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Action Ukraine Report

                              "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 WEALTH OF NATIONS
                   Ukraine's foreign direct investment inflow very, very low

Results in favor of the market and private property, a more limited state
Foreign direct investment usually follows past economic success and
strengthens future economic success.

Between 1989-2003, the Czech Republic attracted $3,700 per capita
in FDI, Hungary $3,400, the three Baltic countries $1,000-$2,400 and
Poland $1,300. FDI inflows per capita to Ukraine and Moldova were
only $128 and $210, respectively. [article one]

"THE ACTION UKRAINE REPORT - AUR" - Number 579
Mr. E. Morgan Williams, Publisher and Editor
Washington, D.C., Kyiv, Ukraine, FRIDAY, October 7, 2005

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

1.                                      "THE WEALTH OF NATIONS
COMMENTARY: By Leszek Balcerowicz
President, National Bank of Poland
The Wall Street Journal, New York, New York
Thursday, October 6, 2005; Page A14

2. U.S.: UKRAINE MUST FIGHT CORRUPTION, IMPROVE LEGAL SYSTEM
Muster the political will to complete actions to join WTO yet this year
By Aleksandar Vasovic, Associated Press Writer
The Associated Press, Kiev, Ukraine, Thu, October 6, 2005

3.             EU OFFICIALS URGE UKRAINE TO CONTINUE REFORMS
Still has not fulfilled conditions to be recognized as a market economy
By Jan Sliva, AP Worldstream,  Brussels, Belgium, Thu, Oct 06, 2005

4.    EUROPE: TELLING REPORT ON LACK OF REFORMS IN UKRAINE
                                  The President has failed to deliver,
                      ruling elite simply play a game of musical chairs
By David Ferguson, Brussels journalist
Euro-Reporters, Covering Wider Europe
Brussels, Belgium, Thursday, 06 October 2005

5. UKRAINE: KUCHMA IMMUNITY DEAL BLOCKS COUNCIL OF EUROPE
         DEMAND FOR FULL INVESTIGATION OF GONGADZE MURDER
COMMENTARY AND ANALYSIS: Taras Kuzio
Eurasia Daily Monitor, Volume 2, Issue 187
Jamestown Foundation, Washington, D.C., Fri, Oct 7, 2005

6.                         UKRAINE GETS EU ENLARGEMENT WINK
By Andrew Rettman, Euobserver, Brussels, Belgium, October 6, 2005

7.                 EUROPE CANNOT SHRINK FROM ENLARGEMENT
Yushchenko was a big plus for EU foreign policy, as well as
the power of the streets. Yet already he is in dire trouble. His
government collapsed, economy at a standstill.
COMMENT & ANALYSIS: By Quentin Peel
Financial Times, London, UK, Thu, October 6 2005

8. UKRAINE'S ECONOMIC PERFORMANCE HAS BEEN DISAPPOINTING
                     Macroeconomic picture has deteriorated significantly
PRESENTATION: By Brian Cox, Director
Office of Europe and Eurasia, U.S. Department of Treasury
Panel: Contemplating the "Economic" Dimension
Ukraine's Quest for Mature Nation Statehood: Roundtable VI
Ukraine's Transition to an Established National Identity
Ronald Reagan Building and International Trade Center
Washington, D.C., Tuesday, September 27, 2005
The Action Ukraine Report (AUR), Number 579, Article 8
Washington, D.C., Friday, October 7, 2005

9. UKRAINE'S FIRST LADY, KATERYNA YUSHCHENKO, A CHICAGO NATIVE,
                  RETURNS TO VISIT CHICAGO AREA MEDICAL FACILITIES
Chicago Sister Cities International Program
Chicago, Illinois, Wednesday, October 5, 2005

10.  NEW OIL REFINERY TO BE BUILT IN BRODY, IN WESTERN UKRAINE
Interfax-Ukraine news agency, Kiev, in Russian 1241 gmt 6 Oct 05
BBC Monitoring Service, UK, in English, Thursday, Oct 06, 2005

11.     HILTON INTERNATIONAL PLANS EAST EUROPE HOTEL PUSH
                   Has signed a deal to open a Hilton in Kiev, Ukraine
By Robert Anderson in Prague, Financial Times
London, United Kingdom, Friday, October 7 2005

12.                         UKRAINE OFFERS EURO 600 MILLION
By Ivar Simensen, Financial Times, London, UK, Fri, Oct 7 2005

13.  NEW LAW ON THE ELECTION OF NATIONAL DEPUTIES OF UKRAINE
REMARKS: Bohdan A. Futey, Judge, U.S. Court of Federal Claims
Ukraine's Quest for Mature Nation Statehood: Roundtable VI
Ukraine's Transition to an Established National Identity
Ronald Reagan Building and International Trade Center
Washington, D.C., Tuesday, September 27, 2005
The Action Ukraine Report (AUR), Number 579, Article 13
Washington, D.C., Friday, October 7, 2005

14.    BATTLE AGAINST CORRUPTION GRINDS TO A HALT IN UKRAINE
ANALYSIS: By Roman Kupchinsky
RFE/RL Organized Crime and Terrorism Watch, Vol. 5, No. 13
Radio Free Europe/Radio Liberty (RFE/RL)
Prague, Czech Republic, Monday, October 3, 2005

15.          SPITTING ON THE MEMORY OF INDEPENDENCE SQUARE
OPINION: By Olga Kryzhanovska
Nation Editor of Korrespondent magazine
Kyiv Post, Kyiv, Ukraine, Thu, Oct 06 2005

16.                          A STORM SWEEPS POST-SOVIET SPACE
What happens in Ukraine in the coming weeks and months will be an
important indicator of shape of things to come for the post-Soviet space.
COMMENTARY AND ANALYSIS: By M K Bhadrakumar
Asis Times Online, Hong Kong, Wednesday, Oct 5, 2005

17.                            UKRAINE'S DREAM IS NOT DEAD - YET
Continuing corruption has crushed many Orange Revolution alliances and
        hopes. But all is not lost, say Leonard Benardo and Laura Silber
COMMENTARY: By Leonard Benardo, regional director
and Laura Silber, Senior Policy Adviser
Soros Foundation Network's Open Society Institute in New York
Insider Edition, The Globe & Mail, Toronto, Ontario, Canada
Thursday, October 6, 2005 Page A21

18.         CONTROVERSIAL FORMER UKRAINIAN JUSTICE MINISTER
             SERHIY HOLOVATY CHOSEN TO RETURN TO HIS OLD POST
FirsTnews, Kyiv, Ukraine, Friday, October 07, 2005
=============================================================
1.                                       "THE WEALTH OF NATIONS"

COMMENTARY: By Leszek Balcerowicz
President, National Bank of Poland
The Wall Street Journal, New York, NY
Thursday, October 6, 2005; Page A14

WARSAW -- The failure of various forms of statism in the Third World, the
bankruptcy of communism in the former Soviet bloc and China, and the high
long-term unemployment and relative stagnation in Western European
countries with overregulated economies has forced a revision of the
development paradigm in favor of the market and private property -- in
short, a more limited state.

But the battle over ideas and policies is far from over. As a matter of
fact, it will never end, as the forces of statism regroup rather than
capitulate.

This is why it is so important to analyze which policies work and which ones
fail, to generate lasting convergence -- and to bring poor countries out of
poverty.

* * *
Communism, an extreme form of statism, went farthest to suppress markets
and criminalize entrepreneurship. The opportunity costs of this organized
folly were enormous: relative per-capita income in Poland, for example,
declined from about 100% of that in Spain in 1950 to only 40% in 1990.

And with the collapse of the communist system, a great natural experiment
began. Looking at its results, one is struck by the huge differences among
countries of the former Soviet bloc:

[1] In 2004, GDP had increased, relative to 1989, by 42% in Poland, 26% in
Slovenia, and 20% in Slovakia and Hungary. In contrast, it declined by 57%
in Moldova and 45% in Ukraine. If the shadow economy were included in the
calculations, the differences in output would be smaller, but they would
still be large.

[2] All transition economies have made considerable progress in lowering
inflation, yet better long-run growth performance went hand in hand with
lower inflation. This confirms that in countries that inherit high
inflation, successful disinflation is conducive to long-term economic
growth.

[3] Foreign direct investment usually follows past economic success and
strengthens future economic success. Between 1989-2003, the Czech
Republic attracted $3,700 per capita in FDI, Hungary $3,400, the three
Baltic countries $1,000-$2,400 and Poland $1,300. FDI inflows per capita
to Ukraine and Moldova were only $128 and $210, respectively.

Countries with better economic outcomes tend to achieve better non-
economic results as well. For example, between 1989-2001, energy
efficiency (GDP per kilogram of oil equivalent) -- an important indicator of
environmental impact -- had increased from 2.5 to 3.9 in Poland. In Russia,
it rose from 1.5 (1992) to only 1.6 and, in Ukraine, it decreased from 1.6
in 1992 to 1.4 in 2001.

Life expectancy has increased in Central and Eastern European countries,
while it has declined in most ex-U.S.S.R. countries. For example, life
expectancy rose from 71 to 74 years in Poland between 1990-2002, while
it declined from 70 to 68 years in Ukraine.

There are similar trends in the infant mortality rate. Between 1990-2002,
infant mortality per 1000 live births dropped from 16 to 8 in Poland, but
only from 18 to 16 in Ukraine and from 21 to 18 in Russia.

What explains these enormous differences? In terms of GDP growth, it is
tempting to look at differences in the initial conditions.

For example, the Baltic countries -- Estonia, Latvia and Lithuania -- were
much more dependent on exports to the old Soviet trading club, Comecon,
(30%-40% of GDP) than were the Central and Eastern European communist
countries (4%-15% of GDP). Following the collapse of the Soviet bloc, it
might be argued, the Baltics were exposed to a much deeper decline in
GDP.

Such differences in initial conditions, however, can explain only a part of
the difference, and only in the early years. Despite huge initial shocks,
the Baltics performed in the longer run much better than, say, Romania,
which was relatively less dependent on trade with Comecon.

The differences in longer-run growth are largely due to more extensive
market-oriented reforms and more successful macroeconomic stabilization.
This conclusion is supported by a considerable, serious empirical
literature.

Countries that catch up with reforms tend to catch up with growth as well.
Take Armenia, which has radically enlarged the scope of economic freedom
and brought its tax/GDP ratio to low levels, while strengthening fiscal
discipline. Its GDP has grown 70% since 1996.

This may be another indication that the low-tax model is more conducive to
rapid economic growth than are systems with the extensive budgetary
redistribution typical of larger Eastern European countries.

Better economic outcomes tend to be associated with better non-economic
ones because some reforms are crucial to both. For example, market-
oriented reforms sharply increased the overall efficiency of the economy and
that both boosted economic growth and reduced environmental pollution.

The introduction of the rule of law was important both for long-term
development and for the enforcement of environmental legislation. Economic
liberalization not only stimulated growth, but also made healthier food more
available and relatively cheaper.

Postcommunist countries that moved more toward a market economy
achieved better economic (and non-economic) results than those that
implemented fewer market-oriented reforms or none at all.

How does this basic conclusion compare with the experience in countries
with a large state-owned enterprise sector, competition-stifling regulations
and barriers to entry, import restrictions and rigid labor markets, poor
protection of private property rights, fiscal irresponsibility, etc.?

These features, in various combinations, are characteristic of statist
systems, i.e., those where politics and state bureaucracy strangle the free
market. They're also characteristic of failed states, whereby ostensibly
state agencies are in fact instruments of a private plunder.

* * *
My reading of the empirical literature suggests three broad lessons:

FIRST, no poor country has achieved lasting convergence under any of the
statist or failed-state systems. By implication, institutional change which
results in such a system precludes lasting convergence. Systems that
suppress, heavily limit and distort legal market competition produce
economic losers.

