"THE ACTION UKRAINE REPORT - AUR"
An International Newsletter
The Latest, Up-To-Date
In-Depth Ukrainian News, Analysis, and Commentary
"Ukrainian History, Culture, Arts, Business, Religion,
Sports, Government, and Politics, in Ukraine and Around the World"
"THE ACTION UKRAINE REPORT - AUR" - Number 558
Mr. E. Morgan Williams, Publisher and Editor
Washington, D.C., Kyiv, Ukraine, WEDNESDAY, September 14, 2005
--------INDEX OF ARTICLES--------
"Major International News Headlines and Articles"
1. UKRAINE - MACROECONOMIC SITUATION - AUGUST 2005
MONTHLY REPORT: By Olga Pogarska & Edilberto L. Segura
SigmaBleyzer Private Equity Investment Group
Kyiv, Ukraine, Wednesday, September 14, 2005
2. BIG FUSS HIDES REAL REASONS FOR POLITICAL CRISIS IN UKRAINE
ANALYSIS: Roman Bryl, Ukraine Analyst
IntelliNews-Ukraine This Week, Kyiv, Ukraine, Mon, Sep 12, 2005
3. UKRAINIAN CRISIS TRIGGERED BY MANGANESE PLOT
Beneficiaries are partnership of Russian metal magnates
COMMENTARY AND ANALYSIS: By John Helmer
Mineweb.com, Moscow, Russia, Wed, Sep 14, 2005
4. ORANGE REVOLUTION'S BITTER AFTERTASTE WORRIES BUSINESS
Political temperature in Kiev is likely to remain high
By Stefan Wagstyl and Tom Warner
Financial Times, London, UK, Wed, Sep 14 2005
5. 'COLOURED REVOLUTIONS' REVEALED TO BE HOLLOW AT CORE
COMMENTARY: Dr Kirill Nourzhanov, lecturer at Centre for Arab and
Islamic Studies (The Middle East and Central Asia) at the ANU
Canberra Times, Canberra, Australia, Wed, Sep 14, 2005
6. UKRAINE'S SACKED PRIME MINISTER 'WAS PLOTTING'
Mara D. Bellabyin in Kiev, Irish Independent
Dublin, Ireland, Wednesday, September 14, 2005
7. UKRAINE PRESIDENT LASHES OUT AT OUSTED PRIME MINISTER
By Mara D. Bellaby, Associated Press Writer
Associated Press (AP), Kiev, Ukraine, Tue, Sep 13, 2005
8. UKRAINE PRES: NO MORE REVIEWS OF PRIVATIZATION DEALS
Associated Press (AP), Kiev, Ukraine, Tue, September 13, 2005
9. UKRAINE TYCOON HOPES FIRING GOVT WILL END REPRIVATIZATION
Associated Press (AP), Kiev, Ukraine, Wed, September 14, 2005
10. UKRAINIAN GOVERNMENT READY TO DEAL WITH OWNERS
OF DISPUTED CHEMICAL PLANT AZOT
One Plus One TV, Kiev, in Ukrainian 1630 gmt 13 Sep 05
BBC Monitoring Service, UK, in English, Tue, Sep 13, 2005
11. UKRAINE EXPECTS TO EARN ALMOST $5B FROM REPRIVATIZATIONS
Associated Press, Kiev, Ukraine, September 12, 2005
12. UKRAINIAN PRIVATIZATION BODY INTENDS TO RETURN
MORE FACILITIES TO STATE HANDS
Semenyuk: "We only need to sell enterprises that are 'laying around.'"
INTERVIEW: Valentyna Semenyuk, Head, Ukraine State Property Fund
Invest-Gazeta, Kiev, in Russian 13 Sep 05; p 15
BBC Monitoring Service, UK, in English, Tue, September 13, 2005
13. UKRAINIAN PARLIAMENTARY LEADERS WELCOME
DECLARATION OF UNITY AND COOPERATION
Interfax-Ukraine news agency, Kiev, in Russian 1515 gmt 13 Sep 05
BBC Monitoring Service, UK, in English, Tue, Sep 13, 2005
14. UKRAINIAN CONSTITUTIONAL COURT CLEARS WAY FOR POLITICAL
REFORM TO TRANSFER MOST PRESIDENTIAL POWERS TO PARLIAMENT
TV 5 Kanal, Kiev, in Ukrainian 0900 gmt 13 Sep 05
BBC Monitoring Service, UK, in English, September 13, 2005
15. POLAND POSITIVELY ASSESSES INVESTMENT CLIMATE IN UKRAINE
Ukrainian News Agency, Kyiv, Ukraine, Mon, September 12, 2005
16. UKREXIMBANK TO OPEN REP OFFICE IN UNITED STATES
Ukrainian News Agency, Kyiv, Ukraine, Tue, September 13, 2005
17. TIMOSHENKO'S DISMISSAL OPENS KIEV FOR PUTIN
President Putin will visit Yushchenko in October
Kiev now seems intent on rapprochement with Russia
COMMENTARY: Tatiana Ivzhenko, Nezavisimaya Gazeta
Moscow, Russia, Tuesday, September 13, 2005
18. GAZPROM'S NEW EUROPEAN ROUTE: CRY UKRAINE?
COMMENTARY: By Pavel K. Baev, Eurasia Daily Monitor
Volume 2, Issue 168, The Jamestown Foundation,
Washington, D.C., Monday, Sep 12, 2005
19. UKRAINE: FROM REVOLUTION TO EVOLUTION
Why Tymoshenko's Figures Didn't Add Up
This government has been an unmitigated disaster of socialist populism.
COMMENTARY AND ANALYSIS: Anders Åslund
Vedomosti, Moscow, Russia, Wed, Sep 14, 2005 (In Russian)
The Moscow Times, Moscow, Russia, Wed, Sep 14, 2005 (In English)
20. FIRST LADY AWARDS OPPONENTS OF HUMAN TRAFFICKING
Press office of the President of Ukraine Victor Yushchenko
Kyiv, Ukraine, Friday, September 9, 2005
21. UKRAINE 3000 FOUNDATION ANNOUNCES COMPETITION
From Hospital to Hospital Program International Program
Press office of the President of Ukraine Victor Yushchenko
Kyiv, Ukraine, Monday, September 5, 2005
22. AUSTRALIA STRENGTHENS ITS LINKS WITH UKRAINE
AFUO Registered in Ukraine and Opens Office
The Action Ukraine Report (AUR)
Kyiv, Ukraine, Wednesday, September 14 2005
=============================================================
1. UKRAINE - MACROECONOMIC SITUATION - AUGUST 2005
MONTHLY REPORT: By Olga Pogarska & Edilberto L. Segura
SigmaBleyzer Private Equity Investment Group
Kyiv, Ukraine, Wednesday, September 14, 2005
UKRAINE - MACROECONOMIC SITUATION - AUGUST 2005
SUMMARY
(1) During January-July 2005, economic growth slowed down to 3.7%
year-over-year (yoy); growth is expected to reach about 5% yoy for the
whole year thanks to good agricultural performance.
(2) In the first half (1H) of 2005, the consolidated budget registered
a surplus of 0.9% of GDP on the back of improved tax enforcement and
tax administration; despite further increases in social payments.
(3) Following the re-sale of Kryvorizhstal scheduled for October, the
stalled privatization process should revive, provided that it is followed to
other business improvement measures. Recommencement of privatization
should stimulate FDI, which slid 14.4% yoy in the first half of 2005.
(4) To secure enough financing for the expected fiscal deficit, the
government increased its reliance on new borrowings; following an almost
one year interval, Ukraine is going to enter the external markets, issuing
10-year Eurobonds of EUR 600 million.
(5) Containing rapid inflation growth remains the primary macroeconomic
challenge for the government; the National bank of Ukraine (NBU) made
several steps to reduce inflation, although they were insufficient.
(6) The merchandise foreign trade balance continued to worsen on the
back of deteriorating export growth and accelerating imports.
(7) Ukraine still has a good chance of joining the WTO before the end
of this year, while the prospects for its participation in the Common
Economic Area (CEA) are unclear.
ECONOMIC GROWTH
The steep downward trend of economic growth in Ukraine, observed since
the beginning of 2005, came to a breaking point in June, when real GDP
advanced by a negligible 1.1% yoy. In July, GDP growth accelerated slightly
to 2.4% yoy. However, cumulative real GDP growth continued to decelerate
to a modest 3.7% yoy over January-July, three times lower than in the
corresponding period last year.
Deceleration was reported in all sectors except for agriculture. Despite a
high base effect caused by the outstanding crop last year, value added in
agriculture increased by an encouraging 7.8% yoy over the period.
Considering expectations of a fairly good harvest this year, good
agricultural performance may help increase the pace of economic growth in
the second half of the year.
Transport, lower growth rates of which should also be attributed to a high
base effect, advanced by a solid 6.6% yoy over January-July, benefiting from
increasing transportation tariffs (up by almost 15% since the beginning of
the year). Utilities continued expanding at 3.1% yoy compared with the 2.1%
yoy decline in the corresponding period last year.
At the same time, favorable performance in agriculture, transport and
utilities (the combined value added of which amounts to around 30% of total
Ukrainian GDP) could not compensate for the slowdown in the extractive
industry and manufacturing and the stagnation in construction and domestic
trade (the combined value added of which is estimated at about 40% of total
GDP.)
Since the beginning of the year, value added in construction kept declining
in contrast to the booming growth in the sector last year. Over
January-July, it shrunk by more than 8% yoy. Value added in wholesale and
retail trade decreased by a cumulative 2.4% yoy over the period.
Considering fairly poor domestic industry performance, buoyant domestic
demand stimulates the growth of imports, thus contributing to the worsening
of the country's external trade balance.
Industrial output declined for the second month in a row, shrinking by 2.4%
yoy in July. As a result, cumulative growth slowed to below 4% yoy compared
to 14.7% yoy in the corresponding period last year. The deceleration should
be primarily attributed to unfavorable market conditions for metallurgy, and
a drastic slowdown in machine-building and oil-refining.
These industries, accounting for about 50% of total industrial sales in
2004, were the main drivers of industrial growth last year. Over
January-July 2005, metallurgical output reported an almost 3% yoy decline
in contrast to 16.1% yoy growth in the respective period last year.
Export-oriented metallurgy is negatively affected by declining world prices
for steel products and higher production costs (higher iron ore prices,
transportation tariffs and more expensive energy resources).
Machine-building, the second largest industry in Ukraine, reported a 3.6%
yoy decline in July; cumulatively the output increased by 7% yoy over the
period, down from impressive 30.8% yoy growth during January-July last year.
After April-May's gasoline crisis (when the country experienced a shortage
of gasoline stemming from government efforts to administratively prevent an
abrupt increase of petroleum prices), oil-refining production continued to
rebound, increasing its output by 4% month-over-month (mom) in July. At the
same time, oil-refining production contracted by a cumulative 7.1% yoy over
January-July.
On the upside, encouraged by robust growth of household income, food
processing output accelerated to 11% yoy in July, bringing the cumulative
growth to 13.5% yoy. Enjoying buoyant demand, the wood, pulp and paper, and
chemical industries grew by a robust 18.4% yoy, 12.7% yoy, and 11.5% yoy
respectively over January-July.
In addition to a high base effect, government officials tend to explain the
growth slowdown by the higher quality and accuracy of gathering and
processing of statistical information this year. Doubts regarding the
reliability of data released for last year arose mostly due to the revealed
facts of artificially overstated exports and understated imports,
non-transparent methodology and inaccessibility of information regarding
individual components of aggregated indicators.
Although this year's statistics were declared realistic and its
accessibility notably improved, more endeavors are needed to make the
methodology of calculating statistical indicators more transparent. There
is, however, another important reason for the growth slowdown this year.
The uncertainties created by the approaching April 2006 parliament
elections, occasionally weak policy-making, and unresolved issues of
reviewing past privatization deals dampened both domestic and foreign direct
investments. However, the successful resolution of the Kryvorizhstal deal
and recommencement of the privatization process may improve the situation.
Taking into account current real sector performance, the official GDP
forecast for 2005 at 8.2% yoy looks unrealistic. In June, government
officials declared that the GDP forecast may be downgraded by 0.2
percentage points (pps) to 8% yoy.
