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

16 October 2007 marks the centenary of the birth of Petro Grigorenko,

Soviet General, friend and defender of the Crimean Tatars, founding

member of the Ukrainian Helsinki Group, Moscow dissident and later

voice for the Ukrainian dissident movement in the West.

Such labels invariably limit a human being and the broader the stature

of the man, the more confining we feel them to be. On the other hand,

they can help us to understand why this is no mere circled date for a

very large number of people. (Article Eight)

Mr. E. Morgan Williams, Publisher and Editor, SigmaBleyzer

WASHINGTON, D.C., MONDAY, OCTOBER 15 2007

Clicking on the title of any article takes you directly to the article.

Return to Index by clicking on Return to Index at the end of each article

1. REFLECTIONS ON THE UKRAINIAN PARLIAMENTARY ELECTION
Analysis and Commentary: By Anders еslund
Published by Action Ukraine Report (AUR) #879, Article 1
Washington, D.C., Monday, October 15, 2007

2. UKRAINE COALITION TALKS CONTINUE, DEADLINE MISSED
Deutsche Presse-Agentur (DPA), Kiev, Ukraine, Sat, 13 Oct 2007

3. DOING BUSINESS 2008: UKRAINE IS AMONG THE OUTSIDERS
ANALYSIS: Yuriy Skolotiany, Zerkalo Nedeli (ZN), Mirror-Weekly # 36 (665)
Kyiv, Ukraine, Saturday, 29 September-5 October 2007

4. TYMOSHENKO TEAM: SECOND TIME LUCKY... PERHAPS
By Paulius Kuncinas, Oxford Business, Business Ukraine magazine
Kyiv, Ukraine, Monday, October 8, 2007

5. UKRAINE'S ELECTION RESULTS: NOTHING PERSONAL
Analysis & Commentary: By Yulia Mostovaya, Serhii Rakhmanin
Zerkalo Nedili (ZN), Mirror Weekly, Kyiv, Ukraine, # 37 (666) 6-12 Oct 2007

6. FIVE COUNTRIES BACK ODESSA-BRODY OIL PIPELINE EXTENSION
Expert says problem finding investors for such a commercially dubious project
By Ed Crooks in London and Roman Olearchyk in Kiev
Financial Times, London, UK, Thursday, October 11 2007

7. ODESSA-GDANSK PIPELINE TO BE EXTENDED
Opinion & Analysis: By Vladimir Saprykin, Energy Program Director
Ukraine's Razumkov Center for Economic and Political Research.
RIA Novosti, Moscow, Russia, Friday, October 12, 2007

8. UNWAVERING STRUGGLE
Centenary, Birth of Petro Hryhorovych Grigorenko 16 Oct 1907
Commentary: By Halya Coynash, Kharkiv Human Rights Protection Group
Published by the Action Ukraine Report (AUR) #879, Article 8
Kyiv, Ukraine, Monday, October 15, 2007

9. UKRAINIAN COURT RULES RUSSIA'S SEIZURE OF CRIMEAN
LIGHTHOUSES ILLEGAL SAYS YOUTH MOVEMENT LEADER
Interfax, Kyiv, Ukraine, Friday, October 12, 2007

10. CHARLES H. CAMP, ATTORNEY, LAW OFFICES OF CHARLES
H. CAMP, JOINS U.S.-UKRAINE BUSINESS COUNCIL (USUBC)

A SUCCESSFUL AND FORTUITOUS ELECTION
The parliamentary elections on September 30 cemented Ukraine's democracy.
They were arguably freer and fairer than any other Ukrainian election.
Participation remained high at 64 percent.

As in all Central-East European countries, the dominant topic of the
election was corruption. As corruption always is blamed on the incumbent
government, virtually all Central-East European governments have lost
elections, and the most effective critic of corruption has won, in this case
Yuliya Tymoshenko.