SECOND, successful cases of sustained convergence have happened under
more or less free-market systems (e.g. the U.S. catching up with Britain in
the 19th century) or during and after the transition to such systems (e.g.
the Asian Tigers since 1960 or some of the post-communist economies after
1990). This suggests that the acceleration of growth does not have to wait
until "good" institutions emerge.

Rather, growth may accelerate during the reform process, provided the
reforms improve institutions for productive activities. That's because the
reforms increase output and productivity in previously repressed sectors
(agriculture in China or the service sector in the Soviet system), or
because the previous incentive structure encouraged massive waste
(command socialism).

Such transition effects tend to expire after a certain time, and the pace of
future growth will then mostly depend on the strength of permanent
incentives to work and to innovate -- which in turn depends on how far the
country has moved toward becoming a limited state. Therefore, the extent
of market-oriented reforms, started under either a statist or a failed-state
system, matters for short-term and long-term growth.

Some economies, especially the Asian Tigers - called "growth miracles" -
have produced a lot of debate. There is no shortage of explanations
ascribing their exceptionally rapid growth to some special state
interventions (such as directed credits, or close links between the
government and business). A closer look at their experience suggests
another explanation.

For a while, the "miracle economies" differed in the extent of state
intervention (from practically none in Hong Kong to some in most other
countries), but they had one thing in common: A large dose of market
reforms, which, combined with their initial conditions, ensured a greater
degree of economic freedom than in other developing counties. State
intervention tended to obstruct rather than to promote long-term growth.

Witness the state-led heavy industrialization drive in South Korea in the
1970s, which contributed to the growth of South Korean foreign debt and
diverted investment from more export-oriented industries. As a result, South
Korea's GDP growth sharply declined in the early 1980s, inducing a change
in economic policy towards less state intervention.

The common features of the "miracle countries" include low tax-to-GDP ratios
due to a lack of extensive welfare states. This tends to increase labor
supply and promote private savings. Growth leaders in the post-communist
world which have achieved low tax-to-GDP ratios, in other words, should be
encouraged to keep those ratios.

An extensive welfare state crowds out the voluntary forms of human
solidarity, and -- especially in poorer economies -- can obstruct economic
growth. This is a warning to those poorer economies which have now much
higher public-spending-to-GDP ratios than Sweden, Germany or France did
when they had similar income per capita.

THIRD, while all cases of lasting convergence have occurred under more or
less free-market systems, or during and after the transition to such
systems, not all market-oriented reforms have led to sustained convergence.

Reforms are frequently announced, but not implemented, or they may be
implemented initially but then reversed or seriously amended. In such cases,
criticizing the failure of market reforms is misplaced.

Market-oriented reforms may well fail -- if they are incomplete in critical
ways. One example would be introducing a fixed exchange rate regime
without fiscal discipline. Argentina's recent collapse reminds us that
fiscally irresponsible politics may undermine the results of genuine market
reforms.

Market-oriented reforms may also fail to generate lasting convergence if
some of their crucial elements are badly structured, e.g. a serious
miscalculation of the initial level of a fixed exchange peg or a bad
incentive structure in the bankruptcy law.

None of these problems validate the search for a "Third Way" solution as
the best way to ensure sustained convergence.

They are merely hurdles to be overcome on the path to a full-fledged market
economy.  -30-  [The Action Ukraine Report Monitoring Service]
------------------------------------------------------------------------------------------------------
Mr. Balcerowicz is president of the National Bank of Poland, the country's
central bank.
=============================================================
2. U.S.: UKRAINE MUST FIGHT CORRUPTION, IMPROVE LEGAL SYSTEM
Muster political will to complete actions to join WTO yet this year

By Aleksandar Vasovic, Associated Press Writer
The Associated Press, Kiev, Ukraine, Thu, October 6, 2005

KIEV - Ukraine must do more to fight corruption and improve its legal
system in order to attract foreign investors and advance its cause for
joining the World Trade Organization, a senior U.S. diplomat said Thursday.

E. Anthony Wayne, U.S. assistant secretary for economic and business
affairs, also leveled mild criticism at former Prime Minister Yulia
Tymoshenko, who was sacked last month along with her government.

Wayne said an attempt by Tymoshenko to scrutinize companies privatized
during the former administration had spooked potential investors and "helped
precipitate the Cabinet downfall." "Ukrainian and foreign investors were
understandably reluctant to invest new money," he said.

President Viktor Yushchenko has been struggling to regain momentum for
crucial legal and economic reforms that have faltered in recent months as
the government got bogged down in reviewing old privatization deals.
Political infighting and economic woes led to the sacking of Tymoshenko's
government on Sept. 8.

Speaking at a business forum in Lviv on Thursday, Yushchenko described the
large-scale review of privatizations conducted under former President Leonid
Kuchma's administration -- a review that was backed by Tymoshenko -- as "a
big mistake."

"Such a policy would have resulted in the redistribution of assets between
the old and the new authorities," Yushchenko said in remarks broadcast live.
"It would have political undertones and would have ended in disgrace."

He said, however, that the re-privatization of the country's biggest steel
mill, Kryvorizhstal, would go ahead as planned.

Wayne told reporters that the ex-Soviet republic's failure to increase trade
and foreign investment following last year's Orange Revolution was the
result of a "weak rule of law and a poorly functioning judicial system."

He said the country had made progress on reforms, but said the country's
leadership to "muster the political will to complete this ... quickly" to
join the WTO later this year.

The Western-leaning administration has set WTO membership as a major
goal, but parliament has failed to pass all 14 bills in a package of
legislation needed for membership. The country needs major foreign
investments and increased exports to boost its sluggish economy.

Wayne said that the legislation has "a common theme -- to dismantle
government rules of intervention that distort the functioning of markets."

Passage of legislation, however, was not "politically easy, because powerful
business interests often want government to grant them special favors," said
Wayne, who met Prime Minister Yuriy Yekhanurov on Wednesday.  -30-
=============================================================
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=============================================================
3.           EU OFFICIALS URGE UKRAINE TO CONTINUE REFORMS
Still has not fulfilled conditions to be recognized as a market economy

By Jan Sliva, AP Worldstream, Brussels, Belgium, Thursday, Oct 06, 2005

BRUSSELS - Ukraine has still not fulfilled all the conditions to be
recognized as a market economy and must continue economic reforms to
deepen its relations with the European Union, European Commission
President Jose Manuel Barroso said Thursday.

"Ukraine still has some things to do. Some progress has been recognized on
our side. Let's hope that sooner, rather than later, Ukraine can be granted
this status," Barroso said after meeting Ukraine's new Prime Minister Yuriy
Yekhanurov.

Staying the course on reforms would be welcomed in Brussels, officials said,
and may encourage the EU to grant Ukraine coveted market economy status
ahead of a Dec. 1 EU-Ukraine summit in Kiev.

Recognition as a market economy is largely symbolic. But it would give
Ukraine added protection against possible charges of breaking global trade
law on antidumping. Economic reforms may also qualify Ukraine for more
financial and economic assistance from the EU.

But Barroso hinted that EU membership is not imminent for the ex-Soviet
republic which assumed a pro-European course after the so-called Orange
Revolution that brought current president Viktor Yushchenko into power.

"Our door remains open, the future of Ukraine is in Europe. The best way to
get there is not to talk about EU membership all the time but achieve
concrete results, show commitments to European values and standards," he
said.

Ukraine has been trying to push the EU to institute a visa-free regime - or
at least free visas - for its citizens. Barroso said that the issue would be
on the agenda at the EU-Ukraine Kiev summit in December.

"We hope that by the time of the summit we'll be able to achieve concrete
results on visas," he said.

Making his first visit to European Union headquarters to seek support for
his country's reform agenda, Yekhanurov said Ukraine was preparing to
introduce 14 amendment to its current legislation to fulfill conditions for
joining the World Trade Organization.

Ukraine's membership in the WTO is seen as an important short-term goal for
this country of 47 million. "We hope Ukraine will be able to join by the end
of the year," said Siim Kallas, the European Commission's vice president in
charge of administration. "This will have huge repercussions for its
economy."

Yekhanurov said his new government would make his country's economy more
competitive and transparent, and promised not to re-privatize any
businesses.

"We will offer clear, responsible and equal rules of play to the businesses
in Ukraine's market, based upon securing the principles of market
competition and private property rights," he told a conference on Ukraine
before meeting Barroso. "We have put an end to all speculation about
re-privatization in the Ukraine."

Last month, President Viktor Yushchenko fired the previous premier, Yulia
Tymoshenko, who had been a Yushchenko ally during his presidential
campaign.

Yekhanurov, an economist, has challenged his new Cabinet to make boosting
Ukraine's economic performance a priority. "The Ukrainian economy seems to
be losing pace," Yekhanurov told the conference, appealing to investors to
bring in more money to Ukraine.

"The economic imbalances resulting from excessive desire to resolve social
problems are becoming more apparent." He added that the competitiveness of
Ukraine's economy has decreased by 16 percent since the beginning of the
year and that is "a disturbing signal."

Yekhanurov's Cabinet, however, must first tackle corruption to lure
investments, said Kallas.   -30-
=============================================================
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==============================================================
4.    EUROPE: TELLING REPORT ON LACK OF REFORMS IN UKRAINE
                                  The President has failed to deliver,
                      ruling elite simply play a game of musical chairs

By David Ferguson, Brussels journalist
Euro-Reporters, Covering Wider Europe
Brussels, Belgium, Thursday, 06 October 2005

The honeymoon period enjoyed by Ukraine's new leaders in Western capitals
is long gone, even if President Viktor Yushchenko is still seen favorably.

As the newly appointed Prime Minister Yuriy Yekhanurov visits Brussels, the
Council of Europe's Ukraine Monitoring Committee has issued a telling
99-page report on democratic reform in the former Soviet republic.

British Liberal Michael Hancock sat near President Yushchenko as he
addressed the Council of Europe Assembly in January, days after being
inaugurated.

"The orange glow that surrounded him like a halo was almost blinding. He
gave promises," said Hancock. "I think that the President has failed to
deliver. The ruling elite simply play a game of musical chairs, and the
cards are reshuffled," said the UK Liberal.

Whilst the Parliamentary Assembly of the Council of Europe (PACE
welcomed the 'positive developments' in Ukraine under President
Yushchenko, the Assembly pointed to 'numerous difficulties' and
shortcomings.

Adopting its sixth monitoring report on Ukraine since the country joined the
Council of Europe in 1995, and the first report since the so-called 'Orange
Revolution', the Assembly underlined reform priorities such as fight against
corruption, strengthening the rule of law and the organization of free and
fair elections in March 2006.

Liechtenstein deputy Renate Wohlwend weighed in on the faulty legal system:
"Improvements remain to be made, for example, on judicial reform. Ukraine
entered into a number of commitments ten years ago which have not yet been
fulfilled," said Wohlwend, co-rapporteur on Ukraine.

"The state prosecutor's office is still working on the old Soviet model and
its powers are not yet clearly formulated. It is clear that some people
wished to retain the Soviet model."

Strasbourg called on Kiev to bring to justice those responsible for the 2004
electoral fraud, guarantee separation of powers, judiciary reform and
parliamentary opposition rights. State broadcasters must be transformed
into public service channels.

"We are also disappointed with the lack of progress in the Gongadze case.
We have tabled many amendments on that, and those responsible for the
murder must be found. We should insist on that," said Danish co-rapporteur
Hanne Severinsen.

"A lot of progress has been made, but a lot remains to be done. For example,
we must consider the functioning of the democratic system and the
party-building system in Ukraine," said former Flemish Prime Minister Luc
Van Den Brande.

"It is of fundamental importance to the forthcoming parliamentary elections
that there are political parties aiming for the necessary reforms in
Ukraine."

"Another problem is that the oligarchs are still in place in Ukraine,"
continued Van Den Brande. "It is probably not overstating the case to say
that corruption is endemic in Ukraine. It is unthinkable that a new
oligarchy be allowed to replace the old one."