However, at the beginning of August, it was announced that the forecast may
be lowered to 6-6.5% yoy. At the same time, international organizations
forecast an even more modest 5% yoy growth in 2005.
FISCAL POLICY
Over the first half (1H) of 2005, the consolidated budget surplus amounted
to UAH 1.85 billion (about $370 million), which is equivalent to 0.9% of
period GDP. The favorable budget balance was achieved due to improved tax
enforcement and tax administration, which resulted in a 37.4% yoy increase
in real budget revenues to UAH 58.5 billion ($11.6 billion).
Despite an economic growth slowdown, which may jeopardize ambitious plans
to collect tax revenues in 2005 by 50% higher than last year (according to
the amended budget in late-March 2005), tax revenue collection has been
successful so far. The proceeds from corporate tax and import duties
increased 57.5% yoy and 50.3% yoy in real terms respectively over
January-July.
Value added tax reported the largest increase in receipts, by a real 76%
higher than in the corresponding period last year. However, the figure
should be treated with some caution due to accumulation of VAT refund
arrears.
Despite the encouraging data for budget revenues, the targeted deficit of
1.86% of GDP remains quite a challenging task due to generous social
payments and the government's firm intention to further increase budget
sector wages.
So far, consolidated budget expenditures grew at a slower pace than
revenues, advancing by a real 35% yoy to UAH 56.7 billion ($11.2 billion) at
the end of June 2005. Over January-June, social expenditures soared by
almost 67% yoy in real terms.
Furthermore, the government keeps increasing social payments despite the
fact that they cause inflationary pressures. Starting September 1st, the
government will raise wages for budget sector employees by 15%, while the
minimum wage will be increased to UAH 332 ($65.7), up from UAH 310 set at
the beginning of July. This will be the 4th minimum wage increase and the
3rd budget sector wage increase since the beginning of the year.
The minimum wage hikes are carried out in order to eliminate the imbalance
between minimum wage and pensions, originating from the government's
decision to raise retirees' pensions to the subsistence level in September
2004. Now one year later, minimum wage and pensions will match.
Despite poor privatization performance so far, the government may have
enough resources to finance the expected fiscal deficit this year.
Considering that receipts from privatization amounted to less than 10% of
the targeted amount in 1H 2005, the government increased its reliance on
new borrowings.
The government pursued quite a prudent public debt policy during this
period, repaying more expensive external obligations while issuing cheaper
medium-term domestic T-bills. In addition, the burden of external debt on
the economy has been declining due to the appreciating national currency and
favorable $/EUR dynamics (61.5% and 8.5% of Ukraine's total external debt
are denominated in US dollars and Euros respectively).
Since the beginning of the year, domestic debt increased by 6.9%
year-to-date (ytd) to UAH 22.4 billion ($4.4 billion) while external debt
declined by 7% ytd to $11.3 billion (in hryvnia equivalent, external debt
shrunk by an impressive 11.3% ytd). May-June, however, showed a slight
decline in domestic debt, which may be attributed to redemption volumes
exceeding those of the newly issued instruments in these months.
Considering that domestic T-bills turned out to be attractive for
non-residents, the Ukrainian government decided to issue 10-year Euro-
bonds of EUR 600 million with an annual yield rate of 5-6%. Most likely,
allocation of the Eurobonds will be carried out in late-September, when the
situation with privatization receipts becomes clearer.
The privatization process is expected to revive in October if the re-sale of
Kryvorizhstal is successful. The disputed privatization of Kryvorizhstal is
considered one of the major reasons for poor privatization performance this
year. Following the decision of the Kyiv Commercial Court of Appeals
confirming that the privatization of Kryvorizhstal was carried out
illegally, the auction was scheduled for October 24th.
Fair and transparent resolution of the Kryvorizhstal deal is of vital
importance for the whole privatization process to be successful, and for
Ukraine's investment climate and international image to improve. The
starting price for the 93.02% share of the mill was set at $2 billion (in
June 2004, it was sold to the Investment-Metallurgical Union for about $800
million).
In addition, the government developed an extensive modernization program
that will require an extra $1 billion from the winner. Moreover, the winner
should secure the mill's annual sales in the amount of at least UAH 9.5
billion (about $1.9 billion) during the next 5 years after the purchase.
Regardless of the high bidding price and considerable commitments, a number
of powerful foreign enterprises such as Mittal Steel, Arcelor, and Germany's
RSJ Erste Beteiligung have already announced their intentions to participate
in the tender.
A group of Ukrainian companies affiliated with Privatbank have expressed
their interest in participating, while two Russian companies (Severstal and
Eurazholding) are examining the possibility as well.
Besides Kryvorizhstal, there are about 30 other enterprises whose
privatization may be reconsidered. However, according to the Prime Minister
(PM), there are hundreds of cases at trial regarding earlier privatization
deals; hence, the number of such enterprises may be considerably higher.
Considering that the re-privatization process has been lingering and being
fully aware of its harmful impact on Ukraine's investment climate and image,
the government decided to elaborate procedures for privatization amnesty. In
the meantime, to accelerate the process and secure enough privatization
receipts for this year and the next, the Cabinet of Ministers approved about
520 companies to be privatized in 2005-2006.
Just a month ago, the government endorsed a list of 34 enterprises to be
urgently prepared for privatization before the end of this year. In
particular, it contains the largest Ukrainian company in terms of market
capitalization, "Ukrtelecom". The government plans to sell the package of
42.86% of the enterprise's shares before the end of the year. The winner
will be allowed to manage an extra 25% of the shares.
The intentions to privatize "Ukrtelecom" were repeatedly expressed by
various Ukrainian governments during the last eight years; however, they
were never realized. It is considered that the peak of investment
attractiveness of telecommunication companies has already passed.
Moreover, due to short-sight management in the past, the company missed the
opportunity to hold a leading position on the mobile services market. Now,
to enlarge the its market capitalization and increase its competitiveness,
the company is actively seeking the necessary license for providing mobile
services.
With the state's support of these actions, "Ukrtelecom" may receive the
license at the end of August. However, it will require around $250-300
million investments during 2006-2008 to develop mobile services, which may
lower the attractiveness of the enterprise. Considering also the dissent
among various officials regarding "Ukrtelecom" privatization, privatization
of the company this year looks doubtful.
MONETARY POLICY
Following the sharp hryvnia appreciation in April, the National Bank of
Ukraine (NBU) returned to the policy of targeting exchange rate stability in
May-July. However, increasing inflationary pressures, primarily caused by
expansionary fiscal policy, growing gasoline prices and considerable NBU
forex purchases in July-August, may lead to further nominal appreciation of
the hryvnia.
Just in July, net NBU purchases of foreign exchange amounted to about
$400 million, while they are just over $5 billion since the beginning of the
year. Considerable inflow of foreign exchange continues in spite of the
economic growth slowdown and worsening export conditions, which may
be attributed to speculative capital coming to the market and expected
recommencement of large-scale privatization in the near future.
During July-August, various Ukrainian and international (IMF) officials
expressed the need to liberalize the exchange rate in order to curb
inflation. Shortly after the statements, the NBU tried a non-intervention
policy. Over several days it did not purchase excess supply of foreign
currency on the interbank market.
However, observing rapid currency appreciation (sometimes to UAH/$4.88),
the National Bank returned to the practice of buying out the surplus foreign
exchange, although unlike its usual practice it purchased only part of the
excess supply. As a result, the hryvnia exchange rate varied between
UAH/$4.9-4.98 at the interbank trades, the NBU purchased at UAH/
$4.98-5.01, while the official rate remained constant at UAH/$5.05.
Being aware that further strengthening of the national currency will further
exacerbate an already worsening foreign trade balance and economic growth
slowdown but experiencing pressure to contain the growth of inflation, the
NBU raised its refinancing rate by 0.5 percentage points (pps) to 9.5% on
August 9th.
In addition, reserve requirements on corporate and household demand and
time deposits in local and foreign currencies will be raised by 1 pp to 8%
starting September 1st. Though these measures may help, they are
insufficient to restrain inflation and return it to single digits as is
targeted through the end of the year (the official year-end inflation target
remains unchanged at 9.8% yoy).
Considering also that one of the NBU's top-managers who opposed
strengthening of the national currency as a tool to combat inflation
resigned in mid-August, it is very likely that the hryvnia will be allowed
to strengthen. At the same time, it remains unclear when this may happen.
The situation may become clearer in a few weeks when the government makes
public the draft of the 2006 budget and the Ministry of Justice processes
four NBU resolutions regarding liberalization of the foreign exchange market
and regime for foreign investments.
In July, monthly consumer inflation decelerated to 0.3% mom, down from 0.6%
mom a month before. In annual terms, however, it reached 14.8% yoy, slightly
up from 14.4% yoy in June. Foods, accounting for the largest share in the
consumer basket, became 18.8% yoy more expensive in July, while nonfoods
and services showed a more moderate increase in prices (4.7% yoy and
8.8% yoy, respectively).
Acceleration of food prices since the beginning of the year should be
attributed to the extensive social payments which stimulated consumption,
particularly of lower income groups. By product breakdown, the largest
increase in prices in July was reported by meat and sugar, up by 36.1% yoy
and 62.7% yoy, respectively. At the same time, following a reduction of
import duties on meat products, the growth of prices continued to decelerate
in July.
In contrast, sugar prices gained 24.1% mom in July. However, the trend
should reverse as the government-increased quota on imported raw sugar and
sugar manufactured from the new harvest will soon start flooding the market.
Non-food prices accelerated slightly, responding to growing international
gasoline prices (according to an agreement between the government and
major gasoline market players, the level of gasoline prices in Ukraine is
conditional on their international price dynamics).
Acceleration of service tariffs is primarily attributed to a lag effect of
the gasoline price increase on transportation tariffs. The producer price
index (PPI) continued to decelerate, reaching 15.6% yoy in July.
The upward trend of monetary aggregates growth reversed in July, which
should be attributed to slower growth of deposits and the increase of
government deposits in national currency with the NBU (due to larger tax
revenues, redemption of government credits by the Pension Fund of Ukraine,
and dividend payments from state enterprises). In July, money supply (M3)
decelerated to 35.9% yoy, down from 37.1% yoy in June.
Despite a gradual increase of annual deposit rates, the growth of deposits
continued to decelerate responding to the high annual inflation rate. At the
same time, commercial bank lending continued to accelerate at a robust
39.3% yoy pace (up from 34.2% yoy in June) while the average cost of loans
stabilized around a 14 % annual rate.
Rapid expansion of credit to the private sector stimulates household
consumption, which puts pressure on prices. Moreover, together with
appreciating domestic currency and growing population income, it stimulates
the growth of imports. Recent NBU decisions to raise the refinancing rate
and reserve requirements may help to contain rapid growth of bank lending
and further reduce money supply growth. At the same time, they may result in
a temporary shortage of liquidity in the banking sector.
INTERNATIONAL TRADE AND CAPITAL
As a result of a stronger national currency and weakening external demand on
Ukrainian exports, Ukraine's foreign trade balance continued to worsen in
June. With annual growth rates of imports considerably outpacing those of
exports (2.3% yoy and 31% yoy, respectively), June's merchandise trade
balance reported a $413 million deficit.
It is the fourth month in a row that foreign trade registered a negative
balance. At the same time, due to considerable surpluses in the first two
months of the year, the cumulative trade balance remained positive at $381
million. It was almost 84% lower than that achieved in the same period last
year.
At the same time, Ukraine's foreign trade of services registered a surplus
of $1.56 billion over 1H 2005, just 3% lower than in the corresponding
period last year. As a result of decelerating exports and accelerating
imports, the current account will narrow considerably but may still remain
in surplus by the end of the year.
Despite the extensive country promotion campaign and the policy of maximum
assistance to foreign investors declared by top Ukrainian officials, stalled
privatization (due in part to the unresolved Kryvorizhstal deal), sometimes
controversial policy measures (as in April, when the government tried to
intervene in the gasoline market to prevent rapid increase of gasoline
prices) and government infighting resulted in 14.4% yoy lower FDI over 1H
2005.
