVOURABLE
CLIMATE FOR INVESTORS

UT1 State TV, Kiev, in Ukrainian 1545 gmt 17 Jun 05
BBC Monitoring Service, UK, in English, Fri, June 17, 2005

KIEV - Ukrainian President Viktor Yushchenko has given assurances of
support to foreign investors in a closing speech at a World Economic Forum
round table in Kiev. Addressing to the forum, Yushchenko said his government
would do its best to make investors feel at home in Ukraine. He said one way
of ensuring this is to set up a nongovernmental council of investors to
address their problems at the highest level.

Yushchenko said: "Maybe we should set up a council of investors as a civil
initiative, with its own secretariat, with sections or departments that will
follow issues of registration, legislation, contact with the authorities. I
give you my word that we will give this agency, this public agency, such
status of relations with the president, the prime minister and the
government that will help it solve any problems of any investor, from
registration to land and so on."

He compared the government's role in wooing investors to that of a doorman
at a restaurant: "Proposals regarding coordinated action by the authorities
regarding services for investors are absolutely true. An investor entering
Ukraine should be looked after. I have told the government many times - your
mission is like that of a doorman at a hotel or restaurant. You should
invite everyone walking down the street to the restaurant."

He thanked the forum participants for coming to Ukraine and investing,
saying they are to reap long-term rewards despite all the difficulties:
"From now on no-one will call you visionaries. You are realists and
pragmatists. The Ukrainian authorities are over four months old, friends.

You are the pioneers to have come to this market. As an economist, I would
like to say to you - you will witness the shaping of the most advanced
market in Europe. And this will be the Ukrainian market."

Yushchenko acknowledged that corruption was rife in Ukraine. He appealed
to businessmen not to give bribes: "Combating corruption is not only my job.
It is your duty as well. One cannot give and then have someone else chase
[the bribe-taker]... Dear businessmen, as you enter Ukraine, I ask you as
the president - give no bribes to anyone, no bribes to anyone. Don't make
my job more difficult."

He added: "The subject of criminal authorities and corruption still remains
topical for Ukraine to a large degree. Whereas regarding the first part, I
can say firmly to you that from now on you will never find a prime minister
in Ukraine with two criminal convictions or a head of the presidential
administration with one criminal conviction. We hire no criminals... I think
we have made great progress in ridding the authorities of criminals.

"But making the fight against corruption more efficient is a problem and an
issue written down as No 1 in my notebook." He said he would work tirelessly
to root out crime. "Those who shot journalists and killed politicians will
be brought to justice in Ukraine, and these will be very important figures,"
he said.

Yushchenko also summed up his government's economic and social
achievements: "We have secured political stability. You can look at our
parliament, relations between factions, political relations in this
country.

No-one has split Ukraine. Ukraine is united. No-one is conducting
discussions between east and west. We have established this peace and
it is firm. I would say the political tasks that faced the new
administration have been accomplished."

He praised increased social spending as the second achievement: "I can
give the most convincing argument to this audience. For the first time in 14
years even the Communists voted for the budget. They had not supported a
single budget in the previous 13 years.The third point is that we have made
our macroeconomic culture acceptable in terms of stability for development
of the business environment in Ukraine."

He said the next six months will see crucial sectoral reforms: "The task for
the second half of the year is launching sectoral reforms. Practically each
sector of the national economy will undergo reforms and serious
institutional changes."

Yushchenko said Ukraine was planning to become an WTO member in
October: "Our aim to is to obtain membership at the October meeting of the
WTO secretariat." The speech lasted for almost 45 minutes and was relayed
live by Ukrainian television. -30-
===============================================================
4. UKRAINIAN PRIME MINISTER TYMOCHENKO MAKES FINAL PITCH
TO INTERNATIONAL BUSINESS LEADERS, PRESIDENTS

Natasha Lisova, AP Worldstream
Associated Press, Kiev, Ukraine, Fri, Jun 17, 2005

KIEV - Prime Minister Yulia Tymoshenko told foreign investors Friday that
the new government was ready to pursue necessary reforms to boost this
former Soviet republic's attractiveness and would make only one demand in
return: Pay taxes.

Tymoshenko pitched the positive to dozens of business leaders during the
final day of the World Economic Forum on Ukraine, saying the government
had balanced the budget, reduced inflation, is canceling bureaucratic
hurtles and had created equal tax conditions for all businesses.

"We are ready to open doors for you, to open windows for you, to lay down
the carpet so that you come to Ukraine," she said. "We have only one demand
for you: Pay our taxes honestly."

The two-day gathering is aimed at attracting foreign investment and
bolstering the pro-Western government that came to power after last year's
Orange Revolution mass protests.

The peaceful protests captivated the world, but little new foreign
investment has come in and the country's economy - once one of Europe's
fastest growing - is slowing. Government officials have been making the
rounds of the forum's sessions, promoting the country and trying to explain
some of the missteps that have left investors wary.

Addressing what has become one of the new government's most contentious
moves, Tymoshenko assured investors that the probes into some of the last
decade's murky privatization deals were not the start of a campaign to
re-nationalize the properties.

"I ask you not to have any fear about this," Tymoshenko said. "We don't have
such a philosophy. We don't have such an ideology. We don't have money in
the budget for this."

She noted, however, that many Ukrainians support rescinding some of the
past deals that were completed "with very crude violations of the law and
very dishonestly." But she said courts must decide and the government would
support allowing the current owners to pay additional money to hold onto the
businesses.

Tymoshenko also said Ukraine is ready to offer a new list of businesses for
privatization, adding that the government believes "only the private sector
can be a trustworthy and effective owners."

At the forum's opening session, President Viktor Yushchenko appealed to
investors to come to Ukraine, citing its proximity to the European Union, a
highly educated and professional work force and experience in
high-technology fields makes the country attractive to investment.

"The speeches are great but big businessmen want to see things happen on
the ground level," said James Gallagher, senior vice president for Nestle
SA's central and eastern Europe division.

On Friday conference participants were also discussing relations with the
European Union, which Ukraine wants to join, and with Russia, its giant
neighbor, major trading partner and main energy supplier.

Tymoshenko said Ukraine values its relations with Russia, but emphasized
the need for the country to achieve energy independence.

Joaquin Almunia, European commissioner on economic and monetary affairs,
said a decision to grant Ukraine the status as a country with a market
economy could come in the next few weeks.

On Thursday, a senior Ukrainian official said the government's attempt to
cap gasoline prices earlier this year had delayed such a designation. The
price limits had been endorsed by Tymoshenko. Yushchenko later ordered
his government to let the market decide prices. -30-
===============================================================
5. WORLD ECONOMIC FORUM RECOMMENDS YUSHCHENKO TO
COMPENSATE INVESTORS FOR DAMAGES INCURRED FROM
ABOLISHING FREE ECONOMIC ZONES

Ukrainian News Agency, Kyiv, Ukraine, Fri, June 17, 2005

KYIV - The World Economic Forum has decided to recommend to President
Viktor Yuschenko in its 10 urgent steps for improving investors' trust to
envisage during tax reform the compensation of investors for damages
incurred during the abolition of the free economic zones.

Klaus Schwab, the executive director of the World Economic Forum,
disclosed this at a news conference.

"There is a need to envisage just compensation of expenditures connected
with the abolition of the free economic zones, especially for investors who
acted with honest intentions," it is mentioned in a document.

The investors are also proposing a reform of the tax system, particularly a
reduction of social taxes, reduction of tax on corporate profit, and to
envisage a mechanism for compensating value-added tax to exporters and
the VAT system as a whole.

They are also proposing to envisage fair compensation for damages
emanating from the closure of free economic zones. Besides, the investors
are demanding fair custom tariffs.

Investors have also decided to propose to Yuschenko to exert efforts for
improving the administrative and business practices and to promote the
adoption of know-how and technologies from abroad.