Russian deputy Vera Oskina recalled Ukraine's commitments, on paper, to
support minority languages. "The Russian language and culture are part of
Ukraine's cultural heritage, as they are in many other former Soviet
countries," said Oskina.

"There are, however, gross violations of the principle of the free use and
development of minority languages. A number of Russian-speaking schools
have been closed and the judiciary is now required to operate in Ukrainian
throughout the country." -30-  [Action Ukraine Report Monitoring]
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http://euro-reporters.com/index.php?option=com_content&task=view&id=209&Itemid=1
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5.  UKRAINE: KUCHMA IMMUNITY DEAL BLOCKS COUNCIL OF EUROPE
           DEMAND FOR FULL INVESTIGATION OF GONGADZE MURDER

COMMENTARY AND ANALYSIS: Taras Kuzio
Eurasia Daily Monitor, Volume 2, Issue 187
Jamestown Foundation, Washington, D.C., Fri, Oct 7, 2005

The Parliamentary Assembly Council of Europe (PACE) on  October 5 issued
a resolution this year  that requested the Ukrainian authorities to deal
with different aspects of the investigation into the murder of journalist
Heorhiy Gongadze (www.assembly.coe.int).

The section in the resolution dealing with the Gongadze murder will go
unheeded by the Ukrainian authorities.

The Socialist Party of Ukraine (SPU) also issued a damning indictment in
parliament (spu.org.ua, Ukrayinska Pravda, October 4). The SPU demanded
that parliamentary speaker Volodymyr Lytvyn, who was head of the
presidential administration when Gongadze was murdered in 2000, stop
blocking the holding of a hearing in parliament on the commissions
conclusions into the murder. Hearings should be held prior to the March
2006 elections, the SPU insisted.

Accusations that Lytvyn was blocking parliamentary hearings were made
earlier by outgoing First Deputy Prime Minister Mykola Tomenko and former
Security Service head Oleksandr Turchynov, both of whom are aligned with
Yulia Tymoshenko. These views were echoed by Gongadze's mother, Lesia,
and his widow, Myroslava (Ukrayinska Pravda, September 7, 8, 9, 15).

These accusations prompted a Sunday Times (September 18) investigative
article entitled "President's aides in murder 'cover-up'".

The SPU also insisted that the "siloviky" (power ministries) give full
reports to parliament on the role of their ministries in the murder.
Interior Minister Yuriy Lutsenko is aligned with the SPU. SPU leader
Oleksandr Moroz first unveiled details of the authorities complicity in an
address to parliament in November 2000.

The parliamentary commission report  was completed in late 2002 but has
never been heard in parliament. A summary was recently given by commission
head Hryhoriy Omelchenko (Ukrayinska Pravda, September 20).

Asked why the Prosecutor's office had not reacted to the three year old
report, Prosecutor Sviatoslav Piskun limply said he had not received it as
it was still in the mail (Ukrayinska Pravda, September 29).

Yaroslav Koshiw, author of the only Western book Beheaded. The Killing of
a Journalist (Artema Press, 2003) on the Gongadze murder, accuses both
Kuchma and Lytvyn of involvement. Beheaded was published in Kyiv a year
later by the Sobor party which is a member of the Tymoshenko bloc.

Koshiw reproduces a tape recording made by Mykola Melnychenko where
Lytvyn is alleged to have advised Kuchma to not use the courts against
Gongadze. Instead, Lytvyn proposes that Kuchma "release" the Interior
Ministry on to Gongadze.

The PACE resolution, like the SPU statement, calls upon Ukraine to hold
parliamentary hearings on the Gongadze murder. This demand is a rebuff to
both Lytvyn and to Prosecutor Piskun, both of whom attended the PACE
sessions where they attempted to prove that Ukraine had progressed in its
investigation.

The PACE resolution reaches the same conclusion as that of the September
open letter by the International Federation of Journalists (IFJ) and other
organizations. that the resolution states, "It regrets that the case of
those who allegedly executed the murder has been separated from the main
case-file and has been qualified as a murder committed by a group of persons
following their prior collusion, which is seen as a step towards excluding
from the prosecution the masterminds and organizers".

PACE is dissatisfied that there has been no progress into, "the prosecution
of those who ordered and organized this crime" and any, "credible
examination of the Melnychenko recordings". "" (assembly.coe.int).

PACE is referring, like the IFJ open letter, to the trial set to begin this
month of the three policemen who were present at Gongadze's murder. They
are set to become the scapegoats after which the case would be closed and
the "organizers" given de facto amnesty.

Yushchenko cannot implement the PACE resolutions dealing with Gongadze
and his inability to do so will damage him in two ways.

FIRST, domestically. The Orange opposition (Tymoshenko, SPU, Pora) will
seize on this in the 2006 election campaign. The Gongadze murder led to the
Kuchmagate crisis without which the Orange Revolution would not have taken
place.

SECOND, internationally. Failure to implement PACE resolutions will damage
Ukraine's integration into the EU. PACE and the EU will wonder how
Yushchenko's Ukraine is different to Kuchma's which also ignored PACE.

Yushchenko is unwilling to pay the political price for admitting that Kuchma
was given immunity at the round-table negotiations in December 2004. The
negotiations wee brokered by the EU, Poland, Lithuania and Russia.

Admitting to an immunity deal for Kuchma in early 2005 would have not
damaged Yushchenko's credibility as he could have argued that a deal was
needed to break the revolutionary deadlock and prevent bloodshed.

Admitting it today, on the other hand, after the September crisis will
provide ammunition to the Orange opposition ahead of the elections.

The amnesty deal for Kuchma has no legal backing as parliament failed to
adopt a law on presidential immunity in 2004. It therefore is only based on
Yushchenko's word, his long-standing inability to go against Kuchma and
backing from Polish President Aleksandr Kwasniewski and EU Foreign
Policy supreme Xavier Solana.

Outgoing National Security Council secretary Petro Poroshenko, who alone
from the Orange coalition attended the negotiations with Yushchenko, also
backed granting immunity. Poroshenko had cordial relations with Kuchma until
2001 (see Melnychenko tape recording in Ukraynska Pravda, July 6).
Poroshenko has lobbied for an alliance between Peoples Union-Our Ukraine
and Lytvyn.

The head of Yushchenko's 2004 election campaign, Oleksandr Zinchenko, also
hinted that an immunity deal was possible. Zinchenko advised that, "Immunity
would depend upon his (i.e. Kuchma) moral conduct in the coming days" (The
Observer, December 5, 2004).

Three days after Zinchenko's comments were made, Kuchma's signed into law
the "compromise package" made at the round-table negotiations that included
a repeat election under a revised law and constitutional reforms. Two days
later, Kuchma re-instated Piskun as Prosecutor to "guarantee" everything
agreed at the round-table negotiations, including Kuchma's immunity.

Regions of Ukraine deputy Ihor Shkiria wondered aloud why the Prosecutor
was not investigating Kuchma (Ukrayinska Pravda, July 22). Regions of
Ukraine leader Viktor Yanukovych believes Kuchma betrayed him in
December 2004 in return for an immunity deal.

Interviewed in Izvestia (September), Tymoshenko said, "Yushchenko has
explained to everyone that Kuchma is not to be touched. He said that
Kuchma is a former head of state and is therefore not to be hunted like a
rabbit".

Tymoshenko continued, "There are no allegations against Kuchma; he will
be allowed to keep all his property, even unlawfully acquired property. In
effect Kuchma has been granted a pardon".

Yushchenko's unwillingness to come clean about an amnesty deal with
Kuchma, coupled with his refusal to launch an investigation of Lytvyn's
alleged involvement because of political expediency, will make it impossible
for Ukraine to fulfil both PACE resolutions. Nevertheless, it is time that
the "elephant" in the room - the unresolved Gongadze murder - is finally
recognized by Yushchenko.  -30-  [The Action Ukraine Report]
==============================================================
                 Send in a letter-to-the-editor today. Let us hear from you.
==============================================================
6.                           UKRAINE GETS EU ENLARGEMENT WINK

By Andrew Rettman, Euobserver, Brussels, Belgium, October 6, 2005

BRUSSELS - Ukraine on Thursday (6 October) got the clearest signal
so far that it is in the queue for enlargement, as well as the promise of
an EU visa deal by December.

"Our door remains open. The future of Ukraine is in Europe", European
Commission president Jose Manuel Barroso said after a meeting with
Kiev's new prime minister Yuri Yekhanurov in Brussels.

The president cautioned that "the best way to achieve this" is to take
concrete steps in terms of administrative and economic reforms, instead
of "talking about accession all the time".

But his remarks were much more positive than recent comments from
commission vice president Siim Kallas and enlargement chief Olli Rehn,
who gave the impression that the door might close after Turkey and the
western Balkans go in.

"We have hostility in Europe not only to possible future enlargement but
even to the enlargement that we have already agreed, with popular
demonstrations and politicians saying we made a mistake", Mr Kallas had
said in meetings earlier the same day.

Brussels' economics and finance department director, Antonio de Lecca,
was even starker. "There is real economic integration, but this process is
entirely separate from any proposals of enlargement", he had indicated.

                                        MEMBER STATES PUSH
Eastern European EU diplomats hovering on the fringes of Thursday's
gatherings also indicated that there is plenty of interest in the Ukrainian
enlargement idea away from the glare of public opinion. "Many of us want
this. It is the commission's job to be cautious and it is our job to push",
a senior Polish source said.

But both sides are set to focus on small, practical steps toward closer
relations in line with Mr Barroso's advice for now.

The commission president said that Brussels has completed preparations for
a visa deal enabling easier travel for Ukrainian students and businessmen to
the Schengen zone. The agreement could form the keynote of the EU-Ukraine
summit in Kiev this December, if member states give the green light in time.

On top of this, Ukraine claims to be on the verge of obtaining market
economy status and joining the World Trade Organisation by the end of this
year, with Mr Yekhanurov calling the WTO target "realistic".

The move would pave the way for starting talks on a free trade area (FTA)
with the EU in January giving Ukrainian energy and steel firms access to the
single market down the line. Turkish diplomats revealed on Thursday that the
commission has already begun work on a feasibility study for the FTA talks.

                                          CREDIBILITY PROBLEMS
Mr Yekhanurov took over from former prime minister Yulia Tymoshenko last
month, after president Viktor Yushchenko sacked his government over
corruption allegations.

The crisis has compounded the credibility problems of the post-Orange
Revolution regime, with overall economic growth and foreign investment in
Ukraine nose-diving this year.

Some firms, such as power plant specialists EnerSys are still pouring
hundreds of millions of euros into new facilities in the country. But many
businessmen swap anecdotes about the upsurge in corruption and the rise
in the cost of bribes since the Yushchenko era began.

"The problem with the colour revolutions, is that they are clan revolutions,
where one clan takes over from another", a Slovenian diplomat explained.

Mr Yekhanourov promised to boost the business climate by halting this month
the renationalisation process begun by his predecessors, while saying
property ownership is "sacred" in Kiev.

But Mr Barroso and Mr Kallas both stressed that the real "litmus test" in
Ukraine's march toward deeper European integration will be the fair conduct
of the parliamentary elections next March.  -30-
---------------------------------------------------------------------------------------------------------
LINK: http://euobserver.com/9/20031
==============================================================
7.                      EUROPE CANNOT SHRINK FROM ENLARGEMENT

Yushchenko was a big plus for EU foreign policy, as well as
the power of the streets. Yet already he is in dire trouble. His
government collapsed, economy at a standstill.
COMMENT & ANALYSIS: By Quentin Peel
Financial Times, London, UK, Thu, October 6 2005

Enough is enough. The agonising process of negotiating a mandate for Turkey
to open membership talks with the European Union this week seems to have
exhausted the enthusiasm of many EU governments for any further enlargement.

As it is, they have drawn up the toughest negotiating terms ever presented
to an aspiring candidate, providing all sorts of ways to block the ultimate
goal of Turkish accession. The EU "capacity to absorb Turkey" is made an
essential pre-condition.