According to the State Statistics Committee, the cumulative FDI stock that
Ukraine managed to attract amounted to $9.061 billion, which is equivalent
to $192 per capita. To promote and inform foreign investors about business
opportunities in the country and coordinate activities aimed at improving
the business environment, the foreign investment promotion agency was
created at the beginning of July.
In mid-August, similar tasks were imposed by the President on the Ukrainian
diplomats. Moreover, since April 2005, the functioning of the Advisory
Council on Foreign Investments was renewed with the first plenary meeting
scheduled for October 20th. During the meeting, foreign members of the
council and representatives from the Ukrainian authorities will address the
issues of improving Ukraine's investment climate and effective realization
of investment opportunities.
In the meantime, the council's expert commission has been developing
measures to improve the regulatory framework of doing business in Ukraine
and liberalize foreign exchange regulations regarding foreign investments.
INTERNATIONAL PROGRAMS
During the end of July/beginning of August, an IMF mission visited Ukraine
to assess current macroeconomic developments in the country. The mission
primarily focused on current economic and financial, fiscal and monetary
policies, and progress in structural reforms. In particular, IMF
representatives stressed that reducing inflation is currently the main
macroeconomic challenge of the Ukrainian government.
Among other measures to reduce inflation to single digits, the IMF
recommended allowing greater flexibility of the exchange rate and
maintaining a tight fiscal stance in 2006. In terms of fiscal policy, the
IMF praised government efforts to close a number of loopholes, at the same
time indicating possible risks for the deficit to exceed this year's target
(such as accumulation of the VAT refund claims payable, possible shortfalls
in transfers from state enterprises and considerable social payments).
According to the IMF team, structural reforms such as rapid and transparent
resolution of the reprivatization issue, early implementation of the
remaining legislation needed for World Trade Organization (WTO) membership,
development of domestic capital markets, strengthening the financial sector,
and restoration of the financial viability of the state pension fund are the
key steps to ensure economic growth in the future and improve Ukraine's
business environment and investment climate.
OTHER DEVELOPMENTS AND REFORMS AFFECTING
THE INVESTMENT CLIMATE
In mid-August, Ukraine and China agreed on joint access to the market of
goods and services. Negotiations regarding completion of bilateral
agreements on joint access intensified following parliament's approval of
the seven laws necessary for World Trade Organization (WTO) accession
out of the 15 proposed by the Cabinet of Ministers at the beginning of July.
With the entry to be discussed by the WTO's ministerial meeting scheduled
for December 2005, Ukraine should endorse all necessary laws and sign the
agreements on joint access with the remaining 12 countries. Despite a very
comprehensive agenda over a fairly short period of time, Ukraine still has a
chance to join the WTO before the end of this year. Obtaining market economy
status from the EU is an important step towards joining the WTO and may
occur before or during the Ukraine-EU summit.
According to the deputy prime minister for European integration, the summit
will be held in Kiev on December 1st. The very fact that Ukraine will host
the summit is one more opportunity for Ukrainian authorities to draw
attention from potential investors to the country.
During August, top Ukrainian officials made a number of controversial
statements regarding Ukraine's participation in the Common Economic Area
(CEA). On August 19th, the minister of economy declared that Ukraine will
not participate in the CEA project. Instead, it will intensify bilateral
trade and economic relations with Russia, Belarus and Kazakhstan.
A few days after, however, the president of Ukraine declared that Ukraine
will join the trading block with the mentioned countries. The creation of
the CEA within the borders of Ukraine, Russia, Belarus and Kazakhstan
envisages gradual integration of the countries' trade and economic policies
and, eventually, formation of a customs union.
Following Ukraine's firm statement to limit its participation in the CEA to
the creation of a free trade zone, negotiations have been stalled. While a
free trade zone may benefit Ukraine, deeper integration to a customs union
will have harmful consequences for WTO accession and overall Ukraine-EU
cooperation plans. -30- [The Action Ukraine Report Monitoring Service]
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FOOTNOTE: To read the entire Macroeconomic Report for August
in a PDF format with all the accompanying charts in color click on:
http://www.sigmableyzer.com/files/Ukraine-Ec%20Situation_08_05.pdf.
Contact: Olga Pogarska (opogarska@sigmableyzer.com.ua)
=============================================================
2. BIG FUSS HIDES REAL REASONS FOR POLITICAL CRISIS IN UKRAINE
ANALYSIS: Roman Bryl, Ukraine Analyst
IntelliNews-Ukraine This Week
Kyiv, Ukraine, Monday, September 12, 2005
President sacks government headed by Orange Revolution
comrade PM Tymoshenko
President Victor Yuschenko made a drastic move dismissing the government
on Sep 8. He signed the respective order during a live TV interview at
midday of Thursday. Before signing it, Victor Yuschenko gave explanations
why this move was necessary.
The major arguments were as follows: the government had the widest
credentials in Ukrainian history, but did not manage to improve the economic
situation. Along with worsening of macroeconomic indices in 2005, government
was responsible for several crises that shattered economic stability,
Yuschenko declared during his speech. In particular, government initiated
fuel crises in spring and sugar and meat crises in summer.
The last drop that destroyed the president's patience was attempts of a
rough change of top management in major industrial enterprises that are now
being re-privatized. The assaults on Nikopol Ferroalloy plant and chemical
enterprise Azot (Severodonetsk) had been backed by government officials.
But the most obvious need to dismiss the government, president declared, was
lack of unity in the government team. Most members of government do nothing
but use their authority in their own commercial needs or in preparation for
the next general elections. Government became as corrupted as the previous
government was, the president concluded.
State secretary Alexander Zinchenko provokes
political scandal by his resignation
The political crisis in Ukraine broke out after state secretary Alexander
Zinchenko on Sep 5 accused many high-ranking officials of corruption. During
the press conference devoted to his resignation, on Sep 3 Zinchenko
demanded president Victor Yuschenko to fire secretary of national security
and defense council (CNSD) Petro Poroshenko, accusing him of corruption.
According to Zinchenko, for a long time he called Yuschenko to fire
Poroshenko. But the latter kept his post, becoming the main reason of
Zinchenko's resignation. Poroshenko together with Yuschenko's first aide
Alexander Tretyakov and leader of parliamentary group Our Ukraine Mykola
Martynenko cynically misused their authorities, Zinchenko declared.
Poroshenko used his power to press on courts. He has subdued customs
service for his business needs and controlled senior officials in ministry
of internal affairs, Zinchenko underlined. He also said Tretyakov is guilty
of trying to take control over major areas of economic and social activities
in
the country, for instance mass media, gas industry, etc. Zinchenko denied
the assumption that he would become the next Ukrainian ambassador to
Russia.
Petro Poroshenko was present at Zinchenko's press conference but kept silent
until ex-state secretary finished his speech. Just after Zinchenko left the
conference hall, Poroshenko took his place and started his own press
conference. He declared that all accusations were false and he was ready to
disprove the charges.
Poroshenko informed he would bring an action against Zinchenko to defend his
dignity. Later, Mykola Martynenko also announced he would start a law suit
against Zinchenko. According to Yuschenko's spokeswoman Irina Geraschenko,
a special commission would be created to investigate all the facts disclosed
by Zinchenko. She did not say the president would declare any changes in the
government.
Nobody could predict dismissal of government until the last minute
At that moment nobody could predict that Victor Yuschenko would dismiss the
entire government. It seemed that even most government members and senior
officials did not suppose Yuschenko would go that far. This view is based on
declarations of deputy PM Mykola Tomenko and Petro Poroshenko, who in the
early morning of Sep 8 declared their resignations.
Tomenko (like Zinchenko) also accused Poroshenko of using his power for
personal purposes. Poroshenko even tried to dictate which people should
represent Our party Ukraine in the next general elections, Tomenko added.
But Tomenko in his rough speech did not mention the forthcoming dismissal of
government. We suppose he did not know about it yet then.
In several hours, president Yuschenko made his now famous statement about
dismissing the government including PM Timoshenko. It became evident that
lack of unity was not only within the government, but also between Yuschenko
and his closest ally Timoshenko.
Dissolution of the tandem that was the core of orange revolution's success
proved a major political crisis has erupted in the country.
Discharged PM Yulia Timoshenko reacts very softly on her resignation
Everybody started to wait for the reaction of discharged Timoshenko, because
her statements could deepen the crises or, vice versa, soften it. Timoshenko
chose not to worsen the situation. On Sep 9 she gave a 1.5 hour live TV
interview, declaring her view of the situation.
To sum up, her position is: Yuschenko decided to sack the government and PM
under pressure of his close allies, namely Petro Poroshenko and his team.
She would continue her political career; gather around herself allies and
participate in the general vote as leader of her political party.
Timoshenko also declared her dismissal was just a political move, as her
government did not make any serious mistakes in economic policy. Timoshenko
stressed that the government managed to tackle schemes of money laundering
and smuggling; legalized business, bringing an extra UAH 22bn to the state
budget, increased pensions by 21%, etc.
Splitting from Yuschenko ex-PM Timoshenko becomes one of the major
contenders for parliament seats after next election
Timoshenko announced plans of her political career: to participate in the
elections "not together with Yuschenko". This move is very important for
understanding the future political situation in Ukraine. Distancing herself
from president Yuschenko, Timoshenko created the second most powerful
political force in Ukraine that would likely unite moderate opponents of
Yuschenko.
It is obvious that Timoshenko's party will take plenty of seats in the next
parliament. She has many supporters among the general public and
politicians. Parties that are outsiders today get a choice which side to
join in the next election: Timoshenko or Yuschenko. There is no major third
party that can compete with them.
To CONCLUDE, the breakup of the main political force in Ukraine
brings it hidden benefits.
FIRST, we can predict these two parties will take a combined absolute
majority of seats in Rada. Uniting in the new parliament allows them to
receive total control over political and economic life.
SECOND, as we supposed above, third parties would prefer to team up with
Timoshenko or Yuschenko and not to create an alternative major party to
compete for seats. That excludes the "contra-orange revolution" some experts
predicted earlier, taking into account the general vote gives a chance to
Russia to participate in a masked way by sponsoring the opposition.
THIRD, by means of a political scandal it became possible to push aside
officials that discredited authorities by their corruptive actions (such as
Petro Poroshenko who with his huge capital enjoys serious influence on
politics and the economy).
All said above make us think the government's dismissal was a coordinated
circumspect act. Yuschenko and Timoshenko's move would keep the situation
in Ukraine tense but stable before the vote. However, it would be not easy
to obtain clear evidence of such a plot. Of course, Timoshenko and
Yuschenko would not show any signs of "intimacy" in the next few months.
Part of the president's duties would soon be transferred to parliament, with
the PM becoming the most influential figure. The PM would be nominated by
Rada, which makes control over it crucial for incumbent authorities. Current
Rada Speaker Vovlodymyr Lytvin was mildly oppositional to the new
government, thus we expect him to cling closer to Yuschenko now. Assuring
virtually unhindered control over Rada.
We cannot exclude government dismissal was a planned
action of Yuschenko and Timoshenko
We also do not predict any worsening of the economic situation in the
nearest future. Things could not get much worse than they are now. President
Yuschenko made the right move to appoint as acting PM Yuri Yekhanurov,
head of Dnipropetrovsk regional administration. Our personal impressions
from meetings with him are quite positive.
He is a well-known economist and manager with more that 25 years of
managing experience. Also, Yekhanurov was not involved in political
conflicts, which shields him from any accusations of making a political move
by heading the government.
President Yuschenko and leaders of major parliament factions assured that
Yekhanurov will be nominated as PM in the next 2-3 weeks. Political
neutrality makes it possible for Yekhanurov to invite into government
professionals rather then politicians. Yuschenko confirmed there would be
no person in government who was involved in business activities. The new
government will include several ministers that were dismissed by the
president.
At the same time, several people who had been fired due to support of
Yuschenko's main opponent Victor Yanukovich during the presidential
elections, but are revered professionals, will be returned to government.
The government of experienced professionals will be able to keep the
economic situation stable during the next general vote.
SECOND, we expect a warming of political and economic relations with Russia.
Yekhanurov was born in Russia and sympathizes with his native country. While
ex-PM was persona non grata in Kremlin, and never visited Moscow during the
last 8 months, now he can easily go to Russia for any negotiations.