As Ukrainian News earlier reported, the World Economic Forum decided to
propose to Yuschenko at the final meeting of the Extraordinary Roundtable on
Ukraine 10 steps for improving investors' confidence. The International
Investment Forum is being conducted by the international organization World
Economic Forum (WEF) in Kyiv from 16 to 17 June. -30--
===============================================================
6. KINAKH FOR PREFERENCES FOR EFFECTIVE PROJECTS WITHIN
FREE ECONOMIC ZONES (FEZs) AND PRIORITY DEV TERRITORIES (PDTs)

Liudmyla Martnyova, Ukrainian News Agency, Kyiv, Ukraine, May 3, 2005

KYVI - First Deputy Prime Minister Anatolii Kinakh is speaking out in
support of keeping tax incentives for effectively operating business
projects within free economic zones (FEZs) and priority development
territories (PDTs). He made the statement at an extended meeting of
the Cabinet of Ministers.

"We should give an opportunity for the projects, which create jobs and
provide for complex production, to be implemented under terms they were
approved," Kinakh said.

The deputy premier noted that amendments made to the national budget for
2005, envisaging one-sided cancellation of investment projects terms in
FEZs and PDTs, affected investment climate and trust of investors in
Ukraine.

Kinakh offered the Cabinet of Ministers and Yuschenko a compromise
variant of keeping tax incentives for projects, which are being
implemented and which create jobs and organize production in regions.
However, he offered to cancel incentives for investors that fail to meet
their commitments on endorsed programs. He noted that such decision
would increase investor's trust in Ukraine as a legal state.

As Ukrainian News reported earlier, in March the Cabinet of Ministers
suggested that the Verkhovna Rada cancel tax incentives that were provided
earlier to free economic zones, territories of priority development,
technological parks, as well as sectoral benefits and Chornobyl benefits for
enterprises.

Eleven free economic zones presently operate in Ukraine while special
investment regimes have been introduced in nine priority development
territories. -30- [The Action Ukraine Report Monitoring Service]
===============================================================
7. UKRAINIAN DEPUTY PREMIER WANTS TAX BREAKS REINSTATED

UT1 State TV, Kiev, in Ukrainian 1500 gmt 19 Jun 05
BBC Monitoring Service, UK, in English, Sun, Jun 19, 2005

KIEV - Ukrainian First Deputy Prime Minister Anatoliy Kinakh has denounced
the government's move to abolish tax breaks for companies operating in
special economic zones and for small businessmen.

Speaking in an interview with the Business World programme on the
state-owned UT1 channel on 19 June, Kinakh said, "It was wrong to
unilaterally abolish conditions for investment activities at technoparks and
free economic zones." "Small and medium businesses need to regain
access to a simplified tax system, and I hope that President Viktor
Yushchenko makes this decision," he added.

Kinakh also said that Ukraine should work to improve investment climate
and capitalize on the international community's interest in Ukraine
following the Orange Revolution.

Kinakh said that the Ukrainian government is committed to protecting
property rights and that investors should not fear mass reprivatization, as
only a few dozen companies will be subject to privatization review. Kinakh
said that the Kryvorizhstal steelworks will be resold through an open tender
but did not name any other companies that may face reprivatization. No
further processing of Kinakh's interview is planed. -30-
===============================================================
8. YUSHCHENKO PROPOSES INVESTORS CREATE COUNCIL OF
INVESTORS UNDER THE PRESIDENT WITH OWN SECRETARIAT

Ukrainian News Agency, Kyiv, Ukraine, Sat, June 18, 2005

KYIV - President Viktor Yuschenko proposes that investors create council
of investors under the President. He made this statement yesterday at the
closing session of the Extraordinary Roundtable on Ukraine held by the
World Economic Forum. "We can form a council of investors as public
initiative with its own secretariat," the President said.

He promised to grant such council the level of relations with the power that
would permit solving questions of investors efficiently. The President
emphasized that he would like this to be a public structure.

"I am only afraid of one thing, and that is breeding state institutions
again, and then have to listen on the forums how to arrange the system to
keep them from stealing," Yuschenko said.

As Ukrainian News earlier reported, previously the World Economic Forum
proposed that Yuschenko create a unit of specialists to support foreign
investors either in the President's, or at the Prime Minister's office. -30-
----------------------------------------------------------------------------------------------------------
FOOTNOTE: It is not clear exactly what this Council of Investors is, how
it would work, who would be in charge and who would pay the bill. It is
important that additional information will be forthcoming soon which will
answer the questions about this proposed Council. [EDITOR]
===============================================================
9. UKRAINIAN MEMBER OF RADA PINCHUK CALLS ON PRESIDENT
YUSHCHENKO TO ESTABLISH REAL MARKET ECONOMY IN UKRAINE

Ukrainian News Agency, Kyiv, Ukraine, Sat, June 18, 2005

KYIV - Viktor Pinchuk, a parliamentary deputy from the Democratic Ukraine
faction and a co-owner of the Investment Metallurgical Union (Kyiv), calls
on President Viktor Yuschenko to compromise with business and establish
real market economy in the country. He voiced his call at a final meeting of
the Extraordinary Roundtable on Ukraine that was held in Kyiv by the World
Economic Forum.

"The revolution must go on, but it should be constructive and occupied in
building the future rather than destructive and immersed in fight against
the past, it should be not against investors and private owners, it must be
a revolution that respects individual rights and supremacy of law, and which
offers a compromise between business and power," Pinchuk said.

He believes that further reforms should not lead to government-controlled
economy, but to a free market. "All Ukrainian and foreign investors support
your reform on this path," the businessmen said.

He reminded the president of the business forum when the first meeting with
businessmen took place and of Yuschenko's words urging businessmen to
raise salaries to their workers and pay larger amounts of taxes, and of his
promise to go to the next page in relations between business and power.

Pinchuk made it clear that businessmen responded to his urge, and now it is
time for the president to fulfill his promise. "We are paying 30-40% higher
salaries, we are paying 2-3-times higher taxes. Mr. President, I think it is
high time to turn the page," he remarked.

Pinchuk went on saying that Ukrainian businessmen, regardless of their
political preferences back in 2004, all the same adhere to democratic
values. "It is not important who they supported during the "orange
revolution," they share the values of the "orange revolution" - democracy,
market economy, supremacy of law, transparency, open society, freedom of
speech," Pinchuk stated.

He reminded of the promise that Yuschenko gave to investors in Davos,
Switzerland, that there would be no corruption in Ukraine. "Today bribes are
even higher. Our new bureaucracy has an explanation: "we have more risks
today," Pinchuk added.

As Ukrainian News earlier reported, Pinchuk predicts that the new sale of
the Kryvorizhstal metallurgical plant will fail because of property risks
for those aspiring to buy it. He insists that the Investment and
Metallurgical Union is a true owner of a 93.02% share in Kryvorizhstal.
=============================================================
10. UKRAINIAN PRESIDENT, STEEL TYCOON EXCHANGE
VERBAL BLOWS AT BUSINESS FORUM

TV 5 Kanal, Kiev, in Ukrainian 1800 gmt 17 Jun 05
BBC Monitoring Service, UK, in English, Fri, June 17, 2005

KYIV - [Presenter] The world economic forum in Kiev, dubbed mini Davos,
has been the main news topic for the last two days. Ukrainian Prime Minister
Yuliya Tymoshenko promised potential investors to open doors and windows
and lay carpets leading them to Ukrainian companies. The president tried to
persuade investors that Ukraine is the most attractive economy in Eastern
Europe.

There was a verbal exchange between President Viktor Yushchenko and
[Ukrainian tycoon and former co-owner of the Kryvorizhstal steelworks
Viktor] Pinchuk, who appeared on the same stage at the closing of the forum.

Pinchuk quoted Yushchenko as saying that Ukraine should begin from an empty
sheet and accused the authorities of not keeping their word on privatization
disputes. Yushchenko did not wait too long to answer.

