"THE ACTION UKRAINE REPORT - AUR"
An International Newsletter
The Latest, Up-To-Date
In-Depth Ukrainian News, Analysis, and Commentary
"Ukrainian History, Culture, Arts, Business, Religion,
Sports, Government, and Politics, in Ukraine and Around the World"
"THE ACTION UKRAINE REPORT - AUR" - Number 594
Mr. E. Morgan Williams, Publisher and Editor
Washington, D.C., Kyiv, Ukraine, TUESDAY, November 1, 2005
--------INDEX OF ARTICLES--------
"Major International News Headlines and Articles"
1. STATE ENTERPRISES TO BE PRIVATIZED
Prime Minister arrives in Washington
By Natalia A. Feduschak in Kyiv, The Washington Times
Washington, D.C., Monday, October 31, 2005
2. UKRAINE MARKS ANNIVERSARY OF PRELUDE
TO ORANGE REVOLUTION
ITAR-TASS, Moscow, Russia, Monday, October, 31, 2005
3. UKRAINE TORN BY BROKEN PROMISES
Few Ukrainians see much to cheer about
By Stephen Mulvey, BBC News, Ukraine
BBC, United Kingdom, Monday, October 31, 2005
4. YUSHCHENKO SUGGESTS OLEKSANDR MEDVEDKO AS
PROSECUTOR GENERAL TO PARLIAMENT
Ukrainian News Agency, Kyiv, Ukraine, Mon, October 31, 2005
5. VALIO LAUNCHES NEW CHEESE IN UKRAINE
NOVIS Food & Beverage News
Montpellier, France, Monday, October 31, 2005
6. UKRAINIAN STEEL MAJOR KRYVORIZHSTAL SALE -
BEHIND THE SCENES
ANALYSIS: Roman Bryl, Ukraine Analyst
IntelliNews - CIS Sector Updates
Kyiv, Ukraine, Monday, October 31, 2005
7. SOME ASPECTS OF THE OVERALL DEVELOPMENT OF
UKRAINE'S TRANSPORTATION COMPLEX
ANALYSIS: K. Hrivakov
Deputy Head of the Trade and Economic Mission
Embassy of Ukraine-Ankara, Turkey
Monch Media Turkey - Black Sea Trend Review
Ankara, Turkey, Monday, October 31, 2005
8. UKRAINE POLITICS: POLITICAL OUTLOOK
COUNTRY ANALYSIS: EIU Politics-News Analysis
The Economist Intelligence Unit Limited
London, UK, Monday, October 31, 2005
9. UKRAINE POLITICS: DECISIVE YUSHCHENKO?
COUNTRY ANALYSIS: EIU Politics-News Analysis
The Economist Intelligence Unit Limited
London, United Kingdom, Monday, October 31, 2005
10. UKRAINE ECONOMY: MACROECONOMIC OUTLOOK
COUNTRY BRIEFING: EIU Economy-News Analysis
The Economist Intelligence Unit Limited
London, United Kingdom, Monday, October 31, 2005
11. UKRAINE ECONOMY: STRUGGLING FORWARD
COUNTRY BRIEFING: EIU Economy-News Analysis
The Economist Intelligence Unit Limited
London, United Kingdom, Monday, October 31, 2005
12.UKRAINE ECONOMY: TRADE SURPLUS'S DISAPPEARING ACT
COUNTRY ANALYSIS: EIU Economy - News Analysis
The Economist Intelligence Unit Limited
London, United Kingdom, Monday, October 31, 2005
13. UKRAINE ECONOMY: MARKET OPPORTUNITIES
Low living standards hinder growth of consumer market
COUNTRY ANALYSIS: EIU Economy-News Analysis
The Economist Intelligence Unit Limited
London, United Kingdom, Monday, October 31, 2005
14. UKRAINE ECONOMY: DEMOGRAPHIC PROFILE
Population decline represents a long-term trend
COUNTRY ANALYSIS: EIU Economy-News Analysis
The Economist Intelligence Unit Limited
London, United Kingdom, Monday, October 31, 2005
15. BLACK EARTH, BLACK ARCHEOLOGY, BLACK TIMES
Archeology is big business in Ukraine - and so, instead
of discovering their history, Ukrainians are seeing it pillaged
By Ivan Lozowy, Transitions Online (TOL)
Prague, Czech Republic, Monday, 31 October 2005
16. POLAND'S DISENCHANTED KILLED OFF 'NEW EUROPE'
"New Europe" is dead, and that's official
Poverty and regional inequality helped win votes for
a socially conservative, nationalist and Catholic president
By Jonathan Steele, The Guardian, London, UK, Friday Oct 28, 2005
17 LITHUANIAN LEADER FAULTS EU OVER NEW GAS PIPELINE
Russia building new line under Baltic Sea with help from Germany
By Judy Dempsey, International Herald Tribune (IHT)
Europe, Thursday, October 27, 2005
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1. STATE ENTERPRISES TO BE PRIVATIZED
Prime Minister arrives in Washington
By Natalia A. Feduschakin Kyiv, The Washington Times
Washington, D.C., Monday, October 31, 2005
KIEV -- Ukraine's new government will move quickly to privatize
certain state enterprises and end a cozy relationship between business
and government, Prime Minister Yuriy Yekhanurov said ahead of a visit
to Washington.
Mr. Yekhanurov, who took charge in August after President Viktor
Yushchenko dismissed his previous Cabinet amid charges of corruption,
said he also will seek improved trade ties with the United States.
Mr. Yekhanurov arrives tomorrow for a two-day stay, during which he is
scheduled to meet with Vice President Dick Cheney, Secretary of State
Condoleezza Rice and other officials.
"August and September were the most difficult," Mr. Yekhanurov said
of the events that brought him to the prime minister's office. "It's
always hard when there are arguments in the family."
But, encouraged by the successful sale of a state-owned steel mill
last week, he said that he was "a very big optimist of what is
happening" in Ukraine.
In Washington, Mr. Yekhanurov said, he will seek an end to
restrictions under the 1975 Jackson-Vanick amendment, which denies
normal trading status to countries that restrict emigration. He also
is likely to ask the United States to sign a bilateral protocol
advancing Ukraine's bid to join the World Trade Organization (WTO)
in December.
Mr. Yekhanurov, 57, also wants the United States to recognize his
country as having a market economy, a designation that would help it
attract foreign investment and integrate into the West.
"Ukraine has several strategic assignments," said the prime minister,
who holds a doctorate in economics. "Fulfilling those depends on
Ukraine entering the WTO."
Mr. Yushchenko won a major political and financial victory last week
with the sale of Kryvorizhstal, the country's largest steel-making
plant, to Mittal Steel Co. in a nationally televised auction.
The mill sold for $4.8 billion, almost six times the price paid in an
earlier sale to two of Ukraine's wealthiest men during the
corruption-tainted administration of President Leonid Kuchma. That
sale later was ruled illegal and voided by Ukraine's courts.
Mr. Yekhanurov said his government was so pleased with the auction
that it is moving ahead with plans to sell three more state
enterprises, including Ukrtelecom, the country's phone monopoly.
The president and Mr. Yekhanurov also have talked with some of
Ukraine's wealthiest business leaders who acquired state enterprises
during the Kuchma administration about paying the difference between
the sale prices and realistic market values.
Mr. Yekhanurov was personally involved in the sale of state-owned
enterprises as head of the State Property Fund during the 1990s. But
he has a reputation as a champion of small- and medium-sized
companies and an advocate of honest business.
Mr. Yekhanurov said his government is "looking at the experiences of
other countries" to ensure that businessmen who enter politics will be
unable to use their influence to profit financially.
"We don't have enough laws and practices of transferring [businesses]
into blind trusts," he said.
Mr. Yushchenko fired the government of former Prime Minister Yulia
Tymoshenko in part because of charges of corruption on the part of
government officials with outside business interests. Despite Mr.
Yushchenko's pledges to end such practices, critics say, he still
hasn't done enough to separate business from government.
Mr. Yekhanurov said some Ukrainians have grown disillusioned with
the government in recent months, presenting a challenge for
pro-presidential forces as they approach parliamentary elections in
March.
Mrs. Tymoshenko will contest the elections at the head of her own
party but is expected to cooperate with Mr. Yushchenko's Our
Ukraine party in the next parliament.
"The only question for her is that she shouldn't set ultimatums," Mr.
Yekhanurov said. -30- [Action Ukraine Report Monitoring Service]
====================================================
2. UKRAINE MARKS ANNIVERSARY OF PRELUDE
TO ORANGE REVOLUTION
ITAR-TASS, Moscow, Russia, Monday, October, 31, 2005
KIEV, October 31 (Itar-Tass) - A year ago, Ukraine went to the polls to
elect a new president, but it also marked the beginning of the drive toward
radical changes in the country which culminated in the "orange revolution."
After the vote On October 31, 2004, the republic's Election Commission,
unable to sum up the results for several days, caused public resentment and
suspicions regarding their authenticity.
Two more rounds were held to determine the winner. Viktor Yushchenko who
eventually won the race, and his government are credited by a majority of
Ukrainians with considerable success in the provision of pensions, freedom
of expression and the strengthening of Ukraine's international image,
according to the latest study conducted by the Razumkov center.
More than 37 percent of the respondents said the situation with the
provision of pensions had changed for the better; 32 percent of those polled
praised Yushchenko for ensuring the freedom of expression while 30.5
percent noted improvements in Ukraine's image.
At the same time, sociologists detected decreasing confidence in the
government. Almost 30 percent of the respondents attributed the falling
confidence in authorities "to power abuse and corruption in higher echelons
of power," 26 percent blamed the conflicts between top officials and related
rows, while 13 percent blamed the slower economic growth.
The country is gearing up for the parliamentary election on March 26, 2006.
The Central Electoral Commission requested more than 110 million dollars,
its head Yaroslav Davydovich said. The system of information protection
during the voting will be certified at Ukraine's Security Service.
The investigation into the case of counting fraud at the presidential
election has stalled, Davydovich said. In May, the Ukrainian Interior
Minister claimed that more than 500 cases involving 6,000 suspects had been
opened over election fraud. Of those, 111 cases have been sent to court.
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3. UKRAINE TORN BY BROKEN PROMISES
Few Ukrainians see much to cheer about
By Stephen Mulvey, BBC News, Ukraine
BBC, United Kingdom, Monday, October 31, 2005
A year after the first round of the presidential election that set in
motion Ukraine's Orange Revolution, few Ukrainians see much to
cheer about.