Any sign of backsliding in Ankara on "the principles of liberty, democracy,
respect for human rights and fundamental freedoms and the rule of law" can
cause the negotiations to be abruptly suspended. Every line spells out the
hesitation of the present member states to open their doors across the
Bosphorus.

Croatia managed to slip in under the wire to open its own accession talks,
thanks to a last-minute report that Zagreb is finally co-operating fully in
the hunt for Ante Gotovina, the country's most notorious war criminal. The
caution is understandable. "Enlargement fatigue" is apparent across most
of western Europe.

It was a factor in the No votes in France and the Netherlands on the EU
constitutional treaty. None of the richer nations wants to increase the EU
budget to pay for the last round of enlargement, let alone the next. So the
talk in Brussels today is all about the need for a debate to define Europe's
"identity", and fix forever the borders of the Union.

It may be understandable, but it is a bad idea. It is too late and it will
not work. Enlargement of the EU is a fact of life and the prospect of
membership is the most important factor that is slowly bringing stability
and democracy to the most fragile and fractious frontiers of the Union - in
the western Balkans and in the western republics of the former Soviet
Union, Ukraine, Moldova and Belarus.

The plan instead is to offer the nicest possible "neighbourhood policy" to
all the aspirant members, with action plans for boosting trade and
investment, a full-scale customs union, easier visa regimes and help with
building new institutions to entrench democracy and the rule of law.
Everything, that is, short of full membership of the EU institutions.

It sounds good on paper and will help ease an inevitable period of
transition as those countries struggle to meet European standards of
administration and good governance. But a neighbourhood policy will not
provide the guarantees they need to attract foreign investment, build their
own self-confidence, root out corruption and prevent any reversion to
dictatorship, let alone new wars of ethnic cleansing.

Take Ukraine. The Orange Revolution at the turn of the year was a triumph
for democracy and a tribute to the influence of an enlarged EU.
It was thanks to the new memberstates - Poland and Lithuania in particular -
that Leonid Kuchma, the outgoing president, was bullied into declaring the
rigged elections of his chosen successor null and void.

Britain, France and Germany did not want to offend Russia's Vladimir Putin
by interfering in the result he favoured. The victory of Viktor Yushchenko
was a big plus for EU foreign policy, as well as the power of the streets.

Yet already he is in dire trouble, his first government having collapsed and
the economy at a standstill because of chaotic plans for mass
re-privatisation of former state industries.

The popularity of Mr Yushchenko's party has slumped and the pro-Russia party
could emerge again as the largest at next year's parliamentary elections.

In neighbouring Belarus, the last dictatorship in Europe, the situation is
very different, but equally unstable. Alexander Lukashenko has built a
ramshackle but vicious police state on Soviet foundations and is kept
solvent largely thanks to Moscow's subsidised supplies of gas.

He seems to be in control, with 10 per cent of the 10m population in his
security services. Yet the lesson of Ukraine is that a revolution against
corrupt dictatorship could erupt at any time. If it happened in Belarus,
what would the EU do?

The lack of a coherent EU policy towards Ukraine and Belarus is not just a
result of enlargement fatigue. It is also hamstrung by a desire not to
offend Mr Putin. Russia has never come to terms with the independence of
the former Soviet republics. Overt EU interference is deeply resented.

When the Russian president came to London for the EU-Russia summit this
week, Belarus was not mentioned and Ukraine only in the context of
neighbouring Moldova. Instead they talked happily of securing Russian energy
supplies and co-operating on global warming. The Russian "near abroad" was
too difficult.

Belarus and Ukraine are neighbours of the EU, just as much as of Russia.
Their stability and democracy should be of equal concern to both. But Mr
Putin seems to prefer instability, while the Europeans bite their tongues.
Holding out the prospect, however distant, of Ukraine and a democratic
Belarus joining the EU provides vital encouragement to the embattled
democrats in both countries.

It also signals to Moscow that the Union has a vital interest in what
happens there. This is not cold war competition. It is about bringing peace
and stability to the region.

It would be a tragedy if the political leaders of the EU lost sight of that
wider vision, as they wrestle with the temporary indigestion caused by the
last round of enlargement.  -30-  [Action Ukraine Report Monitoring]
==============================================================
8.  UKRAINE'S ECONOMIC PERFORMANCE HAS BEEN DISAPPOINTING
                     Macroeconomic picture has deteriorated significantly

PRESENTATION: By Brian Cox, Director
Office of Europe and Eurasia, U.S. Department of Treasury
Panel: Contemplating the "Economic" Dimension
Ukraine's Quest for Mature Nation Statehood: Roundtable VI
Ukraine's Transition to an Established National Identity
Ronald Reagan Building and International Trade Center
Washington, D.C., Tuesday, September 27, 2005
The Action Ukraine Report (AUR), Number 579, Article 8
Washington, D.C., Friday, October 7, 2005

It probably goes without saying that economic performance has been
disappointing.  Expectations for the new government were probably
excessive coming out of the Orange Revolution, but macroeconomic
picture has deteriorated significantly.

       1 0% loss of growth: Real GDP growth was 2.8% yoy during Jan-Aug
vs. 12% in 2004.  Output growth contracted yoy in August.
        7%  inflation increase:  14.9% in Aug from 8% last June.

At Treasury looking at sources of the slowdown and what it means for future
growth.

·        Actually majority of growth decline due to external environment,
notably steel.
        Net exports added 3.3 percentage points to GDP growth in 2004,
accounted for a decrease of 3.8 percentage points in Q1 2005.  7% net
swing
        Steel prices down slightly this year vs. 55% increase in 2004.
        Note that slowdown in export growth could also be somewhat
overstated by reduction in fraudulent claims for VAT refunds (ie some of the
12% growth in 2004 was fake - but probably not a huge effect)
        Growth in agricultural output also seems to have slowed -- won't be
as large a contribution to real GDP growth.

The remaining 2-3% can be attributed to poor policies that hurt investment.
(Consumption has remained strong).  Actually this probably understates the
effect since the orange revolution could have sparked a sharp increase in
investment if policy had lived up to promises, so probably large opportunity
cost.

        Gross capital formation fell 8% yoy in Q1, and a further in Q2 and
3.
        Conventional wisdom is that the main culprit is the failure to
clarify the policy on re-privatization overwhelmed the potentially positive
effects of customs administration and abolishing tax preferences.
        But reasons are much more broad based ex: Missed opportunities on
the joint stock law, commercial code reform, WTO accession.
        US companies reluctance to make investment commitments not related
to reprivatization but to broader business environment issues and
uncertainty of reform direction.
        WB's Doing Business report shows Ukraine as one of the worst micro
environments in the region.  Ukraine ranked 125 (out of 155) - worse than
any other transition economy except Uzbekistan - as a result of high
business start up costs, an inflexible labor market, and inadequate investor
protection.
        Not a pretty picture but one with lots of potential upside if
reforms can be implemented.  Well known US investor in Russia likes to say
" best time to make money is when thing are going from terrible to bad".
Seem to be a lot of investors out there looking for the right moment.

Inflation is predominately policy-induced although energy prices have played
a part.

        Upturn in inflation began in the second half of 2004 with the fiscal
expansion of the last government, but the 2005 budget has reinforced the
problem.
        The fiscal effect is somewhat hidden as the fiscal deficit will
actually decline this year.  It is the sharp shift in the composition of
spending that has had a significant impact on demand and stoked inflationary
pressures.
        Inflation obviously partly a monetary problem as well as central
bank continues with exchange rate peg (broad money rose 36% yoy in Aug).
Government and CB don't seem to have a common vision of how to balance
the risks of inflation and exchange rate appreciation.

                                        WHAT DOES THIS TELL US?
Strong real GDP growth during 2003-2004 was more dependent on surge in
steel prices and remaining excess capacity than perhaps had been previously
appreciated.  Once steel prices eased the domestic economy was not well
positioned to take up slack.

       Since Chinese demand for steel imports is not likely to recover -
China is now a net exporter of steel because of rapid capacity increases.
Ukraine must look to a more diversified set of sectors to boost growth.
This will require broad reform.

Confidence may be slower to recover than many (including US) hope.

        New government has been at pains to say that reprivatization is over
and even talking about an amnesty.  Implication is that this should renew
confidence.  But unlikely that many investors will see this as the final
round in this fight and will wait to see the outcome in March.
        Particularly true given the pact between Yushchenko and former
Kuchma camp.
        Key to resolving this issue once and for all is to achieve a balance
between justice and economic efficiency.  Clearly the former PM's calls for
reviewing up to 3000 deals erred on the side of justice (and some question
whether justice was her underlying motivation) and was economically
untenable.  But an outcome that leaves the status quo ante in place may not
provide enough justice to be politically sustainable.  At the very least it
gives Ms. Tymoshenko a great issue to run on.

                                                    LOOKING AHEAD:
Our hope is that Yekhanurov government can re-establish semblance of
poltical stability and move forward on reforms, but the effects on
confidence and investment are not likely to appear until after a the March
elections.

        Most likely scenario is that the economy will muddle through until
elections.

One opportunity for the new government to have an impact will be the 2006
budget.  With elections not until March and some delay likely until the new
government is formed, it will be difficult to substantially revise the
budget until midyear.

        Government can't repeat kind of social spending increases that
happened this year without further pushing up inflation.
        Need to re-establish balance between current and capital
expenditures.

Note the possible risk from higher energy prices if Russia were to increase
gas prices sharply, end practice of "offsets" for pipeline use and put
transactions on a cash basis (as they've threatened to do).

         Although this would be a benefit in the long-term by forcing market
discipline on inefficient producers that have remained competitive through
access to cheap energy thereby reducing economic distortions, initial
impact on economy would be negative.

        Even the threat of such action could influence policy in a negative
way.

Post-election scenarios are difficult given rapidly changing alliances and
the shift in power from president to the parliament.

        Important for economy that election have a decisive outcome with a
mandate for reform.   -30-  [Action Ukraine Report Monitoring Service]
==============================================================
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==============================================================
9. UKRAINE'S FIRST LADY, KATERYNA YUSHCHENKO, A CHICAGO NATIVE,
                 RETURNS TO VISIT CHICAGO AREA MEDICAL FACILITIES

Chicago Sister Cities International Program
Chicago, Illinois, Wednesday, October 5, 2005

CHICAGO - The Chicago Sister Cities International Program hosts Kateryna
Yushchenko, wife of Viktor Yushchenko, President of Ukraine, October 5 -10,
as she visits Chicago area hospitals, medical facilities and associations as
part of her ongoing healthcare advocacy campaign in Ukraine.

This is Mrs. Yushchenko's second visit to Chicago this year.  In April 2005,
she participated in a cultural salon where she visited with Ukrainian
artists, dignitaries, and leading cultural figures.

First Lady Kateryna Yushchenko was born in Chicago in 1961.  Her Ukrainian
parents met as forced laborers in Germany and then immigrated to the U.S.
Mrs. Yushchenko received her bachelor's degree from Georgetown University
and her M.B.A. from the University of Chicago.

She is active in charitable, historical, and cultural activities.  One of
her main priorities is to address the difficult social issues currently
challenging Ukraine, particularly healthcare for children; homeless,
orphaned, and exploited children; and integrating the disabled into society.

Mrs. Yushchenko's Foundation, Ukraine 3000, works largely through local,
non-governmental organizations to encourage the development of a tradition
of charity in Ukraine.  The Foundation has responded to thousands of
requests from individuals in dire need of medical care and other assistance.

Ukraine 3000 also funds stipends for families of journalists who have died
in the line of duty, quarterly competitions for regional journalists, and a
rehabilitation center and residence for homeless children.

Mrs. Yushchenko will visit the following facilities during her stay in
Chicago:

Shriner's Hospital for Children: Thursday, October 6, 9 am
Mrs. Yushchenko will tour the hospital and meet with Hospital directors and
pediatric staff.