[Yushchenko] Pinchuk was right to say that the size of bribes has increased
now. For example, the last court hearing on Kryvorizhstal, according to some
information, cost 10m dollars in bribes - to bypass the court, or 3m to
prolong the court's ruling. Fortunately, the judge took neither 3m nor 10m
dollars. The stakes are getting higher, this is true. -30-
==============================================================
11. UKRAINE'S LARGEST STEEL MILL TO GO BACK ON SALE
AFTER APPEAL COURT DECISION

By Tom Warner and Stefan Wagstyl in Kiev
Financial Times, London, UK, Monday, June 20 2005

The Ukrainian government agreed at the weekend to hold a new auction for
Kryvorizhstal, the country's largest steel mill, after a court stripped away
ownership from businessmen close to Leonid Kuchma, the ousted former
president.

Yulia Tymoshenko, prime minister, said her cabinet had agreed on Saturday
to prepare a new tender to be held by the end of the year. Analysts have
said that Kryvorizhstal is worth between $1.7bn and $3bn, compared with the
$800m (Euro 650m, £435m) paid last year.

The government secured ownership of the company following a decision by
the Kiev Economic Appeals Court last week that allowed the government to
take control. Earlier this year, a lower court ruled that last year's sale
was held incorrectly.

But the former owners declared the government's actions illegal and vowed
to continue their fight in the courts. The conflict has cast a cloud over
the authorities' efforts to encourage new investment.

Investment-Metallurgical Union, controlled by Viktor Pinchuk and Rinat
Akhmetov, two of Ukraine's richest men, said the authorities had acted
"illegally" in seizing the Kryvorizhstal shares held by ING Bank, the
official custodian. IMU continues to control the plant but is likely to be
replaced at a Kryvorizhstal shareholders' meeting on June 30.

Ms Tymoshenko said IMU was welcome to compete in the new auction.
Other possible bidders include Mittal Steel, US Steel, Arcelor and big
Russian steel groups.

Kryvorizhstal was privatised last year when Mr Kuchma, Mr Pinchuk's
father-in-law, was still in power. Viktor Yushchenko, Ukraine's new
president, promised during his campaign last year to reverse the sale, and
quickly condemned it as illegal when he took power.

However, while fighting hard for the resale of Kryvorizhstal, Mr Yushchenko
has climbed down from his initial plans for a wider-ranging privatisation
review of up to 40 companies.

Ms Tymoshenko said last week the government still wanted to review about
a dozen other privatisations, but government complaints over the
technicalities of those sales could be resolved through out-of-court
settlements.

Investors at a conference in Kiev of the World Economic Forum pressed the
authorities to clear the air for future investments. The forum said on
Friday in a statement summing up the conference: "The current uncertainty
deters domestic and foreign investment. The government must make a clear,
binding and coherent statement about the handling of past privatisation."

Mr Pinchuk warned that no serious investors would participate in a new
auction while ownership was disputed in the courts. However, Ms
Tymoshenko said she was confident the reversal of last year's sale would
hold up and that IMU would soon exhaust its remaining avenues for appeals.
=============================================================
12. MP PINCHUK PREDICTS FAILURE DURING ATTEMPT TO
RE-PRIVATIZE KRYVORIZHSTAL BECAUSE OF PROPERTY RISKS
Everybody understands that this is a bluff, a joke

Ukrainian News Agency, Kyiv, Ukraine, Fri, June 17, 2005

KYIV - Verkhovna Rada deputy Viktor Pinchuk from the Democratic Ukraine
group and co-owner of the Investment Metallurgical Union consortium (Kyiv)
is predicting that the new tender on sale of the Kryvorizhstal metallurgical
plant will end in failure if it goes ahead because of property risks for
those aspiring to buy the metallurgical plant. He made the comments to
journalists.

"To announce some kind of a tender now - the tender is doomed to failure.
A serious investor will not participate in it, everybody understand that
this is a bluff, a joke," Pinchuk said. In Pinchuk's words, before
announcing the decision to hold a new tender the state needs to resolve
the property dispute with the lawful owners of the enterprise's shares.

"A serious investor...should weight it very strongly, what are the legal
grounds for this tender. If he knows the ruling of the court, based on which
our purchase is legal, then he has questions," he added.

As Ukrainian News reported previously, ING Bank (Ukraine) wrote off the
93.02% of Kryvorizhstal's shares from the account of the Investment
Metallurgical Union on June 16 and transferred the shares to the State
Property Fund's account.

The Kyiv Economic Court of Appeals rejected the appeal of the Investment
Metallurgical Union on June 2 against the judgment of the Kyiv Economic
Court on April 22, which had declared the sale of 93.02% shares of
Kryvorizhstal unlawful.

On April 21, Pecherskyi district court of Kyiv canceled its decision of
February 17 with which it nullified the decision to recognize as lawful the
privatization of 93.02% of Kryvorizhstal. The court thereby reinstated the
validity of the December 2004 decision of the Supreme Court to uphold
lawfulness of the privatization of Kryvorizhstal.

The Investment Metallurgical Union consortium bought 93.02% of OJSC
Kryvorizhstal's shares from the State Property Fund for UAH 4.26 billion in
2004. Rinat Akhmetov's System Capital Management company controls
56.25% of the Investment Metallurgical Union while Viktor Pinchuk's
Interpipe corporation. -30- [Action Ukraine Report Monitoring Service]
==============================================================
13. UKRAINE COULD CHALLENGE A DOZEN PAST PRIVATIZATIONS

AFX Europe (Focus), Kiev, Ukraine, Fri, Jun 17, 2005

KIEV (AFX) - Ukraine Prime Minister Yulia Tymoshenko signalled that her
government would challenge the privatization of about a dozen firms that
took place under the former regime. "Let's not have this reprivatization
phobia," Tymoshenko told investors gathered in Kiev for an investment
conference organized by the World Economic Forum.

"The government doesn't know what this means... it is not our philosophy,
it is not our ideology," she said. But "80 percent of Ukrainian citizens
believe that about a dozen privatizations of strategic firms took place in
an extremely dirty, dishonest and non-transparent way," she said.

"I want to say that we will look for a way out of this situation only by
constitutional and lawful ways, through the justice system," she said.
Tymoshenko also said that the owners of the firms could keep ownership
if they paid the difference between their purchase price and what the
government determined to be fair value.

"And I think that we can even have a special system under which these firms
will be evaluated and the current owners will have the first option to pay
the fair price for them," she said. Uncertainty over the murky
privatizations that took place under the previous regime has been one of
the main concerns of existing and potential investors in Ukraine -- a group
President Viktor Yushchenko and his team are actively trying to woo.

Although Yushchenko's administration has said it would review several deals
in which state assets were sold at below-market prices to insiders, it has
yet to release a definitive list of companies. The most notable firm set to
undergo a repeat privatization is Krivorozhstal, the nation's largest
steelworks that was bought last year on the cheap by a consortium co-
headed by the son-in-law of former president Leonid Kuchma, Viktor Pinchuk.
==============================================================
14. RUSSIAN NATIONAL RESERVE CORPORATION TO SUSPEND
INVESTMENT PROJECTS IN UKRAINE DUE TO DETERIORATING
BUSINESS CLIMATE

Ukrainian News Agency, Kyiv, Ukraine, Mon, June 13, 2005

KYIV - The National Reserve Corporation (NRC - Russia) is going to
suspend its investment projects in Ukraine due to the deteriorating business
climate. Ukrainian News learned this from the press service of NRB Ukraine
bank, which is part of NRC.

According to the report, numerous contradictory statements and actions of
Ukrainian officials in relation to privatization results have caused changes
in the country's business climate.

"The suspension of capital investments of the holding first of all concerns
hotels in the Crimea and in Kyiv, development of mortgages and construction
of affordable housing, banking, and insurance business," the press report
reads.