The millions who stood for weeks on Kiev's Independence Square to
demand a free and fair vote achieved their main goals.
They kicked out a corrupt leadership, won freedom of speech and set
the country on a path towards Europe.
But many feel let down by the politicians they put their trust in.
The dream team of Viktor Yushchenko and Yulia Tymoshenko - hero
and heroine of the revolution, who became president and prime minister -
proved incapable of fulfilling their promises.
They pledged an end to Ukraine's notorious cronyism, but after a few
months officials were openly trading allegations of abuse of power for
personal gain.
"The government acquired many new faces," Mr Yushchenko said as he
responded to the crisis by sacking Ms Tymoshenko's government in
September.
"The paradox is that the face of the government itself did not change."
QUEST FOR POWER
He admitted frankly that he and millions of other Ukrainians had begun
to be disappointed.
Most of those who are not disappointed are those whose hopes were not
high in the first place.
"In a word, I am upset," says Marina Makarchuk, a 60-year-old retired
nurse hurrying through Kiev's cobbled streets to her new job as a cleaner.
"I was counting on those promises that were made being fulfilled, but
now that seems unlikely. I am disappointed. All governments are the
same, everyone just wants power."
Lyudmila Les, a 43-year-old nursery school teacher, clutched her head
as she struggled to find words for her frustration. "Sometimes it almost
seems as though the mafia has come to power," she said.
Despite a pledge to separate business from politics, Mr Yushchenko's
first administration included three prominent business tycoons.
Ms Tymoshenko herself is rumoured to have made a vast fortune in gas
before entering politics, but as prime minister she pushed policies
that business disliked - including a review of thousands of
privatisations.
TYCOONS
This brought her into conflict with some of her pro-business ministers
- and in the case of one reprivatisation, the two sides of the
government openly backed rival bidders.
Ultimately, Mr Yushchenko accused Ms Tymoshenko of using her
position to repay her debts - an accusation she rejected as nonsense.
But Mr Yushchenko himself has not emerged entirely unscathed. Few
supporters objected that much when the tycoons who bankrolled his
campaign received government jobs.
But as unconfirmed allegations of corruption swirled around the sacked
government, the closeness of Mr Yushchenko's relationship with the
tycoons - one is godfather to his son, and he is godfather to
another's daughter - began to seem a liability.
The lifestyle of Mr Yushchenko's eldest son has also left journalists
asking questions.
Where does a 19-year-old get a Vertu mobile phone and a $100,000 BMW,
while paying a peppercorn rent to "friends" for a luxury flat? Might
someone be trying to buy influence with the president by providing his
son with these riches?
OLD FRIENDS
They have received no answers, Mr Yushchenko angrily declaring his
son's life off limits on grounds of privacy. However, officials say
the car is no longer in Kiev.
Cynics also point out that Mr Yushchenko's nephew has become deputy
governor of the Kharkiv region at a very young age, and that his
son-in-law took over a corrugated iron factory when its previous boss
- a friend of the family - was appointed minister of industry.
These presidential relatives may have earned their positions on their
own merits, but many Ukrainians have an uncomfortable feeling that may
not be the full story.
Plenty of other reasons are given for disappointment:
[1] Price rises and slowing economic growth
[2] The increasing size of bribes demanded by middle-ranking officials
[3] A justice minister (now replaced) who exaggerated his qualifications
[4] Continued failure to find the killers of a beheaded journalist
[5] The granting of immunity from prosecution to local councillors
[6] Reports of campaign funding from a Russian oligarch.
[7] However, the continuing entanglement of business and politics tops
the list.
[8] The only other issue that causes as much frustration among former
Orange Revolutionaries is the deal Mr Yushchenko struck with his old
rival for the presidency, Viktor Yanukovych, in order to get his new
prime minister approved by parliament.
"He has quarrelled with his friends and made peace with his enemies,"
says Lyudmila Les, the nursery school teacher.
"I don't understand it." -30- [Action Ukraine Report Monitoring ]
------------------------------------------------------------------------------------------
LINK: http://news.bbc.co.uk/go/pr/fr/-/2/hi/europe/4386254.stm
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4. YUSHCHENKO SUGGESTS OLEKSANDR MEDVEDKO AS
PROSECUTOR GENERAL TO PARLIAMENT
Ukrainian News Agency, Kyiv, Ukraine, Mon, October 31, 2005
KYIV - President Viktor Yuschenko suggests the Verkhovna Rada gives
its consent to the candidacy of Oleksandr Medvedko for the post of
prosecutor general. President's spokeswoman Iryna Heraschenko made
this statement to the press.
She said the candidacy for the post was discussed at a meeting of the
Political Council over which the president presided. The spokeswoman
explained that the president announced that he has submitted the candidacy
of Medvedko with the request to approve it.
Heraschenko made it clear that the Political Council is not a place for
political haggling, but a mechanism for consolidation of positions.
Socialist Party leader Oleksandr Moroz said that Yuschenko announced
his decision to front Medvedko after he closed the meeting of the Political
Council.
As Ukrainian News earlier reported, the draft resolution on parliamentary
approval of the candidacy of 49-year-old Vasyl Prysiazhniuk, who serves as
prosecutor of Kyiv at the moment, for the post of prosecutor-general was
registered with the parliament on October 29.
Parliament Speaker Volodymyr Lytvyn confirmed this information on
October 31 but later announced that Yuschenko had withdrawn
Prysiazhniuk's candidacy. -30- [Action Ukraine Report Monitoring]
====================================================
5. VALIO LAUNCHES NEW CHEESE IN UKRAINE
NOVIS Food & Beverage News
Montpellier, France, Monday, October 31, 2005
Finnish dairy company Valio plans to increase its sales on the Ukrainian and
Russian markets by launching new cheese and butter products.
Ari Ahonen, Valio's director, said the group's sales volume in Ukraine was
not sufficient and believes the country may become a good market for more
premium products; a specialty of Valio. The company now plans to launch
new types of sintered cheese and butter on the market to take advantage of
this.
Igor Surjuk, vice-president of Stara Fortetsya (Valio's distributor), said
he thought Valio would find lucrative niche's in Ukraine and had the
potential to do well in the growing premium foods segment. He declined to
put a figure on the premium sector, adding that it was still in its infancy.
Valio has also has plans for progress in Russia. It has already decided to
build a factory for butter and soft cheese packing near Moscow. Analysts
think that about $15m will be invested in this project, which is set to be
complete some time in 2007.
Valio will only use Finnish raw materials in the factory, showing that so
far, the company has not been tempted to switch to Russian milk.
The company did not disclose the planned manufacturing volumes, but,
by 2010 it said it planned to tripple sales in Russia, up to Euro 270m.
Valio is one of the top three producers of sintered cheese in Russia. The
other two are Hochland and Karat, giving the top three a combined market
share of 57 per cent in volume and 69 per cent in value, according to AC
Nielsen.
Yet, rival French firm Lactalis, also a big player in the Russia, said
recently it thought there was still plenty of room on the cheese market.
"The market grows each year not less than 10 per cent, and Russians
consume 10 times less cheese than Europeans," it said.
Valio, founded in 1905, is one of the biggest Scandinavian dairy
processors and has been a leader in innovation, being one of the first to
develop its own probiotic bacterial strain with which to develop functional
dairy products.
In 2004 the company's turnover was Euro 1.6bn, with sales in Russia
constituting about Euro 90m. Its commodity trade with CIS countries
makes up a quarter of its total export volume. -30-
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6. UKRAINIAN STEEL MAJOR KRYVORIZHSTAL SALE -
BEHIND THE SCENES
ANALYSIS: Roman Bryl, Ukraine Analyst
IntelliNews - CIS Sector Updates
Kyiv, Ukraine, Monday, October 31, 2005
Ukraine manages to conclude largest privatization deal in its history ---
The sale of the 93.02% stake in Kryvorizhstal metallurgical plant became the
largest privatization deal in modern Ukrainian history and also the largest
privatization deal in CIS countries.
The USD 4.8bn received for the stake exceeds by 38% all earnings Ukraine
received from privatization over the last 14 years.
Authorities promised to sell re-privatized plant before last year's
presidential vote ---
Such a major deal could not pass without a rough struggle, the main part of
which stayed behind the scenes. For the Ukrainian government it was
extremely important to finish the sale of Kryvorizhstal.
FIRST, due to promises given by leaders of the Orange Revolution during
the presidential election campaign. President-to-be Victor Yuschenko called
returning Kryvorizhstal into state property one of the key priorities of his
policy.
Yuschenko considered that the owner of Kryvorizhstal paid too little for the
metallurgical plant (USD 860mn). Krivorizhstal's 93.02% stake was returned
to the state property fund on Jun 16, 2005. And if government failed to sell
the stake to a private investor, re-privatization of the plant would have
turned into nationalization.
It would completely destroy the fragile investment image of Ukraine spoiled
by uncertainty of forthcoming re-privatization plans and recent shakeups in
government.
Government needs funds for state budget ---
SECOND, government could not delay the sale due to shortage of funds in the
state budget. In spite of EconMin's declarations that currently the
consolidated budget surplus makes up USD 1.38bn, it is not enough to avoid a
major deficit in 2006.
The deficit is expected to reach several USD bn. The final estimate for the
deficit will be disclosed after parliament approves the budget draft this
week.
Previous owner opposed sell-off in different ways ---
There was a high chance that government could fail to sell Kryvorizhstal on
Oct 24, 2005 as it was planned. The previous owners, mainly companies
controlled by two Ukrainian billionaires Rinat Akhmetov and Victor Pinchuk
opposed re-privatization.
Representatives of the socialist party that in fact belongs to the ruling
coalition supported them in an indirect way. The head of state property fund
Valentyna Semenyuk is a member of the socialist party and she defended the
option for Kryvorizhstal to stay in state property. In fact, she defended
business interests of its party's members who were involved in the metal
trading business.
Mykola Rudkovskiy's metal trading company TransAlpina sells 130,000 tons
of steel produced by Kryvorizhstal. According to IntelliNews sources, net
income on every ton of steel sold by TransAlpina made up USD 30-40.
Before selling the enterprise, there were about 30 trading companies that
were selling Kryvorizhstal's production. According to deputy PM Anatoliy
Kinakh, in August 80% of the plant's steel was traded by Leman Company,
owned by System Capital Management, in turn controlled by Akhmetov.
Head of state property fund refused to participate in tender ---
Valentyna Semenyuk went to hospital several days before the tender in order
not to participate in it. On the tender day she declared about her
resignation as head of state property fund. She explained her decision by
demands of her party.