Rush University Medical Center: Friday, October 7, 9 am
Mrs. Yushchenko will tour the hospital's Perinatal Center and meet with
Hospital directors and pediatric staff to discuss Women's and Children's
Health and her work with Ukraine Foundation 3000.

Ukrainian Medical Association of North America (UMANA)
Saturday, October 8, 10 am

Mrs. Yushchenko will meet with members of UMANA, who will present the work
they have done and continue to do in Ukraine. Mrs. Yushchenko will share her
thoughts about what should be emphasized in UMANA's work. The group is
generally engaged in heart surgeries, radiation work, and Chernobyl effects.

In addition to the Sister Cities-organized medical visits, Mrs. Yushchenko
will be the keynote speaker at the Women's Summit organized by University of
Chicago's Women's Business Group on Thursday, October 6.

The Women's Summit, the first of its kind, provides a venue for diverse
leadership from corporations, law, medicine, economics, public policy,
education, journalism, science, technology and non-profit organizations in
the Chicago area to join together.

The Summit develops a collective vision for increasing the contribution and
success of women and minorities to the community in which we live and work.
Topics discussed at the Summit include "Mentors -- A Lifelong Strategy for
Success," "Positions of Power - Women in Policymaking Roles,"
"Entrepreneurship, and "Women in the World - Visioning for the Future."

Mrs. Yushchenko will be honored with an Alumni Award from the University of
Chicago Graduate School of Business on Friday, October 7.  She will also be
attending a concert featuring Chicago Ukrainian Choirs at the Festival of
Kyivan Liturgical Music at St. Andrew Cultural Center in Bloomington,
Illinois on Thursday, October 8, at 7 pm.

         CHICAGO SISTER CITIES INTERNATIONAL PROGRAM HISTORY
Under the auspices of the Chicago Department of Cultural Affairs, the
Chicago Sister Cities International Program is a 501 (c) (3) not for profit
organization dedicated to promoting economic, educational and cultural
exchanges between Chicago and its 25 sister cities.

It aims to increase international trade, economic development, promote
exchanges of culture, education, medicine, environment, technology and
social service opportunities with its sister cities for the benefit of the
City of Chicago, its residents and businesses.

Chicago's Sister Cities include Accra, Ghana; Amman, Jordan; Athens, Greece;
Belgrade, Serbia and Montenegro; Birmingham, England; Casablanca, Morocco;
Delhi, India; Durban, South Africa; Galway, Ireland; Gothenburg, Sweden;
Hamburg, Germany; Kyiv, Ukraine; Lucerne, Switzerland; Mexico City, Mexico;
Milan, Italy; Moscow, Russia; Osaka, Japan; Paris, France; Petach Tikva,
Israel; Prague, Czech Republic; Shanghai and Shenyang, China; Toronto,
Canada; Vilnius, Lithuania; and Warsaw, Poland.

The Chicago Sister Cities International Program acknowledges the generous
support of its Corporate Partners: A. Epstein and Sons International, Inc.,
Ariel Capital Management, Burrell Realty, DAC Management LLC, Freeborn
& Peters LLC, Hudson News Company, Mesirow Financial, Motorola, Neal,
Murdock & Leroy LLC, R4 Services, Inc., Sara Lee Corporation, Seyfarth
Shaw, United Airlines, Walgreen Corporation and William Blair & Company.

For more information about the Chicago Sister Cities International Program,
please call (312) 744-8074 or visit . Public programs at the Chicago
Cultural Center are presented by the City of Chicago Department of Cultural
Affairs and are partially supported by a grant from the Illinois Arts
Council, a state agency.  -30-  [Action Ukraine Report Monitoring Service]
=============================================================
10.  NEW OIL REFINERY TO BE BUILT IN BRODY, IN WESTERN UKRAINE

Interfax-Ukraine news agency, Kiev, in Russian 1241 gmt 6 Oct 05
BBC Monitoring Service, UK, in English, Thursday, Oct 06, 2005

KIEV -  A memorandum on the construction of an oil refinery in Brody, Lviv
Region, was signed in Lviv today. The document was signed by a
representative of investor-companies, the head of the Nahrohaz Ukrayiny
[national oil and gas] company, Oleksiy Ivchenko, and the head of the Lviv
Region state administration, Petro Oliynyk.

Ivchenko told a briefing that the project would not just boost Ukraine's oil
processing capacities but would encourage west Ukraine oil refineries to
upgrade because the new plant would use new technologies ensuring a
95-per-cent oil processing level.

Ukrainian President Viktor Yushchenko, who was present at the ceremony,
said that the construction would be a very serious project because normally
it took Ukraine a few years to receive 3bn dollars in investments.

It was reported earlier that a joint venture BrodAgroOil was registered in
Brody District to implement the project, construct a thermal power plant and
plants to process agricultural products.

The capacity of the new oil processing plant will be 8m tonnes of oil a
year. The plant is expected to use oil from the Middle East and the Caspian
region.  -30-  [The Action Ukraine Report Monitoring Service]
==============================================================
11.      HILTON INTERNATIONAL PLANS EAST EUROPE HOTEL PUSH
                      Has signed a deal to open a Hilton in Kiev, Ukraine

By Robert Anderson in Prague, Financial Times
London, United Kingdom, Friday, October 7 2005

Hilton Group is planning a big push into central and eastern Europe to take
advantage of the region's strong economic growth and booming leisure
industry.

"We clearly want to grow in Europe, particularly in south and eastern
Europe," said Ian Carter, chief executive of Hilton International. "We want
to double the number of hotels east of Germany in the next two to three
years."

Hilton International, the operator of the Hilton hotel brand outside the US,
has just six Hiltons in central and eastern Europe and the Balkans.
Expansion will be through management contracts rather than through hotel
ownership.

"We have grown in an asset-light manner in eastern Europe so far and our
investment project moving forward is also asset- light," Mr Carter said.

Hilton is already close to securing five new Hiltons in central and eastern
Europe and its first Conrad - one of the three or four new exclusive luxury
brand hotels that Mr Clark wants to see in Europe.

Hilton is negotiating to open its first Hilton and Conrad in Moscow and in
the future is looking to establish conference facilities there.

It has also signed a deal to open a Hilton in Kiev, Ukraine.

Poland's first Hilton should open in Warsaw in the second quarter of next
year and the company has also signed a deal to run a Hilton in Bratislava,
Slovakia, which will have conference facilities.

In May, Hilton launched its first hotel in Croatia at Dubrovnik and it hopes
to reach agreement on a Hilton in Split by the end of this year.
Mr Carter said Hilton had another half-dozen properties in its sights in key
city locations.

He also wants to expand Hilton's three-star Scandic brand through
franchises. Currently, Scandic is focused on Scandinavia and is only present
in the region in the Baltic states.

As well as Hilton's traditional business customers, weekend leisure breaks
are becoming an important part of the company's business in the region,
helped by the spread of budget airlines. Hilton shares closed down 3½p at
316½p yesterday.   -30-  [The Action Ukraine Report Monitoring Service]
==============================================================
12.                            UKRAINE OFFERS EURO 600 MILLION

By Ivar Simensen, Financial Times, London, UK, Fri, Oct 7 2005

Issuers from emerging market economies dominated primary market
activity yesterday, as Ukraine and Lebanon offered new deals.

After Indonesia raised $1.5bn in the country's largest foreign debt sale
overnight, Ukraine sold Euro 600m of 10-year bonds in a deal that was
delayed last month due to political unrest in Kiev. An increase in market
volatility also pushed the yield spread wider from levels offered initially.

The country priced the 2015 notes to yield 165 basis points above 10-year
interest swaps, wider than the 155bp price guidance.

Citigroup, Deutsche Bank and UBS were the lead managers. The bond
offering was postponed in September after Viktor Yushchenko, Ukraine
president, dismissed his prime minister.

Ukraine is rated BB-, three levels below investment grade, by both Standard
& Poor's and Fitch Ratings and one notch lower at B1 by Moody's Investors
Service.

Lebanon was expected to price its dollar-denominated 10-year bond to yield
between 8.625 per cent and 8.750 per cent.

The 2015 maturity would extend the company's debt profile after it raised
$500m from selling eurobonds with 2008 and 2013 maturities in June.
Lebanon is rated B- by Fitch and S&P and the equivalent B3 at Moody's.

The issues came as Vietnam announced plans to issue dollar-denominated
bonds for the first time. In the corporate market, Nestlé, the Swiss food
producer, sold $300m of bonds with a four-year maturity.  -30-
==============================================================
13. NEW LAW ON THE ELECTION OF NATIONAL DEPUTIES OF UKRAINE

REMARKS: Bohdan A. Futey, Judge, U.S. Court of Federal Claims
Ukraine's Quest for Mature Nation Statehood: Roundtable VI
Ukraine's Transition to an Established National Identity
Ronald Reagan Building and International Trade Center
Washington, D.C., Tuesday, September 27, 2005
The Action Ukraine Report (AUR), Number 579, Article 12
Washington, D.C., Friday, October 7, 2005

On July 7, 2005, President Yushchenko signed a new law on the election of
National Deputies of Ukraine.  The law is to come into force as of October
1, 2005 and it will govern the March 2006 parliamentary elections.

The newly adopted law contains many new procedures based upon lessons
learned during the Orange Revolution and the difficult 2004 presidential
election, as well as specific recommendations from many international
monitoring organizations including the OSCE election observation mission.

The law provides for a proportional election of National Deputies based on
parties or voting blocks.  Therefore, when Ukrainian voters come to the
polls the last Sunday in March 2006, they will not be voting for a
particular candidate of the 450 Deputies, but for a political party or
election block.

Voters will only determine whether or not a political party or voting block
passes or receives the 3% threshold instituted by the new law.

Importantly, aspects of the new law include the following:

1. Polling stations abroad   - the law no longer limits the polling stations
abroad to Ukrainian diplomatic facilities.

2. It limits the number of polling station commission members.  The law
provides for a range and cap on the number of poll workers at PSCs
depending on the number of voters registered at said PSC.

3. It directs the replacement of election commissioners in cases of
resignation or dismissal.

4. It improves procedures for voter lists compilation and provides for
specific control groups to be established at local government level to
ensure the integrity of the voter lists.  Therefore, voter list control
groups will be included in the electoral process.

5. Potential for abuse of absentee voting certificates has been limited.
Absentee voting will be possibly only at a limited number of polling
stations; one (1) per municipality or rural district.  Absentee certificates
will be limited to 2%.

6. Campaigning provisions have been enhanced.  It provides that journalists
of all media will be prohibited from expressing a preference from one or
another electoral process participant.  Also, judicial and law enforcement
personnel are specifically prohibited from engagement in campaigning
activities.

7.  Domestic non-partisan NGO observers are permitted to observe at the
Polling Station Commissions, but only those NGOs that have listed the
participation in the electoral process as a statutory activity.

8.  Financial provisions are clarified and made more transparent.

9.  Judicial review procedures are greatly strengthened for handing
complaints arising at all phases of the electoral process.  This is
definitely as a result of the Yushchenko v. CEC decision rendered by the
Supreme Court on December 3, 2004.  In particular, the law has broaden
the number of potential complaints and strengthened the appellate review
of court cases.

Nevertheless, it seems to me that the problem of jurisdiction and venue
concerning court's adjudication of election disputes has not been resolved
and potential forum shopping may still exist.

The difficulty may be compounded with the adoption of the new Administrative
Code which provides for adjudication of election disputes by lower
Specialized Administrative Courts, which up to now have not been created.

In view of the recent dismissal of the government and the forthcoming
parliamentary elections, let me direct you to a recent Washington Post
editorial.

"Like last year's presidential campaign, the parliamentary elections will
present Ukrainians with stark and potentially disruptive choices.  Mr.
Yushchenko is likely to offer continued market reforms and integration of
Ukraine with Western institutions but also good relations with Russia.