Aleksandr Lebedev, a member of the Russian State Duma and the founder
of NRC, was quoted as saying that besides revision of privatization tenders,
cancellation of preferences of special economic zones and territories of
priority development is also an example of inconsistent policy of the
Ukrainian authorities.

As Ukrainian News earlier reported, President Viktor Yuschenko
commissioned the Cabinet of Ministers on June 9 to finalize the list of
enterprises whose privatization is subject to revision. Yuschenko spoke on
May 13 about the need to review the privatization of 29 enterprises, saying
that there existed the relevant list, and the final procedure was in
progress with respect to coordinating it.

Prime Minister Yulia Tymoshenko several times denied the existence of
such a list, but First Deputy Prime Minister Anatolii Kinakh, who heads the
Cabinet of Ministers working group for privatization issues, confirmed that
it existed.

The National Reserve Corporation is a financial and industrial group, which
includes about 100 companies, and its major assets are 28.5% stake in
Aeroflot company, over 3% in RAO UES, 36% of aircraft leasing company
Ilyushin Finance, and National Reserve Bank.

NRB Ukraine bank is registered in the form of a close joint-stock company
and it is a subsidiary of the Russian National Reserve Bank (NRB) which, in
its turn, is part of NRC. Net assets of NRB Ukraine were valued at UAH
639.99 million as of April 1, 2005, when its loan portfolio amounted to UAH
439.9 million and capital totaled UAH 96.6 million. The bank ended the year
of 2004 with a net profit of UAH 9.402 million. -30-
=============================================================
15. PRESIDENT YUSHCHENKO CONFIRMS CALENDAR OF EVENTS
ON UKRAINE'S ACCESSION TO WTO

Khrystyna Protsiv, Ukrainian News Agency, Kiev, Ukraine, June 17, 2005

KYIV - President Viktor Yuschenko has confirmed a calendar of measures
on provision of Ukraine's accession to the World Trade Organization (WTO).

This follows from the President's order No. 951/2005. Yuschenko instructed
to bring into action the decision of National Security and Defense Council
(NSDC) dated May 20 on measures to ensure Ukraine's accession to the
WTO.

Particularly, Yuschenko ordered the Cabinet of Ministers to prepare within
a week the bills aimed at harmonizing of the national legislation with the
norms and principles of the WTO and submit them to the Verkhovna Rada.

The President also instructed to complete the talks with member-states of
the working group for consideration of Ukraine's application for the WTO
membership before September 30.

Yuschenko also directed to bring the national system of standardization and
technical regulation in accordance with the norms and principles of the WTO,
as well as the policy of state support to agriculture and other economic
branches. The President also ordered to provide stability of the employment
market under conditions of Ukraine's membership in the WTO.

Moreover, the Cabinet was commissioned to envisage in the national budget
for 2006 and the next years funding of measures connected with joining the
WTO.

Yuschenko also confirmed a plan of urgent events on provision of Ukraine's
accession to the WTO: regulation of the issues of taxation of agricultural
enterprises, sugar and raw sugar import, export duty rates on oil crop
seeds, export duty on livestock and hides, excise duty on ethyl alcohol and
alcohol beverages, general security of products, dairy market (particularly
abolishing export subsidies on dairy products), export duty on waste and
scrap ferrous metals and so on.

Yuschenko instructed to put up for consideration by the Cabinet suggestions
on abolishing: discriminative duties for residents and non-residents of
Ukraine for acts connected with protection of rights on intellectual
property objects; the ban on import of busses and automobiles, which by the
moment of import were made and/or were in operation for more than five
years, other transport vehicles - over eight years; on unification of
tariffs on domestic and export-related railway shipments of separate
categories of goods (coke and stoke coking coal), etc.

As Ukrainian News reported earlier, on May 20, the NSDC recommended
that Yuschenko made instructions to step up talks on Ukraine's accession
to the WTO in order to obtain membership this year.

Yuschenko earlier criticized the Cabinet of Ministers for too slow
preparations for WTO entry. Ukraine is willing to join the WTO before the
end of 2005. -30- [The Action Ukraine Report Monitoring Service]
-------------------------------------------------------------------------------------------------------
FOOTNOTE: This is really very little new in the 'new' calendar of events.
There have been several WTO calendars before. The problem is the
Ukrainian's governments ability to focus, organize and implement the
delivery of real economic and business reforms in a professional
and timely manner needed to join the WTO in 2005. [EDITOR]
=============================================================
16. YUSHCHENKO HOPES RADA WILL APPROVE GOVERNMENTAL
LAWS FOR WTO ACCESSION BEFORE END OF SESSION ON JULY 8

Ukrainian News Agency, Kiev, Ukraine, Sat, June 18, 2005

KIEV - President Viktor Yuschenko hopes that the Verkhovna Rada will
approve governmental draft laws for entry to the World Trade Organization
before the end of the Rada's seventh session. He made this statement
yesterday at the closing session of the Extraordinary Roundtable on
Ukraine held by the World Economic Forum.

The President informed that 16 draft laws have been sent to the Rada
already, and another five will be sent in the nearest five to seven days.
"Everything will be on the Speaker's desk before summer vacations as
topic for agenda," the President said. He said that this is an uneasy topic
for the parliament, as some factions follow certain corporate interests in
voting.

He said that the MPs can't but understand what laws they are voting for, but
still private interests remain stronger. "Each one approaches ideals of the
revolution from his own standpoint. There is little to discuss (in the draft
laws), they should just be approved," Yuschenko said.

The President believes that formally Ukraine fulfilled everything in the
process of its advancement to the WTO, and only political part of work
remained now.

He repeated that the task of Ukraine is to receive WTO membership at the
session in October. As Ukrainian News earlier reported, the World Economic
Forum recommends that President Viktor Yuschenko urge MPs to support
legislative acts required for Ukraine's WTO accession before the end of the
Rada's current session to increase trust of investors. Current session of
parliament ends on July 8. -30-
-----------------------------------------------------------------------------------------------------------
FOOTNOTE: Most observers believe that without the immediate, highly
focused, personal hands-on, and effective leadership of President
Yushchenko and Prime Minister Tymoshenko in support of the needed
WTO legislation the Rada will not pass the necessary bills in time for
Ukraine to join the WTO in 2005. [EDITOR]
=============================================================
17. UKRAINE HOPES TO SECURE WTO MEMBERSHIP IN OCTOBER

MosNews, Moscow, Russia, Saturday, June 18, 2005

MOSCOW - President Viktor Yushchenko said on Friday Ukraine hoped to
secure membership of the World Trade Organisation by October and intended
to complete all legal requirements to meet that deadline, Reuters reported.

"Our aim is to secure membership at the October session of the WTO. To do
that, 21 more laws must be adopted. All the rest is done," Yushchenko told
the closing session of a meeting of the World Economic Forum.

"All 21 laws are on the agenda of (parliament's) chairman. I am not saying
the procedure is easy. But the formal part is completed. Only the political
part remains and we see this as a homework assignment to be completed."

Ex-Soviet Ukraine sees acquiring international status as a market economy
and WTO membership as the first stages in a long process of moving closer
to Europe and eventually joining the European Union.

A senior WTO official this month said neither Ukraine nor neighboring Russia
stood much chance of winning membership this year. But he said final
documents for both could be prepared for the WTO's bi-annual ministerial
conference in December in Hong Kong, Reuters adds.

WTO working groups on the accessions are to report on the status of both
applications. -30- [The Action Ukraine Report Monitoring Service]
===============================================================
18. RADA FIRST DEPUTY SPEAKER PREDICTS REFUSAL TO SUPPORT
VAST MAJORITY OF DRAFT LAWS FOR JOINING WTO
The draft bills are incomplete, have imperfections, are full of politics

Ukrainian News Agency, Kyiv, Ukraine, Fri, June 17, 2005

KYIV - First Deputy Speaker of the Verkhovna Rada, Adam Martyniuk,
predicts that parliament will refuse to support the vast majority of the
draft laws the Cabinet of Ministers prepared, which are necessary in order
for Ukraine to join the World Trade Organization (WTO).