However, Yuschenko rejected the resignation. He instead praised Semenyuk as
a profound professional and added that he could not lose such a professional
due to political intrigues. PM Yuri Yekhanurov declared on Oct 25 that he
would personally ask the leaders of the socialist party to allow Semenyuk to
stay as SPF chairman.
Parliament initiated moratorium on selling steel major ---
Nevertheless, when it became clear that the tender would take place in any
case, the parliament lobby that supported previous owners of the plant,
initiated a moratorium on selling the plant. 256 votes were cast in favor of
the moratorium.
According to IntelliNews sources, lobbyists received USD 3mn to initiate
this bill. Yuschenko had 10 days to veto the law. He Yuschenko declared he
would reject the parliament's recommendation.
Nothing could stop Kryvorizhstal re-privatization, the president said during
his official visit to London on Oct 18. On that day state property fund
officially confirmed the names of registered bidders for the company. They
were Mittal Steel, Industrial Group that was set up by Donbass Industrial
Union and Arcelor, and Smart Group.
SCM, Interpipe sent aggressive letter to all bidders before auction ---
That was not the only attempt to stop the sell-off. Several weeks ahead of
the tender SCM and Interpipe owned by Pinchuk sent to all potential bidders
for Kryvorizhstal a letter warning about high legal risk after buying the
stake. The ex-owners initiated several court hearings in Ukraine and in
Europe.
This could lead to another blocking of Kryvorizhstal's shares according to a
possible court decision. We do not exclude that this letter influenced the
decision of several bidders to take part in the tender. There were 12
companies that earlier lined up for the auction, but only 3 of them took
part in the tender.
Unknown company Eddox made final attempt to stop tender ---
The final attempt to foil the sale was made by unknown company Eddox that
was founded several weeks before the tender. The company appealed to a US
court demanding the US government to interfere.
The arguments were as follows: Eddox bought ADRs of Nyzhnedniprovsky
pipe plant for USD 47,000. The entity had been one of Kryvorizhstal's
shareholders before re-privatization.
Selling Krivorizhstal would harm Eddox's profitability, because it would
lose ADRs, the company claimed. State property fund reacted very quickly
declaring that the arguments were groundless because Nyzhnedniprovsky
pipe plant was not a shareholder of the metallurgical plant.
We should note that Nyzhnedniprovsky pipe plant had indeed been a
shareholder of Kryvorizhstal before re-privatization. The former is owned by
Pinchuk, thus likely Eddox was acting in Kryvorizhstal ex-owners' interests.
Militia protected SPF building on day of auction on Oct 24 when the tender
took place, militia surrounded SPF's building, to prevent any disruptions.
Still, a small demonstration of about 100 people gathered in front of
building shouting to cancel the sell-off. All tender participants came to
SPF early in the morning and entered the building through the backdoor.
Mittal Steel finally won tender paying USD 4.8bn ---
The tender itself was held in a calm fashion and lasted 50 minutes. In the
end Mittal Steel became the new owner of Kryvorizhstal. The company
paid UAH 22.2bn (USD 4.8bn) for the stake.
The starting price was UAH 12.6bn (USD 2.52bn). One of the bidders,
Smart Group, quit the auction when the price was increased to UAH
17.7bn (USD 3.54bn). We should note that in 2004, Mittal Steel together
with US Steel proposed USD 1.5bn for Kryvorizhstal.
The new owner of the plant is obliged to invest in the company another USD
2.4bn until 2010. Besides, state property fund defined minimal tax payments
the new owner should make regardless of market conditions. President
Yuschenko, PM Yekhanurov, minister of internal affairs Yuri Lutsenko and
ex-PM Yulia Tymoshenko were present at the auction.
Mittal Steel can do everything it wants with Kryvorizhstal ---
On one hand, the victory of Mittal Steel is good for Ukraine. Nobody
expected such high price to be paid for Kryvorizhstal. On the other hand,
Mittal Steel has a reputation of an oppressor that often ignores demands of
its subsidiaries' employees.
When Lakshmi Mittal was asked when he expected to break even, he
answered that it should take place very soon. However, sector analysts
say it usually takes place about 12 years. We think Kryvorizhstal should
prepare for introduction of a cost-cutting program. That might means
low salaries and layoffs.
While perhaps cost management should be improved, social tensions in the
country might increase further. The general public might blame Yuschenko's
government for what they might feel is a botched sale. And government
cannot prevent this. Government does not have USD 4.8bn to return to
Mittal Steel. -30- [The Action Ukraine Report Monitoring Service]
=====================================================
7. SOME ASPECTS OF THE OVERALL DEVELOPMENT OF
UKRAINE'S TRANSPORTATION COMPLEX
ANALYSIS: K. Hrivakov
Deputy Head of the Trade and Economic Mission
Embassy of Ukraine-Ankara, Turkey
Monch Media Turkey - Black Sea Trend Review
Ankara, Turkey, Monday, October 31, 2005
As a new chapter opens in Ukraine's history, the priorities of Ukraine's
external economic policy are the membership of the World Trade Organisation
(WTO), and an important step towards accomplishing the main geopolitical
task of the country - entry into the European Union.
The integration of Ukraine into the world economic space provides for a
liberalisation of foreign trade, bringing the legislation of Ukraine into
line with the EU requirements, creation of a favourable environment for
foreign fund raising, proper organisation of the frontier infrastructure and
gradual removal of customs, legal and technological barriers in cooperation
with the EU countries.
The rhythm of life and activity in the economic system of the country
directly depends on the uninterrupted and well organised work of the
branched transport system. Its development in Ukraine has particular
priorities and indisputable prospects.
That's why the concept of the Road Transport Complex (RTC) of Ukraine for
the medium term and up to 2020 was developed. In addition to this the State
Complex Programme of Aviation Development by 2010 was approved in 2001.
That same year Ukraine was admitted to the European Organisation of Air
Navigation Safety (European Control) and was conferred the status of
candidate to the Joint Aviation Authorities of Europe (JAA), which testifies
to the compliance of the Ukrainian air carriers with European standards.
With equal optimism, the Ukrainian transport authorities see the development
of sea transportation activities as a strategically important industry for
the country. Ukraine moves towards the creation of powerful domestic
carriers.
The State Programme of Ukrainian Sea Ports Development was adopted in
2003. Ukraine presently has 19 seaports in general state property, however,
their capabilities are unfortunately not fully being realised.
The mentioned above concept incorporates ways of solving the problems of
the future development of the transport field based on the new objectives
the transport industry faces in the conditions of economic revival and
recovery, increase in demand for transport services, and the integration of
the RTC of Ukraine into the European and world transport systems.
In 2003-2004, the GDP growth rate in Ukraine increased by 7-8%. According
to the appraisal of experts, for Ukraine to achieve the economic indicators
characteristic of the developed European countries, the annual average GDP
growth rate must reach 6-8% by 2020, respectively affecting transportation
demands.
The demand for transport services is expected to increase by 4-5% yearly;
freight transportation volumes by 2005 can increase by 27-28%; those of
passengers by 2.7%; and in the long term, by 2020, freight transportation
volumes can increase by 1.5 to 2 times and those of passengers by 1.3 to
1.5 times.
At present the transport system of Ukraine is not entirely ready to ensure
such volumes of transportation. Due to the insufficient development of the
regulatory framework and low investment potential of the RTC the wear and
tear of transport facilities increases, their structure deteriorates,
improper traffic safety is provided and the negative transport influence on
the environment and human health is on the increase.
Due to this, under severe competition, Ukrainian transporters are driven out
of international transport markets, the quality of services rendered to
domestic enterprises and population decreases and a real threat to the
country's economic safety is created.
The major problems, which prevent an increase in the volume and quality
of demand for transport services, are as follows:
[1] insufficient replacement of fixed assets of all types of transport and
road economy, inconsistency between their technical level and prospective
requirements;
[2] low level of intersectoral coordination in transport infrastructure
development, which results in the disconnection of a single transport space,
irrational use of resources and decrease in transport use efficiency;
[3] poor use of the geopolitical position of Ukraine and the capabilities of
its transport facilities for international cargo transit through the
territory of Ukraine;
[4]slow improvement of transport technologies and their insufficient
interrelation with production, trade, warehouse and customs technologies;
[5] inadmissible low levels of transport process information provision and
informational transport interaction with other branches of economy;
[6] inefficiency of financial and economic mechanisms, which trigger
investment inflow into the transport field; and
[7] lagging in respect of the fulfilment of State and branch programmes in
the field of separate types of activity and transport, transport machine
building and state border development.
An acceleration of the process to solve these problems is of exceptional
importance, not only for the transport industry, but also for the country as
a whole and for the effective functioning of its production and social
spheres. It is largely ensured by stable and reliable transport operation.
More and more weighty is the role of transport in the development of the
external economic relations and the realisation of the geopolitical
potential of Ukraine as a transit country.
All of these trigger the necessity to take a number of organisational and
legal, economic and technical and technological measures aimed at the short
and long-term development of the road transport complex, jointly with the
processes happening in the world and home economies, which would
contribute to the development of productive forces of the country and
social population mobility.
Of priority in the State transport field regulation must be those spheres of
activity where the need to enhance national transport competitiveness is
especially great.
It particularly concerns the modernisation of the transport network and
terminal complexes of the RTC, introduction of information technologies,
electronic document circulation, combination transport development,
creation of an institute of combined transport operators, as well as the
formation and realisation of target programmes of rolling stock renewal
on all types of transport.
To ensure the country's external economic relations, the preservation and
strengthening of the positions of home transport enterprises and
entrepreneurs on international transport markets, and the step-by-step
integration of the RTC of Ukraine into the European and world transport
systems, the following is required:
[1] to implement an agreement on partnership and cooperation between
Ukraine and the EU in the field of transport;
[2] to realise the integration policy on Ukraine's entry into a single
transport space of the CIS;
[3] to extend and strengthen cooperation in international transport
organisations and in the implementation of international transport
agreements, including bilateral ones,
[4] to create an effective State system of control over the activities of
transport enterprises and entrepreneurs dealing with international
transportation and foreign transporters in the territory of Ukraine;
[5] to introduce the necessary measures of protection and support of the
activities of Ukrainian transport enterprises and entrepreneurs on external
markets, when international organisations and governments of other
countries bring in new, more stringent economic, technical and other
requirements for transport activity;
[6] to adjust the strategy of international transport communication
development within Ukraine to changes in the international economic
transport situation;
[7] to unify the national normative and legal basis of the domestic
transport and transport activities in Ukraine in compliance with the
international legal standards;
[8] to unify the national legal norms and the international transport law on
international transportation and its transport forwarder servicing, and to
join a number of international conventions and multilateral agreements on
the part of Ukraine;
[9] to develop and take measures on ensuring the technical and
technological consistency of the rolling stock and transport network of
Ukraine and the European transport system;
[10] to bring national, technical, technological and ecological standards
and requirements pertaining to international transport into line with those
of Europe and to gradually introduce them into the home market;
[11] to improve the process of informing freightowners of the international
transportation procedure and terms and to ensure the system's openness
and stability; and
[12] to determine an efficient mechanism of joining international transport
organisations and active participation in their activity.
