"THE ACTION UKRAINE REPORT - AUR"
An International Newsletter
The Latest, Up-To-Date
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 - AUR" - Number 527
Mr. E. Morgan Williams, Publisher and Editor
morganw@patriot.net, ArtUkraine.com@starpower.net
Washington, D.C. and Kyiv, Ukraine, THURSDAY, July 21, 2005

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

1. "TIME TO RELAUNCH UKRAINE'S ECONOMIC POLICY"
By Ariel Cohen, Ph.D., The Heritage Foundation
Washington, D.C., July, 2005

2. UKRAINE EXPECTED TO FOLLOW EASTERN EUROPEAN
BANK CONSOLIDATION PATTERN
By Alla Vetrovcova, FirsTnews
Kyiv, Ukraine, Thu, July 21, 2005

3. ISUZU, OTHERS TO MULL EXPANDING AUTO OPS IN UKRAINE
Dow Jones Newswires, Tokyo, Japan, Wed, July 20, 2005

4. UKRAINE CAPTURES KEY SUSPECT TIED TO IDENTITY THEFT
By Cassell Bryan-Low, Staff Reporter
The Wall Street Journal, New York, NY
Tuesday, July 19, 2005; Page B9

5. HIGH TRANSPORT COSTS CRIPPLING UKRAINE'S GRAIN
EXPORTS AND HURTING FARMERS AND TRADERS
By Oksana Bondarchuk, FirsTnews
Kyiv, Ukraine, Thu, July 21, 2005

6. TOBACCO CONTROL WILL REDUCE MORTALITY IN UKRAINE
ANALYSIS: By Andriy Bega, ICPS Newsletter #285
International Centre for Policy Studies (ICPS)
Kyiv, Ukraine, Monday, July 18, 2005

7. VERKHOVNA RADA COMMISSIONER FOR HUMAN RIGHTS
NINA KARPACHEVA DELIVERS ANNUAL REPORT
Larysa Kozik, Tetiana Vesna, Ukrinform, Kyiv, Ukraine, Wed, July 20, 2004

8. OIL AND GAS PRICE HIKES AND "SWEEPING UKRAINIZATION"
CHARGES : RUSSIA'S PUNISHMENT FOR UKRAINE'S BREAKING AWAY
LETTER-TO-THE-EDITOR: From Volodymyr Hrytsutenko, Lecturer
Lviv Franko University, Lviv, Ukraine
Published by The Action Ukraine Report (AUR), # 527
Washington, D.C., Thursday, July 21, 2005

9. UKRAINE INVESTIGATORS ANALYZE TAPES ON REPORTER DEATH
Associated Press (AP), Kiev, Ukraine, Wed, July 20, 2005

10 RESOLUTION OF GONGADZE MURDER BLOCKED
By Taras Kuzio, Eurasia Daily Monitor,
Volume 2, Issue 140, The Jamestown Foundation
Washington, D.C., Wednesday, July 20, 2005

11. VADYM HETMAN'S LESSONS
Distinguished banker, member of Parliament
Shot dead in elevator of his Kyiv apartment house on April 22, 1998
By Vitaly Kniazhansky, The Day
The Day Weekly Digest in English, #24
Kyiv, Ukraine, Tuesday, July 19, 2005

12. GOVERNOR OF WEST UKRAINIAN REGION, KHMELNYTSKYY,
DISCUSSES PROSPECTS, SAYS INVESTMENT NEEDED
"People got tired of waiting for honest authorities"
Interview with Ivan Hladunyak, Governor, Khmelnytskky Region
Interview by Mykola Cherneha, Journalist
Ukrayina Moloda, Kiev, in Ukrainian 15 Jul 05; p 5
BBC Monitoring Service, UK, in English, Wed, Jul 20, 2005

13. PASSIONATE AND FREEDOM-LOVING HUTSULS
By Yevhen Budko and Mariya Vlad
Welcome to Ukraine magazine,
Kyiv, Ukraine, Issue 2 (33), 2005
The Action Ukraine Report (AUR), No. 527
Kyiv, Ukraine, Thursday, July 21, 2005
=============================================================
1. "TIME TO RELAUNCH UKRAINE'S ECONOMIC POLICY"

By Ariel Cohen, Ph.D., The Heritage Foundation
Washington, D.C., July, 2005

Ukraine is an important American geostrategic pri­ority in Eastern Europe.
Many U.S. policymakers and experts believe that Ukraine's integration into
the glo­bal economy, and Europe in particular, will change the geopolitical
balance in Eastern Europe and could trigger positive changes in other
post-Soviet states.

Above all, it will benefit the people of Ukraine. There­fore, the outcome of
Ukrainian reforms is important for U.S. foreign policy.

Since the events leading to the Orange Revolution in Kiev, the U.S.
government has supported Viktor Yushchenko, who became president of
Ukraine in January 2005, and his political allies. The Bush Administration
has spent over $60 million on Ukrai­nian democratic transition, and the
fiscal year 2005 supplemental budget includes a similar amount.

However, Ukraine's economic policy has been derailed since Yushchenko
took power, for the fol­lowing reasons:

[1] The lack of a free-market vision at the highest level of the
Ukrainian government;
[2] The breakdown of governmental economic deci­sion-making
mechanisms;
[3] An inadequate judiciary and a corrupt and ineffi­cient
bureaucracy;
[4] Continuous violation of property rights and excessively
complicated taxation, which is imple­mented in an arbitrary fashion;
[5] Anti-market and protectionist policies pursued by Prime
Minister Yulia Tymoshenko; and
[6] Insufficient integration into the global economy due to the
parliament's reluctance to pass the necessary laws.

The conflict between President Yushchenko's pro-market declarations and
his cabinet's centraliz­ing instincts and confused performance has resulted
in an economic policy that appears to be statist and populist in nature.
This year's track record lags behind 2004 economic achievements, which
included gross domestic product (GDP) growth of 12 percent and an over
200 percent increase in the Ukrainian stock market.

LACKLUSTER PERFORMANCE ----------

Key indicators of the Ukrainian economy have deteriorated since the
beginning of 2005, endanger­ing the future of the Yushchenko Administration.

MACROECONOMIC INDICATORS. The results of the populist policies have
been immediate. In the first four months of 2005, GDP growth plunged to an
annual rate of 5 percent while inflation surged to 15 percent.[1]

Construction contracted significantly, by 5.9 percent per year in the first
quarter of 2005 compared to the first quarter of 2004. Metallurgy also
declined by 3.6 percent in the first quarter due to increased input costs,
especially energy costs.[2]

PRIVATIZATION. The new government has prom­ised a new privatization deal
that has prompted lengthy discussions about what should be repriva­tized and
how it should be done. The government has drafted a broad law that could
undo much of Ukraine's privatization. This has endangered the property
rights of thousands of enterprises.

The new government has not executed its con­troversial plans for
renationalization and subse­quent reprivatization of Kryvorizhstal,
Ukraine's biggest steel mill. In an apparent exercise in cor­ruption and
nepotism, the giant plant was origi­nally bought for 50 percent of its fair
market value by a consortium that included then-President Leonid
Kuchma's son-in-law and close supporters of then-Prime Minister Viktor
Yanukovich.

President Yushchenko has also appointed Valen­tina Semenyuk as the new
privatization "czarina." Semenyuk hails from the Socialist Party and is on
record as opposing privatization.[3]

BUDGET AND TAXATION. In the first quarter of 2005, the consolidated
budget had a surplus of 3.85 percent of GDP. Budget revenues increased by
31 percent, and expenditures rose by 23 percent. However, concerns remain
about the government's ability to collect enough revenue to finance its debt
payments and social expenditures, including those promised by Yushchenko
during his presidential campaign. These include increased benefits for the
newborn and the disabled, as well as raising pen­sions and minimum wages
by 42 percent in the first quarter of 2005.[4]

In March, the Rada (Ukraine's parliament) adopted amendments to the 2005
budget envision­ing a budget deficit equal to 1.86 percent of GDP. The
budget accounts for the ambitious increases in pensions and the minimum
wage but uses overly optimistic estimates of revenue growth.[5] In reality,
the government is scrambling to find more reve­nue. Discretionary tax
exemptions have been abol­ished in a hurried and incompetent fashion. This
has forced tens of thousands of small entrepreneurs to close their
businesses or to shift operations into the black market economy.[6]

POLICY DISCORD. The government does not speak with one voice. First
Vice Premier Anatoly Kinakh is one of the vocal critics of the prime
minister's policies. He has publicly criticized the introduction of price
controls and the imbalance between social and economic policy in the 2005
national budget.[7]

INFLATION AND PRICES. Ukraine has the highest inflation rate in the
Commonwealth of Indepen­dent States. The inflation increased from 13.3
per­cent annually in February to 14.7 percent in April.[8] According to the
State Statistics Committee of Ukraine, the annual inflation rate for
January-May 2005 was 14 percent, compared to 7.2 percent for the same
period in 2004.

Relaxed fiscal policies and falling savings rates have encouraged greater
consumption, which has led to higher food prices, including prices for meat.
The government responded by imposing price con­trols on food items. Prime
Minister Tymoshenko also issued a decree requiring every region to develop,
present, and implement a meat produc­tion self-sufficiency program-an
approach remi­niscent of Soviet-style central planning.

Ukraine is also suffering from an oil shortage, which some blame on the
Russian government for blocking delivery of crude oil. However, high oil
prices worldwide influenced Russian shipments.

Ukraine's oil price controls, which order state oil companies to deliver
gasoline at prices below market levels, have had disastrous effects, leaving
Ukrainians queuing fruitlessly for fuel. While the price controls were in
effect, only Russian-owned stations had gasoline.

On May 18, President Yush­chenko signed into law a bill intended to ease a
fuel supply crisis by canceling customs duties and taxes on fuel and to
allow Ukraine to reduce its energy dependence on Russia. Canceling duties
on imported fuel allows Ukraine to purchase oil from other exporters, such
as Kazakhstan, Iran, and Iraq, at higher prices without increasing the cost
to consumers.

After his trip to Azerbaijan, Foreign Affairs Minister Borys Tarasyuk
announced that Ukraine would be willing to buy fuel from Azerbaijan. This
is in line with the pres­ident's statement about diversifying Ukraine's
crude oil market and seeking three to four sources of crude oil for
Ukraine-specifically, Russia, Kazakhstan, Azerbaijan, and Libya.[9]

TRADE. First quarter exports increased by 16.8 percent over the previous
year, while imports grew by 18.5 percent. Metals were the major con­tributor
to export growth. However, the trade bal­ance is likely to become negative
due to the appreciating hryvnia (the Ukrainian monetary unit) and cheap
imports.[10]

MONETARY POLICY. Strong exports and foreign exchange inflows led to
nominal appreciation of the hryvnia in April. In a step toward liberalizing
the foreign currency market, the National Bank of Ukraine rescinded the
regulation requiring the mandatory sale of 50 percent of export
proceeds.[11] This is a welcome step, but more needs to be done in other
areas of economic policy.

BUSINESS REFORMS. The government does not seem to have a clear
legislative, regulatory, or administrative strategy for the development,
approval, passage, and implementation of major business reforms. Every
week, there is a new plan for a new vertically integrated business company
to be owned and run by the Ukraine government, and this includes the energy
sec­tor.[12] The Tymoshenko cabinet does not discuss the reform of state
monopolies, but instead talks about their reinforcement.

Lack of reform discourages American invest­ment, as does widespread
violation of intellectual property rights. Ukraine's software piracy rate
(90 percent) is one of the highest in the world, compa­rable to the software
piracy rates of Vietnam, China, and Zimbabwe.