Parliament's press service disclosed this to Ukrainian News, citing
Martyniuk's statement during a meeting with Charles Wise, the project
director for the Parliamentary Development Project to assist the Parliament
of Ukraine, funded by the US Agency for International Development.

Martyniuk disclosed that based on condition as of June 17, nearly 20 draft
laws have been submitted to parliament, which concern membership in WTO.
At the same time, he noted that these draft bills are incomplete and this is
why they will not receive support from deputies of parliament.

The first deputy speaker added that deputies plan to discuss these draft
bills during the last two plenary weeks of the current session of
parliament, however he believes that they have weak prospects. "They do
not have very good prospects in as much as part [of them] will be rejected
due to imperfection, and part - due to political motives," Martyniuk said.

As Ukrainian News earlier reported, the World Economic Forum is
recommending to President Viktor Yuschenko to call on deputies to support
drafts of legislative acts that are needed for Ukraine to join the WTO by
the end of the current session of parliament in order to improve investors'
confidence. The current session of parliament ends on July 8.
===============================================================
19. YUSHCHENKO INTRODUCE IN 2006 SINGLE SOCIAL TAX OF 20%
Yushchenko does not want to be stung in his back

Ukrayinska Pravda, Kyiv, Ukraine, Sat, June 18, 2005

KYIV - Next year a single social tax will be introduced in Ukraine. The rate
will be established at the level of 20 %, that is approximately 2 - 2.5
times lower than the actual rate. It was the statement of president Victor
Yushchenko at the World Economic Forum in Kyiv.

"We have 25% of the tax on profit, 20% of the VAT and 13% of the personal
income tax. We are presuming that the direct taxation is quite correct. When
speaking about the prospective, we would recommend to use the progressive
taxation rate with approximately 16 - 17% of the VAT and 20% of the tax on
profit. That can be done in the long term," - Mr. Yushchenko said.

He noted that the social taxation is the "key challenge", due to the fact,
that sometimes it is higher than the direct taxation and can amount to 40 -
60%.

"Such a rate is a starting point for the shadow economy. That is why
beginning with the year 2006 we would introduce the single social tax,
amounting to approximately 20%. That is 2 - 2,5 less than the rate of
taxation, we have today," - the president stressed.

Mr. Yevtushenko had assured, that all these questions fill be studied in the
immediate six months. He had also promised, that the state would perform
the overdue VAT refunds during the nearest months.

"In the issue of VAT we are presuming, that all the expired refunds, we have
inherited from the previous financial periods, and that is UAH 7 billion,
would be paid off in the nearest 2 months. So the problem would be
solved," - the president had said.

He asked to provide the government with the "period of grace", because the
budget numbers were overstated and the money are still to be found. The
president had also mentioned that from the June 1 "a single window will be
introduced for the registration of the business entity".

The President had called for the business people to make complaints, should
the customs authorities fail to serve them via the single window. He
promised the immediate reaction. "I don't want to be stung in my back,"
noted the president. (Translated by Gennady Kornev)
===============================================================
20. UKRAINIAN JUSTICE MINISTER ZVARYCH DISCUSSES LEGAL
REFORM WITH US AMBASSADOR HERBST

UNIAN news agency, Kiev, in Ukrainian, 16 Jun 05
BBC Monitoring Service, UK, in English, Thu, June 16, 2005

KIEV - The Ukrainian Justice Ministry shares the USA's concern over
excessive use of arrest at the stage of pre-trial investigation and the use
of arrest as an investigative method. The ministry's press service told
UNIAN this was discussed during talks between Ukrainian Justice Minister
Roman Zvarych and US Ambassador to Ukraine John Herbst on 14 June.

Herbst said reform of the Criminal Code is important not just for improving
the human rights situation in Ukraine, but also for combating corruption and
organized crime. They also discussed the development of bilateral
cooperation, in particular consultation and technical assistance from the
USA in implementing reform of the courts and the legal system in Ukraine.

Herbst said the USA was ready to support a project to create a single
website for the publication of Ukrainian court rulings. The Americans also
emphasized the importance of approving a new Criminal Code for the
consolidation of the primacy of the law in Ukraine.

Zvarych told Herbst Ukraine's new draft Criminal Code was designed to
continue integrated court reform and takes into account the flaws that have
been shown up by practice in the rules introduced under the so-called "small
court reform".

The draft contains a number of fundamentally important new things aimed at
ensuring quick and just court proceedings, on one hand, and ensuring the
rights of those involved in criminal cases, on the other. The draft
increases guarantees for the protection of victims and civil plaintiffs. A
special chapter is devoted to ensuring the safety of individuals taking part
in cases.

It also proposes depriving courts of the right to send criminal cases back
for further investigation. This will allow courts to be "freed" from
carrying out the function of the prosecutor and introduce the principle of
competition [between prosecution and defence]. -30-
===============================================================
21. US TO EXTEND ADDITIONAL USD 2.8 MILLION FOR DEVELOPMENT
OF UKRAINIAN LAW ENFORCEMENT AGENCIES

Ukrainian News Agency, Kyiv, Ukraine, Fri, June 17, 2005 (18:38)

KYIV - The United States is going to extend additional USD 2,769,000 for
development of Ukrainian law enforcement agencies. Protocol No.1 to the
Memorandum of Understanding between the government of the two countries
was signed by Internal Affairs Minister Yurii Lutsenko for Ukraine and
Ambassador John Herbst for the US.

The Memorandum was signed on December 9, 2002 and provides for further
signing of protocols on allocation of additional financing. Under Protocol
No.1, the US is to disburse funds for equipment and advance training, and
hand over equipment that the US State Department has purchased.

These funds are expected to cover seven projects that, among other things,
reform the Ukrainian legislation, enhance qualification of law enforcers
dealing with trafficking in humans and drug trafficking, and qualification
of judges and border guards. Signing of this protocol was initiated by the
US.

The financing will be provided after its approval by the US Congress. As
Ukrainian News earlier reported, the December 2002 Memorandum signed
between the US and Ukraine envisages a financing of USD 3 million for
development of the Ukrainian law enforcement system. -30-
===============================================================
22. UKRAINIAN DEPUTY PRIME MINISTER TOMENKO SUPPORTS GIVING
RUSSIAN STATUS OF SECOND OFFICIAL LANGUAGE

ICTV television, Kiev, in Ukrainian 1500 gmt 19 Jun 05
BBC Monitoring Service, UK, in English, Sun, Jun 19, 2005

KIEV - Ukrainian Deputy Prime Minister for Humanitarian Affairs, Mykola
Tomenko, has said in a live TV interview that he supports giving Russian the
status of a second official language. This will ensure that the human rights
of the Russian-speaking population are observed.

"There is a need for solving this problem. Opinion polls clearly show that
there is a problem," Tomenko said. "The authorities should think how to
protect the rights of those whose native language is Russian."

"We should change our stance. If elderly people cannot learn the Ukrainian
language they should have the right to use Russian in official documents.
There is also a problem with education. I think we should look for a
compromise here as well and take into account the views of these people,"
he said.

Speaking about dual citizenship with Russia, Tomenko said the government
should solve real problems of people rather than make political
declarations. What people really want - free movement between Ukraine and
Russia and the possibility to work in both countries - can be achieved
without dual citizenship, Tomenko said. -30-
================================================================
23. GEORGIAN LEADER SAYS NEW EMBASSY IN KIEV "DREAM COME TRUE"

Imedi TV, Tbilisi, in Georgian 1500 gmt 17 Jun 05
BBC Monitoring Service, UK, in English, Fri, June 17, 2005

TBILISI - [Presenter] The construction of a new building for the Georgian
embassy in Kiev's Taras Shevchenko boulevard has begun. The presidents
of Georgia and Ukraine are attending the opening of works.