As regards the improvement of international transport quality, an important
part is played herein by the development of the general European transport
infrastructure and the realisation of the programme of international
transport passages and functioning in Ukraine.
Allowing for changes in the international transport and economic situation,
a full-scale realisation of the objectives set must be ensured and, if
necessary, certain amendments must be introduced to ensure that additional
freight traffic is attracted to prospective international trade routes, in
particular, on the European-Asian route and on the route of Northern
Europe-Ukraine southern regions.
Taking into account the modern state of the road transport system, economic
progress can produce an extensive effect only if the technical level of this
industry significantly increases. To do so, it is necessary to modernise and
renew the transport facilities and production capabilities of all types of
transport and road economy.
Set out in the Concept are the development priorities and directions that
have been formulated allowing for the state and place of every type of
transport in respect of solving the general transport issues. Their
realisation is capital-intensive and must be performed with economic
efficiency requirements taken into account.
The realisation of the strategic directions of the road transport system
development, the prospects of Ukraine's integration into the world economy
and the intensification of the country's transit functions through its
investment policy provides for state participation in funding the transport
industry objects of state importance, increasing the investment potential
through investment activities of transport enterprises and fund raising from
other sources.
In conditions of limited investments a priority task is to bring all the
transport system components into line with the normative requirements.
The provision of this Concept must serve as a basis when developing the
state transport policy, improving the regulatory transport framework,
working out the state and regional complex of target programmes in respect
of developing the types of transport, transport infrastructure and road
economy, and solving certain transport and transport related problems,
preparing governmental decisions on these issues, as well as the
programmes for the social and economic development of the country.
[The Action Ukraine Report Monitoring Service]
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8. UKRAINE POLITICS: POLITICAL OUTLOOK
COUNTRY ANALYSIS: EIU Politics-News Analysis
The Economist Intelligence Unit Limited
London, UK, Monday, October 31, 2005
Ukraine's political outlook has changed significantly, owing to a surprise
decision by the president, Viktor Yushchenko, to dismiss the prime minister,
Yuliya Tymoshenko, and her entire cabinet on September 8th. In so doing, he
splintered the coalition that brought him to power.
Ukraine will now see the emergence of a separate pro-reform political force,
centred on Ms Tymoshenko, that will compete with the Yushchenko camp
on the promise of delivering reform. In itself, this is a welcome
development,
as there is a need for more constructive, competitive politics in Ukraine.
Moreover, it is still likely that the two sides will be able to co-operate
in the legislature following the 2006 parliamentary election.
However, the prospects of a cohesive pro-presidential majority emerging
after the election are even worse than before.
Mr Yushchenko, for his part, will now govern as a more centrist figure,
particularly as he will at times be forced to co-operate with
oligarch-linked factions in parliament. This too will limit the prospects
for rapid political and economic reform.
The political turmoil in September underlined some serious concerns that
continue to mar the country's outlook. Recent allegations concerning
corruption, and the self-interested behaviour of many in the outgoing
government, have confirmed that the more negative aspects of the Kuchma
era are hard to eradicate.
With the pro-Yushchenko coalition now splintered, there will be more vicious
allegations and incidents of open feuding even than there were during the
first uneven months of Mr Yushchenko's presidency.
Moreover, the government crisis in September has renewed concerns over
Mr Yushchenko's leadership and his willingness or ability to push through
reforms.
It provided a telling glimpse into the sort of lapses of judgement,
indecisiveness and poor organisational skills that frequently disappointed
his supporters during his tenure as prime minister in 1999-2001 and his time
in opposition thereafter. This heightens concerns that he will fail to move
decisively to achieve more transparent, accountable and effective
governance.
Although Ukraine will continue to move away from the rampant corruption and
disregard for the rule of law that characterised politics during the Kuchma
era, progress will be fitful.
Those closest to Mr Yushchenko-namely Our Ukraine-People's Union (OUPU)
and some affiliated centre-right parties-are now unlikely to win much more
than one-quarter of the seats in parliament that will be elected in March
2006.
They will have to find some way of working with Ms Tymoshenko, and most
likely with other groups as well-including the People's Party, which is
headed by the parliamentary speaker, Volodymyr Lytvyn-in order to control
the legislature.
Ms Tymoshenko is also aware that she will require a coalition in the new
parliament, and has so far refrained from making any sustained criticism of
Mr Yushchenko himself.
The parties with which her eponymous bloc would most obviously ally-for
instance, the Reforms and Order Party-cannot guarantee her a majority in the
legislature. At this point, therefore, Ms Tymoshenko cannot afford to
disassociate herself completely from the president.
Her campaign will attempt to balance its message that the new government is
betraying the spirit of the "Orange Revolution" with a more conciliatory
tone that leaves room for joining up with coalition partners in the next
parliament.
Tensions between Ms Tymoshenko and Mr Lytvyn, stemming from the
Kuchma era, had already cast doubt over a three-way electoral alliance with
Mr Yushchenko's OUPU, even before the reshuffle.
The chances of such an alliance seemed further diminished in early
September, when Mr Lytvyn opened the parliamentary session by criticising
both the government and Mr Yushchenko.
However, given the fluidity of political allegiances, some sort of alliance
still seems possible. It is more likely that Mr Lytvyn will commit himself
to a pre-election alliance with Mr Yushchenko, but he still appears to be
contemplating ties with Ms Tymoshenko's bloc as well.
Apart from links to Mr Lytvyn's People's Party, which does not yet have
significant popular appeal, Mr Yushchenko can also be expected to try to
encroach on Mr Yanukovych's support base in parliament, which is centred
on Regions of Ukraine.
Although Mr Yanukovych's party will be represented in the new parliament,
he is likely to suffer from the fact that the opposition to the government
is
now more ideologically diverse, which means that he will no longer be the
main rallying point for an anti-Yushchenko protest vote. -30-
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9. UKRAINE POLITICS: DECISIVE YUSHCHENKO?
COUNTRY ANALYSIS: EIU Politics-News Analysis
The Economist Intelligence Unit Limited
London, United Kingdom, Monday, October 31, 2005
Ukraine's president, Viktor Yushchenko, responded to damaging allegations
of corruption within his inner circle by announcing sweeping personnel
changes, only seven months after bringing to power a fresh team and
promising a return to clean leadership.
At a press conference on September 8th Mr Yushchenko announced that he
was dismissing his entire cabinet, headed by the prime minister, Yuliya
Tymoshenko, and that he was accepting the resignation of the secretary of
the National Security and Defence Council (NSDC), Petro Poroshenko, his
ally.
He also announced the departure of the heads of the security and customs
services, and suspended a key adviser, Oleksandr Tretyakov. He then named
Yury Yekhanurov, a close ally and veteran politician, as acting prime
minister. After initially voting him down, parliament approved Mr
Yekhanurov's appointment on September 22nd.
By completely reshuffling his team Mr Yushchenko signalled the break up of
the broad coalition that brought him to power and began a new phase in
Ukrainian politics.
Even if most observers still view Mr Yushchenko's administration as a
significant improvement over its predecessor, the recent government crisis
appears to have quashed the excessively high expectations sparked by the
"Orange Revolution" that had swept the new team to electoral victory late
last year.
The government's missteps during its first six months in power had already
produced growing disillusionment, but many had taken consolation in the fact
that Mr Yushchenko's broad but fragile coalition appeared to be holding, and
that politics were being cleaned up. The allegations of corruption and the
recent government reshuffle have put even these minimal achievements in
doubt.
TAINTED CIRCLE
The charges of wrong-doing against members of Mr Yushchenko's inner circle
erupted in a public fashion at the beginning of September, when two top
officials, Oleksandr Zinchenko, the head of his presidential secretariat,
and Mykola Tomenko, a deputy prime minister, resigned in protest at what
they described as corruption among Mr Yushchenko's top aides.
These allegations-which come from well-known Yushchenko allies and respected
leaders of the "Orange Revolution"-immediately became a serious threat to Mr
Yushchenko's credibility and raised questions over his management skills.
Although the allegations suggested no misconduct on the president's part,
they pointed to several of the people whom Mr Yushchenko most trusted-Mr
Poroshenko, Mr Tretyakov and Mykola Martynenko, the head of the Our
Ukraine parliamentary faction.
Mr Zinchenko cited all three as having ignored Mr Yushchenko's election
promise that his government would separate business from politics.
Charges by others, made at around the same time, alleged that Mr Poroshenko
and his allies had pressured a judge, circumvented customs regulations and
threatened legal pressure to ensure that an ally could buy an influential
television station.
A commission that was given the task of investigating these allegations
found in late September that there was no evidence for most of the charges,
although it did recommend proceeding with further investigations into claims
that the judiciary had been put under pressure.
The officials accused of these charges have claimed that they are groundless
and politically motivated. Mr Zinchenko's accusations are likely to have
been at least partly politically driven and appear to be part of an ongoing
feud between those in government allied with Mr Poroshenko, and those close
to the then prime minister, Ms Tymoshenko.
Mr Zinchenko is likely to have been concerned that Mr Poroshenko would use
his increasingly influential position as head of the NSDC to try to
undermine Ms Tymoshenko, possibly with a view to replacing her. Mr
Tomenko claimed that Mr Tretyakov and Mr Poroshenko had formed a
"shadow government".
TOUGH ENOUGH?
At first glance, Mr Yushchenko appeared to move commendably quickly and
decisively to deal with the mounting crisis. Through the personnel changes
announced on September, he distanced himself from the officials accused of
corruption, and, at the same time, finally shook up a governing arrangement
that was clearly dysfunctional, as Ms Tymoshenko and Mr Poroshenko had
proved patently unable to set aside their rivalries in order to govern
effectively.
Mr Yushchenko nevertheless still deserves serious criticism. Much of the
government's policy incoherence and ineffectiveness is rooted in his
decision to appoint such ambitious arch-rivals to key positions, in the hope
that Mr Poroshenko would help to contain the ambitions and populist
instincts of Ms Tymoshenko.