Ms. Tymoshenko will rail against big business and promise more social
spending.  Russian President Vladimir Putin, who could not contain his glee
over the government breakdown, will hope that the pro-Moscow politicians
he so aggressively backed last year will somehow seize the advantage.

Western governments can hope that Ukraine continues steps toward joining
institutions such as the World Trade Organization and cleans up lingering
corruption.  But the most vital interest will be ensuring that, whatever the
outcome, Ukraine preserves the democracy its people demanded and won."

Also, in an article entitled "Crossroads Of A Labyrinth", appearing in
Zerkalo Tyzhnia, 17-23 September 2005, Yulia Mostovaya states the following:

"It is urgently necessary to look for a way out, but which involves existing
political forces.   In the 2006 elections Ukrainian voters will have to
choose from well-known political movements.  There is no time left for any
new force to emerge.

The only difference between this parliament and the new one will be the
configuration.  There will be the same familiar faces and the same
insignificant number of those meeting the people's demands and
 expectations."

Finally, 2004 was called Ukraine's year:

(1)  Ruslana won the Euro Vision contest.
(2)  Vitaliy Klychko won the WBC heavyweight boxing championship of
the world.
(3)  The Orange Revolution took place.  The world watched as the
Ukrainian people came together in unity for democracy and freedom
resulting in the election of Viktor Yushchenko as President of Ukraine.

What will 2006 be called after the parliamentary elections?  -30-
                           [The Action Ukraine Report Monitoring Service]
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14.     BATTLE AGAINST CORRUPTION GRINDS TO A HALT IN UKRAINE

ANALYSIS: By Roman Kupchinsky
RFE/RL Organized Crime and Terrorism Watch, Vol. 5, No. 13
Radio Free Europe/Radio Liberty (RFE/RL)
Prague, Czech Republic, Monday, October 3, 2005

Former Ukrainian Security Service (SBU) head Oleksandr Turchynov, who was
forced out of office when the government of former Prime Minister Yuliya
Tymoshenko was dismissed on 8 September, recently spoke to RFE/RL in Kyiv
about the government's stalled drive to combat corruption. Turchynov charges
that President Viktor Yushchenko himself ordered a halt to some of the SBU's
investigations.

Ukrainian Interior Minister Yuriy Lutsenko announced during a 23 September
press conference in Moscow that he has been informed by the Russian Interior
Ministry that Ihor Bakay, wanted by Ukrainian law enforcement agencies for
allegedly defrauding the Ukrainian state of $300 million, was granted
Russian citizenship by a special decree from Russian President Vladimir
Putin.

Putin's decree granted Bakay citizenship for his contributions on "behalf of
Russian culture and art." Lutsenko commented that he too had come to make a
contribution to Russia by bringing with him some 100 volumes of evidence of
Bakay's wrongdoings, but conceded that he stood little chance of success.
"If this is the Russian decision, then we can do little to change it" he
stated.

Ihor Bakay, the head of former Ukrainian President Leonid Kuchma's property
management office, resigned as the head of Naftohaz Ukrayina, the state
energy monopoly, in 2001.

Lutsenko said that among the charges against Bakay was defrauding the state
in gas-purchase deals with Russia's Gazprom and Turkmenistan. Lutsenko also
stated at the press conference that Kuchma had "fronted for Bakay and
covered up his activities."

Responding to the Bakay affair, Kuchma was quoted by the website of
"Ukrayinska pravda" as saying that "Bakay is a talented manager, but he does
not know when to step on the brakes."

                              PUTIN REPORTEDLY UPSET BY GAS PROBE
The investigation into allegedly fraudulent practices in the transport of
Turkmen gas to Ukraine by two companies, Eural Trans Gas and RosUkrEnergo,
that was begun by the SBU in May, was halted by President Viktor
Yushchenko's direct order, former SBU head Oleksandr Turchynov told RFE/RL
on 20 September.

Turchynov stated that Yushchenko told him in mid-August to stop "persecuting
my men" and that the investigation of RosUkrEnergo was "creating a conflict
with Russian President Vladimir Putin." Turchynov would not elaborate on why
Putin was so upset by the investigation.

Soon after Turchynov's removal as head of the SBU on 8 September, the
website Obozrevatel reported on 21 September that the SBU officer in charge
of the investigation of RosUkrEnergo, Ondriy Kozhemyakin, was transferred
from the case to other duties. Turchynov confirmed this information for
RFE/RL.

According to Turchynov, Yuriy Boyko, the former head of Naftohaz, was
interrogated twice by the SBU in conjunction with the RosUkrEnergo case and
was about to be arrested when Yushchenko ordered Turchynov to let him go.
Soon afterward, Boyko, now the head of the Republican Party, signed a
pre-parliamentary election pact with former Prime Minister Anatoliy Kinakh's
party, which supports the pro-Yushchenko faction.

Turchynov told RFE/RL that during the second interrogation of Boyko,
investigators confronted him with evidence that he had received kickbacks
from the RosUkrEnergo scheme.

As to the activities of Oleksandr Tretyakov, Yushchenko's former top
adviser, Turchynov claims that Tretyakov in fact became the person
responsible for overseeing the functioning of the RosUkrEnergo gas scheme
after Yushchenko's election. According to a report released by
Prosecutor-General Svyatoslav Piskun on 22 September, Tretyakov was found
innocent of any wrongdoing.

                          TURKMENBASHI AND KICKBACKS FOR GAS
Turchynov also said the SBU had turned to the Turkmen security service for
information concerning the large sums of money allegedly being laundered to
Turkmen leaders from this gas-transportation scheme. Soon after the request
was made, Turkmen President Saparmurat Niyazov, who is also known as
Turkmenbashi, ordered the arrest of Yolly Gurbanmuradov, the deputy prime
minister in charge of energy and gas.

RFE/RL reported in June that Turkmen National Security Minister
Geldymukhammed Ashirmukhammedov told Niyazov and the cabinet of ministers
more about Gurbanmuradov's alleged activities. "Yolly Gurbanmuradov, at the
end of October [2004], received Internet information from representatives of
foreign intelligence services about selling Turkmen oil at reduced prices,"
Ashirmukhammedov said.

"After that, he established unofficial contacts with representatives of
foreign intelligence services and offered his services to them...." Niyazov
also accused Gurbanmuradov of having three wives.

Sources in Kyiv suspect that Gurbanmuradov was arrested in order to silence
him because he knew the mechanisms of how money from the RosUkrEnergo
gas-transport scheme was being kicked back to high-level Turkmen officials
who were then placing it in offshore banks.

The shakeup in the Turkmen energy sector continued through the summer. In
August, former minister and Turkmenneft head Saparmammet Valiev was
sentenced to 25 years in prison for embezzlement and other purported crimes.

Former Turkmenneftegaz head Ilyas Charyev, who was fired in June, was
sentenced to 24 years' imprisonment. In both cases, the sentences were
announced although there were no reports that the men had been tried. In
September, Niyazov fired Guichmurad Esenov, head of the Turkmenbashi
refinery, for alleged corruption and drunkenness.

Khudaiberdy Orazov, Turkmenistan's former central-bank chief and now an
opposition leader in exile, told RFE/RL's Turkmen Service that he believes
Gurbanmuradov's legal problems are part of Niyazov's attempt to cover up his
own business activities.

A report in April 2005 entitled "Turkmenistan: People! Motherland! Leader?"
by the Conflict Research Center Studies, a part of the Defense Academy of
the United Kingdom, notes: "The president [Niyazov] has made claims that his
personal fortune, for the most part stored in European banks, amounts to $3
billion."
                                             SUSPECTS RELEASED
Two former senior officials arrested by the Ukrainian Prosecutor-General's
Office on charges of fraud, embezzlement, and inciting a riot were released
from prison in September. Ivan Rizak, the former head of the Transcarpathian
Oblast and Borys Kolesnykov, head of the Donetsk Oblast Council , are now
free, and Kolesnykov has resumed his job as head of the regional council.

On 23 September, Yushchenko announced a pact with the opposition in which
he promised to look into an amnesty for those convicted of vote rigging
during the 2004 Ukrainian presidential elections.

Commentators and law enforcement officials in Kyiv told RFE/RL that it was
pointless keeping these people in prison when the individuals who ordered
them to rig the vote were never investigated or arrested.

The case of the September 2000 murder of Internet journalist Hryhoriy
Gongadze appears to be stalled and the chances of finding and convicting
those responsible for ordering the killing of the journalist are slim,
according to an appearance on Ukrainian television by Serhiy Holovaty, a
lawyer working with the Gongadze family.

During a press conference after being relieved of his position as the head
of the SBU, Turchynov stated that the SBU had authenticated the portion of
the notorious tape recordings made by Mykola Melnychenko, a member of
Kuchma's security detail, which deals with the Gongadze case.

The SBU determined that the recordings are authentic and not fragments of
conversations spliced together and that the speakers were indeed Kuchma,
former SBU head Leonid Derkach, former Interior Minister Valeriy Kravchenko
(who is deceased and, according to the official report, committed suicide in
February by shooting himself twice in the head) and current parliament head
Volodymyr Lytvyn.

Earlier the same recordings were authenticated by the FBI. On the tape,
Kuchma tells Kravchenko to "get rid of Gongadze." According to Ukrainian law
the recordings cannot be admitted into court as evidence.

Former Interior Ministry General Oleksiy Pukach, who was in charge of the
Interior Ministry special units that followed Gongadze and who is suspected
of personally taking part in kidnapping him, is in hiding in Israel
according to Turchynov and the Israeli police cannot seem to locate him.
Pukach is considered a key link in the chain of men who gave the order to
kidnap and kill Gongadze and the perpetrators.

Other suspects wanted on a variety of charges are reportedly hiding in
Moscow and in the United States.

Former Sumy Oblast head Yuriy Shcherban, wanted on charges of defrauding
the state of millions of dollars, is alleged to be hiding in Florida, while
Volodymyr Satsiuk, wanted in connection with the poisoning of Yushchenko
during the 2004 presidential campaign, is alleged to be in Moscow, as the
former head of the Odesa state administration Ruslan Bodelan. Bodelan is
wanted on charges of fraud and embezzlement.

Turchynov also pointed out in an interview with the website Obozrevatel that
the prosecutor-general's investigation into former National Security Council
head Petro Poroshenko's alleged involvement in five separate instances of
corruption was "at best a bare minimum," given the evidence collected by SBU
investigators into Poroshenko's alleged activities.   -30-
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15.        SPITTING ON THE MEMORY OF INDEPENDENCE SQUARE

OPINION: By Olga Kryzhanovska
Nation Editor of Korrespondent magazine
Kyiv Post, Kyiv, Ukraine, Thu, Oct 06 2005

The heroes of the Orange Revolution are competing as if to determine who
can spit more on the soul of Independence Square. It seemed as if after
President Viktor Yushchenko extended his hand to Viktor Yanukovych, the
leaders of the revolution had nothing left with which to shock their
supporters.

But Yulia Tymoshenko didn't hesitate to strike back, outdoing everyone with
her "consistency" when, out of nowhere, she confessed her love for Vladimir
Putin.

"You have a wonderful leader, one worthy of your country, and I think your
country can be proud of its president," she announced in an interview with
radio station Ekho Moskvy on Sept. 24. It's unlikely that such a phrase can
be chalked up to banal political correctness. When one doesn't want to
speak poorly of someone, one doesn't call him wonderful.

Especially if that "wonderful leader" is famous for turning his country into
an authoritarian state, for creating a one-party political system, and for
having destroyed in the process the remaining outlets of an independent
media.

His administration has been notable, furthermore, for its violation of human
rights and its interference with the functioning of foreign governments, as
during the presidential elections in Ukraine. Naturally, Russian citizens
should be proud of all this.

Could Tymoshenko - that same woman who, during the Orange Revolution,
promised that the spirit of freedom would travel from Ukraine to Russia -
have forgotten about this? The same Tymoshenko who a year ago claimed
that Putin and former President Leonid Kuchma were preparing a "terrorist
act" to spirit her to Russia and hand her over to a military prosecutor?