On May 31, the Rada voted down a package of amendments to Ukraine's
intellectual property rights laws. As a result, U.S. economic sanctions,
imposed in 2002, will remain in place, affecting $75 million of Ukrainian
imports. In 2004, the U.S. reaffirmed the sanctions, citing Ukraine's poor
efforts to fight optical media (CDs and DVDs) piracy and trademark
counterfeiting as the main reasons for sanctions.

Failure to pass this legislation will also delay Ukraine's entry into the
World Trade Organization (WTO), block the U.S. Department of Commerce
from granting the coveted market economy status to Ukraine, and send
more nega­tive signals to foreign investors.[13]

On July 6, overcoming the rowdy opposition of the Communist and Socialist
Parties, the Rada passed a law making it a crime to distribute compact
disks, equipment, raw materials for their produc­tion, and moulds illegally.
This law brings Ukraine closer to WTO membership. However, the Rada has
adopted only five of 15 WTO-related reform bills. Three more passed the
first reading, but five have failed, and two have been postponed.[14]

WHAT IS AT STAKE? ----------

The United States has much at stake in Ukraine, but it will be difficult to
implement a policy of eco­nomic reform in the context of the constitutional
changes that take effect in September-which shift power from president to
prime minister in Septem­ber-and parliamentary elections in March 2006.

If the economic policy fails, Russia will try to relaunch its own candidates
for the March 2006 parliamentary elections and will attempt to bring to
power its own Ukrainian prime minister, who will have more power than
President Yuschenko under the new constitutional arrangement.

Economic deterioration will also discredit U.S.-supported democratization in
Ukraine, and this will have repercussions beyond Ukraine. If Ukraine fails,
so also may Georgia, Kyrgyzstan, and other countries of the former Soviet
Union. Moreover, current economic policies discourage Western investment
while allowing corrupt Ukrainian and Russian interests, accustomed to the
murky waters of government-regulated transi­tional economies, to thrive.

WHAT SHOULD BE DONE ----------

The Bush and Yushchenko Administrations need to take action to relaunch
Ukrainian economic reforms.[15] The main effort to turn the tide, how­ever,
must come from the Ukrainian side. The U.S. can supply technical assistance
and moral support, but the leadership and management of the eco­nomic
reform process can come only from the Yushchenko Administration.

SPECIFICALLY, THE YUSHCHENKO ADMINISTRATION SHOULD:

[1] Create a uniform public vision of the presi­dent's economic
reforms. The government should execute and implement President
Yushchenko's vision for economic reform and creation of a positive
investment environment.

The plan of action should include a timetable with specific and achievable
benchmarks. It should designate specific officials who will be responsible
for implementing the plan.

The Yushchenko Administration should formulate a single business and
legal strategy, improve the institutional capacity to absorb and man­age
international assistance, and centralize the process for requesting and
coordinating tech­nical assistance.

[2] Engage an outside management consulting firm to review the
current government deci­sion-making and policymaking process. This could
be funded as part of existing U.S. techni­cal assistance. The government,
working together with such a consultancy, should use this assessment to
implement a comprehensive government reform to improve the decision-
making process in the economic, financial, fis­cal, and investment policy
fields.

Improving the government's institutional capacity to imple­ment stable and
lasting reforms will foster an environment and infrastructure that attracts
foreign and internal investment.

[3] Reduce the tax burden and enhance prop­erty rights protection
and the rule of law. The Rada should begin by repealing Ukraine's Soviet-
style commercial code (also known as the economic code), adopting the
Joint Stock Company Law, and abolishing all price con­trols. Significantly
deregulating the economy, including removal of hidden charges and
obsta­cles to start-up and small and medium busi­nesses, is also necessary.

Ukraine should reform the judicial and legal system so that it can enforce
court decisions in a transparent and timely manner. It should also undertake
comprehensive legal reform to facilitate economic competition and reform
the administrative legislation and procedural code as recommended by the
United Nations Development Programme's Blue Ribbon Com­mission for
Ukraine.[16]

Such a reform would include facilitating enforcement of foreign judgments,
including arbitration awards and improving bailiff service. On June 23, the
Rada voted to remove the state bailiff service from the Ministry of Justice
to ensure its inde­pendent function, which is a step in the right
direction.[17] Finally, it should consolidate and significantly reduce
social insurance taxes, as one of the ways to entice business out of the
shadow economy.

[4] Integrate Ukraine into the global economy. The Yushchenko
Administration should recon­stitute an interdepartmental working group on
market economy status to guide Ukrainian efforts to secure market economy
status from the United States. The Ukraine government should also appoint
a high-level official responsible for completing this task within a certain
time frame. The government should complete, by the end of 2005,
negotiations for entry into the WTO.

ON THE U.S. SIDE, THE BUSH ADMINISTRATION SHOULD:

Promote Ukraine's integration into the glo­bal economy. The Bush
Administration should ask Congress to exempt Ukraine from the Jack­son-
Vanik Amendment.[18] The amendment was proposed and enforced against
the Soviet Union for a different purpose, and U.S.- Ukraine relations have
changed radically since the collapse of the Soviet Union.

The Bush Administration should also support Ukraine's bid to join the WTO
and achieve market economy status, provided all U.S. con­cerns are resolved.
The recent arrival of the U.S. government interagency delegation to
Ukraine-which has been holding a series of meetings with top Ukrainian
officials on Ukraine's European and WTO integration, its market economy
status, safety of the Chernobyl nuclear power plant, and HIV/AIDS-is an
encouraging step forward.[19]

CONCLUSION ----------

Despite time lost since the beginning of this year, it is not too late to
relaunch the effort to put Ukraine on the road to economic reform, increased
domestic and foreign investment, and prosperity. This effort will require
bold leadership, commit­ment to economic freedom, and qualitative
improvement in the rule of law and protection of property rights. If done
right, U.S.-Ukrainian cooperation on economic policy will greatly benefit
the peoples of both countries.

The Yushchenko Administration needs to start speaking with one voice and
taking the necessary steps to make Ukraine as competitive and attractive
as its Central European and Baltic neighbors. Any­thing less will be a huge
disservice to the people of Ukraine who won and celebrated their freedom
in Independence Square at the end of 2004.

They deserve not just political liberty, but also economic freedom. The U.S.
should continue to help and support Ukraine in this quest. -30-
----------------------------------------------------------------------------------------------------------
Ariel Cohen, Ph.D., is Senior Research Fellow in Russian and Eurasian
Studies in the Douglas and Sarah Allison Center for Foreign Policy Studies,
a divi­sion of the Kathryn and Shelby Cullom Davis Institute for
International Studies, at The Heritage Foundation. Heritage Foundation
intern Tatyana Klimova assisted in preparing this paper. Special thanks
also go to Dr. Irina Paliashvili of the Russian-Ukrainian Legal Group for
her valuable comments.
----------------------------------------------------------------------------------------------------------
FOOTNOTES:
[1] Anders Aslund, "Betraying a Revolution," The Washington Post, May 18,
2005, p. A17, at www.washingtonpost.com/wp-dyn/
content/article/2005/05/17/AR2005051701326.html (July 5, 2005).
[2] Iryna Piontkivska and Edilberto L. Segura, "Ukraine Macroeconomic
Situation," SigmaBleyzer, May 2005, at
www.sigmableyzer.com/files/Ukraine_Ec_Situation_05_05_2.pdf
(June 22, 2005).
[3] "Semenyuk Prefers State Property to Private Ownership," BBC
Monitoring Service, May 18, 2005, quoted in The Action Ukraine Report No.
487, May 19, 2005.
[4] Iryna Piontkivska and Edilberto L. Segura, "Ukraine Macroeconomic
Situation," SigmaBleyzer, April 2005, at
www.sigmableyzer.com/files/Ukraine_Ec_Situation_04_05.pdf
(June 22, 2005).
[5] Ibid.
[6] Aslund, "Betraying a Revolution," p. A17, and "Polish Investors in
Ukraine Preparing Indictments for Breaches in Contracts Regarding Special
Economic Zones," Polish News Bulletin, June 14, 2005, quoted in The Action
Ukraine Report No. 503, June 16, 2005.
[7] Ukrainian News Agency, "PM Tymoshenko Asking Kinakh to Be More
Measured in His Comments About Cabinet of Min­isters Actions," May 18, 2005,
quoted in The Action Ukraine Report No. 487, May 19, 2005, and Interfax-
Ukraine, "Kinakh Calls for Restoring Lures for Investment to Maintain
Industrial Growth," June 10, 2005, quoted in The Action Ukraine Report No.
501, June 13, 2005.
[8] Piontkivska and Segura, "Ukraine Macroeconomic Situation," April 2005
and May 2005.
[9] A. Vasovic, "Ukraine Seeks to Reduce Energy Dependence on Russia,"
AP Worldstream, May 18, 2005, quoted in The Action Ukraine Report No. 487,
May 19, 2005.
[10] Piontkivska and Segura, "Ukraine Macroeconomic Situation," May 2005.
[11] Piontkivska and Segura, "Ukraine Macroeconomic Situation," April 2005.
[12] Ukrainian News Agency, "Pres Yushchenko States Need to Create
Vertically Integrated Ukrainian National Oil Company," May 18, 2005, quoted
in The Action Ukraine Report No. 487, May 19, 2005.
[13] E. Morgan Williams, "Ukraine Parliament's No Vote a Major Setback
Regarding Possible New Major International Trade Agreements," The Action
Ukraine Report, June 13, 2005; "Verkhovna Rada Shoots Down the Law
Against CD Piracy," New Europe, June 6, 2005, quoted in The Action Ukraine
Report No. 501, June 13, 2005.
[14] "Ukrainian Government Stalled over WTO Legislation," One Plus One TV
(Kiev), July 5, 2005, quoted in The Action Ukraine Report No. 516, July 6,
2005; Associated Press, "Ukraine: Rada Fails to Vote on Bills Needed to Join
WTO," July 5, 2005, quoted in The Action Ukraine Report No. 516, July 6,
2005; Ukrainian News Agency, "DPM Rybachuk: Changes of Laser Disks
Legislation Compulsory Precondition for Ukraine's Accession to WTO," July 6,
2005, quoted in The Action Ukraine Report No. 518, July 7, 2005; Tom Warner,
"Unruly Ukraine Deputies Impede Passage of WTO Legislation," Financial
Times, July 7, 2005, p. 6; Interfax-Ukraine, "Ukraine President Yushchenko
Laments Parliament's Failure to Pass WTO Bills," July 6, 2005, quoted in The
Action Ukraine Report No. 518, July 7, 2005; Interfax-Ukraine, "Ukrainian
Parliament Adopts Law on CD Piracy for WTO Entry," July 6, 2005, quoted in
The Action Ukraine Report No. 518, July 7, 2005; and "WTO Obstruc­tionists,"
Kyiv Post, July 7, 2005, quoted in The Action Ukraine Report No. 518, July
7, 2005
[15] Recommendations have been formulated by the U.S.-Ukraine Policy
Dialogue Economic Task Force. Co-Chairs: Ariel Cohen, Senior Research
Fellow, The Heritage Foundation, and Ihor Shevliakov, International Centre
for Policy Studies (Kyiv). Members: E. Morgan Williams, Director, Government
Affairs, Washington Office, SigmaBleyzer Private Equity Investment Group;
Sergiy Kruglyk, Director of Economic Department, Ministry of Foreign
Affairs; Valeriy Pyatnitskiy, Senior Adviser, Office of the Vice Prime
Minister/European Integration; and John Kun, U.S.-Ukraine Foundation.
[16] United Nations Development Programme, Blue Ribbon Commission for
Ukraine, Proposals for the President: A New Wave of Reform, 2005, at
www.un.kiev.ua/brc/report_e/brcreport040305eng.pdf (July 7, 2005).
[17] Interfax-Ukraine,"Ukraine Parliament Votes to Make Bailiffs
Independent of Justice Ministry," June 23, 2005, quoted in The Action
Ukraine Report No. 515, July 5, 2005.
[18] The Jackson-Vanik Amendment denies normal trade relations to certain
countries with non-market economies that restrict emigration rights. It was
originally targeted at the Soviet Union. See Wikipedia, s.v. "Jackson-Vanik
Amendment," at www.en.wiki­pedia.org/wiki/Jackson-Vanik_amendment
(July 7, 2005).
[19] E. Morgan Williams, "Top US Government Interagency Delegation
Arrives in Ukraine for a Series of Important Meetings," The Action Ukraine
Report No. 516, July 6, 2005.
-------------------------------------------------------------------------------------------------------
NOTE: Article format edited by The Action Ukraine Report (AUR)
Monitoring Service, Washington, D.C.
--------------------------------------------------------------------------------------------------------
LINK: http://www.heritage.org/Research/RussiaandEurasia/bg1869.cfm
=============================================================
2. UKRAINE EXPECTED TO FOLLOW EASTERN EUROPEAN
BANK CONSOLIDATION PATTERN