This set-up did not work, with the two sides perpetually at loggerheads over
the delineation of responsibilities between the cabinet and the NSDC.
Combined with Mr Yushchenko's willingness to reward his loyal financial
backers with top leadership posts, and thereby tarnish the clean image of
his government, this, in effect, brought the recent crisis upon him.
Mr Yushchenko's response once corruption allegations surfaced was also
problematic. Most importantly, he failed to distinguish between the charges
levelled against his associates, and the larger issue of the cabinet's
inefficacy.
By sacking the government at the same time as he announced the resignation
or suspension of the officials cited by Mr Zinchenko-none of whom were in
the cabinet-Mr Yushchenko appeared to try to shift attention away from
possible misdeeds by his closest allies.
He might even have hoped that Ms Tymoshenko would somehow be linked
in the public's mind to the recent corruption charges, thereby damaging her
chances against his own party in the March 2006 parliamentary election.
Mr Yushchenko fuelled these suspicions further in mid-September, when he
accused Ms Tymoshenko of having siphoned off funds from the budget to
coerce judges, and of having intervened improperly in the controversial
privatisation of the Nikopol Ferroalloys Plant. Ms Tymoshenko has denied
the allegation. -30- [The Action Ukraine Report Monitoring Service]
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10. UKRAINE ECONOMY: MACROECONOMIC OUTLOOK
COUNTRY BRIEFING: EIU Economy-News Analysis
The Economist Intelligence Unit Limited
London, United Kingdom, Monday, October 31, 2005
Ukraine's economy continues to decelerate rapidly. Real GDP growth
expanded cumulatively by only 2.8% year on year in January-August,
down from a post-independence record of just over 12% for 2004 as
a whole.
The slowdown reflects less buoyant external conditions, particularly for the
steel sector, as well as sluggish investment trends, which are attributable
to political instability and concerns over the government's review of
previous privatisations.
This review has been both controversial and protracted, and any improvement
in investment in the second half of 2005 is expected to be modest. Real GDP
growth for the year as a whole is now forecast at 3.7%.
Real GDP growth in 2006-07 is forecast to pick up only slightly compared
with 2005. Investment will continue to be dampened by political uncertainty
during the first part of the year, and incomes are set rise more moderately.
Steel prices, which have underpinned the manufacturing sector's strong
performance in recent years, are expected to fall further.
Moreover, many of the tougher structural reforms are being delayed until
after the 2006 election, which means that there will be only slow progress
in eliminating bottlenecks in key sectors such as utilities and transport.
owever, the election of a generally pro-reform parliament in 2006 will help
to speed up reforms in the aftermath of the election, and will encourage
investment over the remainder of 2006 and in 2007.
Consumer price inflation stood at roughly 15% year on year in August 2005.
Inflation is expected to ease to 12% by end-2005, but will remain in double
figures owing to sharply rising incomes.
An increase in administered prices, which were generally kept down in 2004
because of the approach of the presidential election, will also boost
inflation-although the government will still try to contain any price
increase, in anticipation of the March 2006 parliamentary election.
The narrowing of the trade surplus and a slight currency strengthening will
nevertheless contain the pressure on prices by permitting a tighter monetary
policy. However, the government is expected to post budgetary deficits
during the forecast period.
Combined with high oil prices and a rise in the gas price paid to Russia, as
well as further large foreign-currency inflows expected as a result of the
current-account surplus, inflation is only likely to fall to around 7% year
on year by the end of 2007.
During the past three years the NBU had often intervened on the interbank
market to keep the hryvnya's exchange rate fixed against the US dollar. The
central bank signalled a shift in policy in April 2005, when it allowed the
hryvnya to appreciate by 3%.
So far this has proved to be a one-off attempt to mitigate risks associated
with continued large-scale inflows of export earnings. We believe that the
NBU will not permit significantly greater further appreciation, and will
continue to intervene to soak up excess foreign currency when necessary.
Although the economy is slowing, the likelihood of currency weakening
remains limited, in view of the strong current-account inflows and concerns
over inflation.
However, the risks to this forecast have risen in recent weeks, with the NBU
hinting that it might favour currency depreciation if it could discourage
outflows of speculative capital, which is coming into the country in
anticipation of currency revaluation.
With higher incomes and oil prices pushing up import expenditure, and the
steel sector suffering from a less favourable external environment,
Ukraine's current-account surplus is expected to fall to around 4.2% of GDP
in 2005, and to narrow further in 2006-07.
This will reflect lower annual average steel prices, and continued strong
import growth linked to a further rise in incomes and a pick-up in
investment.
There is only a small risk that the current account will be pushed into
deficit. Ukraine will continue to show a surplus on its services trade,
owing to large-scale transits of Russian energy exports westward.
Any increase in Russian gas export prices, which would push up import costs,
would be offset by an increase in the transit fees paid by Russia (and hence
greater services export earnings for Ukraine).
The transfers surplus is also expected to remain substantial. The combined
surplus in services and transfers is forecast to equal more than 4% of GDP
in 2006-07. -30- [The Action Ukraine Report Monitoring Service]
=====================================================
11. UKRAINE ECONOMY: STRUGGLING FORWARD
COUNTRY BRIEFING: EIU Economy-News Analysis
The Economist Intelligence Unit Limited
London, United Kingdom, Monday, October 31, 2005
Ukraine's industrial expansion has continued to decelerate rapidly, with
sectoral output growing by just 0.9% year on year in August, and by 3.5%
year on year in January-August. In contrast, the industrial sector had
expanded by 15% in January-August 2004.
In late August the Ministry of Economy cut by almost half its projections
for industrial growth in 2005. However, its new target-6.5%, rather than the
12% expected previously-is still likely to be optimistic.
The deceleration is primarily a reflection of trends in the manufacturing
sector, which had been the principal driver of the industrial expansion in
recent years. Manufacturing accounts for around three-quarters of total
industrial output, and had grown by almost 15% in 2004.
The far weaker manufacturing performance in January-August 2005 (3.5%
growth year on year) is only marginally more than what was achieved in the
traditionally more sluggish extractive industries and utilities.
The latter two sectors have historically dragged growth down, and only
achieved a modest expansion in January-August owing to an upturn in the
extraction of iron ores and concentrates (which were up by around 4% year
on year in January-July) and electricity production at nuclear-power plants
(up by 5%).
METAL FATIGUE
The manufacturing sector's difficulties are primarily explained by the
metallurgical industry, which accounts for just over one-quarter of total
industrial output and posted a 3.2% decline year on year in January-August.
Output of steel and ready-rolled ferrous metals fell, respectively, by 7%
and 5% year on year in January-July.
The decline in production of all semi-fabricates-now also including pig
iron-was only partly mitigated in January-July by a 17% increase, year on
year, in production of steel pipes and other hollow profiles made of ferrous
metals.
The generally poor performance of the metals sector reflects a drop in world
steel prices. Although prices have recovered somewhat in recent weeks, they
are still not nearly as favourable as in 2004.
Moreover, the sector has been hurt by the currency's revaluation in April,
rising input costs and the government's reprivatisation threats, which have
had an impact on investment. The continued increase in pipe production-an
isolated success story-is exclusively down to Russian energy sector
investment.
Around 80% of Ukrainian steel pipes are exported, and the Russian
state-owned gas producer, Gazprom, is a leading customer.
MIXED PICTURE
The second-largest manufacturing subsector, food and agro-processing, which
accounts for roughly 15% of total industrial output, remains one of the
fastest-growing parts of the sector. In January-August the food sector's
output grew by 14% year on year, despite a strong base period.
ood producers have sustained double-digit growth since early 2003 because of
strong domestic demand and considerable investment: the sector has attracted
more foreign direct investment (FDI) than the metals and chemicals
industries combined.
Growth in the third-largest manufacturing subsector, machine-building, which
accounts for 12% of total industrial output, has decelerated
sharply-primarily because of an unusually strong base period of comparison.
Production of machines for the extractive industry and construction, as well
as electrical machines and equipment, declined respectively by 13% and 4%
year on year in January-July.
In contrast, automobile production has continued to grow, rising by 10% year
on year in January-July despite a similarly strong base period (output had
risen by almost 70% year on year during the year-earlier period).
Demand for inexpensive Ukrainian-made cars is likely to remain strong, given
the growing availability of consumer credit and recent increases in import
duty on foreign cars. Only Russian cars are exempt from the duty, but they
are subject to an import quota.
A RAY OF SUNSHINE
Harvesting in August fell short of the strong results at the same time in
2004. The sector's expansion slowed from almost 7% year on year in
January-July to just over 2% for January-August as a result of a sharp
decline in output in August relative to the year earlier.
However, the sector's modest expansion is at least more broadly based than
in the past, with livestock production up by 10% year on year, according to
the data available for January-July. This followed a prolonged decline in
livestock production, and reflects an improvement in all major parts of
livestock production, with the exception of meat.
The rise in crop production is explained by a strong showing for non-grain
crops, in contrast to 2004, when a bumper grain harvest drove the sector's
expansion.
Although weather conditions were generally favourable earlier this year, a
drought in late July and early August took its toll on the grain harvest.
As of September 10th the total grain harvest (excluding corn) stood at 33.3m
tonnes, roughly 10% below the 36.8m tonnes harvested by the same point in
2004. The decrease reflected a fall in the average yield.
The Ministry of Agriculture has downgraded its forecast for the total grain
harvest (including corn) by around 1m, and now expects slightly less than
the 41.8m tonnes harvested in 2004. Independent experts are less optimistic
and are predicting an overall grain harvest of 34m-37m tonnes, including
17m-18m tonnes of wheat.
Although harvesting of all grain crops, except corn, is almost completed,
harvesting of sunflowers, Ukraine's other major crop, still has some way to
go. As of end-September 3.17m tonnes had been gathered from 2.7m ha-just
under three-quarters of the total area given over to the crop.
The outlook appears favourable, with yields so far up by more than one-third
compared with the average yield in 2004 as a whole. The agriculture ministry
expects a total sunflower harvest of around 5m tonnes, compared with 3.7m
tonnes harvested in 2004. Some of the improvement reflects a 10% increase in
the area planted to sunflower in 2005.
Sugarbeet output is also likely to show an improvement compared with last
year. The crop has in the past been an important export commodity for
Ukraine. As of end-September the sugarbeet harvest stood at 6.42m tonnes,
accounting for roughly 40% of the total crop area.