A capsule containing soil from [medieval Georgian king] Davit
Aghmashenebeli's grave and a document signed by Mikheil Saakashvili and
Viktor Yushchenko has been placed into a concrete block of the foundation.

The Georgian president described the ceremony as a historic moment, and
said that when he was a student in Ukraine he could not even imagine that
there would be the embassy of an independent Georgia in this historic
district of Kiev and that he, too, would be taking part in the opening of
construction works.

[Video shows Saakashvili and Yushchenko placing a container into a concrete
block; embracing each other; Georgian folk song Mravalzhamier is sung]

[Yushchenko] Everything is being done properly. May God bless this work and
this building, and may only wise thoughts about our relationship be born
here.

[Question to Saakashvili] Mr President, what did you put [in the capsule]?
[Saakashvili] Only good things. What is important is that everything will
come true.

[Question] Did you put Georgian soil in it?
[Saakashvili] Yes I did. I put Georgian soil, sanctified soil from Davit
Aghmashenebeli's grave in it.

[Continues in Russian] I am happy that I am the president who together with
our great friend, - not only my friend, but a friend of Georgia - a regional
leader Viktor Andriyovych [Yushchenko] is putting this capsule into the
groundwork.

I went to university in this boulevard, [Taras] Shevchenko boulevard, not
far from this place, just as many members of the current Georgian govern-
ment did.

I could never imagine - although we may have dreamt about this - that there
would ever be the embassy of an independent Georgia in this historic
boulevard in central Kiev, next to the First Classical Gymnasium, Kiev State
University and many other important buildings and offices.

I think many dreams are coming true. Today together with our friends we are
making a dream of ours a reality. In moments like this one thinks that he
has not lived in vain, that life is beautiful when dreams come true. -30-
===============================================================
24. UKRAINE AND AUSTRIA SEEKING TO ENHANCE COOPERATION
IN TOURISM AND CULTURE

Ukrainian News Agency, Kyiv, Ukraine, Fri, June 17, 2005

KYIV - Culture and Tourism Minister Oksana Bilozir announced this at a
press conference that she gave jointly with Austrian Ambassador Michael
Miiss to conclude her June 6-8 visit to Austria. Bilozir said that Ukraine
used to make accent on international tourism rather than developing
domestic tourism, but today her ministry considers cultural and countryside
tourism a priority.

To attract foreigners, transport and hotel services must be improved to
European standard and Austrian companies are ready to help here, she
added. For example, the European Training Center For Hospitality And
Tourism called Modul will assist in personnel training and organization of
tours.

According to Bilozir, Austria is interested in aiding sky resorts for
children in the Carpathian Mountains. She went on saying that tourism
agencies of countries situated in the Carpathian region are studying the
possibility to reopen the Carpathian Tram tour.

Speaking about cultural cooperation between the two countries, Bilozir
noted that Austrian specialists are willing to help Ukraine restore castles,
monasteries, churches, and museums that have historical value.

Additionally, Ukraine plans to open a Ukrainian Cultural Information Center
in Vienna and buy, with assistance of sponsors, a number of pianos and
grand pianos from the famous Austrian firm Bosendorfer (at UAH 100,000
per piece) for philharmonic societies in order to be able to invite
well-known pianist to perform for Ukrainian audience.

Ambassador Miiss informed that the Austrian Embassy has built tight
cooperation with the Ukrainian Ministry of Culture. Among the upcoming
int events, he mentioned the Vienna Opera Ball that will be held in Kyiv on
October 21.

Apart from that, the embassy is looking for sponsors to reconstruct the
stele that marks the geographical center of Europe, which is on the
Ukrainian territory in the Carpathians. The embassy plans to reconstruct
the stele and organize a folklore festival in that area in the second half
of 2006, the time when Austria will be holding the European Union rotating
presidency. Miiss said this action will remind everyone that Ukraine is
part of Europe.

As Ukrainian News earlier reported, President Viktor Yuschenko is expected
to visit Austrian on June 12 and 13. Bilozir said that in conjunction with
Mr. Morak, Austria's State Secretary for Culture, she plans to prepare a
detailed plan needed to implement the cultural cooperation memorandum
and request Yuschenko to sign it during his visit. -30-
===============================================================
25. "UKRAINE DESERVES EU MEMBERSHIP"

OP-ED: By Yuliya Tymoshenko, Prime Minister of Ukraine
The Korea Herald, Seoul, Korea, Monday, June 20, 2005

Longtime members of the European Union now seem to doubt the EU's
future, but we in Ukraine look at the EU with hope and admiration. To join
in the EU's progress is the basic object of our foreign policy for Ukraine
has discovered that nationhood is not an end but a beginning.

Indeed, European unity is indivisible: when one nation is ostracized, all
are not free. We Europeans are caught in an inescapable net, tied in a
single garment of destiny. Every aspect of our shared culture, if not the
last century of shared suffering, confirms that for us. Whatever affects one
European directly, affects all indirectly.

Never again can we afford to live with the narrow notion of two Europes, of
haves and have-nots, of insiders and outsiders. Anyone who lives within the
European continent cannot - indeed, must not - be considered a stranger to
its Union. Today's great Pax Europa and today's pan-European prosperity
depend on this.

Of course, some people mutter that Ukraine is not Europe. Let them come to
Kyiv and speak to the people, young and old, factory worker, farmer's wife,
the lawyers and doctors and teachers who stood and stayed in the cold and
snow for weeks on end last winter to defend their freedoms.

Are they not united with those who stood alongside General de Gaulle in the
French Resistance? Are they not one with those who died fighting for the
Spanish Republic in the 1930s, who liberated Budapest in 1956 and ended
fascism in Spain and Portugal in the 1970's? Are they not animated by the
same spirit as Poland's Solidarity and the peaceful masses that created
Prague's Velvet Revolution in 1989? That is the true European spirit, and no
doubts can crush it.

To those who say that Ukraine is too backward for EU membership, I say, let
them, too, come to my country and see the mothers who stay late at night at
work teaching their children to use their workplace computer. Let them come
to the language classes in every village and city where young people are
readying themselves for Europe by learning French and German and English.

Those who doubt Ukraine's European vocation should understand that Europe
is not a matter of hardware and superhighways; it is the unquenchable desire
for freedom, prosperity, and solidarity.

I believe that our future is as promising as Europe's past is proud, and
that our destiny lies not as a forgotten borderland on a troubled region,
but as a maker and shaper of Europe's peace and Europe's unity.
Self-determination no longer means isolation, because achieving national
independence nowadays means only to return to the world scene with a new
status.

New nations can build with their former occupiers the same kind of fruitful
relationship that France established with Germany - a relationship founded
on equality and mutual interests. That is the type of relationship that my
government seeks with Russia, and achieving it is how we can help extend
the zone of Europe's peace.

Of course, it is premature to do more than indicate the high regard with
which we view the prospect of EU membership. We know that our part in
that great edifice will not be built overnight. We know that the great works
of European unification lay not in documents and declarations, but in
innovative action designed to better the lives and insure the security of
all Europeans.

Building a Ukraine worthy of EU membership will not be easy, cheap, or
fast.But, like the EU itself, it will be built and it will be done. We know
the challenge is great, but the prize is worth the struggle, and Europe
should know that this is our goal.

Part of the work of renewing Ukraine is a creative battle to put an end to a
nightmarish century during which fascism and communism - ideologies born
in the heart of Europe - battled for mastery. Only a few months ago, in
cities throughout Ukraine, our children and our parents confronted armed
troops, snarling dogs, and even death.

Only a few years ago, a young journalist, Georgi Gongadze, seeking to inform
the public about our old regime's corruption, was brutalized and beheaded by
that regime's thugs.