That can improve the situation with import of energy resources from Russia.
Plus, Yekhanurov showed himself as a conciliator, taking part in talks on
Nikopol ferroalloy plant. He met all sides of the conflict and managed to
resolve it. Thus, proving to be fair, he can guarantee fair participation of
Russian companies in key privatizations in Ukraine.
We should say that there is no need to dramatize the current situation in
Ukraine. This is just the beginning of the next stage of the orange
revolution that aims to strengthen the rule of its winners after
parliamentary elections. -30- [The Action Ukraine Report Monitoring]
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3. UKRAINIAN CRISIS TRIGGERED BY MANGANESE PLOT
Beneficiaries are partnership of Russian metal magnates
COMMENTARY AND ANALYSIS: By John Helmer
Mineweb.com, Moscow, Russia, Wed, Sep 14, 2005
MOSCOW - A move by the Renova group to take control of the world's largest
manganese plant in the Ukraine was the trigger for last week's dismissal of
the Ukrainian prime minister and her cabinet by President Victor Yushchenko,
according to Yushchenko himself and industry sources.
Renova's bid to take control of the production of Ukrainian manganese -- an
alloy used to harden steel --parallels the Renova group's recent effort in
South Africa to win a licence to explore for, mine and produce manganese
ferroalloys in the Kalahari region and at Coega.
Yushchenko said on Sunday in Kiev that he had acted to replace Prime
Minister Yulia Timoshenko on September 8 because of Timoshenko's
intervention to block the private sale of the Nikopol ferroalloys plant.
"High officials started directing events in favor of corporate interests;
then crises appeared," Yushchenko claimed. "It was the last straw. I decided
firmly that the decision most of all should be the following: Everybody
should get lost."
However, Timoshenko had already triggered the political collapse by blaming
Yushchenko's circle, notably national security advisor Petro Poroshenko, of
corruptly intervening to reverse a Ukrainian court ruling that had
renationalized the Nikopol shareholding.
This led to resignations of presidential officials, who added to the public
accusations of corrupt dealings against Poroshenko and others close to
Yushchenko.
Omitted from the public statements, but acknowledged by Ukrainian and
Russian politicians, was the fact that one of the principal beneficiaries of
Yushchenko's and Poroshenko's actions was a partnership between Russian
metal magnates -- [Victor] Vekselberg, who owns Renova and also controls
the SUAL aluminium and bauxite group headed by Brian Gilbertson; and
Alexander Abramov, who controls the Evraz steel group.
Together, they had sought to take control of Nikopol -- the world's largest
producer of manganese alloys for steel -- by buying the disputed control
shares from Victor Pinchuk. Pinchuk, ex-President Leonid Kuchma's
son-in-law, had acquired the stake in a privatization Timoshenko and the
Ukrainian courts have judged to have been unlawful.
International court action against Pinchuk is also charging that, following
his takeover of the plant, he diverted more than $700 million in revenues to
offshore havens.
Abramov and Vekselberg have been lobbying for their Nikopol deal for
months. In July, according to a source close to both, after meeting with
Yushchenko Abramov believed he had secured the president's personal
agreement to allow the Russian takeover of the Nikopol plant.
But when the Ukrainian high commercial court ruled to disallow Pinchuk's
acquisition of the shares, and Timoshenko endorsed the renationalization,
thereby blocking the Russian plan, Abramov reportedly accused Yushchenko
of being unreliable, possibly too weak politically in Kiev to honour his
word.
A source close Vekselberg told Mineweb: "if the [Ukrainian] courts say the
shares belong to Pinchuk, then we offer to buy. If the shares go to the
state, we are not ready to say if we will bid."
In August, the Department of Minerals and Energy (DME) in Pretoria told
Mineweb that a new-order manganese exploration and mining licence had
been issued to an South African group backed by Renova. Jacinto Rocha,
who supervises licensing at the DME, claimed: "Renova has not been issued
a licence".
But he confirmed that Renova is the "technical partner" of Chancellor House
and Pitsa ya Setshaba, and according to Rocha, the latter two have been
awarded a licence to areas in the Kalahari Manganese Field.
Rocha added: "there is no relation between the DME and Renova." Public
support for Renova's South African plan has come from Lulu Xingwana, deputy
minister of minerals and energy, and Yury Trutnev, the Russian minister of
natural resources and co-chairman of the SA-Russia intergovernment
commission.
Hosted by Trutnev, the commission is due to meet for its annual session next
month in Moscow.
Sandile Nogxina, the director-general of DME, told Mineweb on his last visit
to Moscow in March: "it is not the policy of SA government officials to
endorse particular companies."
Renova has told Mineweb it is planning to develop a major new manganese
mine in the Kalahari area, where about 80% of the world's commercially
mineable manganese ores are located. Samancor and Assmang, which is
jointly controlled by African Rainbow Minerals (ARM) and Assore, are already
actively mining in the area. Industry sources in Moscow say the Nikopol
plant is currently dependent on feedstock for its ferroalloy production from
abroad.
Were Renova to take over Nikopol, the group may be intending to supply the
Ukrainian plant with feedstock from its South African mine. -30-
LINK: www.mineweb.com [Action Ukraine Report Monitoring Service]
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4. ORANGE REVOLUTION'S BITTER AFTERTASTE WORRIES BUSINESS
Political temperature in Kiev is likely to remain high
By Stefan Wagstyl and Tom Warner
Financial Times, London, UK, Wed, Sep 14 2005
Viktor Yushchenko, Ukraine's president who last week sacked his government
including Yulia Tymoshenko, his glamorous prime minister, has given himself
a new chance to end his country's political turmoil.
It could be his last opportunity to deal with the uncertainty which has
dogged Ukraine since he was swept to power in the Orange Revolution nine
months ago. If he now fails to take charge of Ukraine's political stage, the
revolution could run out of steam amid bitter recriminations.
The next weeks will show whether Mr Yushchenko can salvage hopes of
stabilising democracy, promoting development and opening Ukraine more
to the west. A test will come next month when Vladimir Putin, Russian
president, visits Kiev.
The Kremlin saw the Orange Revolution as a big defeat, but the present
disarray could create opportunities for Moscow.
Foreign business people, who have expressed interest in Ukraine, have
become increasingly wary. They are anxious to see how Mr Yushchenko
will handle policy decisions, including the controversial reprivatisation of
Kryvorizhstal, the steel mill, seized by the state from businessmen close to
Leonid Kuchma, former president.
Unfortunately for Mr Yushchenko, the alliance that overthrew Mr Kuchma
proved fragile, with his followers split and accusing each other of
corruption. Mr Yushchenko last week dismissed from his administration most
its leaders - notably the popular Ms Tymoshenko - and promoted second-tier
supporters on whose loyalty he thinks he can rely - including Yuri
Yekhanurov, the new acting prime minister.
Mr Yekhanurov is seen as a competent technocrat who will end conflicts with
big business and avoid overspending. In his first cabinet meeting on Monday,
he adopted a modest draft 2006 budget. With economic growth slowing sharply
the government has little financial leeway.
Mr Yushchenko's top foreign policy goal for 2005, joining the World Trade
Organisation, now looks "much more difficult, if not improbable," says
Sergio Marchi, a former Canadian diplomat who chairs the WTO committee
reviewing Ukraine's bid.
Mr Yushchenko's reform programme has relied heavily on Ms Tymoshenko
control the country's fractious parliament. With her out of office,
parliamentary management could require deals even with Mr Kuchma's former
supporters.
With parliamentary elections due in March, politicians are already eyeing
re-election. Mr Yushchenko had hoped his party and Ms Tymoshenko's could
run together. But she is now forming her own alliances.
Mr Yushchenko is hemmed in by a compromise he made last December,
during the Orange Revolution, to accept political reforms transferring
powers from the presidency to parliament.
The concession convinced the authoritarian Mr Kuchma to step down
peacefully. But with the changes starting in January, Mr Yushchenko now
regrets having given so much away.
The president could attempt to cancel the reforms, either by asking the
constitutional court to rule that they were adopted illegally or to
authorise a legally-binding referendum. Success could earn him another four
years with full powers. But he could be accused of clinging to power.
Alternatively, Mr Yushchenko could accept the reforms and groom his own
prime ministerial candidate. But it is unclear who in his team, especially
after last week's sackings, could take the job. If Mr Yushchenko's party
does poorly in the elections, Ms Tymoshenko could return as prime minister -
with little reason to co-operate with Mr Yushchenko.
In the meantime, Mr Yushchenko faces some key policy decisions, notably
reviewing Mr Kuchma's privatisations. The populist Ms Tymoshenko has
pushed for wide renationalisation and reprivatisation.
The cautious Mr Yushchenko, fearful of disputes that could threaten future
investment, prefers more limited action. Business people are watching the
planned new auction of Kryvorizhstal, scheduled next month, which has
attracted Ukrainian, Russian and western companies.
They are also studying other cases where Ms Tymoshenko sought to recover
assets from Kuchma-era buyers. Mr Yushchenko may be more willing to
negotiate with the present owners. A big shareholder in Kryvorizhstal is
Viktor Pinchuk, Mr Kuchma's son-in-law who hopes he may retain ownership
after Ms Tymoshenko's dismissal.
With so much at stake, the political temperature in Kiev is likely to remain
high. -30- [The Action Ukraine Report (AUR) Monitoring Service]
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5. 'COLOURED REVOLUTIONS' REVEALED TO BE HOLLOW AT CORE
COMMENTARY: Dr Kirill Nourzhanov, lecturer at Centre for Arab and
Islamic Studies (The Middle East and Central Asia) at the ANU.
Canberra Times, Canberra, Australia, Wed, Sep 14, 2005
THE POLITICAL crisis in Ukraine has once again exposed the sad reality
behind the so-called ''coloured revolutions'' in the former Soviet Union.
The removal from power of Eduard Shevardnadze in Georgia in November 2003,
the installment of Victor Yushchenko as Ukraine's president a year later,
and the forced resignation of Kyrgyzstan's leader Askar Akaev in March 2005
have been presented in the Western media as examples of ''people power''
sweeping away corrupt, authoritarian and inefficient regimes.
Ostensibly, all three events - dubbed ''rose'', ''orange'', and ''tulip''
revolutions respectively - followed the same scenario.
FIRST, the incumbent government tries to rort elections. SECOND, the news of
irregularities arouses the already downtrodden masses who spontaneously take
to the streets demanding an end to unpopular rule. FINALLY, starry-eyed
opposition leaders take over political power from the trembling hands of old
dictators and lead their nations into the prosperous world of capitalist
democracy.
As George W. Bush eloquently put it during his visit to Tbilisi in May 2005,
''You gathered here armed with nothing but roses and the power of your
convictions, and you claimed your liberty. And because you acted, Georgia is
today both sovereign and free, and a beacon of liberty for this region and
the world''.
The problem is, popular involvement in the regime change has been
overstated. The majority of the population refrained from active protest. In
Georgia, political battles occurred exclusively in the capital city,
involving fewer than 10,000 opposition supporters.
The situation in Ukraine was not much different: that country experienced a
post-modern coup when one faction in the same ruling elite removed another.
In the case of Kyrgyzstan, a rather trivial redistribution of power between
traditional tribal/regional cliques took place on the strength of several
hundred clan militiamen.
Personal power and mercantile self-interest continue to motivate politicians
in Georgia, Kyrgyzstan and Ukraine.
Reprivatisation of some 3000 commercial entities in the wake of the orange
revolution is at the core of the unfolding political drama in Kiev. The
struggle for control over this extremely lucrative process has finally split
the team of President Yushchenko, sending an unmistakable signal to the
Ukrainian people about the alleged anti-corruption bona fides of the new
regime.
The results of Mikhail Saakashvili's presidency in Georgia are even more
disastrous.
Why do the ''coloured revolutions'' still receive so much publicity in the
West? More importantly, why does money continue to flow to prop up the
increasingly frail and unpopular ''revolutionary'' governments? Georgia
today is the second-largest recipient of US assistance after Israel in per
capita terms.