The yield is marginally higher than in 2004 as a whole. Ukraine's national
association of sugar producers has recently upgraded its forecast and now
expects a final harvest of 16.9m tonnes, up moderately from the 16.5m tonnes
recorded in 2004. -30- [The Action Ukraine Report Monitoring Service]
=====================================================
12. UKRAINE ECONOMY: TRADE SURPLUS'S DISAPPEARING ACT
COUNTRY ANALYSIS: EIU Economy - News Analysis
The Economist Intelligence Unit Limited
London, United Kingdom, Monday, October 31, 2005
Ukraine's trade surplus continues to shrink at a rapid pace, as confirmed by
the most recent customs data. The trade in goods surplus in January-July
stood at just US$119m, down from US$381m in January-June and equal to
only a fraction of the US$2.6bn surplus reported in the year-earlier period.
The rapid reduction in the trade surplus reflects both sluggish growth in
export revenue (which is largely a function of weak steel prices), and a
rapid rise in import costs.
The latter is mainly a function of high energy prices and the decision by
the government to lower a wide range of import duties, which brought many
previously undeclared import flows into the open. The ongoing real currency
appreciation has also helped to reinforce these trends.
Almost all of Ukraine's main exports have reported a sharp drop-off in the
growth of foreign sales. The most important of these is metals, which
account for well over 40% of total exports, but which are growing much more
slowly than in 2004.
Metals exports are suffering from weak prices, and there remains the risk of
protectionist barriers abroad-most recently realised in the decision by the
Russian government to launch a comprehensive anti-dumping probe into
imports of Ukrainian-made steel pipes.
Ater bilateral talks failed to produce an agreement, Russian steel interests
began to demand the immediate introduction of special duties. Were these to
be introduced, Ukraine's pipe exports would fall by roughly one-third.
Although struggling, metals still contributed more to the year-on-year
increase in exports so far in 2005 than all other major export categories
combined. Next came exports of mineral products, which have grown more
slowly than in the first quarter, but still expanded at more than 20% year
on year in January-July.
Mineral exports now rank only behind steel in terms of overall importance.
The bulk of these sales (about 80%) come from the petroleum sector. The
trend in disaggregated minerals sales suggests that volumes of refined
exports have fallen considerably in recent months.
This is likely to have been caused, in part, by government measures imposed
at the time of the fuel crisis in May, including tighter control over fuel
exports.
Chemicals is the only important export sector that has not experienced a
slowdown in foreign sales. In January-July earnings from chemicals rose to
almost US$1.7bn, up by 15% year on year, roughly the same pace of growth
as in the first three months.
However, sales of chemicals abroad are growing considerably more slowly
than in 2004. Moreover, the growth recorded so far in 2005 is less broadly
based than it was last year, as it is being driven by fertiliser exports.
Fertiliser sales expanded by half year on year in January-July.
The increase of almost 25% in imports in January-July reflected in part a
sharp rise in spending on fuel. Purchases of minerals account for over
one-third of total imports and-despite growing by just over 10% year on
year-accounted for more of the increase in import spending than the next
five most significant categories combined.
Ukraine's natural gas, crude oil and petroleum imports come almost
exclusively from Russia, Turkmenistan and Kazakhstan. So far in 2005 the
amount spent on natural gas and crude oil is about equal, with each
accounting for roughly 13% of total imports.
Spending on crude oil imports had previously exceeded that on natural gas,
until Turkmenistan raised the price of its gas by 30% earlier in 2005. The
impact of the Turkmen gas price increase has outweighed that of the increase
in world crude oil prices.
With Russia threatening to raise the price it charges for gas sent to
Ukraine, the relative weight of gas imports is likely to continue to rise.
Ukraine's trade with countries of the Commonwealth of Independent States
(CIS) continues to account for roughly one-quarter of total exports and over
half of all imports, with Russia by far the most important single trading
partner. The share of total exports going to Russia (21%) is at its highest
point since 2001.
The ongoing rise in sales to Russia (up by almost one-quarter year on year
in January-July) reflects strong demand in the Russian market for Ukraine's
machine-building and metals products. These account for around half of all
revenue earned in Russia. Ukraine's imports from Russia account for over
one-third of total import spending, but are now growing more moderately-by
8% year on year in January-July-than the record rates witnessed in 2004.
Energy products make up around two-thirds of Russia's sales to Ukraine. As
a result of this energy dependence, Ukraine records a persistently large
trade deficit with Russia. In January-July the deficit was unchanged year
on year at around US$3bn.
Ukraine's trade outside the CIS generally records a large surplus. In
January-July 2005, this surplus, at US$3.9bn, more than offset the US$3.3bn
deficit recorded with the CIS.
European countries now account for just over one-third of total exports, and
traditionally account for the largest share of Ukrainian's non-CIS exports.
However, the rapid expansion in sales to European markets gave way in
January-July to a modest year-on-year drop of around 5%, with exports to
Germany falling by almost 40%.
Moreover, exports to Europe are generally of lower value added than the
machinery and equipment exports in demand in CIS markets. In addition to
steel, Ukraine's main exports to Europe include oil and gas that is rerouted
from Russia. -30- [The Action Ukraine Report Monitoring Service]
=====================================================
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=====================================================
13. UKRAINE ECONOMY: MARKET OPPORTUNITIES
Low living standards hinder growth of consumer market
COUNTRY ANALYSIS: EIU Economy-News Analysis
The Economist Intelligence Unit Limited
London, United Kingdom, Monday, October 31, 2005
Ukraine is still undergoing a period of social upheaval sparked by the
transition from the planned economy of the Soviet era.
Despite recent economic improvements and a rapid expansion in household
incomes in recent years, real household incomes are significantly lower than
in the early 1990s, and a substantial proportion of the population remains
below the poverty line, with enough money to spend only on essential items.
More social dislocation can be expected during the medium term in
connection with long-delayed industrial restructuring.
However, it should be noted that comparative data on living standards before
and after independence fail to account for either the pervasive rationing
that characterised the late Soviet era or the significant earnings generated
in Ukraine's vast shadow economy today.
Current living standards and levels of spending power are therefore likely
to be higher than official figures indicate.
The post-independence period has witnessed a decisive demographic shift.
Not only has the population declined by around 3m since 1990, but the
population structure is increasingly dominated by older age groups.
This reflects falling birth rates and the large-scale permanent or
semi-permanent emigration of younger Ukrainians.
The older population, despite increasing in numbers, will command relatively
little purchasing power, and will pose problems for the state budget as the
number of pensioners increases relative to the size of the population of
working age. -30- [The Action Ukraine Report Monitoring Service]
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14. UKRAINE ECONOMY: DEMOGRAPHIC PROFILE
Population decline represents a long-term trend
COUNTRY ANALYSIS: EIU Economy-News Analysis
The Economist Intelligence Unit Limited
London, United Kingdom, Monday, October 31, 2005
According to the most recent census, Ukraine's population stood at just
over 48m in late 2001, down sharply from over 52m at the time of
independence in 1991. More recent data from the State Statistical
Committee report a further decline of roughly 1m by March 2005.
As in many other former Soviet states, this decline reflects a drop in the
birth rate, an increase in the death rate and sizeable emigration. In
Ukraine's case, these trends are expected to continue throughout the
forecast period.
The 40% decline in the number of marriages since independence underlines
the link between the decline in living standards and the decision to marry
later and to have smaller families. The death rate increased from 12 per
1,000 inhabitants in 1990 to just under 15 per 1,000 in 2001.
This reflects the deterioration of the healthcare system since independence,
as well as lifestyle factors, such as rising alcohol abuse. This has had an
especially strong impact on male life expectancy since independence. An
improvement in economic conditions over the forecast period will not lead
to population growth.
Although infant mortality rates will drop and male life expectancy will
increase, Ukraine is likely to experience a gradual decline in the
population until at least 2030.
The only immigration into Ukraine has been from former Soviet republics,
primarily from among the 250,000 Crimean Tatars-an ethnic group that was
exiled to Central Asia by Stalin at the end of the second world war.
Ukraine has seen sizeable emigration, mainly to the US, Canada and Israel,
although this has slowed since 1994. An important demographic trend in
recent years has been the movement of tens of thousands of people of
working age to western Europe and Russia in search of better work
opportunities than are available in Ukraine.
Ukraine's demographic trends have highlighted both the pension system's
inadequacy and its unsustainability. The overall share of pensioners in the
population is set to remain high relative to historical levels, mainly
because of low fertility rates and political resistance to raising the
minimum retirement age (currently 60 for men and 55 for women).
=====================================================
15. BLACK EARTH, BLACK ARCHEOLOGY, BLACK TIMES
Archeology is big business in Ukraine - and so, instead
of discovering their history, Ukrainians are seeing it pillaged
By Ivan Lozowy, Transitions Online (TOL)
Prague, Czech Republic, Monday, 31 October 2005
KYIV, Ukraine - Ukraine's beleaguered and cash-starved archeologists were
entitled to view Viktor Yushchenko's election to the presidency either as a
beacon of hope or a symbol of its problems.
Before he became president, it was Yushchenko's hobby to spend his free
time gluing ancient pots and plates together, which he would then hang on
the walls of his house.
But this avid amateur archeologist could also have been seen as a symbol of
the crimes of amateurism. Yushchenko admitted that once while visiting the
Kazakh place of exile of Taras Shevchenko, Ukraine's greatest poet, he
ripped off a stone from a local fortress as a memento.
Still, that was an amateurish and minor misdeed by Ukrainian standards, for
ransacking archeological sites has become professionalized and widespread.
Pass a car pulled over to the side of a Ukrainian road or a group searching
the ground and the underbrush in the distance, and there is a reasonable
chance that someone is scrabbling around to find a piece of Ukraine's
cultural heritage.
Sometimes, even the bulldozers and trucks working in the fields may belong
to criminal gangs on a systematic hunt for bounty to sell on a thriving
black market. Step out of the car and ask what they are up to, and they may
well flash a police badge.
What they find will probably then go, according to Wolodymyr Husak of
Ukraine's Interior Ministry, to secret auctions held in the dark of night.
THE BLACK EARTH'S BOUNTY
"Black archeology," as unofficial digs are referred to, is so common partly
because Ukraine's famously rich "black earth," once known as the "bread
basket of the Soviet Union," is also rich in historical treasures.
Perhaps the most famous find came in 1971 when a Ukrainian archeologist
literally stepped on a gold pectoral, a finely-wrought semi-circular gold
breastplate depicting Scythians at work, their herd animals and mythical
beasts such as gryphons.