But our Orange Revolution last winter shows that Ukraine's people prevailed.
Despite today's doubts and difficulties, I retain an abiding faith in
Europe. I refuse to accept despair as the final response to the ambiguities
and horrors of Ukraine's history. I refuse to accept the view that Ukraine
is so tragically bound to the starless midnight of communism's legacy that
we can never see the bright daybreak of peace and true European unity.

When the EU's citizens ponder Ukraine's place in Europe, they should look
both beyond and more closely at the face they see. They should look beyond
the ravaged wastelands that communism inflicted, beyond the poverty, and
beyond the social divisions through which our discarded ex-leaders sought to
prolong their misrule.

Instead, they should look closely at the face of our president, Viktor
Yushchenko, ravaged by poison during last year's election campaign, and
recall the words of the great Frenchman Andre Malraux, for whom "the most
beautiful faces are those that have been wounded." -30-
-----------------------------------------------------------------------------------------------------------------
http://www.koreaherald.co.kr/SITE/data/html_dir/2005/06/20/200506200018.asp
www.project-syndicate.org
===============================================================
26. RUSSIA STARTS BLACKMAILING UKRAINE REGARDING
ECONOMIC AGREEMENTS

Ukrayinska Pravda, Kyiv, Ukraine, Sat, June 18, 2005

KYIV - Ukraine's entry into the European Union or the WTO under existing
conditions will result automatically in its refusal to join the SES.
This was pronounced by the deputy of the State Duma of Russia, the Chair-
man of Committee on Foreign Economic Relations for the Russia's Chamber
of Commerce, Sergey Glasyev at Wednesday's press-conference.

"When your Economy Minister declares, that it is possible to enter the WTO
while saving the agreements on free trade with Russia, this is either the
deceit of public opinion or self-delusion. Double standards are inadmissible
in foreign affairs", he marked.

"When Ukraine joins the EU, it will buy gas at the same prices, as Germany,
for example. It will also result in introduction of visa regime between
Ukraine and Russia", stressed Glazyev.

"By my information, a few months ago the Ukrainian colleagues, when
negotiating with the WTO, drastically yielded their positions, foremost
Ukrainian delegation agreed to cut import tariffs for several thousands of
trade positions", he noted. According to Glazyev, it affects the protection
for the Ukrainian markets of agricultural, chemical metallurgical and
forestry products.

"Ukraine jumped to open its market in 18 major economic fields to follow out
the negotiations on joining the WTO. By our information, Ukraine also agreed
to sign practically all optional WTO agreements, including on aeronautical
engineering trade", he proclaimed.

According to Glazyev, while Russia has succeeded to limit opening of service
market, Ukraine practically completely opens this market for foreign
companies. Glazyev commented that "members of the Russia's Chamber of
Commerce were shocked at that fact". "They consider terms of Ukraine's entry
into the WTO unacceptable, and if it occurs, they plan to waive agreements
on free trade", marked Glazyev. (translated by Iryna Yakovina) -30-
=================================================================
27. RUSSIAN EXPERT FORECASTS POLITICAL CRISIS IN UKRAINE
New reckless economic policy will lead to a crisis

RIA Novosti, Moscow, Russia, Thu, June 16, 2005

MOSCOW - This fall a political crisis may hit Ukraine, President of the
Effective Policy Fund Gleb Pavlovsky said on Thursday. "A crisis should
be expected no later than this fall," he said.

According to him, "new reckless economic policy of the Ukrainian
government" will lead to a crisis.

Speaking about the political struggle in Ukraine prior to the parliamentary
elections due in March 2006, Pavlovsky said: "If the party of the southeast
fights against the parties of west and center in the elections, it will
mean Ukraine's political collapse."

"Nobody wants it," the expert added. The Ukrainian opposition led by
former prime minister Viktor Yanukovich is falling behind in its strategy,
Pavlovsky said. "The Ukrainian opposition should focus on a program
but it still has none," he added. -30- [The Action Ukraine Report]
===============================================================
28. SOCIAL DEMOCRAT-UNITED LEADER MEDVEDCHUK AWAITS HIS FATE

By Taras Kuzio, Eurasia Daily Monitor
Volume 2, Issue 118, Jamestown Foundation
Washington, D.C., Friday, June 17, 2005

In an interview long promised but only given yesterday (June 16) to
Ukrayinska pravda, Social Democratic Party of Ukraine-United (SDPUo) leader
Viktor Medvedchuk was asked if he was ready to flee abroad, like many of his
pro-Leonid Kuchma allies. He replied, "No, under no circumstances. I made my
choice -- I remain party leader." And if he were threatened with arrest? "I
am ready for everything."

It is difficult to understand Medvedchuk's calm optimism, except on three
grounds. First, as an experienced lawyer and head of the Union of Ukrainian
Lawyers, he expects to mount a good defense. Second, he may have been
extra careful, unlike his allies, to not leave behind incriminating evidence
of
his participation in corruption or election fraud. Third, he may be
confident that no high-ranking SDPUo members will incriminate him by
agreeing a plea-bargain deal to reduce their own sentence.

The Yushchenko administration is actively seeking such plea bargains from
former Trans-Carpathian governor and SDPUo leader Ivan Rizak, who was
arrested last month (see EDM, May 18). Rizak has been promised leniency
from charges of extortion, links to organized crime, election fraud, and
corruption in return for providing evidence against Medvedchuk. This issue
is being personally "decided and controlled not so much by [President
Viktor] Yushchenko as by [National Security and Defense Council Secretary]
Petro Poroshenko" (Ukrayinska pravda, June 14).

Although Medvedchuk has decided to stay in Ukraine and defend himself, two
SDPUo deputy leaders fled abroad for "health treatment." Poroshenko is also
personally involved with a second high-ranking SDPUo official, Ihor
Pluzhnykov, president of Inter television channel. Pluzhnykov is
recuperating in the Czech Republic after facing intense pressure to sell
Inter channel to businessmen loyal to Yushchenko (see EDM, June 10).

A second deputy SDPUo leader, Volodymyr Satsiuk, has fled abroad to an
unknown destination. Satsiuk was deputy chairman of the Security Service
(SBU), and his name became well known after Yushchenko became extremely
ill after eating dinner at Satsiuk's house on September 5, 2004. Poroshenko
also controls the investigation into Yushchenko's poisoning (rep.in.ua, June
15).

Satsiuk claims that his house was broken into on May 27. The thieves ignored
valuables and only stole files, diaries, computer discs, and a cell phone.
One week later, Prosecutor-General Sviatoslav Piskun announced that Satsiuk
was being sought for three "heavy crimes" (Ukrayinska pravda, June 7).

Piskun insisted that Satsiuk was not being sought over Yushchenko's
poisoning but on charges relating to, among other things, his illegal sale
of SBU property. Nevertheless, SBU chairman Oleksandr Turchynov added,
"I will not hide the fact that we have questions for him about Yushchenko's
poisoning" (Ukrayinska pravda, June 15).

Turchynov described the charges as "abuse of his position that led to
serious losses for the state" (Ukrayinska pravda, June 15). An additional
charge included forging documents to become a colonel, and then using this
rank to be made deputy SBU chairman.

Former SBU chairman Ihor Smeshko, also present during the fateful September
5 dinner, has come forward to defend Satsiuk. Smeshko claimed that the SBU
had investigated the poisoning but found no evidence of SBU involvement.
Smeshko believes that Piskun is trying to pin the poisoning on Satsiuk and
himself (Segodnya, June 14). The SBU have had difficulty proving their lack
of involvement. The September 5 dinner was the only occasion when
Yushchenko's bodyguards did not test his food.

Interviewed by Komsomolskaya pravda v Ukrainie (June 14) Satsiuk adamantly
denied any involvement in Yushchenko's poisoning: "I have never undertaken
any crimes." Further still, "I do not regard myself as guilty and do not see
any reason to flee." The Prosecutor-General's office still issued an
international warrant to Interpol for his arrest.