Georgia under Saakashvili has become the most ardent follower of the US
in the international arena. It has increased the size of its military
contingent in Iraq five-fold, making it the seventh- largest in the
''Coalition of the Willing''. Georgia is also a vital link in the
US-sponsored project to export oil from the Caspian Sea bypassing
Russia and Iran.
The only noticeable accomplishment of the Yushchenko administration to date
has been Ukraine's accelerated integration into NATO. The democratic
credentials of President Kurmanbek Bakiev were accepted by the US after he
agreed not to follow the example of neighbouring Uzbekistan and allowed the
US to keep its air base in Kyrgyzstan.
Paradoxically, democracy may turn out to be the ultimate victim of the
''coloured revolutions'' in Eurasia. -30-
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6. UKRAINE'S SACKED PRIME MINISTER 'WAS PLOTTING'
Mara D. Bellabyin in Kiev, Irish Independent
Dublin, Ireland, Wednesday, September 14, 2005
UKRAINIAN president Viktor Yushchenko yesterday accused his former Orange
Revolution partner Yulia Tymoshenko of abuse of office, saying it had become
a "matter of honour" to dismiss her government.
His Prime Minister had allegedly broken from the ideals of last year's
protests. "It was not the ideals of Independence Square - it was backstage
intrigues," Mr Yushchenko said five days after he dismissed Ms Tymoshenko
and her Cabinet.
He levelled sharp allegations at his one-time comrade-in-arms, accusing her
of trying to use her post to wipe out eight billion hryvna (1.2bn) in debts
owed by a now-defunct energy company she once headed. But Mr Yushchenko
said he would welcome Ms Tymoshenko back to government if she were to
return to the principles they shared on Independence Square.
Ms Tymoshenko, in a brief telephone interview, called Mr Yushchenko's
allegations a shock, saying he was trying to revive "old repression that
(former President Leonid) Kuchma had used against me and my family".
Mr Yushchenko fired Ms Tymoshenko on Thursday, after members of Mr
Yushchenko's team began publicly levelling accusations of corruption against
one another.
The President accused his team of spending more time squabbling than
fulfilling the promises of the Orange Revolution. Since Ms Tymoshenko's
dismissal, the war of words between the former allies has heated up.
Analysts predict all-out verbal war between the parties before March
parliamentary elections. -30-
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7. UKRAINE PRESIDENT LASHES OUT AT OUSTED PRIME MINISTER
By Mara D. Bellaby, Associated Press Writer
Associated Press (AP), Kiev, Ukraine, Tue, Sep 13, 2005
KIEV - President Viktor Yushchenko on Tuesday accused his former Orange
Revolution partner Yulia Tymoshenko of abuse of office, saying it had become
a "matter of honor" to dismiss her government after she allegedly broke away
from the ideals of last year's mass protests.
"It was not the ideals of Independence Square - it was backstage intrigues,"
Yushchenko told The Associated Press during an interview in his office, five
days after he dismissed Tymoshenko and her Cabinet.
He leveled sharp allegations at his one-time comrade-in-arms, accusing her
of trying to use her post to wipe out 8 billion hryvna, or $1.5 billion, in
debts owed by a now-defunct energy company she once headed. But
Yushchenko said he would welcome Tymoshenko back to the government if
she were to return to the principles that they'd shared on Independence
Square.
Tymoshenko, in a brief phone interview with The Associated Press, called
Yushchenko's allegations a shock, saying he was trying to revive "old
repression that (former President Leonid) Kuchma had used against me
and my family."
Yushchenko fired Tymoshenko on Thursday, ending a political partnership
that was the driving force behind the defiant people-power protests, which
captivated the world's attention 10 months ago. The dismissal came after
members of Yushchenko's team began publicly leveling accusations of
corruption against one another.
The president accused his team of spending more time squabbling than
fulfilling the promises of the Orange Revolution. Since Tymoshenko's
dismissal, the war of words between the former allies has heated up, with
many analysts predicting all-out verbal war ahead of March's key
parliamentary elections. The winning party in those elections will get to
choose the prime minister and form the government, which after
constitutional changes take effect will have powers that rival the
presidency.
His face still badly scared from last year's dioxin poisoning, Yushchenko
said he was proud that he'd summoned enough strength to pull through, carry
on campaigning and win the heated presidential race.
"But then after all this was achieved ... to act in such a way as my friends
did toward each other is something not worthy of Independence Square," he
said.
"It was a case of my honor not to use Ukraine's budget ... privatization ...
official power to solve private problems," Yushchenko said.
He alleged that in addition to trying to have Unified Energy System's debts
to Ukraine written off, Tymoshenko had also tried to cancel its debts to
Russia. The company, Ukraine's predominant gas dealer, was run by
Tymoshenko, her husband and her father-in-law in the 1990s.
"The behavior that Yulia Volodymyrovna demonstrated in government, and the
circle of her allies, were formed on a basis contrary to state interests,"
Yushchenko said, using Tymoshenko's patronymic, a formal form of address.
"Many activities which the prime minister participated in were carried out
behind the scenes with the aim of solving her problems," he said.
Yushchenko reiterated his previous allegation that Tymoshenko had acted in
favor of certain business interests, particularly in connection with the new
government's widely criticized re-privatization practice. Later Tuesday,
Yushchenko announced in a major reversal of Tymoshenko's policy that he
was putting an end to re-privatizations, saying that "private property is
untouchable."
Tymoshenko told the AP that courts had long ago ruled that all the debt and
fines levied against her company were illegal, and she accused Yushchenko
of "picking up Kuchma's baton and wanting to get rid of me in the same way."
Yushchenko, who also accepted the resignation Thursday of his close ally,
former Security Council chief Petro Poroshenko, has set up a special
commission to investigate the corruption allegations against high officials
in his circle. Poroshenko has denied the allegations, and his ties with
Yushchenko remain friendly. On Tuesday, he was waiting outside the
president's office for a meeting.
Yushchenko told the AP that he was completely at peace with his decision
to sack Tymoshenko's government.
"It's the fourth day that I'm coming to work with a calm spirit," he said,
sipping from an orange mug with his campaign slogan "Yes, Yushchenko!"
on it.
For many Ukrainians, Tymoshenko symbolized their revolution, a charismatic
orator with charm and appealing ethnic symbolism. She rallied hundreds of
thousands who massed in Kiev to denounce fraud by the former government in
the presidential election and force a new election, which Yushchenko won.
"I think if we return to the values that we talked about on (Independence)
Square, but not the adventurism which the government has carried out, I will
extend my hand to anyone," Yushchenko said in response to Tymoshenko's
prediction that her party would win March parliamentary elections and land
her back in the prime minister's seat.
She has said the president fired her because he feared her popularity.
Yushchenko acknowledged that his own popularity was slipping, and he
blamed the high expectations of Ukrainians, as well as freedom of
expression.
"It's because what the people expected is far from fulfilled," Yushchenko
said. He said the new government had to be pragmatic and not populist.
"It is a sweet policy, but it is not a policy with a future," Yushchenko
said in the interview in his office, filled with paintings and statues of
Ukrainian national figures.
Yushchenko asked lawmakers on Tuesday to approve his choice to lead the
government, acting Prime Minister Yuriy Yekhanurov, a little-known
technocrat. -30- [The Action Ukraine Report Monitoring Service]
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8. UKRAINE PRES: NO MORE REVIEWS OF PRIVATIZATION DEALS
Associated Press (AP), Kiev, Ukraine, Tue, September 13, 2005
KIEV - Ukrainian President Viktor Yushchenko said Tuesday that there
will be no more attempts to reopen past privatization deals.
"Private property is untouchable," Yushchenko told journalists. "What
happened in Ukraine for the last 13 years is history."
Yushchenko said that the re-privatization of the Kryvorizhstal steel mill
will proceed as planned Oct. 24. But he said the government will not attempt
to challenge any other murky deals from the past.
The move is a complete reversal from the course adopted by dismissed
Prime Minister Yulia Tymoshenko, who had initially warned that thousands of
companies had been sold illegally and could be returned to the state.
Yushchenko, who fired Tymoshenko from her post Thursday, insisted that he
had tried to persuade her not to take such a course. During last year's
presidential campaign, however, Yushchenko had said that he wanted to have
some of the more corrupt deals reversed, in which valuable state property
was sold at a pittance to cronies of former President Leonid Kuchma.
As recently as Monday, Finance Minister Viktor Pinzenyk said that the
government might raise $5 billion from the reprivatization of dozens of
enterprises suspected of being sold off under shady circumstances during
Kuchma's decade-long rule.
The 74 businesses were to be auctioned, with the auction dates for 54 of the
enterprises already set, Pinzenyk told reporters after a Cabinet meeting.
Ukraine's State Property Fund has said that more than 20,000 enterprises
were illegally appropriated in Ukraine under Kuchma. But calls to challenge
those deals sparked fear among investors, which critics said have
contributed to the stagnating economic situation in the ex-Soviet republic.
Yushchenko also has cited controversial steps by the government in
connection with the re-nationalization of a large ferroalloy plant, Nikopol,
earlier this month as "the last straw" before he dismissed Tymoshenko.
=============================================================
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9. UKRAINE TYCOON HOPES FIRING GOVT WILL END REPRIVATIZATION
Associated Press (AP), Kiev, Ukraine, Wed, September 14, 2005
KIEV - Viktor Pinchuk, the tycoon son-in-law of former Ukrainian President
Leonid Kuchma, said Wednesday that the new government will end
reprivatization and create a much better climate for Ukrainian and foreign
businesses.
"We have now had a very expensive lesson," he told a small group of
reporters, referring to the legal battles around the government's attempts
to seize his metals factories. "Now we have to move ahead. We have a
second chance."
He accused Yulia Tymoshenko, the prime minister President Viktor
Yushchenko dismissed along with her government last week, of having
waged a personal vendetta against him.
Last month, the Ukrainian government set a $2 billion starting price for a
93.2% stake in Ukraine's largest steel producer, Kryvorizhstal. The mill had
been controlled by Pinchuk and another tycoon, Rinat Akhmetov, but a
Ukrainian court ruled that its 2003 privatization had been conducted with
numerous violations.
Tymoshenko was accused of intervening to help a minority shareholder gain
key management seats after another metals company owned by Pinchuk,
Nikopol, was renationalized. Yushchenko described Tymoshenko's alleged
mishandling of the Nikopol renationalization as "the last straw" before she
was dismissed. She has denied the accusations.
Yushchenko said Tuesday that there would be no more attempts to reopen
past privatization deals, a major reversal from the policy promoted by
Tymoshenko.
"Private property is untouchable," Yushchenko told journalists. "What
happened in Ukraine for the last 13 years is the history of business."
As recently as Monday, Finance Minister Viktor Pinzenyk had said that the
government might raise $5 billion from the reprivatization of dozens of
enterprises suspected of being sold off under shady circumstances during
Kuchma's decade-long rule. Auction dates had already been set for many of
the businesses.
Ukraine's State Property Fund has said that more than 20,000 enterprises
were illegally appropriated in Ukraine under Kuchma. But calls to challenge
those deals sparked fear among investors and, critics claim, have
contributed to the economic stagnation. -30-
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10. UKRAINIAN GOVERNMENT READY TO DEAL WITH OWNERS
OF DISPUTED CHEMICAL PLANT AZOT
One Plus One TV, Kiev, in Ukrainian 1630 gmt 13 Sep 05
BBC Monitoring Service, UK, in English, Tue, Sep 13, 2005
KIEV - [Presenter] The new government is going for an out-of-court
settlement of the conflict with investors for the first time ever. The
cabinet is working on an amicable agreement with the American investors of
the Azot plant in Severodonetsk [Worldwide Chemicals LLC], the acting first
deputy prime minister, Anatoliy Kinakh, has said.
According to Kinakh, the cabinet has no complaints about the investors'
activity at Ukraine's third biggest chemical plant. In the first six months
of this year, Azot increased production by 33 per cent and tripled payments
to the state budget.
Two years ago, the Americans formed a joint venture at the plant. The
government was forced to look for investors after the plant went bankrupt.
In March this year, a court ruled that the Azot closed joint-stock company
should cease to exist in the shape it has been working for the last two
years and the plant should become state property again.