Herders and war-like, the Scythians' war with the Persian king Darius is
described by the Greek historian Herodotus, but they came to real prominence
in the fourth century BC after they moved from the Near East to the
territory of modern Ukraine, where they built a mighty kingdom.
There is a ready market for what emerges from the ground; indeed, unofficial
estimates put the value of the "black archeology" market at hundreds of
millions of dollars per year. Yushchenko's private passion for the past is,
it seems, shared by many of Ukraine's new rich.
They have proved ready and willing to pay good money to decorate dachas
and even local restaurants with archeological rarities, and the number of
buyers has grown thanks to Ukraine's economic recovery over the past
five years.
Many of the unsanctioned digs are headed by so-called field commanders,
writes the Institute of Archeology's magazine: "overly independent
archeologists who conduct huge excavations and sometimes even trade in,
so to speak, shreds of our fatherland (specifically, its history)."
Most of the official archeologists who moonlight in this way, the magazine
claims, have "gone into business" or politics.
Pillaging has become so widespread it even acquired its own public face.
Exhibits of Ukraine's treasure trove of archeological finds are rarely
organized by government institutes, but they are - in increasing numbers -
being organized by private collectors.
Official archeologists can only look on in envy. The Institute of
Archeology's Mykhailo Videjko said of one exhibition in 2004 of ceramic
models of shrines that "there is nothing like this in the National Museum
of History nor [the National Museum] of Archeology.
These objects completely change our view of the quality of architecture
during the era when they were created, namely 3700 BC, or almost 6,000
years ago."
The entrepreneur who organized that event, Serhiy Platonov, has held a
number of public exhibitions of his private collection of objects, some of
them thousands of years old.
Some of his artifacts may eventually find their way into the public domain.
Platonov claims to have already donated 1,315 objects in his collection to
the state (how many remain in his possession he does not say), though he
depicts the state as an ungrateful recipient: his objects are apparently
still languishing in their packaging.
Platonov's donation is a rarity - and his call for black-market auctions to
be legalized hardly indicates a guilty conscience at the impact that private
collectors are having.
Even if some artifacts do eventually make it back into the public realm, few
will be of much value to archeologists. From an archeologist's point of
view, most of the objects preserved in private collections have lost their
primary archeological value: it is impossible to say where they were found,
much less in what position relating to other objects, at what depth and so
forth.
Then there are the objects that are ruined. Objects whose black-market value
is lower - such as human remains - are usually destroyed. Gold and other
precious metals are often melted down.
The nature of the market encourages historical losses on a large scale.
Profits are high, and the barriers to entry are low. The literal barriers to
entry - to the sites themselves - are also minimal. Since Ukraine's
historical sites are well-known, anyone with a shovel can potentially search
for finds with little chance of being caught.
One of the largest and best-known sites in southern Ukraine, for instance -
a 42-hectare site near Kherson, where Greek settlers built a colony in the
4th century BC - is guarded by just two militiamen.
Those willing to use more than a shovel will find that the gold, silver and
other objects uncovered by a good-quality metal detector - at $800, a hefty
sum for ordinary Ukrainians - swiftly pays back the investment.
This ensures that the low end of the "black archeology" market is very
active. In the meantime, uncovered bones are tossed aside, sites trampled
on, and excavations left to the mercy of the elements.
The lack of protection for such important sites demonstrates that this era
of ransacking is not just due to market forces, but also to neglect by the
state. In Rivne, the new governor appointed by Yushchenko has created a
separate service - similar to park rangers - to patrol and protect cultural
sites.
There is, though, no national equivalent. At the national level, there have
been some efforts to protect the national heritage, but most remain on
paper. In 2000, long after the explosion of "black archeology" began,
Ukraine's parliament adopted a cultural heritage law by which the state
became rightful owner of all man-made objects located underground.
All archeological finds were therefore to be turned over to the state; in
return the finders would receive 25 percent of the value of the find. There
have been few takers. Even worse, some experts complain that, to this day,
no procedure for handing in archeological finds has been established.
It is not even clear where finds should be sent to. Nor have Ukrainian
governments done much to stop the flow of objects from Ukraine's
archeological sites to private collectors in and outside Ukraine.
While the government may lay claim to all finds, it does little to find
these treasures. In the late Soviet era, the Institute of Archeology
organized around 400 excavations every year; however, since independence,
it has had received so little money from the state that it has organized no
more than a hundred in the entire period from 1991. Work underway in the
early 1990s was in some cases abandoned.
Even so, archeological discoveries in Ukraine are coming faster than the
official institutions can deal with. For example, geologists working in the
Crimea claim to have uncovered seven pyramids, the largest 45 meters high,
laid out in a straight line across the peninsula.
Money is too tight even to spend on some of the nation's foremost sites. In
September this year repair workers uncovered the foundations of a church in
Kyiv's St. Sofia cathedral complex. For want of materials, technology and
money, archeologists decided to re-bury the church.
HISTORY FOUND
The sad irony for archeologists is that interest in archeology is widespread
among the Ukrainian public and not just among wealthy buyers.
Some of the discoveries made since 1991 are re-shaping Ukrainians' knowledge
of their country's history. For example, the capital, Kyiv, is officially
considered to have been founded in 482.
However, since independence this date has undergone review. Primitive
settlements along the River Dnieper in the Kyiv area date from 20,000 years
ago and Kyiv is now thought to have been founded no later than 1500 BC.
One of the periods that is arousing the most interest is the "Trypillian
civilization," which dates from the Neolithic era starting from 6000 BC. The
Trypillians had a developed and varied farming culture, made elegant
decorated ceramic pots (of which Yushchenko has some fragments), and
practiced elaborate burial rituals.
The remains of some 2,000 Trypillian sites are said to lie under Ukrainian
soil, some with several thousand buildings and home to tens of thousands of
inhabitants. They are among the largest settlements from that period to be
found anywhere in the world.
Sharply worded discussions of questions such as "Were Trypillians
Ukrainians?" have seized the public's attention. As in any debate, there are
two sides, with one side often extolling the richness and depth of history
of the Ukrainian nation and the other trying its best to bring the first
side down to earth or, at least, round to its point of view.
In 2004, for instance, a series of articles written by Ivan Zayets claimed
the Trypillians were "proto-Ukrainians." This thesis was sharply criticized
by a number of Ukrainian archeologists, among them Leonid Zalizniak.
In a response published by the Dzerkalo Tyzhnia newspaper, Zalizniak
disputed whether the Trypillians were native to Ukraine, arguing instead
that the Trypillian civilization was "an expression of the unique world of
the oldest agricultural nations of Europe, known as the Balkan-Danube
Neolithic."
That Zayets is a member of Yushchenko's Our Ukraine faction in parliament
also indicates the political resonance such issues have outside the
specialist community.
But, despite the risk of a political overlay, recent archeological finds
indicate it might be risky to dismiss Zayets' hypothesis as mere
myth-making. Zayets' assertion that the Trypillian civilization forged by
Ukrainians' ancestors was the most advanced agricultural society in Europe
at the time has received serious support from findings at the so-called
Stone Mound, a rich collection of petroglyphs (rock carvings) from 9000 BC.
Located in southeastern Ukraine, the Stone Mound houses tens of thousands
of carvings in over a hundred caves.
(Some enthusiasts for the notion that Ukraine was the cradle of civilization
claim that the carvings are samples of a "proto-Sumerian language," an
assertion of huge implications.
Others have mused about that possibility before: the British archeologist
and discoverer of the royal tombs in the ancient city of Ur, Sir Leonard
Woolley, posited that the Sumerians may have migrated from somewhere in
the area north of the Black Sea, i.e. from modern-day Ukraine.)
AND HISTORY LOST
With archeologists, the public, and politicians all interested in exploring
Ukraine's history - and with that history rapidly being lost - there could
seem to be strong reasons to spend money on archeology.
But despite the general interest, self-preservation rather than the
conservation of culture and history is the prevailing concern of Ukraine's
intellectuals and the public.
That also holds for Yushchenko. Under fire for failing to institute reforms
and to meet the expectations raised during the Orange Revolution, Yushchenko
is making the economy a priority. For now, the pressing problems of
Ukraine's
rich archeological heritage must wait, just as - apparently - Yushchenko no
longer has time to spend on his collection of ancient potsherds.
The mender of broken pottery has yet to prove he can restore Ukraine's
archeological system to its pre-independence status. The tragedy is that by
the time he or anyone else finds time and money for that, many more pots
will have been shattered and priceless treasures of Ukraine's history lost.
-----------------------------------------------------------------------------------------------
Ivan Lozowy is a TOL correspondent and also runs an Internet
newsletter, the Ukraine Insider. (http://www.tol.cz)
=====================================================
Power Corrupts and Absolute Power Corrupts Absolutely.
=====================================================
16. POLAND'S DISENCHANTED KILLED OFF 'NEW EUROPE'
"New Europe" is dead, and that's official
Poverty and regional inequality helped win votes for
a socially conservative, nationalist and Catholic president
By Jonathan Steele, The Guardian, London, UK, Friday Oct 28, 2005
"New Europe" is dead, and that's official. The verdict is not that of an
obscure thinktank. It comes from the central actor in the heartland of what
was once deemed to be a bold new part of the old continent, namely the
people of Poland.
In two recent elections, for parliament in September and for the presidency
on Sunday, they gave most support to a party which wants a strong state
and is highly suspicious of the free-market reforms of the last 15 years. It
also has major reservations about the European Union.
Its victory offers an important reality check against the hot air of
yesterday's Hampton Court talkathon and Tony Blair's latest calls to step
up the pace of liberal reform. The biggest of the EU's new members is as
attached to the old social model and as anxious about unregulated
globalisation as the "no" voters in the French and Dutch referendums.
The "new Europe" tag was invented by Donald Rumsfeld in the run-up to
the invasion of Iraq and initially covered foreign policy. Flushed with
their post-communist freedom, it was claimed, eastern and central
Europeans understood the value of Washington's international campaign
to promote democracy better than western Europeans did. The claim
soon proved inaccurate.
The governments of "new Europe" supported the war, but majorities in the
polls did not. Poles and Czechs were no more enthusiastic about having
their troops in Iraq than people in Britain.
"New Europe" was then used to categorise attitudes to internal EU reform.
It is this simplification which Poland's voters have exposed. The victorious
Law and Justice party offers a traditional Catholic and nationalist
platform, which is more about protecting inherited values than promoting
further reform.