By Alla Vetrovcova, FirsTnews
Kyiv, Ukraine, Thu, July 21, 2005

Banking experts say they expect Ukraine to follow in much the same way as
other Eastern European countries with established banks giving way in highly
lucrative takeovers that leave fewer and larger banks in place. The outline
of such a situation may already been seen through the mists of rhetoric
surrounding a number of possible major Ukrainian mergers and buyouts.

KYIV, July 20 (FirsTnews) -- A number of banking experts predict that
opening the Ukrainian market to foreign banks will result in new owners for
a number of domestic banks. At the same time, some local banks have
started strategic changes in order to better compete with their foreign
competitors.

If the banking consolidation that took place in Central European countries
serves as an example, nearly all of the domestic Ukrainian banks will be
bought, and the top ten will be among the first to be sold.

Michal Yanda, deputy chairman at UkrSibbank and a native of the Czech
Republic, who worked for PricewaterhouseCoopers on banking issues in the
Czech Republic and for a Russian banking group in Moscow, pointed out the
recent experience of the Czech Republic.

"What can Ukraine expect: the same that happened in the Czech Republic.
Just look how many Czech banks there were, and now only one is left. If we
look to the [rest of] Central Europe, there is Polish PKO, a 100 percent
state-owned bank, and OTP in Hungary. The rest of the banks were bought
by foreigners, [the same for the rest of] Central Europe - Romania, Bulgaria
and so on," Yanda said.

According to Yanda, Belarus, Ukraine and Russia are the exceptions so far.
Russia is still not lucrative for foreign investors, because the only
possibility to buy a bank is in Moscow. Though regional banks play a huge
role outside Moscow, regional banks are not easy to acquire. "As for
Ukraine, [the situation will be] similar to Poland, Hungary or the Czech
Republic," Yanda said.

While Ukraine has been revising its privatization policy, experts predict
that state banking institutions could also be on the market. Austria's
second largest banking group, Erste Bank, which actively works in the Czech
Republic, Slovakia, Hungary, Croatia and Slovenia, has showed interest in
the state-owned Oschadbank.

As reported by Interfax-Ukraine July 14, Andreas Treichl, CEO of Erste Bank,
said at a meeting with President Victor Yushchenko that Erste Bank is ready
to negotiate for Oschadbank, which was reorganized in 1991, based on the
structure of the old State Savings Bank of the USSR. Today, it is a leader
in the Ukrainian retail banking sector.

When asked recently about the question of possible privatization of
Oschadbank, Igor Serov, capital markets director at Dresdner Kleinwort
Wasserstein, an international investment bank based in Europe, was sure
that foreign investors would be interested. "I think that the line [of
investors] will be pretty long," Serov said.

At the same time, experts disagree whether it's good from the point of view
of the state interests to privatize one of the biggest among the country's
161 banks. "If we look at [Sberbank] the Russian "sister" of Oschadbank,
then you can understand that a serious organization can be build upon this
bank's foundation," Serov said.

Another example of the local banks that might soon change hands is
commercial Ukrsotsbank. According to Borys Timonkin, chairman of the
Ukrsotsbank board of directors, negotiations with a strategic partner about
the bank's purchase will be known by the end of this summer, as reported
by finance.ua internet publication June 22.

Meanwhile, some local banks that have anticipated that arrival of foreign
competitors have made strategic changes to their institutions.
"Undoubtedly, we have been ready for it for a long time," Oleksandr
Adarych, chairman of the UkrSibbank board of directors, said.

"We included such a scenario about foreign financial institutions entering
our market, into our five-year strategy for bank development," Adarych said.
According to him, UkrSibbank has a specific plan for the next three years,
though Adarych refused to specify what measures the bank would
implement. -30- [The Action Ukraine Report Monitoring Service]
----------------------------------------------------------------------------------------------------------
LINK: http://firstnews.com.ua/en/article.html?id=75869
=============================================================
3. ISUZU, OTHERS TO MULL EXPANDING AUTO OPS IN UKRAINE

Dow Jones Newswires, Tokyo, Japan, Wed, July 20, 2005

TOKYO -- Isuzu Motors Ltd. (7202.TO) said Wednesday that it, Ukrainian car
maker Bogdan Corp. and Sojitz Corp. have agreed to consider expanding
their auto business in Ukraine, including vehicle exports to Russia and
other neighboring countries.

Isuzu, which has been supplying automobile parts for buses that Bogdan
assembles in Ukraine since 1999, and the two partners will consider selling
small trucks there to meet growing demand for vehicles, the Japanese truck
maker said in a press release.

Isuzu, a major Japanese truck maker and an affiliate of General Motors Corp.
(GM), said the country's overall vehicle sales grew to 130,000 vehicles in
2002 from 84,000 in 2000. Sojitz Corp is a trading house unit of Sojitz
Holdings Corp. (2768.TO). -30-
--------------------------------------------------------------------------------------------------------
By Yoshio Takahashi, Dow Jones Newswires; 813-5255-2929;
yoshio.takahashi@dowjones.com. Edited by Chris Gallagher
=============================================================
4. UKRAINE CAPTURES KEY SUSPECT TIED TO IDENTITY THEFT

By Cassell Bryan-Low, Staff Reporter
The Wall Street Journal, New York, NY
Tuesday, July 19, 2005; Page B9

Ukrainian police have arrested a man believed to have helped create one of
the largest multinational online networks trafficking in stolen banking
data, according to U.S. law enforcement.

The network, known as Carderplanet.com, served as a marketplace for stolen
information for millions of bank accounts from the U.S., the United Kingdom
and elsewhere. Such online networks have thrived in recent years as identity
thieves increasingly use the Internet to steal personal data and coordinate
their fraud.

Carderplanet, which was featured in a Wall Street Journal page-one article
last week, was shut down last year. U.S. authorities say that they continue
to investigate the site's former members and that more arrests in the
Ukraine could follow.

Ukrainian authorities arrested Dmitro Ivanovich Golubov, who is believed to
have helped create the Carderplanet network under the online nickname
"Script," on July 7, according to U.S. Postal Inspector Paul Krenn. A lawyer
for Mr. Golubov couldn't be reached and Ukrainian authorities didn't respond
to a request for comment.

The arrest "represents one of the most significant apprehensions of a high
level Eastern European responsible for criminal activity on the Internet,"
said Larry Johnson, special agent in charge of the U.S. Secret Service's
criminal investigative division. The Secret Service, along with the U.S.
Federal Bureau of Investigation, have been involved in the Carderplanet
investigation.

Carderplanet was founded in 2001 and boasted roughly 7,000 members,
mainly from Eastern Europe and Russia. The Web site was mostly in Russian
but had a dedicated forum for English speakers. The stolen account details
trafficked on the site came from hackers who targeted dozens of
organizations such as banks, electronic-commerce sites and government
agencies in the U.S., U.K. and Australia, according to U.S. and U.K law
enforcement.

Last month, 22-year-old Dallas native Douglas Cade Havard pled guilty in the
U.K. to charges of fraud and money laundering in connection with his role in
the Carderplanet network. In one scam, Russian identity thieves would send
him stolen ATM and PIN numbers via instant messenger.

Mr. Havard and a British accomplice would then load the information onto the
magnetic strips of blank cards and withdraw money from bank machines.
British police believe they stole roughly $11.4 million over the course of
18 months starting in early 2003.

As is typical of such networks, Carderplanet was highly structured. U.S.
authorities believe Mr. Golubev was one of a half-dozen individuals who ran
the organization and called themselves "the family." Below them was a layer
of senior members like Mr. Havard who were referred to as "Capo di Capi,"
a misspelled version of a title typically associated with the Italian mafia.
"Capo dei Capi" means "the boss of all bosses," but was used more loosely
in the Carderplanet network to signify high rank. -30-
----------------------------------------------------------------------------------------------------------
Write to Cassell Bryan-Low at cassell.bryan-low@wsj.com
=============================================================
5. HIGH TRANSPORT COSTS CRIPPLING UKRAINE'S GRAIN
EXPORTS AND HURTING FARMERS AND TRADERS

By Oksana Bondarchuk, FirsTnews
Kyiv, Ukraine, Thu, July 21, 2005

Other nations have always envied Ukraine's chornozem with some of the
greatest concentrations of this highly prized black earth making up the 60
percent of arable land that marks Ukraine as unique in the world.
Agricultural leaders claim that the ability of Ukraine's farmers to exploit
this soil to grow and export crops is being severely hampered by export
costs that are twice as high as those in Europe.

KYIV, July 20 (FirsTnews) -- First Vice Prime Minister Anatoly Kinakh
conducted a July 19 meeting devoted to ways of encouraging grain exports
at which the most spirited discussion centered on transport tariffs for
grain traders.

Despite Kinakh's statement that the agricultural complex "has a high
potential for exports," exploitation of this potential is getting less
profitable because of the government's abusive use of its powers to
impose high export handling costs, grain trade experts pointed out.

"We have reached the moment when it [grain export] is completely
unprofitable if traders don't receive refunds of the value added tax. If you
look back for several years, there were thousands of traders. Only a
relatively few remain; famous companies are disappearing before our eyes,"
Volodymyr Klymenko, executive director of the Ukrainian Grain Association
(UGA), said in remarks delivered at the meeting.

However, this year promises to be a good grain harvest, and exporting
continues to be the most profitable option, agriculture minister officials
claimed. "According to our forecast the export potential consists of more
than 9 million tons of grain. Of that, wheat represents about 6 million
tons. This potential represents the opportunity to earn money and to have
income," the First Deputy Minister of Agrarian Policy Ivan Demchak said.

Talk of potential income brings ironic smiles to the faces of grain traders.
In Ukraine, delivering grain from a producer to a ship's cargo hold is a
complicated system in which every step requires a payment. Klymenko
provided information that he said shows the expensive process of delivering
grain from elevators to ships with traders required to make 22 different
payments for services related to the transfer.