The American investors said they were ready to strike a deal with the [new]
government. One of the offers they have made was to increase the state's
stake in the plant from 40 per cent to the controlling one - 50 per cent
plus one share. The other proposal was to invest more in the plant. They
have forwarded their proposals to the cabinet, who have came up with their
own vision of the agreement.
[Kinakh] A decision has been taken that it is possible to sign an amicable
agreement. The agreement is based on our proposal to the investor to
voluntarily hand over the majority stake in Azot to the state and to
continue carrying on with the investment programme taking into account the
proposed amendments. -30-
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11.UKRAINE EXPECTS TO EARN ALMOST $5B FROM REPRIVATIZATIONS
Associated Press, Kiev, Ukraine, September 12, 2005
KIEV - Ukrainian Finance Minister Viktor Pinzenyk said Monday that the
reprivatization of dozens of enterprises suspected of being sold off under
shady circumstances during former President Leonid Kuchma's time in power
might raise $5 billion.
The 74 businesses were to be auctioned, with the auction dates for 54 of the
enterprises already set, Pinzenyk told reporters after a Cabinet session.
The auctions could generate up to 24 billion hryvnas ($1=UAH5.0503), said
Pinzenyk.
The government wouldn't count on all the money reaching the budget because
of judicial and other risks, he said.
However, the reprivatizations should cover the projected 2006 budget deficit
of UAH8.3 billion and this year's remaining deficit of UAH6.2 billion, he
said.
More than 20,000 enterprises were illegally appropriated in Ukraine under
Kuchma according to the State Property Fund, which is conducting an
inventory and looking into allegations of widespread irregularities.
Fund chief Valentyna Semeniuk said many of the enterprises weren't formally
privatized, but were reorganized to place them in new hands.
President Viktor Yushchenko has pledged to review the cases, accusing
business cronies of Kuchma of benefiting from the deals. -30-
============================================================
12. UKRAINIAN PRIVATIZATION BODY INTENDS TO RETURN
MORE FACILITIES TO STATE HANDS
Semenyuk: "We only need to sell enterprises that are 'laying around.'"
INTERVIEW: Valentyna Semenyuk, Head, Ukraine State Property Fund
Invest-Gazeta, Kiev, in Russian 13 Sep 05; p 15
BBC Monitoring Service, UK, in English, Tue, September 13, 2005
The head of the Ukrainian State Property Fund, Valentyna Semenyuk,
believes that the fund's performance will improve after the dismissal of
Prime Minister Yuliya Tymoshenko. Speaking in an interview with a
business weekly, she also said that the government should not hurry to
sell the Kryvorizhstal steelworks, and that the government can return
facilities to states hands even if they have been sold on the secondary
market.
The following is the text of the unattributed interview with Semenyuk,
entitled "We only need to sell enterprises that are 'laying around',
published in the Ukrainian newspaper Invest-Gazeta on 13 September:
The head of the State Property Fund, Valentyna Semenyuk, does not rule
out that the dismissal of the government may result in corrections to the
time-frame of privatization, including that of Kryvorizhstal.
[Correspondent] What do you expect from the passage of the law "On the
State Property Fund [SPF]"?
[Semenyuk] First, it will strengthen the position of the SPF. We did not
have a definition based on the law regarding who answered for what.
Second, the law will strengthen the role of the SPF and the legal defence of
its workers. It is not easy to work in the SPF today. Our specialists travel
to inspect how enterprises are fulfilling their investment obligations, they
draw up acts on [obligations] not being fulfilled and these are then the
subject of review in courts and reason to return the site to state hands.
And so they should have social guarantees and personal protection.
[Correspondent] So SPF employees will feel more assured in resolving
conflicts and court proceedings?
[Semenyuk] Yes, we will be able to act more freely.
[Correspondent] How will the dismissal of the government affect work at the
SPF?
[Semenyuk] Positively! Yes, positively. Because when the issue of a second
privatization of Kryvorizhstal arose, [acting Prime Minister] Yuriy
Yekhanurov said there was no need to rush in selling this site. Now I really
have hope for his common sense and support. And the president [Viktor
Yushchenko] has not said his final word.
[Correspondent] What about money to the budget?
[Semenyuk] Today there are other sources. I think that we can significantly
fill the budget from dividends. We have already got 1.5bn hryvnyas [about
300m dollars] in dividends. Today one can force everyone to pay rent and not
sell property. When we only began to inventory everything, there were 21,000
sites rented out in the register, and rent fees were 137m hryvnyas. Now we
are renting out 31,000 sites, and we have already fulfilled plans for four
years.
We only need to sell sites that are "laying around". Especially since the
president needs to fulfil his programme on creating jobs. And the
government's programme presented by [former Prime Minister Yuliya]
Tymoshenko was for state ownership and state property. I told her if you are
for selling everything, then revoke your programme! Today one needs to get
away from production, to raise it. And at big, successful enterprises one
can sell around 10 per cent, including at Kryvorizhstal, and money will
appear and the securities market will work...[ellipsis as published]
[Correspondent] There are a number of bills in parliament today, which
envision a ban on privatizing certain sector, or temporarily stopping the
sale of strategic sites. How do you feel about this?
[Semenyuk] Fine. Today one of them, which I once submitted, was adopted.
It "roamed" around the cabinet for six months, and all along I was saying:
let's stop, inventory all the state's property, and figure out what is going
on.
[Correspondent] That is, according to this law, we have the ability to stop
the sale of strategic sites?
[Semenyuk] Yes.
[Correspondent] For how long?
[Semenyuk] Until adoption of the privatization programme.
[Correspondent] And the sale of Kryvorizhstal?
[Semenyuk] Yes, but I don't want to talk about that yet.
[Correspondent] How do you feel about the bill by [Communist Party of
Ukraine leader] Petro Symonenko on nationalizing enterprises in the ore
refining complex?
[Semenyuk] Fine. But you need to be more cunning in the approach. I have
my own views on that.
[Correspondent] What do you mean?
[Semenyuk] Getting things in order. When I arrived at the SPF, I saw that 23
commercial banks were holding securities for the SPF. Can you imagine what
kind of money that is? I did not intend to run after every bank, and made a
decision to give them all to state [banks], and then to close the electronic
system between them. And the same for registrars. In a tender, we chose 12
entities with whom we will work and we concluded contracts with them.
Because now at some enterprises there are two or even three registrars.
[Correspondent] Will the SPF continue the practice of returning sold
property to state hands?
[Semenyuk] Yes, gradually. We can contest investment obligations not being
carried out, even if the enterprise was sold on the secondary market. And if
it was privatized incorrectly, that means it is a matter for the prosecutors
and courts and I will be in support. -30-
----------------------------------------------------------------------------------------------------------
FOOTNOTE: The multiple voices speaking out with mixed, conflicting
and confusing messages about reprivatization continues in Kyiv. Editor
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=============================================================
13. UKRAINIAN PARLIAMENTARY LEADERS WELCOME
DECLARATION OF UNITY AND COOPERATION
Interfax-Ukraine news agency, Kiev, in Russian 1515 gmt 13 Sep 05
BBC Monitoring Service, UK, in English, Tue, Sep 13, 2005
The leaders of factions in the Ukrainian parliament have welcomed the
signing of a declaration on unity and cooperation. The declaration was
signed on 13 September by President Viktor Yushchenko, parliament
speaker Volodymyr Lytvyn, acting Prime Minister Yuriy Yekhanurov, and
the leaders of parliamentary factions.
The following is the text of a report by Interfax-Ukraine news agency:
KIEV - Mykola Martynenko, the leader of the [pro-presidential] Our Ukraine
faction, considers the signing of a declaration on unity and cooperation for
the sake of the future as a sign of the readiness of political forces to
help President Viktor Yushchenko and acting Prime Minister Yuriy
Yekhanurov form an effectual government and ensure that the Supreme
Council [parliament] works effectively.
"This is also a sign that the majority of political forces understand their
responsibility for the fate of the country, regardless of their political
orientation," Martynenko said.
"The economic situation requires decisive measures from the new
government to restore order, not brash declarations. The country will
develop successfully and all aspects of the crisis will be overcome," the
Our Ukraine faction leader believes.
Martynenko expressed his surprise that the Yuliya Tymoshenko Bloc faction
was sabotaging the process of forming a new government. "It can't be ruled
out that this is in part due to election considerations and an attempt to
avenge the dismissal of [former Prime Minister] Yuliya Tymoshenko," he
suggested.
Socialist Party of Ukraine leader Oleksandr Moroz called the signed
declaration "an extremely important document that will be useful". He said
that this document contains "a fairly strong message" regarding Ukraine's
integration into Europe.
The leader of the People's Party of Ukraine faction, Yuriy Kostenko, thinks
that "the signing of the declaration is a way out of the crisis that could
develop in Ukraine". Kostenko stressed that the signed declaration "is a
normal political step" for resolving a crisis.
The leader of the People's Party faction, Ihor Yeremeyev, said that the
signed declaration "has prevented the political crisis spreading from
government to society".
Yeremeyev stressed that it is very important that the document was signed by
the Regions of Ukraine faction leader Rayisa Bohatyryova. This means that
"the president has decided for himself" that he is the president of Ukraine
and not of the people who voted for him.
Yeremeyev also thinks that the declaration will not produce any results
unless the work of the last seven months is analysed and appropriate
conclusions are drawn from it.
The co-chairman of the People's Democratic Party faction, Valeriy
Pustovoytenko, called the declaration "a timely and important document". "It
is a significant step towards overcoming the socio-economic and political
crises that are dividing society today, splitting both politicians and
ordinary citizens into 'us' and 'them'.
The document not only sets out priorities for democratic development,
political and socio-economic stability, but also gives an answer to serious
questions that have continued to inflame public opinion," Pustovoytenko
said.
Interfax-Ukraine has learnt that the text of the declaration was reworked
significantly during the drafting process, with a majority of the amendments
being proposed by parliament speaker Volodymyr Lytvyn.
The reworking also took into account proposals from Moroz on the need to
carry out political reform, as well as the need to pass laws on the
presidency, the Cabinet of Ministers and the State Property Fund.
It also took into account a proposal from Pustovoytenko on the need to carry
out reform of the housing and utilities sector.
Lytvyn also expressed the need to hold a national "roundtable" and
Yushchenko supported the idea. -30-
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14. UKRAINIAN CONSTITUTIONAL COURT CLEARS WAY FOR POLITICAL
REFORM TO TRANSFER MOST PRESIDENTIAL POWERS TO PARLIAMENT
TV 5 Kanal, Kiev, in Ukrainian 0900 gmt 13 Sep 05
BBC Monitoring Service, UK, in English, September 13, 2005
KIEV - The Constitutional Court of Ukraine has approved amendments to
the system of local government, in effect giving a go-ahead to a larger
package of constitutional amendments that would transfer most of the
presidential powers to parliament. The reform is to come in effect on 1
January 2006.
The following is the text of a report by Ukrainian television TV 5 Kanal on
13 September:
[Presenter] The Constitutional Court of Ukraine has confirmed that bill No
3207-1 does not contradict the constitution in the part where it envisages
changes to the system of local government. Our correspondent Khrystyna
Bondarenko was at the court hearing and we have her live now. Khrystyna,
were the amendments passed unanimously?
[Correspondent] I can say that the decision was not an easy one, and this
bill was under review in the Constitutional Court for a long time. This was
because the judges could not muster a quorum. In accordance with the law,
the Constitutional Court includes 19 judges. Four seats are vacant at the
moment, and the candidacies have not been submitted by parliament, the
president and the judges' council. The court finally announced its decision
today, and I can say that 10 judges voted in favour and four voted against.
This means that the political reform will come in effect on 1 January,
cutting most of the presidential powers.
[Presenter] What do these amendments mean for ordinary Ukrainians?
[Correspondent] The constitutional reform could not be implemented without
this document, because bill No 3207-1 was in one package with bill No 4180.
It has much in common with the administrative-territorial reform designed by
[Deputy Prime Minister] Roman Bezsmertnyy.
As for the ordinary Ukrainians, it means that the system of local government
will be stronger now, and now the constitution gives more powers to
Ukrainians. The so-called communities will be established, the bill also
provides for the creation of new administrative units, and they will be able
to give villages the status of towns and change the names of towns and
districts.