On social issues president-elect Lech Kaczynski is a man of the right, a
critic of homosexuality and an advocate of the death penalty. After "nice"
Lech Walesa, the Solidarity founder who became Poland's first non-
communist president, we now have a "nasty" Lech, whose election was
greeted in Brussels with warnings that he would be watched for any
violation of EU standards.
His twin brother, Jaroslaw, who led the Law and Justice party to victory in
parliamentary elections, has similar views. He did not triumph outright and
is still embroiled in fierce negotiations for a "grand coalition" which make
Angela Merkel's enforced marriage to the social democrats in next-door
Germany look simple.
The fact that Walesa and the two Kaczynskis are all former Solidarity
activists shows how far Polish politics has moved from the romanticism of
1989 - and how much Solidarity, even in its first years, was an amalgam of
not easily reconcilable interests: workers' rights, Catholic nationalism and
westernising liberalism, to name just a few.
Simple slogans about freedom tended to exaggerate the political dimension of
the Polish revolution. It also contained an important economic core. What
happened in this autumn's Polish elections is the return of economics.
During Poland's 16 years of neoliberal reforms, it did not matter much
whether the governments which brought them in were post-communists or
anti-communists. Economic strategies remained the same.
Now the electorate wants a rethink. At least those who voted do.
Disenchantment with politicians of all stripes is high, with barely 40%
taking part in September, the lowest turnout since 1989. The Civic Platform,
which had expected to win but came second in both polls, is a radical "flat
tax" party which advocates a 16% rate across the board.
"Flat tax", which unashamedly goes against the philosophy that governments
have a duty to promote income redistribution, was almost Angela Merkel's
undoing as well. Her proposal to appoint a flat-taxer as finance minister
caused a huge slump in her campaign.
Poland's elections exposed a divided country in which regional inequalities
have got worse. The geographical split is not unlike Ukraine's.
Poland's poor rural east and "rust belt", areas that benefited from postwar
industrialisation and are now struggling, voted for the Kaczynskis. Warsaw
and the more prosperous north and west chose the flat-taxers.
The results should not have been a surprise. The World Bank has just
published its latest survey of central Europe and the former Soviet Union.
The bank is hardly a leftwing propaganda outfit but its report, Growth,
Poverty, and Inequality, shows how far the region still has to go to make up
for the fall in living standards which came with the collapse of communism.
In 1988 only 4% of the region's people were poor - defined as having an
income of less than £1.25 a day. Now poverty affects 12%.
This is better than five years ago, when poverty affected 20% of the
region's people. Things have got better thanks largely to the rise in world
oil prices, which has pulled up the economy of Russia and some of its
immediate neighbours.
Among the countries covered by the World Bank, the eight new EU
members are much better off. But the report shows that Poland, alone
among them, has seen a further increase in poverty over the last five years.
It also found a growth in inequality between regions, with prosperity
largely confined to capital cities while smaller towns and rural areas
suffered. The World Bank notes that subjective impressions also matter.
It talks of the "transition shock" caused by the sudden switch to market
economics.
"The socialist legacy of high access to social services (eg, heating) and
infrastructure (eg, healthcare) which have since been eroded means that
people feel an acute sense of deprivation," it says.
The lesson for the future is that assessments of progress and popular
satisfaction must include socioeconomic factors as well as levels of
political freedom. EU governments should not get involved in narrow
crusades.
Poland's neighbour, Belarus - which the US secretary of state, Condoleezza
Rice, has called "Europe's last dictatorship" - is sure to attract attention
next year when it holds presidential elections.
The World Bank survey is relevant here. While poverty went up in Poland,
Belarus saw one of the sharpest declines, enjoying "broad-based economic
growth beneficial to labour" in which the "benefits were broadly shared by
the population".
Few doubt that the Belarus election will be less pluralistic than Poland's;
but social solidarity, a strong state, and a government which attempts to
lessen inequalities are what Polish voters have shown they want. The
people of Belarus probably have similar views. (j.steele@guardian.co.uk)
------------------------------------------------------------------------------------------------
http://www.guardian.co.uk/eu/story/0,7369,1602378,00.html?gusrc=rss
=====================================================
17. LITHUANIAN LEADER FAULTS EU OVER NEW GAS PIPELINE
Russia building new line under Baltic Sea with help from Germany
By Judy Dempsey, International Herald Tribune (IHT)
Europe, Thursday, October 27, 2005
BERLIN - President Valdas Adamkus of Lithuania said Wednesday that the
European Union's foreign policy was being set by individual member states
that were more concerned with pursuing their own national interests than
establishing a common, long-term strategy for dealing with crucial issues
such as energy security and Russia.
Adamkus, whose country and seven other former Communist countries
joined the EU in May 2004, said Brussels had made no effort to engage
or inform countries that would be directly affected by a new gas pipeline
Russia is building under the Baltic Sea with financial and technical support
from Germany.
"This is an example of how things are in the EU," Adamkus said during a
two-day official visit to Germany where he met with Chancellor Gerhard
Schröder, who has politically supported the North European Gas Pipeline.
Once complete, the pipeline will allow the Russian state-owned energy
company Gazprom to transport gas directly from Russia to Europe,
bypassing the Baltic States and Poland.
"We felt the pipeline was a vital element concerning our future," Adamkus
said at a meeting of the German Marshall Fund of the United States in
Berlin. "I told Schröder what I thought. But he said it was a done deal."
Schröder, who during his seven-year term as chancellor developed a close
relationship with President Vladimir Putin of Russia, dismissed Adamkus's
criticisms.
In a statement issued by his office, Schröder said, "Germany has a
sovereign right to take steps to make sure it has reliable and sustainable
energy resources."
The pipeline, which will give Gazprom the chance to diversify its
transmission routes to Western Europe, will stretch from Vyborg, near Saint
Petersburg in Russia, to Greifswald, in Germany, where it will then spur off
to Scandinavia and Britain.
Gazprom said last month that the plan was to build two parallel gas
pipelines, each about 1,200 kilometers, or 750 miles, long. Completion is
scheduled by 2010, although work has yet to begin. Total annual capacity
would be 55 billion cubic meters, or 1.9 trillion cubic feet. The costs
would range between $6 billion and $8 billion.
Estonia, Latvia and Lithuania as well as Poland are concerned that they
could be left potentially vulnerable with regard to secure energy supplies
since they depend on Russia for their gas imports. They would also be
denied transit fees they earn from Russian gas that passes through their
countries to Western Europe.
Even though Lithuania tried to muster some support among EU countries,
Adamkus said the EU raised no questions over the deal.
"Being a member of the same EU," he said, "at least we could have been
informed and invited to sit at the same table and discuss the advantages and
disadvantages. We are, after all, speaking for the EU now. Our state border
is the eastern borders of the EU."
Adamkus, who presides over a small country of 3.7 million people that won
its independence from the former Soviet Union in 1991, made membership of
the EU and NATO the cornerstone of Lithuania's foreign and security policy.
Antanas Valionis, Lithuania's foreign minister, said, "The pipeline affects
our interests and the energy security interests of the EU." He said Russia
was determined to press ahead with the pipeline "in order to have the
possibility to use pressure on us, if needed."
Neither Lithuania nor Poland, however, believe Gazprom would cut off gas
supplies to them since that would seriously damage Gazprom's credibility as
a reliable exporter of gas to the EU, where it supplies a fifth of Europe's
total gas needs.
Nevertheless, Valionis said Russia resented the role played by Poland and
Lithuania in the EU, where they have been increasingly outspoken over the
need for Brussels to adopt a much longer term strategic policy toward
Ukraine and Belarus.
Poland and Lithuania also played an active role in mediating Ukraine's
Orange Revolution last December, much to Russia's annoyance. "The point
is that Russia does not like our active Eastern policy," said Valionis.
Lithuanian diplomats said Wednesday that they knew it would be almost
impossible to reverse the decision over the pipeline, which was decided in
April by Gazprom and German companies and which was signed last month
when Putin visited Schröder in Berlin. Chancellor-designate Angela Merkel
and her Christian Democratic Party have said the deal is closed. -30-
-----------------------------------------------------------------------------------------------
LINK: http://www.iht.com/articles/2005/10/26/news/baltic.php
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NOTE: The Ukrainian Federation of America (UFA) will be assisting
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for the Dr. James Mace Memorial Holodomor Fund. EDITOR
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4. ESTRON CORPORATION, Grain Export Terminal Facility &
Oilseed Crushing Plant, Ilvichevsk, Ukraine
5. Law firm UKRAINIAN LEGAL GROUP, Irina Paliashvili, President;
Kiev and Washington, general@rulg.com, www.rulg.com.
6. BAHRIANY FOUNDATION, INC., Dr. Anatol Lysyj, Chairman,
Minneapolis, Minnesota
7. VOLIA SOFTWARE, Software to Fit Your Business, Source your
IT work in Ukraine. Contact: Yuriy Sivitsky, Vice President, Marketing,
Kyiv, Ukraine, yuriy.sivitsky@softline.kiev.ua; Volia Software website:
http://www.volia-software.com/ or Bill Hunter, CEO Volia Software,
Houston, TX 77024; bill.hunter@volia-software.com.
8. ODUM- Association of American Youth of Ukrainian Descent,
Minnesota Chapter, Natalia Yarr, Chairperson
9. UKRAINE-U.S. BUSINESS COUNCIL, Washington, D.C.,
Dr. Susanne Lotarski, President/CEO; E. Morgan Williams,
SigmaBleyzer, Chairman, Executive Committee, Board of Directors;
John Stephens, Cape Point Capital, Secretary/Treasurer
10. UKRAINIAN AMERICAN COORDINATING COUNCIL (UACC),
Ihor Gawdiak, President, Washington, D.C., New York, New York
11. U.S.-UKRAINE FOUNDATION (USUF), Nadia Komarnyckyj
McConnell, President; John Kun, Vice President/COO; Vera
Andruskiw, CPP Wash Project Director, Washington, D.C.; Markian
Bilynskyj, VP/Director of Field Operations; Marta Kolomayets, CPP
Kyiv Project Director, Kyiv, Ukraine. Web: http://www.USUkraine.org
12. WJ Grain, Kyiv, Ukraine, David Holpert, Chief Financial Officer,
Chicago, Illinois.
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Director, Ukrainian Federation of America (UFA)
Coordinator, Action Ukraine Coalition (AUC)
Senior Advisor, U.S.-Ukraine Foundation (USUF)
Chairman, Executive Committee, Ukraine-U.S. Business Council
Publisher, Ukraine Information Website, www.ArtUkraine.com
Member, International Ukrainian Holodomor Committee
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Power Corrupts and Absolute Power Corrupts Absolutely.
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