"All costs, which are born by those who take the product from an elevator
inside the country and deliver it to a ship, add up to more than $40 in
Ukraine. In Europe this sum would be $20," Klymenko said in an interview
with FirsTnews.

Demchak observed during a recent visit to France that the infrastructure for
grain deliveries is highly developed there; yet it costs only about $5.00
for a local trader to deliver his goods from the elevator to the port. "In
Ukraine there are a number of payments instead of making one payment
and then the money is distributed within the [railway] system," he said.

He pointed out that traders need to pay one tariff at one station, because
it is included in one railway department, then he pays again at another
station because it is administered separately. "They should charge only for
freight," he added.

A railway representative disagreed with Demchak and said he is sure that
in Ukraine railway payments are lower than in Europe. "I don't think we can
complain about railway costs. To transport one ton 500-600 km for only
$10 is not expensive. European charges amount to about $40 just for
transporting," Mykhaylo Mostovyi, the deputy general director of the State
Administration of Ukrainian Railway Transport, told FirsTnews.

Furthermore, Mostovyi's claim that railway shipping charges amount to only
22 percent of trader's costs is at odds with that of Serhiy Khoroshailov,
head of Khlib Ukrainy, the state-owned grain trading company. "Today 53
percent of all money spent for transportation is railway costs,"
Khoroshailov said.

Demchak also agreed with traders that today railway tariffs are "the
heaviest". Mostovyi insists on paying more attention to the costs of
elevator services instead of giving so much attention to the railway
tariffs. Both state and non-state grain traders are sure that tariffs on the
railway and in ports should also be unified. Officials also complain about
differences in prices too.

"It is difficult to compare them, because different railways and different
ports have different prices," Minister of Agrarian Policy Oleksandr
Baranivskyi said. "We should decrease station payments, and abolish
forwarding agent services and disinfection of cars. This is
money-laundering," Baranivskyi suggests at the meeting.

Kinakh supported the agrarian minister in his proposals and called for
certain ministries and other interested sides to develop within a week
ways of minimizing export costs for grain traders.

Klymenko mentioned that the issue has the biggest implications for
farmers. A trader is paying for all these services, he said, but the costs
ultimately cut into what the grain trader is able to offer the farmer for
his grain and still show a profit. "This is the main problem," Klymenko
said. -30- [The Action Ukraine Report Monitoring Service]
-------------------------------------------------------------------------------------------------
LINK: http://firstnews.com.ua/en/article.html?id=75868
=============================================================
6. TOBACCO CONTROL WILL REDUCE MORTALITY IN UKRAINE

ANALYSIS: By Andriy Bega, ICPS Newsletter #285
International Centre for Policy Studies (ICPS)
Kyiv, Ukraine, Monday, July 18, 2005

About 100,000 people die every year in Ukraine from smoking-related
diseases. Data from a recent study indicates that the number of smokers
has grown over the last five years. Yet an effective tobacco control policy
could reduce the death rate. This is required of Ukraine by both the WHO
Framework Convention on Tobacco Control signed by the country and
most stakeholders

THE NUMBER OF SMOKERS IS GROWING -----------

According to a study carried out in June 2005 by the Kyiv International
Institute of Sociology (KIIS) at the request of the International Centre for
Policy Studies (ICPS) and the Tobacco Control Resource Center, the
number of smokers in Ukraine has been climbing over the past five years.

From 2000 to 2005, the number of Ukrainians that smoke on a daily basis
rose and the number of those who have never smoked slipped. Today,
61.9% of men smoke every day, compared to 57.7% in a similar survey
from 2000; 15.8% of women do the same, compared to 13.5% in 2000.
Overall, 36.7% of adult Ukrainians smoke on a daily basis, up from 34.1%
in 2000.

UKRAINE NEEDS MORE CONTROL OVER TOBACCO ----------

Smoking has significant negative health consequences for a population and is
the most frequent cause of "preventable" deaths. According to estimates from
the World Health Organization, in 2000, smoking-related diseases accounted
for 13% of mortality in Ukraine-more than 100,000 people.

Today, tobacco-related policy in Ukraine is not reaching its goals and the
spread of smoking and the accompanying negative impact on human health
continue to rise. This means tobacco control must to become a policy
priority. The goal of tobacco control must be to reduce smoking.

Stronger government control would reduce smoking-related mortality, the
incidence of lung and heart disease associated with smoking, and overall
health spending. It would also bring Ukrainian tobacco legislation in line
with European standards.

MOST UKRAINIANS FAVOR RESTRICTIONS ON SMOKING ----------

The need for such a policy was confirmed by public debates held in
Chernivsti, Kharkiv, Kirovohrad, Kyiv, and Sumy over 13-23 June 2005.
Representatives of government, business and civic organizations and medical
doctors were invited to discuss three tobacco policy options: preserving
status quo, finding a compromise between health interests and the tobacco
industry, and taking radical steps to control tobacco in Ukraine.

Nearly all those involved agreed that government policy should pursue a goal
of reducing the spread of smoking-and this can be achieved only by reaching
a serious compromise or establishing radical anti-smoking restrictions.
According to participants in the public debate, continuing with the current
policy is not acceptable in the interests of healthcare.

The key drawbacks in current tobacco regulation were named as access to
cigarettes, lack of effective mechanisms to restrict sales to minors, and
lack of mechanisms to protect non-smokers from exposure to second-hand
smoke. Another significant flaw in current policy is the ubiquitous presence
of advertising, especially that targeting young people and women.

The sociological survey and public debates were organized as part of a
project jointly implemented by ICPS and the Tobacco Control Resource
Center with funding from the International Renaissance Foundation. The
stimulus for implementing such a project came from Ukraine's signing of the
WHO Framework Convention on Tobacco Control and the submission of a
bill to the Verkhovna Rada containing a number of steps to strengthen
tobacco control.

EU STANDARDS CONTAIN MORE SEVERE RESTRICTIONS ----------

The measures contained in the WHO Tobacco Convention include both price
and non-price restrictions aimed at reducing both demand and supply related
to cigarettes.

[1] Higher taxes. This is the most effective method. High price help prevent
the start of smoking among minors, reduce consumption among heavy smokers,
and stimulate people to quit. According to World Bank estimates, a 10% rise
in price reduces demand by about 4-8%. According to KIIS survey data, 36%
of smokers say they would smoke less or give up smoking should the price for
cigarettes double.

[2] A total ban on advertising. Nearly all EU members have put such a ban in
place. What is important is a complete prohibition, as it has been proved
that partial bans are not effective. According to survey data, the number of
Ukrainians who are satisfied with the current state of regulation of tobacco
advertising plunged from 46% in 2000 to 14% in 2005, while the share of
those supporting a total ban went from 47% to 56%.

[3] Protection from second-hand smoke in the workplace, in public transit
and in closed public places. Given that passive smoking is just as dangerous
as active smoking, people have the right to breathe air that is free of
tobacco smoke. According to the survey, 87% of adult Ukrainians think that
the law should protect non-smokers by banning smoking in public places.

In addition to these steps, the Convention mentions [4] controlling
packaging and labeling of tobacco products, [5] regulating the contents of
such products, [6] running campaigns to raise public awareness of the
negative consequences of smoking for personal health, [7] helping smokers
quit, [8] reducing contraband in tobacco products, and [9] banning on sales
of tobacco products to minors. -30-
-------------------------------------------------------------------------------------------------------
NOTE: For more information, contact Andriy Bega by telephone
at (380-44) 484-4400 or via e-mail at abega@icps.kiev.ua.
=============================================================
7. VERKHOVNA RADA COMMISSIONER FOR HUMAN RIGHTS
NINA KARPACHEVA DELIVERS ANNUAL REPORT

Larysa Kozik, Tetiana Vesna, Ukrinform, Kyiv, Ukraine, Wed, July 20, 2004

KYIV - Human rights must be placed above the State's rights and the State
must always remember that it is the State's chiefest duty and function to
secure observance of human rights and civil freedoms, Verkhovna Rada
Commissioner for Human Rights Nina Karpacheva told the lawmakers,
delivering her annual report in the Parliament's session hall.

As Ms Karpacheva told the parliamentarians, her annual report comprises
525 pages, its sections present not only facts, but also comments and
recommendations, which local authority bodies must take into account in
their activities.

For the first time the report contains an analysis of the state of affairs
with regard to observance of human rights in military units. As Ms
Karpacheva noted, as many as 630,000 people have approached her over
the year with their complaints, among whom there were Rada deputies of
all levels.

According to the Ombudsperson, Ukraine is a party to six international
agreements on protection of human rights.

As the VR Commissioner maintained, human dignity is one of the least
protected human rights, which may well be attested by the shameful fact
that at least 70 percent of the Ukrainian population have to eke out a none
too robust existence below the poverty line. At the same time the Ukrainian
State owes 1,300 M.UAH of the people of Ukraine in back wages.

As many as between five million and seven million Ukrainian citizens have
left the country, seeking employment abroad as migrant-laborers.
Ms Karpacheva pointed to raises in pensions as the bright side of the social
situation in Ukraine as for the first time in independent Ukraine's history
the minimal pension has reached the minimum of subsistence.

Nevertheless, the Ombudswoman hastened to add, price hikes devalue this
social gain. In this connection Nina Karpacheva urged the Government's
more vigorous effort to bridle raises in prices. She also called upon the
Verkhovna Rada to legislatively support Ukrainian pensioners.

One of the annual report's sections specifically dealt with disabled persons
and their social problems. In Ms Karpacheva's opinion, the Government's
employment programs for disabled persons do not work as only one in every
four physically handicapped persons has a job.

Touching on the rights of juveniles, Nina Karpacheva told the audience that
there are almost 200,000 homeless children in Ukraine, bereft of parental
care, 500,000 juveniles are employed in hard physical work, and 12,000 kids
never go to school. In the Ombudsperson's opinion, the best way to solve
this problem would be to provide parents with decent jobs.

Touching on the judicial branch's performance, Nina Karpacheva articulated
her opinion that courts often violate Ukraine's active legislation. As she
maintained, one in every ten cases involves legal violations of the part of
courts.

Gradually, she said, courts concentrate all power in Ukraine. Persecutions
of journalists continue, the Ombudswoman went on, and in many cases
journalists are charged with crimes they never committed. Concurrently,
publications appear, which contain distorted information and charge certain
persons with felonies, which are obviously ordered by interested parties.

As the Verkhovna Rada Commissioner maintained, police continue torturing
people, suspected of criminal activity, which is why a petition has been
sent to the President, urging Ukraine's accedence to the UN Convention on
banning tortures. According to Nina Karpacheva, multitudinous complains
keep pouring in to her Office about the conditions, in which detainees are
kept.

This year, Nina Karpacheva noted, she has got over 1,200 complaints from
medics, educationalists, journalists, public servants, who contend that they
have been sacked because of their political views, which is why the
Verkhovna Rada must adopt a bill to ban political persecutions. -30-
=============================================================
8. OIL AND GAS PRICE HIKES AND "SWEEPING UKRAINIZATION"
CHARGES : RUSSIA'S PUNISHMENT FOR UKRAINE'S BREAKING AWAY

LETTER-TO-THE-EDITOR: From Volodymyr Hrytsutenko, Lecturer
Lviv Franko University, Lviv, Ukraine
Published by The Action Ukraine Report (AUR), # 527
Washington, D.C., Thursday, July 21, 2005

Two recent developments (Russia's price hikes on gas and oil supplied to
Ukraine and a campaign in defence of the allegedly ill-treated Russian
minority) have brought to the surface northern neighbor's irritation with
the pro-European course of Ukraine. It also reveals utter lack of sympathy
for the reportedly oppresses 17% Russian minority which will be affected
by the same price hikes.