=============================================================
15. POLAND POSITIVELY ASSESSES INVESTMENT CLIMATE IN UKRAINE
Ukrainian News Agency, Kyiv, Ukraine, Mon, September 12, 2005
KYIV - Poland gave an upbeat assessment to its investment cooperation with
Ukraine. Polish Ambassador Jacek Kluczkowski made this statement to the
press. "The investment climate is very good today," he said.
The ambassador stressed that the assessment is for both, Polish investments
in Ukraine and vice versa. As an example, he mentioned the investment of the
Donbas Industrial Union in Polish plant Huta Czestochowa.
Kluczkowski does not see how the resignation of the Ukrainian government can
influence investments. "The Ukrainian nation will solve this problem next
year in March," the ambassador said, answering the questions about political
uncertainty in Ukraine.
He added that people in Poland trust new acting Prime Minister Yurii
Yekhanurov. "This man is known in Poland, we have trust in him," Kluczkowski
said.
In all other respects, the economic situation in Ukraine and its foreign
policy are exclusively Ukraine's internal matters, he said.
Kluczkowski predicts that Ukraine will become an associated member of the
European Union and reach with it a free trade zone agreement in 2008. He
stressed that temporary crises in Ukraine will not matter provided all
processes in the country are democratic.
Speaking about extending the Odesa-Brody oil pipeline to Polish Plock, the
ambassador noted that join European investments are needed for this purpose.
"If it is going to be only a Polish-Ukrainian problem, it won't suffice," he
remarked.
As Ukrainian News earlier reported, Prime Minister Yulia Tymoshenko called
on Polish businessmen in June to increase their investments in Ukraine.
President Viktor Yuschenko fired the Tymoshenko-led government and
appointed Yekhanurov acting prime minister on September 8. -30-
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16. UKREXIMBANK TO OPEN REP OFFICE IN UNITED STATES
Ukrainian News Agency, Kyiv, Ukraine, Tue, September 13, 2005
KYIV - The state-owned Export-Import Bank (Ukreximbank), one of Ukraine's
ten largest banks, intends to open a representative office in the United
States [New York]. The press service of the bank disclosed this to Ukrainian
News. The opening of the representative office is scheduled for September
16.
President Viktor Yuschenko and Ukreximbank's Board Chairman Viktor
Kapustin are expected to attend the opening of the representative office.
Ukreximbank presently does not have representative offices abroad.
The net assets of Ukreximbank were valued at UAH 6,829.2 million as of
July 1, 2005. Its loan portfolio amounted to UAH 4,786 million while its
capital amounted to UAH 876.4 million as of that date. The bank ended
the year 2004 with a net profit of UAH 90.158 million. The state owns
100% of the shares in the bank.
Yuschenko will visit the United States from September 14 to 18 to attend
events marking the sixtieth anniversary of the United Nations Organization.
=============================================================
17. TIMOSHENKO'S DISMISSAL OPENS KIEV FOR PUTIN
President Putin will visit Yushchenko in October
Kiev now seems intent on rapprochement with Russia
COMMENTARY: Tatiana Ivzhenko, Nezavisimaya Gazeta
Moscow, Russia, Tuesday, September 13, 2005
[Following the government dismissal, President Yushchenko's inner
circle is reconstructing Ukrainian-Russian relations from scratch.
Judging by its initial reaction, Moscow is accepting this
benevolently. New Ukrainian State Secretary Oleg Rybachuk started
off by making a two-day visit to Moscow.]
President Viktor Yushchenko's inner circle is reconstructing
Ukrainian-Russian relations from scratch. Judging by its initial
reaction, Moscow is accepting this benevolently. New Ukrainian State
Secretary Oleg Rybachuk started off by making a two-day visit to
Moscow. The visit ends later today. Rybachuk said that he had
received the invitation from his Russian counterpart Dmitry
Medvedev, Director of the Presidential Administration. Calling
Rybachuk from Moscow last Sunday, Medvedev proposed that they
"get to know one another better." The haste with which the visit was
organized may serve as an indication of official Kiev's intention to
revise its relations with the Kremlin.
Russian leaders appear to be ready to accept Ukraine's new
course for rapprochement. Several hours after the visit began,
Russian Ambassador Viktor Chernomyrdin held a press conference in
Kiev. Chernomyrdin announced that President Vladimir Putin will
visit Kiev in the second half of October. It's interesting to noted
that Yushchenko had invited his Russian counterpart to Kiev in
August, but the invitation was accepted only after Prime Minister
Yulia Timoshenko was sacked and replaced by some more pro-
Russian politicians.
Chernomyrdin said yesterday that Yushchenko had informed him by
phone of Ukraine's readiness to participate in United Economic Zone
paperwork. About 90 documents have already been drafted for the four
countries of the United Economic Zone, but Ukraine was prepared to
sign no more than 15 of them until now. Looks like the situation is
changing.
Yushchenko himself changed the tone of his statements with
regard to the United Economic Zone last Sunday. He said that
Timoshenko got "bogged down in PR and promises" and did not have
time to "shape the road to European integration or choose the
nuances of importance for processes of integration in other economic
projects, like the United Economic Zone." The president completed
his statement by saying that the new Cabinet should be more
pragmatic.
It should be noted as well that the visit of the Ukrainian
president to Washington scheduled to begin yesterday was postponed.
Insiders in the president's chancellory explain that Yushchenko
decided to postpone the visit in order to be able to personally
introduce the new head of the Ukrainian National Security Service to
the nation. In the meantime, the official presidential website did
not post any information on that score. Neither does the republican
Foreign Ministry know anything about what would happen to
Yushchenko's visit to the United States. Deputies of Yushchenko's
faction in the national parliament claim that the visit was not
cancelled - only postponed for a day or two.
Lawmakers declined comments on a connection between the
government dismissal and postponement of Yushchenko's visit. Off the
record, however, they confirm reports in the Ukrainian media that
Timoshenko had covert talks with officials of the US Embassy on the
night before her Cabinet was dismissed. Officially, neither side has
confirmed or denied the reports.
It is only known that US President George W. Bush called Yushchenko
that day and asked for clarification of the situation. Press service of
the Ukrainian president claims that Bush promised support to all
processes of democratization. Official reports do not explain whether
Bush regarded the latest developments in Ukraine as "processes of
democratization."
What is known is that Yushchenko reassured Bush that Ukraine's
policy of integration into Euro-Atlantic structures is stable. Some
Rada members say that Yushchenko postponed his visit to
Washington in order to marshal his arguments. -30- (Translated by
A. Ignatkin) [The Action Ukraine Report Monitoring Service]
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18. GAZPROM'S NEW EUROPEAN ROUTE: CRY UKRAINE?
COMMENTARY: By Pavel K. Baev, Eurasia Daily Monitor
Volume 2, Issue 168, The Jamestown Foundation,
Washington, D.C., Monday, Sep 12, 2005
Russian President Vladimir Putin's brief visit to Berlin last week was not
only perfectly timed for the German elections but also loaded accordingly:
He delivered a valuable gift to his ally, Chancellor Gerhard Schroeder, and
made a pro-forma introduction to the opposition leader, Angela Merkel. The
gift was a $6 billion contract for building a pipeline under the Baltic Sea
that would start delivering Russian gas to Germany in 2010.
Gazprom had been entertaining this idea for several years but it was only
since the start of 2005 that it got serious about it and entered into
partnership with German giants BASF and E.ON that have subscribed for
24.5% each in this joint venture (RosBusinessConsulting, Lenta.ru,
September 8). The feasibility of this project is not in doubt, but its
rationale does invite questions.
Most Moscow comments put emphasis on the prospects of reducing the volume
of gas that must transit through Ukraine, currently some three-quarters of
Russia's exports to Europe (Gazeta.ru, September 8; Polit.ru, September 9).
The sudden political crisis in Kyiv following the September 8 dismissal of
Prime Minister Yulia Tymoshenko's government is presented as clear evidence
that a more reliable export route is needed, despite Putin's "nothing
unusual" comments in Berlin (Kommersant, September 9).
In fact, quarrels with Ukraine about the terms and prices for gas transit
have been going non-stop since the post-Soviet "divorce" 14 years ago, but
it would be wrong to assume that Moscow has simply grown tired of this
"good-neighborly" bargaining. Each of the many compromises on record
involved unwritten agreements and side deals that were as profitable for the
Gazprom leadership as they were for Ukrainian ministers and negotiators.
What broke this mutually enjoyable pattern was the Orange Revolution in late
2004, since the new government in Kyiv began to insist on more transparent
agreements, indicating also its desire to escape from the "single economic
space" (Nezavisimaya gazeta, 29 August). Certainly, the business culture has
not changed overnight and corruption has penetrated into the "revolutionary
team," causing the dismissal of Tymoshenko's cabinet - but Gazprom has
understood that Ukraine is indeed changing into a much less agreeable
partner (Kommersant, September 1).
Hence the new determination to open the Baltic route despite the uncertainty
about the scale of demand in Western Europe and the near certainty about
very slow growth in production. Gazprom appears to dismiss the mixed lessons
from constructing the "Blue Stream" pipeline to Turkey under the Black Sea,
which remains only half-filled due to lower than expected demand in the
Turkish market (Vedomosti, September 9).
Apparently, the new pipeline, which would have the total capacity of 55
billion cubic meters a year (i.e. half of current transit through Ukraine),
could be more useful for diversifying the export channels than for
increasing deliveries. And that should remind European consumers about the
inescapable problems of doing business with Gazprom.
One group of these problems is related to Gazprom itself, a monster of a
company with market capitalization reaching the shining mark of $100 billion
last week (Vedomosti, September 7). The plans for reforming this giant and
creating a space for competition in both production and transportation that
were designed in earnest only a few years back, have been shelved - and now
the talk is only about growth and expansion.
The underlying problems with inefficient management, wasteful methods of
operation, and self-serving accounting have certainly not disappeared, but
the steady growth in energy prices makes it possible to ignore them.
Gazprom's business culture is a peculiar mix of the old Soviet
"command-and-control" and the new predatory "no-holds-barred" principles.
It has no mercy for competitors and treats partners with a modicum of
respect only as long as they are useful. It plays by its own rules even
against trans-national majors: British Petroleum, for instance, has been
pressured to cut Gazprom into the deal on developing the Kovykta oil-and-gas
field in Eastern Siberia and ENI, which played a key role in constructing
the "Blue Stream," is now struggling to contain Gazprom's offensive towards
the Italian gas market (Vremya novostei, June 16; Izvestiya, August 30).
German banks and energy companies have been enjoying the status of
privileged partners, but it very well could change with a less
Russia-friendly chancellor and a non-German-speaking president, if Putin
will not have a change of heart about a third term.
That uncertainty relates directly to another group of problems about
Gazprom - this business empire is also a major political actor that is
directly involved in the fierce struggle for power around the Kremlin. Since
the start of Putin's second term, the main battlefield here has been the
dismemberment of the oil giant Yukos and, against expectations of most
observers, Gazprom has not been able to secure for itself any valuable
assets.
The state-owned oil company Rosneft has outmaneuvered all competitors in
state-sponsored looting and even made Putin vouch for the legitimacy of its
murky deals. Last week, Putin paid a surprise visit to Rosneft's oil
terminal in Tuapse and praised its performance (Vedomosti, September 8).
He may think he is playing Gazprom CEO Alexei Miller against Rosneft CEO
Sergei Bogdanchikov, but at the end of the day every "lame duck" president
is going to be outplayed.
The apparently unstoppable run of oil prices allows Moscow to bury its
problems under piles of petro-rubles - and it also exacerbates the
post-revolutionary tensions in Kyiv. But in the mid-term, even if this
perspective is irrelevant for today's decision-makers, Ukraine stands to
benefit from straightening its relations with Gazprom and abandoning the
temptation to exploit its near monopoly on gas transit.
Russia, to the contrary, might experience yet again the unpleasant sensation
of a deflating oil bubble and discover the diminishing value of assets built
on the assumption that cost efficiency is an outdated concept.
=============================================================
19. UKRAINE: FROM REVOLUTION TO EVOLUTION
Why Tymoshenko's Figures Didn't Add Up
This government has been an unmitigated disaster of socialist populism.