Now the fiery revolutionary from Independence Square, who used to head
parliament's most nationalist fraction, might at any moment head to Russia
to agitate for the "worthy" Putin, if he gets around the constitution and
wins a third term.

Tymoshenko's enthusiasm after her recent visit to the Russian capital was
so obvious and direct that analysts immediately suspected her of having
received Putin's quiet support. And the leader of Batkyvshchina, of course,
is interested in such cooperation, especially ahead of parliamentary
elections.

First, after the loud split with Yushchenko, she needs a new political
partner. The Kremlin controls practically all the central Russian television
stations so beloved in eastern Ukraine and Crimea. If these stations, which
until now have been slandering the Orange Revolution and Yushchenko and
Tymoshenko, suddenly exchange anger for kindness, it will be the second
sign of the Kremlin's cooperation with the "Orange Princess."

The first sign was the lightning reaction of the Russian military
prosecutor, who in one day cancelled Tymoshenko's arrest warrant and
called off the international search.

Some think that the idea of an alliance between Tymoshenko and Putin is
absurd. In reality, they have more in common than might be evident at first
glance. Recall their takes on reprivatization and the inviolability of
private property, their way of separating acceptable oligarchs from
unacceptable ones, and, finally, their unconstrained will to absolute power.

When Putin became president, he, like Tymoshenko, was considered a
democrat and even a reformer. In fact, nobody knew what kind of ideology
he was preaching. And to this day we still don't know Tymoshenko's deep
convictions.

In her political career she learned how to change partners and ideology with
amazing facility. Being Yushchenko's partner in the opposition, she was
considered a zapadnik, a liberal and a free-marketer. The president himself
believed that.

In a meeting with the editors of Korrespondent at the beginning of the year,
Yushchenko said that the Ukrainian prime minister must be a proponent of a
liberal ideology.

But it seems the president was deceived, like everyone else. The destruction
of the myth of the reformer/free marketer occurred in the first months of
Tymoshenko's premiership, when entrepreneurs discovered that nothing good
could be expected of the new government. After her curtsies to Putin, it was
clear that Tymoshenko's pro-Western orientation was also an illusion.

While talking to Tymoshenko, the host of Ekho Moskvy, Matvei Ganapolskiy,
noted that he was interviewing a "great storyteller, a person who creates
her own worlds." More and more Tymoshenko is gravitating toward mythology
and not toward real geopolitics, economics, and ways out of crisis.

This was clear even when Tymoshenko submitted her "wonderful" government
program to parliament: its chapters carried headlines like "Faith,"
"Fairness," "Life" and "Harmony."

When statistics testify to a drop in production, Tymoshenko accuses the
statistics of black PR and says that life improved. Instead of answering
assertions made against her government, she gives sentimental speeches
about a bright future, trying to evoke the image of the mother-defender of
Independence Square, defending her child to the death.

But that child has grown up a little bit; he's entered a transition period.

At this age he wants his parents to start talking to him like an adult, not
babbling at him as if he's a complete idiot.  -30-
---------------------------------------------------------------------------------------------------
Olga Kryzhanovska is Nation Editor of Korrespondent magazine, in which
this essay first appeared. Translated from Russian by Ryan Grotte.
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16.                        A STORM SWEEPS POST-SOVIET SPACE
What happens in Ukraine in the coming weeks and months will be an
important indicator of shape of things to come for the post-Soviet space.

COMMENTARY AND ANALYSIS: By M K Bhadrakumar
Asis Times Online, Hong Kong, Wednesday, Oct 5, 2005

 The last 10 days of September were pivotal in the transition saga of the
"post-Soviet space". The events in their rush seemed like a delayed summer
storm blowing across the immense deserts of the Central Asian steppes,
smashing up the debris of fanciful notions accumulated over the past decade
and a half, and offering clarity to the landscape.

It all began in Ukraine in the midriff of Eurasia, where by early September
the signs of what many had already anticipated began appearing - the
inevitable unraveling of the eight-month-old "Orange" revolution.

There was scarcely any foreplay in what was happening. As the prominent
Russian political observer and chief editor of the prestigious journal
Politicheskiy Klass, Vitaliy Tretyakov, wrote recently, "Broadly speaking,
the political question concerns the character of the so-called Orange
revolution in Ukraine.

Apparently a few people would continue to believe that the Orange revolution
was really a revolution - a free, democratic and spontaneous revolution.

Even Western experts and journalists, who had, as if on someone's orders,
uniformly described the events in Kiev 10 months ago as a spontaneous
outburst of love for freedom by democratic-minded masses, have presently,
without battling an eye lid, begun describing the Orange revolution as a
coup within Ukraine's political elite that was artificially and skillfully
orchestrated, inspired and financed from the outside."

The Ukraine developments nonetheless took such curious turns by the day that
the entire post-Soviet space watched transfixed. President Viktor Yushchenko
and former prime minister Yulia Tymoshenko, the iconic figures of the
"Orange" revolution, having now fallen out, both want to cut a deal with
Moscow to enhance their respective chances in the parliamentary elections in
March, when the Russian-dominated eastern provinces of Ukraine will have a
decisive role.

Their popularity within Ukraine has dramatically plunged. They want Moscow's
patronage for assembling new coalitions involving their erstwhile political
adversaries in eastern Ukraine.

Yushchenko has appointed a pro-Russian prime minister, Yuri Yekhanurov, an
ethnic Russian born in Russia, and has entered into a written agreement with
Viktor Yanukovich (whom he had belittled during the "Orange" revolution as
Moscow's pawn on the Ukrainian chessboard).

Tymoshenko, in turn, has reached out to the pro-Kremlin Russian oligarchs
who are dominating business in heavily industrialized eastern Ukraine,
especially in the Donetsk region.

President Vladimir Putin's superb sense of irony came into play when he told
visiting premier Yekhanurov while receiving him at the Kremlin on September
30: "Russia very much hopes that you will be able to help the president
[Yushchenko] consolidate society and successfully overcome the negative
tendencies that have begun to emerge in the Ukrainian economy."

On his part, Yekhanurov responded: "Russia is our main partner and we
clearly understand this."

                     BATTLEGROUNDS FOR GLOBAL INFLUENCE
Meanwhile, one after another, the countries of the post-Soviet space are
stepping out and have begun narrating their own woes and resentment
toward the West for shabbily treating them as mere battlegrounds for
global influence.

On September 20, the trial of the militants involved in the violent uprising
last May in Andijan in Uzbekistan commenced.

he Uzbek prosecutors alleged that Islamic militants belonging to the Islamic
Movement of Turkestan (previously known as the Islamic Movement of
Uzbekistan) that had close links with al-Qaeda in Afghanistan and the Hizb
ut-Tahrir (which is believed to be operating out of Western capitals) were
involved in the Andijan uprising.

The prosecutors highlighted that prominent Western media organizations had
positioned themselves in advance in the Ferghana Valley in May to narrate to
the world, as if with foreknowledge, about another color revolution
unfolding in the heart of Central Asia.

The testimony by the defendants, inter alia, listed details of the American
Embassy in Tashkent having financed some of the militants involved in the
Andijan uprising.

Coinciding with the Andijan trial, Uzbekistan conducted its first-ever
military exercise with Russia on Uzbek soil. Considering the tortuous course
of Uzbek-Russian relations during the 15-year period since the collapse of
the Soviet Union, Tashkent was indeed making an important political
statement.

Again, on September 27, talks between the US and Uzbekistan on the leasing
of the Karshi-Khanabad air base to the US military finally broke up in
acrimony. US officials went public with the announcement that the base would
be handed back to Uzbek authorities by the end of the year.

This is a huge blow to the US military presence in the region as a whole
since the Karshi-Khanabad base is simply irreplaceable. Incidentally, it was
by far the biggest base in the so-called Turkestan Military District of the
Soviet era, dominating the Central Asian region as a whole.

Washington has been making overtures to Tashkent to let bygones be bygones
and to work out some level of political understanding regarding continued
use of the base.

As a fallback, Washington hinted that it would regard at least over-flight
arrangements through Uzbek air space (for sorties by American aircraft in
and out of Afghanistan) as "helpful"; Washington agreed to pay US$23 million
for some of the services rendered to the base by the Uzbek side during the
past five years.

But it is an indication of how high anti-American feelings are running in
the region that Tashkent simply ignored these US overtures.

Curiously, on September 21, as if taking a cue from next-door Uzbekistan,
the president of Kyrgyzstan, Kurmanbek Bakiyev, demanded that the Pentagon
should pay higher rent for its base in Manas and also dismantle it as soon
as the situation in Afghanistan became stable enough.

Bakiyev was making a subtle point that for Bishkek, any continued
association with Washington over the basing arrangement was primarily a
money matter and no geopolitical connotations were to be given to it.
Significantly, Bakiyev made the statement while on a visit to the Russian
military base at Kant to the north of Bishkek - in the presence of the
visiting Russian Defense Minister Sergei Ivanov.

Bakiyev said that the current rent for Manas was "too low" and the Kyrgyz
economy needed funding.

Within the week, the Kyrgyz parliament refused to ratify the continuance of
Roza Otunbayeva as foreign minister in the new government formed by
Bakiyev after the July presidential election in Kyrgyzstan.

Otunbayeva, a former Kyrgyz ambassador in Washington, was widely
regarded as close to the Americans. Her departure from the Kyrgyz
government indeed signifies a further diminution of American influence in
Bishkek.

Hardly three days later, on September 30, the newly appointed Kyrgyz Prime
Minister, Felix Kulov, who had often been labeled as the "pro-American"
leader of the "Tulip" revolution in Kyrgyzstan in March, arrived in Moscow
on an official visit.

Kulov said: "The visit is purely political, and as my first visit abroad in
my capacity as prime minister, we thought it important to outline our
foreign policy priorities and our loyalty to our friendly, partnership
relations with Russia, which is our main strategic partner."

According to the Russian media, Kulov also announced during the visit that
the deposed Kyrgyz leader, Askar Akayev, "can come back [to Bishkek] any
time he wants to, and I see no obstacles to his return".

As if he did not want to be left out of all these contagious thoughts raging
across the post-Soviet space, Tajikistan's President Imomali Rakhmonov
announced during a tour of the eastern regions (bordering China) on
September 23 that "in Tajikistan there never was, nor will there be, a US
military base".

Rakhmonov's statement has stifled rumors in recent days that it was possible
that some of the US troops and equipment to be vacated from the Uzbek base
could be relocated in Tajikistan.

Without doubt, Ukraine's "homecoming" is having a huge psychological,
political impact on the entire post-Soviet space. The shockwaves of the
"Orange" revolution eight months ago were indeed felt as far away as Central
Asia.

Arguably, the phenomenon of color revolutions of the past 18-20 months
constituted a defining moment in the transition of the countries in the
post-Soviet space. It is only natural that the unraveling of the color
revolutions so vividly would cast a profound spell all across Central Asia.

The developments in Ukraine have certainly accentuated the contradictory
realities in the post-Soviet space.

FIRST, the events in Ukraine underline that a mere change of elites in the
transition countries of the former Soviet Union - as had happened in
"revolutionary" Georgia, Ukraine or Kyrgyzstan - have been mistaken for an
irreversible shift.

That is to say, the evolution of the transition countries of the former
Soviet Union (except the Baltic republics that have their unique character
and history) to stable democratic systems and thriving market economies
will remain extremely difficult and complicated.

These countries (unlike the Baltic republics or the countries of Central
Europe) lack a tradition of independent statehood; they are bedeviled by
fault lines of ethnicity and sub-nationalism, which is further compounded by
regional divisions, clan structures and so on; their sensitive geopolitical
location between Russia, China and Western Europe introduces specific
problems and circumstances.