Because of such an election outcome, something is usually done to reduce
corruption. Ukraine fits the democratic mold, and the electoral weight of
critique of corruption should not be underestimated also in the future.

It should lead to the fruitful instability that is most characteristic of
the successful Baltic countries, where an average government lasts one year.

The voting pattern has changed substantially, from region to class. All
parties lost relatively in their strongholds and gained votes in enemy land.

The Regions lost most votes in Donetsk, Kharkiv, and Luhansk, but won
throughout Western and Central Ukraine. Our Ukraine lost in West Ukraine
(Ivano-Frankivsk, Lviv and Rovno), but acquired new votes in Kharkiv and
Chernigiv.

BYuT gained nearly everywhere but most in West Ukraine (from Our Ukraine)
and also substantially in the East (from the Regions). As a result, all
parties have become more national. Ukraine's previously so strong regional
division has become more of an urban-rural and class divide.

Most strikingly, Our Ukraine has become a rural party, which does not
correspond to its liberal image. The Regions has somewhat surprisingly
become the urban middle-class party.

BYuT is the populist party of the lower middle class. The parties' regional
concentration remains strong, but the new class pattern has been
superimposed.

These huge voter streams which are hidden under stable overall numbers for
the Regions and Our Ukraine are likely to lead to future big electoral
changes and will probably entice the winners to opt for early elections.

The economic programs of the three leading parties were extremely similar.
They can all be described as democratic European center-right.

They all want deregulation, more privatization, stable macroeconomic policy,
lower taxes, accession to the WTO, and membership of the European Union.

It is rare that any country has such a broad consensus about economic reform

as Ukraine has today.

Gone is the populism of the Orange Revolution represented by radical demands
for higher social transfers, taxes and reprivatization. Yuliya Tymoshenko's
Bloc (BYuT) has made the biggest change, symbolized by its switch from
attempted entry to the Socialist International to full membership of the
European People's Party.

In 2005, the Socialist International had two friendly parties in the Rada.
Now it has none. The communists absorbed Vitrenko's extreme socialist
progressive party and even so they did not gain votes, showing how
marginalized the communists and socialists are.

The one worrisome conflict is a possible reprivatization of Dniproenergo,
which Rinat Akhmetov acquired cheaply from the state just before the
election.

Such a reprivatization could be time-consuming and a major diversion from
more important policies. Only Our Ukraine insists on early membership action
plan for NATO, which is clearly unrealistic for Ukraine's domestic politics.

Given that the three big parties are so close to one another in policies
expressed, it does not appear essential which parties actually form a
government.

What is important is that they agree on both a coalition government and the
functioning of the parliament so that Ukraine at long last can adopt a vast
amount of legislation out of the hundreds of draft laws that have collected
dust in the Rada for the last three years.

Given that the Regions just have had the chance and that BYuT won the
elections, a BYuT-Our Ukraine coalition would appear natural. The latest
negotiations point in that direction with Tymoshenko as prime minister.

The current idea is that BYuT would take the whole economic bloc with

Viktor Pynzenyk as the leading economic politician, while Our Ukraine

would be in charge of security and culture.

Tymoshenko's ambition is to have her candidacy put to a vote immediately
after the new parliament has been convened around November 1, and she
assures that she will get more votes than anybody expects, suggesting that
some other transactions might be going on.

Grand coalitions should always be avoided. They are only good for
safeguarding corruption, which is not what Ukraine needs.

The Regions want reassurances of their influence as opposition. Tymoshenko
generously offered a deputy prime ministership and a deputy minister in each
ministry. That is the wrong way. It would lead to unbearable corridor
intrigues without transparency.

An alterative proposal is to give the opposition half the committee
chairmanships in parliament, first deputy speaker, and control over the
potentially powerful Auditing Chamber. It is vital that the Regions do not
boycott the new parliament, but it is not likely to happen.

Given the minimal difference in policies, the most important thing is that
Ukraine gets a government that can start working. Ukrainians are tired of
politicians not doing anything for them.