As for oil and gas, it is only good that our relationship will be put on a
sound financial footing. It is high time we learned (and it would have saved
us much humiliation as a nation) that Mother Russia unfailingly uses
"favourable" prices to seek political leverage. Like many Ukrainians, I am
prepared to tighten my belt and pay the full price, rather than to be
treated as a beggar looking for Russian handouts.

There is one more positive thing about the fuel crisis: hopefully, it will
teach the government to manage the energy sector effectively by ensuring
multiple fuel suppliers, storing stand-by reserves as well as introducing
urgent energy-saving programs. If the new Ukrainian regime fails to heed
the lesson this time, its chances of survival will be greatly curbed.

This time, Russia's economic Big Stick has been complemented by a
large-scale propaganda campaign in support of its allegedly ill-treated
minority in Ukraine. Bitterly complaining about "sweeping Ukrainization"
[FEDERAL UKRAINE?

COMMENTARY: by Alexei Makarkin, Deputy General Director Center for
Political Technologies RIA Novosti, Moscow, Russia, Mon, July 11, 2005 -
published by the Action Ukraine Report on July 19, 2005], a Moscow-
based political analyst claims that Russian-speaking Ukes have a kind of
a "customary" (sic!) right which they have acquired in the period of the
Communist (and tsarist) rule in Ukraine, periods of most ruthless
russification of Ukraine.

Such russification reflected ambitions of the rulers of Russia to impose the
Russian language as a means of consolidating the empire, something the
Ukrainian government is doing now by civilized means aimed at strengthening
the positions of Ukrainian, rather than weakening the use of Russian by the
urban population in Ukraine's eastern and southern regions.

You can hardly find a Uke who does not speak Russian. At this backdrop,
the insistence on the illusory "customary" right is merely rhetoric to mask
one's linguistic laziness or, in the worse scenario, contempt for the people
and their land which one shares with them.

The point the government is out to make is that it's time for the
only-Russian speakers to learn Ukrainian. Then, they will not have any
problems communicating with their neighbors and no reason to decry
"oppression."

By playing the Russian language card from Moscow (recall Putin's and
Luzhkov's loud declarations about mistreating the Russian minority and,
on the other hand, showing little cooperation to promote the Ukrainian
language and culture in the areas of Russia densely populated by the
Ukrainian minority, the Russians are again showing their typical imperial
disregard. -30- [The Action Ukraine Report Monitoring Service]
---------------------------------------------------------------------------------------------------
Letter by Volodymyr Hrytsutenko, Lviv, vhryts@lviv.farlep.net
=============================================================
9. UKRAINE INVESTIGATORS ANALYZE TAPES ON REPORTER DEATH

Associated Press (AP), Kiev, Ukraine, Wed, July 20, 2005

KIEV- Ukraine's security agency has begun analyzing secret tape recordings
that could implicate former President Leonid Kuchma in the murder of an
investigative journalist, the agency chief said Wednesday.

The analysis - the first officially conducted by Ukrainian authorities -
could be complete within a month, Security Service chief Oleksandr
Turchinov said.

The recordings, made by a former Kuchma bodyguard, contain a voice that
sounds like Kuchma's ordering aides to deal with Heorhiy Gongadze, an
Internet journalist who was investigating high-level corruption. Gongadze
was kidnapped in September 2000, and his headless body was found a
month later.

"I have never heard so many dirty things as on those tapes," Turchinov said.
"If this information on the tapes is authentic, it would be very useful."
Kuchma has denied any involvement in Gongadze's death, which sparked
mass protests.

The recordings, which the bodyguard had sneaked out of Ukraine, were
returned earlier this year at the new government's request. Turchinov said
that the security service had 700 hours of tapes, but was concentrating only
on the 20 to 30 minutes on which Kuchma's alleged voice is heard discussing
Gongadze.

Turchinov said the security service had asked the U.S. Federal Bureau of
Investigation to check the tapes' authenticity. U.S. investigators have said
the tapes hadn't been tampered with. If the tapes are found to be authentic,
Turchinov said a court would decide whether they could be used as evidence.

In March, two former police officials were detained and charged with murder
in connection with Gongadze's death. Another former police official
suspected of involvement remains under orders not to leave Kiev, and a
fourth, Oleksiy Pukach, is being sought on an international warrant.

A key witness, former Interior Minister Yuriy Kravchenko, committed suicide
earlier this year, just hours before he was to be questioned about
Gongadze's slaying. Pressure remains high on President Viktor Yushchenko
to fulfill his pledge and bring to justice not only Gongadze's killers, but
also the person who ordered the journalist's death. -30-
=============================================================
10. RESOLUTION OF GONGADZE MURDER BLOCKED

By Taras Kuzio, Eurasia Daily Monitor,
Volume 2, Issue 140, The Jamestown Foundation
Washington, D.C., Wednesday, July 20, 2005

Despite hopes to the contrary, the election of a new president of Ukraine
has not sped the investigation into the murder of opposition journalist
Heorhiy Gongadze. At the Davos World Economic Summit in January,
President Viktor Yushchenko promised that the Gongadze case would be
submitted to court by May.

In fact, there is little progress beyond the arrest of two Interior Ministry
officers and the release of a third on bail. All three were involved in
Gongadze's kidnapping in fall 2000.

Prosecutor-General Sviatyslav Piskun visited the United States in the second
week of July where he had planned to meet Mykola Melnychenko, the former
presidential guard who had bugged President Leonid Kuchma's office. A
fragment of one tape recording with Kuchma's voice ordering violence against
Gongadze was played in parliament on November 28, 2000, sparking the
Kuchmagate crisis.

For still-unclear reasons, Piskun did not meet Melnychenko. Instead, he
discussed other issues with the United States, such as signing an
extradition treaty, the deportation of former prime minister Pavlo Lazarenko
(on trial in California since 2004), and the extradition of former Kuchma
officials wanted in Ukraine but now living in the United States.

Melnychenko blamed Piskun for changing the time and place of the planned
meeting. Piskun was to have taken Melnychenko's affidavit and hoped to take
the original recordings back to Ukraine (Ukrayinska pravda, July 13). But
observers are now wondering if the "scheduling error" is really a
smokescreen covering both Piskun and Melnychenko.

FIRST, both Melnychenko and Gongadze's widow, Myroslava, have long
argued that Yushchenko was mistaken in retaining Piskun as prosecutor.
Yushchenko may belatedly be coming round to that same conclusion. At a
meeting of central and regional prosecutors, Yushchenko accused the
Prosecutor's Office of taking bribes to block investigations ordered by the
Interior Ministry (MVS) and Security Service (SBU).

Yushchenko noted that top Kuchma-era officials all seem to get advance
warnings to flee Ukraine ahead of their imminent arrest. For example,
General Oleksiy Pukach, who was in the car alongside three other MVS
officers accused of kidnapping Gongadze, fled to Israel in 2004.

When the SBU and Israeli security service jointly located Pukach in Israel
and passed this information through Interpol to the Ukrainian Prosecutor's
Office, somebody leaked this information to Segodnya (June 23), allowing
Pukach to go into hiding. As Zerkalo Nedeli/Tyzhnia (June 25) put it, "In a
word, it all looks professional and smells bad."

SECOND, Melnychenko's reputation has been tarnished. Semen Shevchuk
leaked information to Ukrayinska pravda (July 5) that detailed meetings in
Berlin (February), August (Moscow), and September 2004 (Moscow)
between Melnychenko and Kuchma officials, with Russia's SVR acting as
intermediaries.

The Russian side was interested in protecting Kuchma as well as ensuring
that fragments of Melnychenko's tapes relating to corruption by Russia's
leaders in cahoots with Kuchma did not go public.

Melnychenko and Oleksandr Yeliashkevych, another political refugee from
Ukraine, both demanded and received $1 million each from the Kuchma
authorities. The funds were organized by Viktor Medvedchuk, then head of the
Presidential Administration, and negotiated in Moscow by Ihor Bakay, then
head of the Directorate for State Affairs.

Bakay is now living in Moscow and wanted by the current Ukrainian
authorities on charges of stealing $300 million. This explains why so little
of the Melnychenko tapes were released during the 2004 election and his
reluctance to assist the Gongadze investigation since Yushchenko came to
power. His silence was agreed in Moscow as part of the monetary
arrangement.

THIRD, the latest tapes to be released make top Yushchenko officials look
guilty. Newly released tapes from 2000 incriminate National Security and
Defense Council Secretary Petro Poroshenko, portraying him as a Kuchma
lackey hostile to then First Deputy Prime Minister, now Prime Minister,
Yulia Tymoshenko.

Zerkalo Nedeli/Tyzhnia (July 9) described this development as the
recordings' "transformation from a heroic deed into something absolutely
different. And a national tragedy has been transformed into a farce."

However, the Kuchma camp is not the only faction that has sought to buy off
people involved in the Gongadze case. The Ministry of Justice attempted to
bribe Myroslava Gongadze with 100,000 Euros in exchange for her
withdrawing all future claims against the government. She described this
offer as "an absolutely vulgar proposal by the Ukrainian government to shut
me up" (Ukrayinska pravda, June 23).

Unlike Melnychenko, Myroslava Gongadze refused the offer and demanded
that the Ukrainian authorities punish the "organizers," and not just the MVS
officers who carried out the murder of her husband.

Two further suspicions have also arisen. The FIRST rests with the death of
former Interior Minister Yuriy Kravchenko, whose voice is heard on the
Melnychenko tape dealing with Gongadze. MVS Minister Yuriy Lutsenko and
former SBU chairman Ihor Smeshko do not believe Kravchenko committed
suicide -- especially as he was found with two bullets to his head -- after
Prosecutor Piskun publicly called him to give testimony.

Smeshko said, "I am inclined not to believe that he committed suicide. The
information I have at the moment poses huge questions as to why the murder
version was not pursued" (Channel 5 TV, July 11).

The SECOND suspicion rests with efforts to bring Kuchma to justice. First
Deputy Prime Minister Mykola Tomenko believes that any investigation of the
Gongadze affair should begin with Kuchma and parliamentary speaker
Volodymyr Lytvyn (Den, July 15). Lytvyn, who was head of the Presidential
Administration from 1996-2002, has never been called in for questioning and
will be a coalition partner with Yushchenko in the 2006 parliamentary
election.

Deputy Prosecutor Viktor Skokin is now stating that Kuchma did not issue the
order to "deal with" Gongadze (Stolichnyye novosti, June 22). Shokin was
deputy prosecutor in October 2003, when the Presidential Administration
responded to pressure and released Pukach from a brief imprisonment.

Failure to proceed on the Gongadze affair will seriously damage the
legitimacy of those who came to power through the Orange Revolution. As
SBU Chairman Oleksandr Turchynov admitted, "the death of this person
[Gongadze] really shook up and changed the country" (2000, June 3). Without
Kuchmagate, there likely would have never been an Orange Revolution exactly
four years later. -30- [The Action Ukraine Report Monitoring Service]
=============================================================
11. VADYM HETMAN'S LESSONS
Distinguished banker, member of Parliament
Shot dead in elevator of his Kyiv apartment house on April 22, 1998

By Vitaly Kniazhansky, The Day
The Day Weekly Digest in English, #24
Kyiv, Ukraine, Tuesday, July 19, 2005

Vadym Hetman, the former head of the National Bank of Ukraine, would have
turned 70 on July 12. This distinguished banker, Member of Parliament, and
committee head at the Ukrainian Inter-Banking Foreign Currency Exchange,
was shot dead in the elevator of his Kyiv apartment house on April 22, 1998.