SECOND, there is serious doubt whether a revolutionary dynamic indeed exists
in any of these transition countries where the opposition is willing to move
beyond the prevailing political rules and to appeal directly to the people.

Paradoxically, this is the reality today even in Georgia, where the potency
of such a revolutionary dynamic might probably have seemed the highest.

President Mikhail Saakashvili's rule is fast reverting to good old Caucasian
ways. Washington seems to be getting exasperated now and then.

This is despite the generous American bankrolling of the Saakashvili
government, and the unfinished agenda of eliminating the Russian military
presence from the south Caucasus. (Georgia is second only to Israel as the
per capita recipient of American aid anywhere in the world.)

THIRD, to quote Ira Straus, an expert on Russia, the developments in Ukraine
firmly signal that geography is indeed part of the destiny of the transition
countries of the former Soviet Union. "So is history. It [post-Soviet space]
is not going to float out into the Mediterranean or the Atlantic.

No earthquake is going to turn its legal border with Russia into an ethnic
or social border, or rupture its organic intercourse with its larger
neighbor. It is also impossible to eliminate the underlying gradualism of
socio-economic development, or the multiple complexities of reform and its
contradictory requirements."

FOURTH, it must be understood that a major factor for the unraveling of the
"Orange" revolution lies in the belated realization in Kiev that the
European Union simply does not have the stomach to "enlarge", let alone try
to integrate a country as large and problematic as Ukraine.

Of course, the post-Soviet republics of Central Asia understood this ground
reality even earlier and proceeded to address their Western integration
orientations by developing bilateral ties with the EU member countries.

Ukraine at least might have looked both ways - East and West - for a brief
while, but Central Asians have known deep down all along that there are
serious limits to cynically balancing their relations between the East and
West, or playing off Moscow against Washington.

True, the Central Asian pendulum swings were manifestly there through the
1990s but they were in actuality more a mirror image of what Boris Yeltsin's
Russia itself was doing - vacillating between impromptu dalliances with the
West and a hankering for continued strategic autonomy.

The then US deputy secretary of state, Strobe Talbott, rationalized this
paradigm in The Russia Hand, his masterly memoir of president Bill Clinton's
diplomacy with Yeltsin, when he spoke of "the Westernized Russian's sense of
his own country as an exotic, bulky, untamed Eurasian giant not comfortable
in its own skin, unsure whether it was welcome in Europe or, for that
matter, in the West, or even whether it really belonged there".

It was apparent that with the advent of Vladimir Putin at the helm of
affairs in Russia, these "pendulum swings" began to soften in the
post-Soviet republics of Central Asia (and even in Ukraine under Leonid
Kuchma or Georgia under Eduard Shevardnadze). Arguably, the color
revolutions in Georgia, Ukraine and Kyrgyzstan were urgently necessitated by
the challenge posed by such softening of the pendulum swings.

FIFTH, Ukrainian developments once again show that the Western integration
processes in the post-Soviet republics are very much linked to and are
conditional on Russia's own Western integration orientation.

Indeed, what happens in Ukraine in the coming weeks and months will be an
important indicator of the shape of things to come for the post-Soviet
space.

Significantly, in a major speech at Stanford University (alma mater of US
Secretary of State Condoleezza Rice) on September 20, Russian Foreign
Minister Sergei Lavrov warned against the real danger of blundering into
another Cold War.

Will Russia and the West cooperate in Ukraine instead of pulling in opposite
directions? Will Ukraine be allowed to settle into acting as a bridge
between the West and Russia?

The trend is likely to be Ukraine itself not wanting to be integrated in a
form that separates it from Russia. If so, will it prompt a remedial course
on the part of the West to draw Russia itself closer to it?

The post-Soviet space will be keenly awaiting the answers to these
questions.  -30-  [The Action Ukraine Report Monitoring Service]
------------------------------------------------------------------------------------------------------------
M K Bhadrakumar is a former Indian career diplomat who has served in
Islamabad, Kabul, Tashkent and Moscow.
-----------------------------------------------------------------------------------------------------------
LINK: http://atimes.com/atimes/Central_Asia/GJ05Ag01.html
==============================================================
17.                         UKRAINE'S DREAM IS NOT DEAD - YET
Continuing corruption has crushed many Orange Revolution alliances and
        hopes. But all is not lost, say Leonard Benardo and Laura Silber

COMMENTARY: By Leonard Benardo, regional director
and Laura Silber, Senior Policy Adviser
Soros Foundation Network's Open Society Institute in New York
Insider Edition, The Globe & Mail, Toronto, Ontario, Canada
Thursday, October 6, 2005 Page A21

Viktor Yushchenko, the President of Ukraine, is now faced with the
monumental task of putting his country back on course. The recent sacking of
Prime Minister Yulia Tymoshenko and her government is just the latest in a
string of events that have undermined the hopes of the Orange Revolution.

Left unfilled are last December's promises to fight corruption, pull Ukraine
into Europe and transform the country into a place where democracy
flourishes.

In the nine months since euphoric crowds emblazoned in orange massed to
demand respect for their votes, the people of Ukraine have seen little
progress on social and political reform.

Instead, mired in political squabbles and cronyism, Ukraine's unity has been
torn asunder. Ms. Tymoshenko, a charismatic populist, was at loggerheads
with Mr. Yushchenko's proxies, notably Petro Poroshenko, the former head of
the National Security and Defence Council, over a range of issues, including
reprivatization -- the state's re-auctioning of enterprises whose sales went
forward under questionable conditions.

Politics was less about achieving reform for the benefit of Ukraine and more
about the settling of scores.

Also at issue were conflicting approaches over how to deal with Ukraine's
past. Mr. Yushchenko wanted to push forward with integration into Europe;
Ms. Tymoshenko believed that the process would falter unless Ukraine first
redressed inequities inherited from the previous regime.

But the revolution has not yet been betrayed. With a new government in
place, Mr. Yushchenko has another opportunity to make good on his promises.

While there is no panacea to cure Ukraine's ills, with careful attention to
select issues, Mr. Yushchenko and his government can make headway on a
substantive reform agenda before crucial parliamentary elections (set for
next March).

To succeed, Mr. Yushchenko must advance a clear set of policy goals that can
be accomplished before the poll. He should focus work in areas that are
barometers for a country's commitment to democracy: the establishment of
public broadcasting; adopting freedom-of-information legislation; securing
access to justice; and fighting corruption.

If he facilitates the creation of a model public broadcasting channel (a
state channel with an independent board determining its content), Mr.
Yushchenko can stave off the corrupting influence of political and financial
bosses intent on imposing their own agendas.

Better yet, transforming the state channel, a grim legacy from the Soviet
era, would spotlight the government's pledge to champion non-partisan
information.

With respect to openness and transparency, the passage of a law on freedom
of information would be a huge step forward. It would end the state's
notorious use of secret decrees, a practice regrettably continued after the
revolution. Public trust in government is crucial if Ukraine's reforms are
to take effect.

Honouring the previous government's pledge to work toward establishing a
system of public legal defence is also vital. As in most former Soviet
countries, the prosecutor in Ukraine wields disproportionate influence.
Many people, without effective defence representation, go to jail.

As for corruption, if the government were to target a specific sector and
tackle it head on, it would demonstrate a commitment to confronting the
scourge permeating Ukrainian life. In higher education, for example,
thousands of university applicants manage to bypass uniform testing, instead
gaining admission through bribes or personal connections.

This problem was the focus of a recent pilot project, supported by Kiev's
International Renaissance Foundation (part of the Soros Foundation Network,
founded by George Soros to help build democracies). The project established
an independent body to develop and oversee standardized testing.

Another clear signal that the Orange Revolution's core values have not been
jettisoned would be to set the stage for a fair and legitimate electoral
season.

To safeguard the integrity of the electoral process, Mr. Yushchenko should
welcome observers from the Organization for Security and Co-operation in
Europe; he should make sure that exit polls are conducted by the best
international experts; and he should stand by the Constitutional Court's
decision to create a stronger parliamentary system.

In last December's presidential elections, along with others, the
International Renaissance Foundation was involved in exit polling -- which
in turn helped provide independent evidence of the election results and
exposed a huge discrepancy between the official and independent returns.

The polls, along with voter education and support for human rights, are
non-partisan and central to the Soros Foundation Network's mission to build
an open society.

Buoyed by the success of their winter revolution, many expected that Europe
to swiftly embrace Ukraine. But Europe, distracted by its own problems, was
cautious, and sought to ascertain whether Ukraine could meet fundamental
prerequisites, notably those rules that define membership in the European
Union.

Carrying out reforms on corruption, public broadcasting, freedom of
information and access to justice would be a tangible sign that Ukraine had
moved from rhetoric to action. The pace of European expansion likely will be
halting, but Mr. Yushchenko must put Ukraine on a trajectory that conforms
with European norms and values.

The Orange Revolution, a victory for the democratic process, was a beacon
not only for the countries of the former Soviet Union (Kyrgyzstan, for
example) but around the world. To get it back on track is crucial for
Ukraine -- and beyond.  -30-  [Action Ukraine Report Monitoring Service]
-------------------------------------------------------------------------------------------------------
Leonard Benardo is regional director at the Soros Foundation Network's
Open Society Institute in New York, where Laura Silber is senior policy
adviser.
=============================================================
18.       CONTROVERSIAL FORMER UKRAINIAN JUSTICE MINISTER
            SERHIY HOLOVATY CHOSEN TO RETURN TO HIS OLD POST

By FirsTnews, Kyiv, Ukraine, Friday, October 07, 2005

On Thursday President Viktor Yushchenko signed a decree that, with
parliamentary approval, could return Serhiy Holovaty to his old post as
justice minister of Ukraine.

There will certainly be no question about Holovaty's legal credentials, but
he is also known as man who has a rather exalted view of his own opinions
and a brusque manner that is not admired by all.

With the exception of Socialist faction head Oleksandr Moroz, all legal and
political leaders contacted today were less than totally effusive about the
Holovaty appointment.

There appears little doubt that when the cabinet appointments are completed
[lacking only a health minister as of late Thursday] and go to the
parliament for confirmation, the Holovaty nomination is likely to be one
that gets a lot of debate, not all of it laudatory.

KYIV, Oct. 6 (FirsTnews) – The appointment late Thursday by President Viktor
Yushchenko of Serhiy Holovaty to return to his old position as justice
minister appears certain to be one of the more controversial in a Yekhanurov
cabinet that seems to have been chosen as much for its acceptability to the
parliament as for other characteristics.

Holovaty was recently described by the International Press Institute in the
following manner:

“Serhiy Holovaty, a lawyer, politician, and one of the main opponents of the
present regime, is a distinguished member of the Ukrainian Parliament, and
the President of the Ukrainian Legal Foundation. Dr. Holovaty is a former
Minister of Justice of Ukraine and one of the "Founding Fathers" of its
modern statehood - he is one of the authors of the Ukrainian declaration of
independence and its post-Soviet Constitution and Criminal Code. He was also
secretary of the investigative commission of the Supreme Council (Rada) that
investigated the case of Georgy Gongadze.”

When the time comes for parliamentary consideration of Holovaty, MPs will
have available not only their own knowledge of their long-time parliamentary
colleague, but also a very extensive published record of his views on legal
matters and Ukrainian history.

His reputation in legal circles in Ukraine, Europe and North America has led
to a number of very high profile speeches by Holovaty, some of which may be
read by reference to the Internet links below:

http://www.om.fi/31059.htm
http://www.ukrweekly.com/Archive/1996/419608.shtml
http://www.freemedia.at/Protests2004/pr_Ukraine30.11.04.htm
http://www.utoronto.ca/jacyk/Holovaty.htm
http://www.trilateral.org/annmtgs/trialog/trlgtxts/t53/hol.htm
http://www.inwent.org/ef-texte/papers/holovaty.htm   -30-
------------------------------------------------------------------------------------------------
LINK: http://www.firstnews.com.ua/en/article.html?id=107910
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