If the politicians do not deliver legislation and reforms now, their
democratic legitimacy might run out. People are tired of petty personal
intrigues.

URGENT NEED FOR ELEMENTARY CONSTITUTIONAL ORDER
The all-dominant need is to achieve some constitutional order. The
intellectual Alexander Paskhaver argues convincingly in the weekly Zerkalo
nedeli that under Kuchma Ukraine had an informal order in which Kuchma

acted as the last arbiter.

This order collapsed with the Orange Revolution, and the stand-off between
special forces on May 24 showed the absence of any constitutional order,
whether informal or formal.

The constitution of June 1996 leaves most things to be determined by laws,
which have not been adopted, and the constitutional compromise of December
2004 barely hangs together. Therefore, all the fundamental constitutional
issues need to be settled.

An acknowledged source of advice is the European Venice Commission.

For an outsider with some insight into the experiences of postcommunist

transition, it is pretty obvious what changes that are needed.

[1] First, Ukraine must make a clear distinction between executive,
legislative and judicial powers, most of which has been done.

[2] Second, Ukraine needs a parliamentary system. All East-Central

European countries have adopted or moved to parliamentary systems.

In the CIS, the most democratic countries - Ukraine, Kyrgyzstan, Moldova,
and Armenia - have recently been moving in that direction. They offer more
transparency and accountability than a presidential system.

In particular in the former Soviet Union, the presidential administration
inevitably recreates the Central Committee of the Communist Party, and the
gubernatorial administrations the regional party committees. Nontransparency
and telephone rule without accountability persists.

[3] Third, Ukraine has already adopted a proportional election system with

a hurdle for representation that works quite well. A remaining concern is that
big businessmen buy safe seats. An easy technique to ease that practice is
to abolish the fixed order of the candidates on the party lists.

Voters may select any candidate on the list by marking him or her. Germany
and Finland have excellent systems combining proportional election with the
individual choice of a specific candidate.

[4] Fourth, elementary order must be established in the judicial system. It
must be evident which court has jurisdiction and the hierarchy between
different courts, etc. On the one hand, judges must have a fair amount of
freedom. On the other, it must be possible to sack evidently corrupt judges.

[5] Fifth, Ukraine maintains communist overcentralization. Substantial state
powers need to be decentralized to regions and municipalities. Regional and
local executives should be elected in democratic order. Ukraine must not try
to establish the old communist or Putin "strong vertical" which is causing
such damage to Russia.

The regions and municipalities should be given their own taxes and
expenditures to handle independently of the capital, minimizing the transfer
of incomes up and down the administrative pyramid.

Presumably, these constitutional reforms are needed before Ukraine can start
cleansing itself seriously from excessive regulation and the ensuing
corruption.

A large number of reforms are long needed, and they cannot be held back much
longer without serious harm to Ukraine's economic and social development.

THE GAS DISPUTE REVEALS SERIOUS SHORTCOMINGS
Gazprom's announcement on October 2, that Ukraine owed it $1.3 billion for
deliveries of natural gas was pretty obnoxious.

The essence of this claim was that RosUkrEnergo (half owned by Gazprom and
half by Gazprom's best friend in Ukraine) had not been paid by Ukr-gazenergo
(half owned by RosUkrEnergo and half by Naftohaz Ukrainy, which is
controlled by Minister of Energy Yuri Boiko, who is Gapzrom's best friend in
Ukraine).

Gazprom could as well have made a public announcement that it failed to
manage its subsidiaries. It is unclear what relation the Ukrainian state had
to its shortcoming, as President Yushchenko pointed out.

The situation became clearer after Boiko and Yanukovych went to Moscow

to "settle the gas conflict." Apparently, they gave away nearly all the
Ukrainian gas in the huge gas storage located in Ukraine.