On July 11, 2005, President Viktor Yushchenko posthumously bestowed the
title of Hero of Ukraine on him. The presidential decree states that Hetman
was awarded this title "for his outstanding personal contribution to the
creation and development of Ukraine's national financial system, banking,
foreign exchange and financial markets, and for his prolific sociopolitical
activities."

The president also decreed the creation of ten Vadym Hetman academic
scholarships for students of higher educational institutions. A street in
Kyiv and Vadym Hetman's alma mater, Kyiv National Economic University,
were also named in his honor.

Yet, neither these high tributes nor, for that matter, the language of the
official documents can adequately convey the true nature of this remarkable
individual.

On the eve of Hetman's 70th birth anniversary, his protege, President Viktor
Yushchenko, shared his reminiscences about the prominent Ukrainian banker.
"All that I am going to say about Vadym Hetman will be blessed in any
context. This man did great things for the nation and the state," said the
president, emphasizing that the ideas that Hetman was responsible for
developing and implementing were "ultramodern" in his time.

"An individual who had in fact run the economic gauntlet still remained a
top-class modern expert deep in his heart," President Yushchenko said. The
president also pointed out the progressive nature of the banking development
methods that Hetman had chosen. "No one here had ever followed this road
before.

Even my generation did not fully share his views - perhaps only 40% or so,"
he said, adding that Vadym Hetman's views were "absolutely modern,
market-oriented, and very controversial". "He would issue well-grounded
challenges that mobilized people," stressed the president.

He characterized Hetman as an efficient, businesslike, and successful
personality. "I don't remember Mr. Hetman ever departing from his standard
behavior - he would have found it humiliating. And he demanded the same of
us," said the Ukrainian head of state.

President Yushchenko noted that Hetman's death was a "great tragedy" for
him personally. "When he passed away, I was put to a test of justice, so to
speak," he said. The president revealed that after the death of Hetman his
associates planted a kalyna, a highbrush guelder rose bush, next to the
National Bank building. "I call it Vadym Hetman's kalyna and make sure that
it is healthy and bushy," said the president.

The Day asked some of Hetman's proteges, friends, and colleagues to share
their reminiscences.

[1] Ihor MITIUKOV, ambassador of Ukraine to Great Britain, ex-minister of
finance:

"We first met in the summer of 1988, and Hetman suggested that I work with
him. The next year I came to Ukrahroprombank, and he was the man who
taught me what I have been doing for the past 10 years. Hetman's lessons had
a considerable impact on my professional experience and subsequent career.
More often than not I would just copy his style and approach to work.

It didn't escape my notice that Mr. Hetman quickly absorbed everything that
was new and progressive. He had a unique flair for recognizing promising
projects. On top it, he fully trusted the young people who surrounded him;
he did his best to create all the necessary conditions for their
professional growth.

Under his guidance, those young people established the Inter-Banking Hard
Currency Exchange and breathed life into the hard currency market that
Ukraine so badly needed in order to switch to a market economy.

"In 1995 he was the first to declare publicly that Ukraine should enter the
international hard currency and capital markets. He actively developed this
idea whose implementation meant that this country was less dependent on
the International Monetary Fund.

"Hetman was never afraid of new problems; he never showed timidity to his
superiors. I had the impression that many people who at the time stood
higher than him on the governmental ladder were in awe of him, his
erudition, and high morals.

"They seemed to sense that they were weaker. I remember that after one of
his trips to Moscow Soviet Ukraine's first commercial bank was established:
a branch of the Agro-Industrial Bank (Agroprombank SSSR) was allowed to
break away and assume the name of Ukrahroprombank, with all its assets,
not just deposits, intact.

It was Hetman who persuaded the then chairman of the State Bank of the
USSR to grant Ukrahroprombank a hard-currency license, the first and only
one in Ukraine, which allowed us to avoid great losses of foreign exchange
when the Foreign Economic Bank of the USSR ceased to exist.

"Nor can we forget that Hetman was in fact the author of banking legislation
in Ukraine. It was his idea to set up an independent national bank. He also
founded and led a small but very active faction in parliament, which pushed
through numerous resolutions whose positive impact we are still feeling
today.

"Mr. Hetman was noted for his profound knowledge and understanding of
people. He could work and find a common language with practically everyone,
regardless of their views, character, and erudition; he knew how to select
and place staff; he managed his team efficiently, because he was very
demanding of himself.

Hetman possessed amazing intuition and had an excellent flair for all things
new, so it was always interesting to watch him deal with his colleagues. He
knew that the people who worked with him liked him, and this obviously gave
him great pleasure. His innate artistry worked very effectively: Hetman
always managed to encourage and lead people."

[2] Valentyn SYMONENKO, chairman, Auditing Chamber of Ukraine:

"When Ukraine was having a difficult time leaving the ruble zone, Hetman
was the most efficient professional among those who were dealing with this
matter. He could foresee all the possible consequences of this step and
exercised extreme caution. He and I often visited Moscow on this matter
and spoke to Yegor Gaidar and the 'Herculean' Gerashchenko (longtime
chairman of the State Bank of the USSR - Ed.).

He would drink a big glass of vodka with them and solve all the problems.
And he did - a decision would be made. After this I always thought of him as
a person who could resolutely and uncompromisingly overcome all
difficulties. His gift for making prognostications was combined with
superior professionalism and ability to solve organizational problems.

This really struck me because even then you could see traits in him that are
typical of young people. "In 1994 Hetman and I organized and co-chaired the
Independents group in the communist-dominated parliament. It was then that I
grasped, with Mr. Hetman's help, the meaning of the philosophical and
economic concept of economic patriotism.

It also became clear to me that Hetman could contend for the topmost
position in the official hierarchy, for he was a patriot through and
through. He was also a past master of political compromise, which allowed
him to find a way out of any situation. With this in mind, I suggested that
he lead our parliamentary group on his own.

When we were working on the Constitution, he would not only draw up a
certain article but also try to foresee its effect and interpretation for
many years to come. We all derived great pleasure from dealing with him as
a person and a statesman.

"Hetman was a very interesting, friendly, and even adventurous person both
at work and in everyday life. This was obvious to everyone, including the
government, which did its best to keep him away from public life and the
great deeds that he could and, I believe, was destined to accomplish.
Unfortunately, we were living, and still are, in a society where such people
are not always required, if ever. This is our greatest problem even today,
and it has an adverse effect on a great number of genuine professionals
and patriots in this country."

[3] Borys SOBOLEV, Deputy State Secretary of Ukraine:

"With this presidential decree Ukraine now has its first genuine Hero of
Ukraine. For those awards that the previous president indiscriminately
dished out for personal devotion and personal sponsorship are not a patch
on what Vadym Hetman did for our country.

I had an opportunity today to see the rapturous reactions on the part of the
students and faculty of Kyiv National Economic University to the
announcement that this educational institution would be named in Vadym
Hetman's honor. This is a noble and respected name.

I hope that a few years from now these students will be proud to say that
they graduated from Hetman University. This Ukrainian university, like
Shevchenko University, is our Oxford, Cambridge, and Georgetown. I am
also pleased by the fact that Kyiv's Industrial Street has now been given a
normal human name.

"What struck me the most in Mr. Hetman's character was his ability to
reconcile opponents who were at drawn daggers. Not only could he make
peace between them, he could also convince them to work for the common
goal. This man always tried to find, support, and get young people moving.

THE DAY'S QUOTATION -----

"Finances and banks, the core of any economy, can effectively function only
in a stable and predictable environment. Not a single country in the world,
not a single international financial company will cooperate with a country
with uncertain political risks."

Vadym HETMAN, "I Oppose the 'Kazakhstan Option' for the Ukrainian
Parliament," Den, No. 236, December 27, 1997. -30-
-------------------------------------------------------------------------------------------------
LINK: http://www.day.kiev.ua/145294
=============================================================
12. GOVERNOR OF WEST UKRAINIAN REGION, KHMELNYTSKYY,
DISCUSSES PROSPECTS, SAYS INVESTMENT NEEDED

"People got tired of waiting for honest authorities"
Interview with Ivan Hladunyak, governor, Khmelnytskky Region
Interview by Mykola Cherneha, Journalist
Ukrayina Moloda, Kiev, in Ukrainian 15 Jul 05; p 5
BBC Monitoring Service, UK, in English, Wed, Jul 20, 2005

Industrial output in Khmelnytskyy Region saw a rise of 32 per cent in 2005
on 2004, regional governor Ivan Hladunyak has said. Speaking in an interview
with a propresidential paper, he said that investment was needed to solve
the problems of the ailing sugar industry and to scrap old ammunition
located at military stores.

He said his team is stronger than the previous one and able to improve the
socioeconomic situation in the region. Hladunyak urged locals to be patient
despite the fact that expectations of the new team are very high.

The following is the text of the interview with Hlyadunyak conducted by
journalist Mykola Cherneha, entitled "Ivan Hladunyak: People got tired of
waiting for honest authorities", published in the Ukrainian newspaper
Ukrayina Moloda on 15 July; subheadings are as published:

Ivan Hladunyak seems to be the only newly appointed regional bosses who
had not been introduced to local elite by top officials from the capital.
Prime Minister Yuliya Tymoshenko only confined herself to parting words,
having said: you are well known in the region, so I wish you success. Mr
Hladunyak is proficiently aware of the situation in the region, indeed: it
is due to his previous position of a deputy "governor".

During the turbulent events in autumn and winter [2004 Orange Revolution]
he did not yield to the demand of his former boss to work in favour of the
candidate backed by the authorities, and as the result, he was told
categorically: submit your resignation. Hladunyak wrote an application,
but... [ellipsis as published] for leave, and he used it to campaign in
favour of [then presidential candidate Viktor] Yushchenko.

When the revolutionary whirlwind blew away his notorious predecessor, Mr
Hladunyak had been working as acting regional chief for some months, until
he was ultimately legalized in this status early in March. Let us note that
Hladunyak became the "governor" later than the rest of his colleagues at the
same positions, as Ukrayina Moloda readers remember that discredited MP
[Vitaliy] Oluyko from the PPU [People's Party of Ukraine headed by
parliamentary speaker Volodymyr Lytvyn] was first appointed the chief of
Khmelnytskyy Region in February, but pickets achieved his prompt
resignation. Hladunyak's time came only after this.

Communication the way to mutual understanding -----------

[Cherneha] Mr Hladunyak, you visit districts, and you received people
yesterday, as scheduled. What conclusions do you make for yourself on the
issues raised by people and on the efficiency of lower-level authorities?

[Hladunyak] The issues with which people apply to me can be divided into
two groups. The first one concerns people's material welfare and their
social security, which require state support, as there are no resources for
resolving them at the lower level.

The other part of residents of Khmelnytskyy Region complains at local
government agencies: for example, at the executive service which delays
fulfilment of court decisions; at courts themselves: in their opinion, they
considered cases with bias; at the absence of more or less decent roads to
district centres, while local officials do not demonstrate the business
initiative to attract funds for putting them in order.

Communication with people is both a channel of, let us say, first-hand
information for the authorities, and an impulse to work. People raise acute
issues during these meetings, they are aware of developments in Kiev and
the efforts made by the country's leadership for improving their life, and
this is why they trust these authorities and expect the right decisions.