COMMENTARY AND ANALYSIS: Anders Åslund
Vedomosti, Moscow, Russia, Wed, Sep 14, 2005 (In Russian)
The Moscow Times, Moscow, Russia, Wed, Sep 14, 2005 (In English)
This has been a miserable year for the Ukrainian economy. Last year,
Ukraine enjoyed an economic growth of no less than 12.1 percent, but that
had declined to 3.7 percent during the first seven months of 2005. Moreover,
output has declined by almost every month and so has industrial production
that fell by 2.4 percent in July over July last year.
Construction and investment are falling ever more. A huge trade surplus last
year has been eliminated in the last months. Clearly, Ukraine is on the way
toward 2-3 percent growth this year. Only the budget balance is positive, as
the Ministry of Finance has pursued a conservative fiscal policy.
This economic deterioration has been caused domestic economic policy.
The dominant concern [FIRST] has been a wide-ranging discussion about
re-privatization. Prime Minister Yulia Tymoshenko once talked about the
revision of 3,000 privatizations. Another problem [SECOND] has been a
sharply increased tax burden of 5-6 percent of GDP needed to finance very
large increases in social transfers and public wages.
A THIRD issue has been far-reaching government intervention in the economy,
such as attempts to regulate the prices of petrol, meat and grain and to
reinforce state monopolies. A doubling of railway tariffs for metal freight
has also harmed the economy. The government has been run like a
profit-maximizing state holding company oblivious of effects on the private
sector.
Meanwhile, this government [FOURTH] has not undertaken any of the many
promised and badly-needed liberal reforms. The only positive step has been
the late adoption of half the WTO-related legislation that was necessary for
Ukraine's accession to the WTO this year. So far, no significant
deregulation has occurred in spit of much talk about it. No tax cuts have
occurred.
No financial legislation has been adopted, although Ukraine does not even
have a law on joint stock companies.
In short, this government has been an unmitigated disaster of socialist
populism. On top of everything, it has maintained a revolutionary discourse
of vehement public attacks against individual businessmen and politicians,
including members of the government. Eight months of this mess was too
much.
It was therefore a great relief when President Viktor Yushchenko reasserted
his authority to put an end to this public mismanagement. Sensibly,
Yushchenko also let several big businessmen, who helped finance and
manage his campaign, go, as their aspirations to make money on their
positions have been another worry.
This government change marks the end of the Orange Revolution. Yulia
Tymoshenko and her loyalists have now marched out of the government,
and Tymoshenko has declared that her political bloc will stay independent
of Yushchenko's. The question today is where various politicians and
businessmen will go.
One old oligarch, Alexander Volkov, and the probably second largest
oligarchic group, Privat Group in Dnepropetrovsk, are with Tymoshenko
since a long time. More than twenty businessmen in the parliament have
recently joined her party faction.
Sensationally, Kuchma's former chief of staff, Viktor Medvedchuk, and his
Social Democratic Party are suddenly favoring Tymoshenko, with Ukraine's
first President Leonid Kravchuk strongly supporting Tymoshenko. Curiously,
the real agitators of the Orange Revolution and some of the more
disreputable oligarchs appear to be coming together in Tymoshenko's bloc.
Meanwhile, others are joining Yushchenko. Anatoly Kinakh and his liberal
industrialist faction are already with him. Speaker Volodymyr Lytvyn appears
to turn to Yushchenko as well. Embattled oligarch Viktor Pinchuk and his
Labor Ukraine faction support Yushchenko. The assumption is that the new
government will contain about ten former Kuchma ministers of good
reputation, who can the support of four-five centrist party factions in
parliament for Yushchenko.
The big businessmen who have stood behind Yushchenko all along, notably
Petro Poroshenko, David Zhvania and Yevgeny Chervonenko, are staying
loyal to him, even if they are leaving their government portfolios. Former
President Leonid Kuchma has expressed his support for Yushchenko.
Thus, Yushchenko's old liberal, Western and moderate nationalist supporters
are likely to stay with him, while the centrist oligarchic factions will
probably join him. Oddly, the Socialist Party wants to stay in government
and thus support Yushchenko, although they have been much closer to
Tymoshenko.
Ironically, the biggest outstanding question is where the Donetsk party, the
Regions, including former presidential candidate Viktor Yanukovich and
Ukraine's leading oligarch, Rinat Akhmetov, will go. Akhmetov has long
seemed to want to make peace with Yushchenko, while Yanukovich sounds
as if he is leaning toward Tymoshenko.
A swift split of Ukrainian politics is taking place among the leader of the
Orange Revolution, and the two opposing leaders are Yushchenko and
Tymoshenko, even if they do not attack one another in public as yet. Both
are mobilizing substantial forces, which contain big businessmen.
In the ideal case, a US-type Republican Party could be formed around
Yushchenko and a somewhat populist Democratic Party around Tymoshenko,
while at least the small Socialist Party and the even smaller Communist
Party would stay independent. The nightmare would be a party fragmentation
as occurred in Poland in 1990-91.
The litmus test will come very soon, with the formation of the government of
Yuri Yekhanurov and the parliamentary vote on his candidacy. The assumption
is that he and Yushchenko will do what it takes to get a majority for the
new government, and they already seem to have secured enough votes.
In this hot political situation, it is difficult to imagine a more suitable
prime minister than Yuri Yekhanurov. As Chairman of the State Property
Fund from 1994 to 1997, he carried out mass privatization in Ukraine, and
very successfully so, leaving him in high repute. As first deputy to Prime
Minister Yushchenko in 2000-2001, he made sure that the government
worked well.
From 2002, he has been one of the leaders of Our Ukraine in parliament, and
as committee chairman he has shepherded substantial economic legislation
through parliament. In spite of many years in politics, he has virtually no
enemies. Yekhanurov should be able both to hold the Yushchenko loyalists
together and make the government start working, although parliamentary
elections are scheduled for March 2006.
Yekhanurov has his work cut out for him. In a short period, he needs to
accomplish many things. FIRST, of all, he is strongly committed to put an
end to mindless re-privatization campaign. Probably, the steel mill
Krivoryzhstal but nothing else will be re-privatized. SECOND, a long
prepared draft omnibus law abolishing some 3,600 regulations is ready
to be sent to parliament.
THIRD, the remaining WTO legislation is already in parliament, and Ukraine
needs to have it promulgated not later than October, if it is to have any
chance to enter the WTO this year.
FOURTH, the very populist budget for next year of the former government,
containing little but more social transfers and public wages, has to be
redone quickly. In particular, that high spending must be cut, and social
taxes should be unified and reduced.
Finally [FIFTH] , Yekhanurov might be able to push through some financial
legislation long prepared and lying waiting in the parliament. The economic
agenda can at long last become relevant for Ukraine's economic
development, and the growth could soon resume.
There are all reasons to cheer the change of government in Ukraine, and
the restructuring of Ukrainian politics, while the verdict of the voters is
difficult to predict. -30- [The Action Ukraine Report Monitoring Service]
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Anders Åslund, Director, Russian & Eurasian Program
Carnegie Endowment for International Peace
Washington, D.C.; E-mail aaslund@ceip.org
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http://www.themoscowtimes.com/stories/2005/09/14/006.html
http://www.vedomosti.ru/newspaper/article.shtml?2005/09/14/97008
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20. FIRST LADY AWARDS OPPONENTS OF HUMAN TRAFFICKING
Press office of the President of Ukraine Victor Yushchenko
Kyiv, Ukraine, Friday, September 9, 2005
KYIV - Kateryna Yushchenko took part in a ceremony to award Ukrainian
organizations and persons that actively combat human trafficking. The
ceremony was organized by the Ukrainian office of the International
Organization for Migration (IOM). It was held at the Russian Drama Theatre.
In her speech, the First Lady said she had come to "support these
courageous people that oppose barbarity, self-denyingly saving society."
"Today, we are strong enough to publicly speak about human trafficking. We
are no longer ashamed to be honest. Our silence will not help those who fall
into a net of slave-traders," she stressed.
Ms. Yushchenko noted that these fighters against slavery were brave and
professional. She thanked journalists for "not ignoring this controversial
subject." The President's wife also expressed gratitude to the IOM and its
Ukrainian office for promoting their noble cause "to make the world more
humane" and "uniting all people who are not indifferent to this problem."
"I am sure thousands of people will follow your example tomorrow, for
together we will be able to fight injustice and prevent new dangers. I
believe we will reliably protect rights and liberties of our citizens,"
noted the First Lady.
Jerry Labovits, Head of the IOM Mission in Ukraine, U.S. Ambassador John
Herbst, Swedish Ambassador John-Christopher Ammander, acting Youth
Minister Yuriy Pavlenko and acting Interior Minister Yuriy Lutsenko took
part in the ceremony.
According to IOM data, every year, about four million people (mostly
children and women) are sexually exploited by human traders. Ukraine is
in the first ten of the countries that trade in people. -30- [The Action
Ukraine Report (AUR) Monitoring Service]
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21. UKRAINE 3000 FOUNDATION ANNOUNCES COMPETITION
From Hospital to Hospital Program International Program
Press office of the President of Ukraine Victor Yushchenko
Kyiv, Ukraine, Monday, September 5, 2005
KYIV - The Ukraine 3000 International Charitable Foundation announced
a competition for participants of the From Hospital to Hospital Program.
All Ukrainian medical institutions for children can take part in this
international project.
The aim of the program is to improve children's treatment through voluntary
financial, technological, and intellectual aid.
This five-year program should promote the exchange of modern technologies,
information, and diagnostic equipment. Ukrainian doctors will also get an
opportunity to practice abroad. If the program is successful, each Ukrainian
clinic will have reliable partners to reach international standards in
treatment and diagnostics. -30- [The Action Ukraine Report]
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22. AUSTRALIA STRENGTHENS ITS LINKS WITH UKRAINE
AFUO Registered in Ukraine and Opens Office
The Action Ukraine Report (AUR)
Kyiv, Ukraine, Wednesday, September 14 2005
KYIV - Australian Ukrainian relations have been strengthened with the
Australian Federation of Ukrainian Organizations (AFUO) formally being
registered in Ukraine, and the opening an AFUO office at the Ukraine
Australia House, AFUO Chairman Stefan Romaniw reported to
The Action Ukraine Report today in Kyiv.
This move will allow for a more direct presence of Australia’s Ukrainian
community in Ukraine. The AFUO and Australian Ukraine House have
now embarked on a further program of cooperation.
Planned activities will now incorporate: (1) Business links and
development; (2) Education programs; (3) Tourism; and (4)
Promotions and assistance with migration programs to Australia.
“This is a new era for links between our two countries. During my three
months stay in Ukraine I have endeavored to monitor, examine and learn
so as to assist us all in growing closer together. I think we have a model
that will progress things somewhat” Chairman Romaniw The Action
Ukraine Report (AUR).
“We have been strategic rather than emotive and this has set a sound
foundation that Governments can build on. We have had very positive
discussion with the Australian post in Moscow which has responsibility
for Ukraine. Fruitful discussions were also had with the Minister for
Foreign Affairs in Ukraine and officials from his department” Mr.
Romaniw said
“Ukraine- Australia House is now the official Austrade representative in
Ukraine. This is a positive move,“ Mr. Romaniw explained.
“In November this year an exhibition English language courses is being
hosted by Austrade in Kyiv and being organized by UAH. We continue
negotiations regards the Ukraine Business Forum in Australia planned
for November 2005 “Mr. Romaniw said
“All these are indicators that relations are growing. They would grow even
faster if there was an Australian diplomatic post in Kyiv. That will be the
topic of discussing with the Australian Government upon my return to
Australia next week” Mr. Romaniw said
“It is time to lift the Australian presence in Ukraine as Ukraine becomes
strategically more important” Mr. Romaniw told The Action Ukraine
Report (AUR). -30-
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NOTE: Australian Federation of Ukrainian Organisations, Representing
24 Peak Ukrainian Organizations in Australia, Member of Ukrainian World
Congress. Further information contact Stefan Romaniw + 380 973 430 965
+61 419531255; sromaniw@bigpond.net.ru.
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