In all likelihood, they did so at the low nominal price. If that is the
case, the Ukrainian caretaker government has given away its last reserves
for the winter to Gazprom and its subsidiaries for a song.

For the coming gas negotiations, Ukraine has no gas reserves to fall back
upon, while Gazprom can deliver its 32 billion cubic meters stored in
Ukraine to Europe, making sure that only Ukraine suffers from any disruption
of gas supplies this time.

On the financial market, there are strong rumors that Gazprom has bought up
vast amounts of Naftohaz Ukrainy bonds with the intention to bankrupt this
state-owned and notoriously mismanaged company.

The conclusions of this story are evident.

[1] First, the current managers of the Ukrainian gas sector are thoroughly
discredited. A clean sweep is needed, and all decisions they have made after
the elections should be declared invalid because they exceed the powers of a
caretaker government.

[2] Second, by failing to collect payments and doing so without
transparency, RosUkrEnergo has disqualified itself as a gas trader and
should be taken out of business.

The election of about ten people connected with this company on the

Regions list is sufficient to say that this Gazprom-controlled entity plays

an unacceptable role in Ukraine's politics.

[3] Third, Ukraine's gas policy can be reformed in many ways, but the
prevalence of huge rents caused by price wedges is unacceptable. This

must be a major objective of the new government.

As before, gas is the most important source of grand corruption in Ukraine.
Short-term gas bargains must not overshadow this fact.

This gas dispute can prove productive for Ukraine and it offers a new
government a unique opportunity to prove itself.

The strength of Ukraine's negotiation position should not be underestimated
even if it has been undermined. After all, Russia cannot export much gas to
Europe for the next several years without Ukraine's consent.
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Anders еslund is a senior fellow of the Peterson Institute for International
Economics in Washington. He has just published the book "How Capitalism

Was Built: The Transformation of Central and Eastern Europe, Russia, and

Central Asia" (Cambridge University Press). Dr. Aslund is also a Senior

Advisor to the U.S.-Ukraine Business Council (USUBC) in Washington.

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[return to index] [Action Ukraine Report (AUR) Monitoring Service]

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2. UKRAINE COALITION TALKS CONTINUE, DEADLINE MISSED

Deutsche Presse-Agentur (DPA), Kiev, Ukraine, Sat, 13 Oct 2007

KIEV - Coalition talks for Ukraine's parliament hit a snag Saturday when the
announcement of a joint programme by two pro- Western parties was delayed
for reasons not made public.

The number two and number three parties in the country's September 30
national election for a new legislature last month had been scheduled to
announce a jointly-agreed policy platform.

The announcement by early evening had however failed to take place, marking
the first clear sign of dissent between the anti- corruption Block of Julia
Tymoshenko (BYut), and the nationalist Our Ukraine National Self-Defence
(OUNSD).

Failure by precisely those two parties to form a functional alliance led to
the takeover of Ukraine's legislature by a pro-Russia majority in March
1996.

The development threw Ukrainian government into gridlock, with a parliament
led by Viktor Yanukovich, a big business politician and Prime Minister,
constantly at odds with the country's pro-Europe President Viktor
Yushchenko.

Yushchenko in a statement earlier this week said he would welcome a
pro-Western coalition, and hinted broadly that he would accept BYuT's
leader, the charismatic Yulia Tymoshenko, as the next Prime Minister.

The inability of the two parties to meet their deadline was in keeping with
reports in Ukrainian weekend newspapers which widely predicted a sharp and
possibly drawn-out battle between BYuT and OUNSD for cabinet posts,

despite both sides' claims no major disagreements stood between them.
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[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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3. DOING BUSINESS 2008: UKRAINE IS AMONG THE OUTSIDERS

ANALYSIS: Yuriy Skolotiany, Zerkalo Nedeli (ZN), Mirror-Weekly # 36 (665)
Kyiv, Ukraine, Saturday, 29 September-5 October 2007

On September 26, 2007 World Bank and International Financial Corporation
represented their annual report - Doing Business 2008.