New officials with new thinking have come to districts. They are supported
in the main by the population. Meanwhile, people understand that budget
resources of their territorial communities are limited, and this is why they
apply to regional authorities. Work with people is a priority for the
authorities. It is already aimed at improving actual living standards of the
residents of Podillya [historic name of Khmelnytskyy Region]. But the way,
this year it is 17 per cent higher than last year.

Experience will come, if there is desire ---------

[Cherneha] Has the formation of executive bodies been completed?

[Hladunyak] Yes, I think we already have a capable team which is able to
fulfil the president's tasks. Even if someone lacks experience, it may be
acquired. The most important point is that the appointed officials wish to
work. Generally speaking, the present heads of district administrations are
much stronger than their predecessors both in their professional level and
moral characteristics. Only time is needed to make them give results.

There is no need to conceal that some people previously used to come to the
authorities without clear social motivation. They simply wanted to resolve
their own problems with the help of a cozy position. A district chief now
has the same wealth as his neighbours.

One cannot see him buying a luxurious car or arranging his home in regal
style. It means he has the same living standards as his fellow countrymen.
He originates from their environment and works for the sake of everybody's
prosperity.

Sometimes I am asked: please, appoint someone. He is a professional with
experience. I answer: all right, let us see this man's accomplishments at
his previous work place. Three factories collapsed under his management,
workers left without their daily bread.

As the result, he left 3m hryvnyas [about 600,000 US dollars] debt to the
budget and double that in wage arrears. What is the essence of his
professionalism? Is it his ability to speak well from a rostrum? Is it his
energetic Komsomol [Young Communist league] past?

Another man comes: maybe, he is not so eloquent, but he managed to halt a
slide in his district and is gradually increasing its positive development.
When I visited Bilohirya District a few days ago to be present at putting a
new rural gas pipeline into operation, I saw the attitude of local residents
to the head of the administration.

There is nothing of the kind of a wall of alienation, of a barrier to the
official, but instead there are mutual trust, benevolence and frankness of
communication. People were tired of waiting for honest and fair authorities.

[Cherneha] An ordinary person's prosperity is measured by his purse.
Unfortunately, many workers have been deprived of what they had earned with
their hard work... [ellipsis as published]

[Hladunyak] We have got an uneasy heritage: 72m hryvnyas [over 14m US
dollars] of ware arrears. However, we managed to break the growing trend.
This shameful figure is being reduced by 2.5-3m every month. The burden of
indebtedness is now 63m hryvnyas.

Due to the fact that two-thirds of the mentioned sum are a share of rural
areas, we place our special hopes on the harvesting season. We are telling
the heads of agricultural associations and processing enterprises to make
full payment to people from the new harvest.

Bitter taste of sweet sector ---------

[Cherneha] How can one infuse a fresh spirit into the sugar production
sector, which is traditional for the region?

[Hladunyak] Sugar crops have been planted on 48,000 hectares in the region.
It is more than last year, but we slightly failed to achieve the outlined
objective (50,000 hectares). Owners of some sugar refineries did not want to
invest sufficient funds in expanding the area, as they had pending old
payments to be made for sugar beet.

Sugar refineries in Shepetivka and Teofipol will work to full capacity, as
they used to. Investors allocate money both in sugar beet growing and in
production. Meanwhile, the future of the Volochysk, Nakrevystkyy and Makiv
refineries causes concern. The latter is bogged down in bankruptcy, and
there is a conflict situation over it.

The Kamyanets-Podilsk sugar refinery is the most problematic one. The
enterprise has been idle for some years, and we are actively working with
potential investors to put it into operation. We can bid farewell to the one
in Derazhnya. Using the vocabulary of a movie character, everything there
"had been stolen before us", and any chance of reanimation of the enterprise
is already unrealistic.

The authorities will not admit thoughtless destruction of any enterprise of
sweet industry any more, and we shall provide them with every possible
assistance. However, we do not observe crowds of those willing to invest
money in labour-consuming sugar industry. It has become clear that the
relevant ministry should formulate and carry out a clear policy in this
sector, as it is impossible for any separate region to make its own rules of
the game. Producers want the situation on the country's sugar market to be
predictable.

Generally speaking, we place our hopes on capital inflow to rural areas. A
Czech company is willing to invest up to 20m euros in agricultural sector in
one of the districts. We also expect German and Austrian investors to
approach. It means advanced techniques, new jobs, transfers to the budget
and social sphere.

[Cherneha] Mr Hladunyak, are there any improvements in regional industry?

[Hladunyak] We see a 32 per cent rise on the same period in 2004. We renew
the operation of recumbent enterprises, for example, the Poninka paper
works, Hannopil distillery, etc. Meanwhile, we want to provide assistance to
medium-sized and small businesses. The sum of loans allocated for their
support from the regional budget equals 2.4m hryvnyas [about 480,000 US
dollars].

We have to create 25,000 new jobs in the region this year. As of today,
about 11,500 residents of Khmelnytskyy Region have found their occupation
and means of subsistence.

Improvement of medical services is an important direction; financing of the
sector saw 11m hryvnyas [about 2.2m US dollars] increase this year. We are
building new premises at the regional hospital for taking care of maternity
and childhood at modern level. We also want to computerize 100 per cent of
schools. This equipment is not available in 15 educational institutions yet.
Computer classes will be modernized in another 84 schools.

Sataniv should cure and make healthy ----------

[Cherneha] The issue of building the third and even the fourth units of the
Khmelnytskyy nuclear power plant is being discussed. The attitude of
Podillya residents to these plans will, to a great extent, depend on the
arranging of a 30-kilometer zone around the plant... [ellipsis as published]

[Hladunyak] Resolving the issue of funding for the adjacent territory has
begun at last. Funds are coming, and they are efficiently used. Two schools
and a tuberculosis clinic are being built in Slavuta District, gas is being
supplied to inhabited localities, etc. It is a pleasure that the management
of the NJSC Enerhoatom [national joint-stock company in charge of nuclear
energy] is fulfilling the promises it gave to our region. The sum to be
allocated to the "zone" will be 20m hryvnyas this year.

[Cherneha] The theme of creating a resort town, Sataniv, on the basis of the
Zbruchanska curative mineral water has been discussed for some years.
What is the current situation?

[Hladunyak] Until now there has been almost no state control over developing
the unique territory with a vigorous deposit. Anyone who wished to build
there and to bottle water, did so. Sometimes it became ridiculous: some
swindlers filled half-rusty tanks and transported them somewhere to bottle
Zbruchanska in clandestine workshops with dubious observance of standards.

Now we have a taken a course to improve the resort's development system. A
working commission to control this process has been formed. People buying
this life-giving water should be sure that they consume a natural product,
but not a counterfeit one. Not all regions have got this asset as a generous
gift of nature, thus we should use it to full capacity for the sake of
people's health.

Thus, the authorities should manage this gift of the land in the most
efficient and effective way. We shall regulate licences and bring order to
building in this picturesque area. All this was envisaged when the
development plan for the Sataniv resort was amended.

Echo of blasts in Tsvitokha ----------

[Cherneha] Another serious abnormality - existence of military ammunition
depots - gave a reminder of itself with the blasts in Tsvitokha some months
ago. What should be done with them?

[Hladunyak] The situation is distressing, indeed. Thousands of railway cars
with dangerous cargo have been accumulated at eight army depots. But two
depots in the vicinity of the nuclear power plant and an arsenal in
Hruzevytsya located at several kilometers distance from Khmelnytskyy worry
us the most of all.

Everything concerning removal of these depots has been agreed with the
Defence Ministry. In particular, it is planned to liquidate the Slavuta
artillery ammunition base by the end of 2006, while Hrad rockets, which
pose the greatest threat from the point of view of their storage, will be
taken away in the course of the coming six months.

By the way, funds were allocated for evacuation of ammunition even before,
but they were spent in their own particular way. The military got rid of
small items in the main, for example, of bullets, as it was less
troublesome. But the missiles with a range of several dozens kilometers
remain in their place for the time being. Our demand is to take away the
most dangerous cargo.

By the way, people still live on the territories of such bases. In
particular, 14 families live within the limits of the 47th arsenal in the
ill-famous Tsvitokha. One should take care of relieving them from this
uncomfortable neighbourhood - first of all, the Defence Ministry.
If we move, we do it together

[Cherneha] Regional council deputies did not support you during the recent
session on some issues, though not the crucial ones. How are your relations
with council members developing?

[Hladunyak] All major issues on the agenda (there were over 30 of them) were
supported in the session hall. But the personnel issue initiated by the
regional state administration was rejected. It was just an ambitious party
group in the regional council which wanted to have their protege in the
editor's chair, and obviously, to monopolize public opinion, especially
aimed at the coming election. Of course, it is not normal, and we shall
surely come back to the issue of the appointment.

Generally speaking, I have good working relations with council deputies.
However, there are those who would not like to change anything. They got
accustomed to a certain situation, and they feel more comfortable and better
that way.

[Cherneha] What do you think about opposition which seems to be starting
to have its say. Do you feel its presence?

[Hladunyak] Opposition is not horrifying, and it is even desirable, if it is
constructive. But some people dream about taking revenge and wait for the
election. But I would not say that I feel strong pressure from opponents. It
is still summer outside, but they will become more active in autumn, when
the political campaign is launched.

I only wish our opponents not to be guided by the principle: the worse it is
for the state, the better it is for them. One should differentiate between
the narrow party interests and national ones.

[Cherneha] Mr Hladunyak, in summing up, are you satisfied with your first
months as the administration head?

[Hladunyak] I am pleased to have an efficient team formed, along with a
concrete action plan. However, people's expectations are very high, and
unfortunately, we do not manage to make all of them come true, as this will
take time. Many people have the following sentiment: I have done the most
important thing - I have voted for the new authorities.

But they forget that building a strong and a wealthy country requires
everyone's daily laborious work and the joint efforts of all people. -30-
----------------------------------------------------------------------------------------------------------
Ivan Hladunyak was born on 15 May 1959 in the village of Nyzhnye,
Kolomiya District, Ivano-Frankivsk Region. He graduated from Lviv
Polytechnic Institute and the Shevchenko Kiev University with the
qualification of a heating engineer and an expert in law.
He worked as a senior engineer at the Dniproenerho production
association in Zaporizhzhya, as machine engineer, senior engineer
and the head of foreign relations and information department at the
Khmelnytskyy nuclear power station.
From 1991 till 2001 he was the mayor of Netishyn (Khmelnytskyy nuclear
power station's satellite town). From 2001, he was a deputy head of the
Khmelnytskyy Region state administration. From March 2005, he is the
head of the Khmelnytskyy Region state administration. He is a Candidate
of Law. He is married and has two sons. -30-
=============================================================
13. PASSIONATE AND FREEDOM-LOVING HUTSULS

Yevhen BUDKO, a Ukrainian from the south of Ukraine, and
Mariya VLAD, a Hutsul from Western Ukraine, give some tips
about the Hutsuls and their way of life.

By Yevhen Budko and Mariya Vlad
Welcome to Ukraine magazine,
Kyiv, Ukraine, Issue 2 (33), 2005
The Action Ukraine Report (AUR), No. 527
Kyiv, Ukraine, Thursday, July 21, 2005

"They are Ukrainians, but a bit on the wild side." That is what their
neighbours say about the Hutsuls and their ethnic roots.

In spite of considerable differences in traditions, accent and way of life
from the rest of the Ukrainians, the Hutsuls have become a symbol and
oberih (the ones who maintain the traditions and culture of the Ukrainian
nation and protect it from assimilation) of the Ukrainian nation, similar in
status to that of the Cossacks of old.