Ultimately, the best way to marginalize Medvedchuk and the SDPUo will come
if they do not cross the 3% threshold in the 2006 parliamentary election.
This would seriously erode the credibility of the hard-line, anti-Yushchenko
opposition by removing one of its three component parties. Regions of
Ukraine and the Communists are certain to cross the 3% threshold.

Medvedchuk is himself a major cause of the SDPUo's demise. In a poll that
asked if leaders were trusted, three hard-line opposition party leaders
received negative ratings. Medvedchuk obtained the highest with -32%.
Medvedchuk has suggested that his replacement as SDPUo leader could be
Nestor Shufrych, who "represents the essence of the party's face"
(Ukrayinska pravda, June 16). "He is a leader," Medvedchuk added.

This comment shows how far former Kuchma loyalists such as Medvedchuk are
out of touch with public opinion and reality. In a March poll, the Razumkov
Center asked respondents whom they would never vote for: 53.1% replied
"Shufrych," only slightly less than the highly unpopular Communist leader
Petro Symonenko who polled 55.3% against (uceps.com.ua). Shufrych is also
under investigation for corruption and bribing voters in his election to
parliament in 2002. At this rate, Medvedchuk will be the last senior SDPUo
leader standing. -30- [The Action Ukraine Report Monitoring Service]
===============================================================
29. "RUSSIA: A ROAD MAP FOR REFORM"

By Grigory Yavlinsky, Moscow Times
Moscow, Russia, Friday, June 17, 2005

The battle for political power is once again heating up in Russia. The old
oligarchs who got their property through shady privatizations are fighting
the new oligarchs, the siloviki who came to power under President
Vladimir Putin.

The old oligarchs replaced politics with intrigues and gerrymandering,
spreading corruption to every branch of the government and eventually
bringing Putin to power. They are now pretending to be "democrats." The
new oligarchs are pursuing precisely the same policies, but to the benefit
of different individuals. They call themselves the state. Both groups have
their professional liberals -- whether politicians hired for a princely sum
by the old oligarchs or appointed to highly visible posts by the new
oligarchs.

Neither group has come up with socially significant goals for Russia's
development. They have no concept of its place in the world or of the
values that would encourage Russia to discover its identity at last. Thus,
it is time to return to the subject of economic and political reform and
come up with a real plan of action.

Reform has become a catchword in Russian political life over the last 20
years. But change does not equal reform. Reform is a conscious and
targeted transformation of society according to a particular plan. Reform
requires a clear vision of the final goal.

Even if change is conscious, it still is not necessarily reform. To be
reform, change must lead to the modernization of society by encouraging
its complexity and the pursuit of certain positive, time-honored ideals.
Otherwise, what happened under Hitler or Pol Pot could also be called
reform.

Based on this definition, there are no reforms in Russia today.

But what should the goal of reform be? The way things stand, the country's
lack of a clear and consistent notion of the future is being compensated
for by abstract slogans of "greatness" and by an amorphous centrism. We
have to define what values to cultivate in Russia, a country with a
contradictory past and a contradictory present. We need to know what
position we want to occupy in the world.

For Russia, there are only two possible paths. We can become part of the
core of the world capitalist economy --the European path -- or we can look
for a spot on the periphery. There is no third, special Russian way.

Understandably, some fear the European path will mean a loss of
sovereignty. Yet the only alternative is the sidelines and other limits on
sovereignty, limits that would be informal but significant.

Certain basic human and civic values separate the core countries from the
periphery: property rights, personal liberty and notions of social justice.
Modernization without a human face will unavoidably land us among the
poor and disenfranchised nations and will lead to precisely the opposite
of modernization.

Thus, the FIRST step toward real modernization and effective reform is
adopting human rights and individual liberty as our basic values. We need
to respect a person's right to property while simultaneously striving for
social justice. We need to set the institution of rights above notions of
political expediency and the subjective understanding of certain powerful
individuals. The concept of a state based on civil rights and liberties and
social justice should become a compass on the road map to Russian reform.

FIRST, we need to address the question of power. The current authorities in
Russia, meaning both the president and the entire system of state power,
are the product of a decade and a half of major political upheaval. These
years saw the repeated disruption of political continuity. The authorities
frequently lied and shirked their responsibilities. This naturally affected
the government's legitimacy in the eyes of the public. While this never
took the form of direct and open contention, Russians have become cynical
and skeptical about every move state institutions make.

There is one huge and almost insurmountable obstacle to reforming this
system. For reformers to have a chance at success, the people would have
to have significantly more faith in state institutions, the authority of the
law and government decisions than they do today. The state needs the
additional legitimacy that comes from allowing a wider range of social and
political groups access to power. In return, these new participants would
pledge to uphold the constitutional order and respect the way the system
functions.

In addition, the government should adopt a set of laws as a compromise
that would limit the political influence of big business. Oligarchs could be
kept at bay by increasing the transparency of economically important
decision-making and by establishing clear, unambiguous ground rules for
overturning government decisions that reflect the interests of particular
groups or individuals and that did not follow the proper legislative
channels.

SECOND, we need to address the issue of property and the concentration
of assets that resulted from the privatization of Soviet state property.

Today, the legitimacy of this property is in doubt, and this prevents big
business from participating actively in modernizing reforms. There is no
clear-cut way to legitimize privatization because the goal of protecting
property rights conflicts with the aim of social justice, a necessary part
of gaining consensus and guaranteeing the success of reform. Russia
needs several new laws to address this problem.

The FIRST set of laws should declare all privatization deals legitimate,
except those that involved violent crimes, while instituting a new windfall
tax to compensate society. The SECOND set of laws should consist of
functioning anti-monopoly laws and laws to limit capital concentration. The
THIRD set of laws would include legislation to guarantee that political
donations and lobbying in the State Duma, government agencies and state
media are transparent.

Like power, the problem of property must be solved via compromise. This
means guaranteeing the inalienable rights of law-abiding owners while
creating rules for using assets that were attained as the result of
bureaucratic privatizations and through other non-market procedures. These
rules could take different forms, but they need to minimize distortions of
owners' motivations in using their assets efficiently while simultaneously
ensuring that assets are used in a way that conforms to society's goals.

This same principle could be applied to property acquired in other ways
besides privatization. Guarantees of rights to property attained in ways
that did not violate criminal law but involved tax evasion could be granted
in exchange for certain limits on this property's use, such as a temporary
requirement that money be held in Russian banks, or post factum payment
of income tax in return for an official amnesty of tax violations.

Finally, recent events in Ukraine have led to talk of "deprivatization."
Even if Ukraine's review of privatization deals proves successful, it will
not work in Russia. Yet Russia does need a law on deprivatization to
reclaim state property privatized by means of a serious crime.

THIRD, we need to consider how to make legal arbitration into an
independent institution. Just as a complicated sports match cannot work
without a neutral referee, economic and political systems cannot function
without neutral arbitrators. This role must be played by civil and
arbitration courts that should only be influenced by the letter of the law.

The Russian courts as they currently exist are the product of social
conditions radically different from today's. They are staffed by people
accustomed to paying more attention to political and economic interests
than to the law. It would wrong to ignore this while planning reform, yet
it would be politically and technically impossible to fire every single
judge and official.

For this reason, we need to let bygones be bygones while firmly increasing
professionals' responsibility for any future deviation from the law. This
kind of amnesty would mean, for instance, avoiding punishment of judges
for past, unjust verdicts. At the same time, we need to establish a way to
review questionable verdicts: The numerous victims of these verdicts
continue to languish behind bars or remain deprived of their rights.

After these preliminary amnesties and laws, Russia will be ready for real
reform, ready to become a modern, rights-based society. -30-
--------------------------------------------------------------------------------------------------------
Grigory Yavlinsky is the head of the Yabloko party. This comment, which
he contributed to The Moscow Times, is the first in a two-part series on
reform in Russia.
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