The Cossacks are history now (attempts to revive Cossack traditions and
life style are limited in scope to small groups and individuals), but the
Hutsuls are very much part of the present-day Ukrainian scene. Velyka
Ukrayina (Great Ukraine), as the Hutsuls refer to the rest of Ukraine,
increasingly comes to be culturally represented by the Land of
Hutsulshchyna in Western Ukraine.

HUTSULS: THE NAME ----------

There is no consensus as to the origin of the word Hutsul. Originally, the
people who are now known as Hutsuls called themselves Irstens. Some
ethnographers - and they are in a minority - claim that the Hutsuls formed
into a separate ethnic group as a result of several ethnic groups mixing
together, with Ukrainians, Rumanians, Polovtsy, Pecheneh and other
nomads and ethnics contributing their shares.

Other ethnographers and historians - and they are in a majority - argue that
the Hutsuls are basically of Ukrainian descent with an admixture of some
other bloods who, because of their relative isolation in the mountains, have
developed their traditions and culture which distinguish them from
Ukrainians in other parts of Ukraine.

Hutsuls speak Ukrainian, though with an easily identifiable accent; there
are many words in their speech which can be regarded as specifically Hutsul.

Their way of life, volatile temperament, customs, habits, traditions , dress
and food bear distinctive Hutsul traits - and yet, unbiased observations
reveal the basic, underlying features which are common to all the
Ukrainians.

There is a theory that says that every nation or an ethnic group has a
potential for active development which is called "passionateness." This
passionateness manifests itself in various ways at various stages of the
nation's or ethnic group's development. It may find a violent release - then
such a nation or ethnic group becomes aggressive and tries to conquer
others.

It may have an artistic or whatever other release it may happen to be. In
Ukraine, this theory can be applied to the Cossacks in the south and to the
Hutsuls in the west of Ukraine. It is a nice theory but it hardly explains
anything.

The Hutsuls are freedom-loving people. They never allowed any ruler to turn
them into slaves or serfs. Compared to the rather docile Ukrainians of the
central parts of Ukraine, the Hutsuls may seem passionate, or even violent.

There are various theories that seek to explain the origin of the name
Hutsul. According to one of such theories, the Volokhs, the Hutsul
neighbours in the times of old (now they are better known as Moldavians and
Rumanians), used to call their restless neighbours Hots, that is "bandits."

It is true that there were many "Robin Hoods" among the Hutsuls, Oleksa
Dovbush being the most famous - or notorious, depending on how you look at
it - among them. They robbed the rich (foreigners who were the oppressors)
to give the loot to the poor. But most of the Hutsuls minded their own
business and just wanted to be left alone.

The first written mention of Hutsuls has been discovered in a Polish
document that dates to 1754. The document says that a Hutsul woman was
accused of setting fire to a landowner's house and found guilty of arson,
for which crime she was sentenced to death and executed.

Another theory of the origin of the word Hutsul worth mentioning links it to
the Turkish word "hutsul" that means "a horse," but not any kind of horse
but the one that got adjusted to life in the mountains. It is one of the
sturdiest horses in the world, small of stature, not very handsome but
tireless and requiring little to eat.

It was an ideal horse for the Carpathians with their severe conditions. It
not only survived the rigors of the climate but helped the people to
survive. It was thanks to these horses that Irsten settlements which started
to be established in the valleys, gradually moved up the slopes, climbing
higher and higher. And also it is thanks to these "hutsul" horses that
Irstens got a new name - Hutsuls.

Still another theory says that the word "Hutsul" is a derivative of the word
"kuchul," which means "a nomad." Irsten men made seasonal "migrations" -
with the advent of spring they drove the sheep and cattle up the mountains
to the alpine meadows with their luxuriant grasses, and when the colder
autumnal days came they returned to the valleys, back to their homes and
families. In fact, not much has changed since the times of old - Hutsul men
still do the same now as they did hundreds of years ago.

The Volokhy (Rumanians of the Carpathians) and the Hutsuls live as peaceful
neighbours, now separated by the border but sharing a lot of cultural
traditions. Rumanian horses and cows freely walk across the state border
into Ukraine to graze, and after getting their fill, they go back home. Both
Rumanian and Hutsul shepherds know for sure that stray horses and cattle
will always return safely home.

HUTSULS: A BIT OF HISTORY ----------

By the virtue of their natural conditions, the Carpathian mountains were a
place to which the oppressed and persecuted fled seeking and finding refuge
there. It all began back in the Roman times, when Dacia (now Rumania) was
a Roman province.

The old name for the area where the Hutsuls live is Halicia, or Galicia,
which may suggest that at some time in the past it could have been inhabited
by the Celts (Gaul, or Gallia, now France, and Galicia in Spain were the
lands of the Celts) who must have been later supplanted by the Slavs who,
nevertheless, have retained a number of place names and words which can
be supposedly traced back to the Celtic roots.

A less bold and much more accepted theory suggests that some time in the
first millennium BCE, a Slavic tribe of Ruthenians migrated from elsewhere
to the area now occupied by the Hutsuls and settled down, gradually
developing into an ethnic group, the Hutsuls of today.

Ethnographic studies of the Hutsuls began at the end of the eighteenth
century and continued in the nineteenth, culminating in a monumental work,
Hutsulshchyna, by V. Shukhevych published in 1899- 1908 in eight volumes.
A number of Ukrainian writers, Ivan Franko and Mykhailo Kotsyubynsky
among them, described the Hutsul life in fiction.

Kotsyubynsky's novel, "Shadows of Our Forgotten Ancestors," was even
made into a very successful film by the director Serhiy Paradzhanov in the
nineteen-sixties.

Over the centuries, the Land of Hutsulshchyna ("Galicia") changed hands;
from the end of the eighteenth century and up to 1918 it was under the
domination of the Austrian-Hungarian Empire. After the collapse of this
empire, a short-lived republic sprang up in part of Hutsulshchyna. The
Hutsul Republic with the centre in the town of Yasynya existed from
November 1918 to June 1919. It was included into Ukraine only in 1939.

HUTSULS: WAY OF LIFE ----------

The Hutsuls, living in relative isolation from the European civilization and
from the rest of "Great Ukraine" developed, as we have already mentioned,
a way of life distinctly their own. Life in the mountains breeds stamina,
endurance and skills necessary for survival. Strangers and outcasts find it
extremely difficult, or actually impossible, to get adjusted to or be
accepted by the Hutsul community.

On the other hand, the Carpathian mountains in Hutsulshchyna are of such an
overwhelming beauty that those who are born there find it extremely hard to
leave the native land or change their way of life.

Summers are the time of hard work - tilling the land and taking care of the
sheep, cattle, horses and other domestic animals. But the surrounding
natural beauty helps to make hard life more endurable.

Winters are the time when holidays and feasts can be celebrated with
abandon, when songs can be sung and dances can be danced and music
can be played, when new dresses can be made, when needle work can be
done, rushnyky (decorative towels) embroidered, when pysanky can be
painted, when stories and fairy tales can be told, when wood can be carved,
and many other useful and useless things can be done. It has been going like
this, with little changes, in the Land of the Hutsuls for centuries.

If you are a traveller, you will be accorded a warm welcome. You will be
dined and wined, you will be told stories, true and tall, and nobody will
ask who you are and where you are from; they will wait until you tell your
story yourself. But this hospitality will turn into hostility if you make an
attempt to become part of their life - the Hutsul community reject
strangers. And you cannot do anything about it.

If generalizations are possible, then we can say the Hutsul men are tall,
with Roman noses, black hair, not unlike that of horses' tails, dark -
sometimes blue - eyes, long legs, long arms and long hands with long
fingers. Women are mostly of short stature, slim, full of pep, vivacious and
beautiful. They talk fast, they do things fast, they are clever with their
hands. And they are always dressed in great taste, in a remarkable,
traditional Hutsul way.

In general, the Hutsuls like to be dressed well, and take great pains with
their attire. Men like bright decoration on their clothes. In the times of
old, when the clothes were very expensive, they were passed from
generation to generation (not everyday clothes of course - we are talking of
Sunday clothes). There were even murders committed over dresses.

Hutsul men used to carry weapons with them, pistols and axes on long
handles. If a Hutsul had only two pistols stuck into his belt, he was
considered to be poor. Hutsul men have retained their love of weapons but
they do not exhibit it so openly.

Hutsuls like to be showing off. When they take a walk, they want others to
see how well they are dressed; when they dance, they do their best to show
that they dance well; when they work, they want others to see how well they
can work.

Some of the Hutsul houses seem to be kept primarily for the guests, with the
interiors decorated with embroidered rushnyky, carpets, and wood carving.
Such Hutsuls live in a little house in the backyard which they call litnya
kukhnya, summer kitchen.

Hutsuls are freedom-loving and independent people, full of dignity.
Sometimes there is too much of dignity (if there is such a thing as too much
dignity), and Hutsuls were known for easily picking quarrels over what they
thought were even trivial offenses. Some of such quarrels would end in bad
fights with weapons used. In general, Hutsuls are quick to take offence.

Being hot tempered, Hutsuls are at the same time very tactful and
considerate, civil, polite and well-mannered. Even talking to teenagers,
they use highly respectful forms of address. Instead of the Ukrainian
equivalents of "hello" or "hi," Hutsuls prefer to say, Glory be to Jesus
Christ.

Hutsuls are very religious people and observe all the Christian feasts very
scrupulously. Some of their Christian celebrations have pagan elements in
them but even the most eclectic combinations look very natural, not
contradicting each other.

For how long will the Hutsul traditions, customs and habits continue to
live? The outside civilization has begun making inroads into the traditional
Hutsul way of life. Television, radio, Internet, and travel can hardly be
resisted in the twenty-first century.

But there are things in Hutsul life which will hardly change in the years to
come. Traditional Hutsul everyday clothes are better suited for life and
conditions in the mountains than the jeans. Cars are no good in the
mountains either - Hutsul horses are a much more reliable means of
transportation in the forests with no roads and high in the mountain slopes.

Winters will never become summers and long winter nights will continue to
be filled with embroidery, painting pysanky, handicrafts and music, even
though some of the instruments will surely be more sophisticated than they
used to be. Summers will require much work on the available land and
shepherding in the mountains.

Tourism is not likely "to spoil" Hutsuls either - it gives Hutsuls another
chance to show off before the visiting tourists. Hutsul applied and
decorative art is in demand - many of the Hutsul works of decorative art
have found their way to private and public collections in many countries of
the world.

Hutsuls also remember well that the geographical centre of Europe is
situated in their land, in the town of Rakhiv, and being right in the centre
of Europe, they are not in a hurry to leave their mountains. Their envoys,
like Ruslana the pop singer, take their music, if in a pop format, to other
countries. And, strange as it may seem, people in foreign lands who have
never heard of the Hutsuls, like their music. -30-
-----------------------------------------------------------------------------------------------------
LINK: http://www.wumag.kiev.ua/index2.php?param=pgs20052/70,
including some great recent and old photographs.
-----------------------------------------------------------------------------------------------------
NOTE: The second issue of the "Welcome To Ukraine" magazine for
year 2005 has just been published. This world class magazine in color,
published four times a year in Kyiv, is truly outstanding and one of the
best magazines about Ukraine published in the English language.

For complete information on how to obtain the latest copy of the
"Welcome to Ukraine" magazine or how to subscribe for one to three
years send an e-mail to ArtUkraine.com@starpower.net. -30-
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