According to this report, the most significant business reforms have been
conducted in the countries of Eastern Europe and the former Soviet Union
as well as in countries with emerging economies such as China and India.

However, Ukraine is among the outsiders in this ranking - 139th position.
This past year has been spent in vain - according to Doing Business 2008,
we didn't introduce any positive reforms last year.
WORLDWIDE TRENDS.........
Doing Business 2008 is the fifth in a series of annual reports investigating
regulations that enhance business activity. 178 economies are ranked on
indicators as the most conducive to the operation of business. The data for
all sets of indicators in the report is benchmarked to July 2007.

This research is based on measurements of regulations affecting 10 areas of
everyday business: starting a business, dealing with licenses, employing
workers, registering property, getting credit, protecting investors, paying
taxes, trading across borders, enforcing contracts and closing a business.

Such factors as macroeconomic policy, quality of business infrastructure,
exchange rate variations, investors' opinions and the crime rate are also
taken into consideration.

Singapore is #1 on the ease of doing business in the ranking for the second
consecutive year. Besides Singapore, the top ten world leaders include New
Zealand, USA, Hong Kong, Denmark, Great Britain, Canada, Ireland, Austria
and Island.

Among post-Soviet countries, the highest places on the Doing Business
ranking are occupied by Estonia (17th position), Georgia (18th position),
Latvia (22nd) and Lithuania (26th).

Egypt is the top reformer of the year, improving in 5 of the 10 areas
studied by Doing Business. Along with Egypt, the top ten leading reformers
include Croatia, Ghana, FYR, Georgia, Columbia, Saudi Arabia, Kenya,
China and Bulgaria.

These countries have simplified new business registration procedures,
ensured property rights, strengthened protection of investors, and increased
access to loans. India, Indonesia, Turkey and Vietnam are also reforming
with increasing speed.

On the whole, two hundred reforms -in 98 economies-were introduced between
April 2006 and June 2007, 59 of which (52 positive and 7 negative) were
conducted in Eastern Europe and Central Asia.

As a result, Eastern European countries surpassed East Asia in the ease of
doing business. Several of the region's countries have gone even further,
surpassing many Western European economies.

79% of economies that have introduced at least one positive reform in
2006-2007 are in Eastern Europe and Central Asia. Easing the regulatory
burden has caused a boom in new businesses.

For instance, Georgia now has 15 registered businesses per 100 people (same
as Malaysia). The Czech Republic and Slovakia have 13 (same as Singapore).
Estonia and Poland have 12 (same as Hong Kong, China).

One more key conclusion of the report is that the economies, which introduce
the most significant reforms, have the highest profitability of the share
capital.
.........AND UKRAINIAN REALITIES
So what about Ukraine? I would like to note that Ukraine doesn't appear
much in the body of the report - only in the rankings, which are not very
hopeful. The first unpleasant fact is that our rank has gone down 11 points
(from the 128tho 139th).

However, according to Paul Bermingham, director of the World Bank in
Ukraine, Belarus and Moldova, if we take into consideration changes in the
new methodology and the inclusion of the new countries then Ukraine's
position has not changed from last year.

Besides, as Mr. Bermingham has pointed out, there were no any substantial
changes in Ukrainian rankings in any of the separate spheres either.

It is very sad but Ukraine has entered the first hundred only in two of ten
areas.

Our best rank is 46th place in enforcing contracts. And the 68th position in
the area of access to loans. Actually, the level of our baking system's
development could let us get a better rank in this area if we had a credit
bureau system in our country.
PAYING TAXES AND DEALING WITH LICENSES
According to Paul Bermingham, the most difficult and cost-worthy areas for
Ukrainian entrepreneurs are paying taxes and dealing with licenses - these
areas need to be reformed urgently and fundamentally.

Our national tax system occupies the 177th place of 178 countries, only
Belarus is behind it. There 99 kinds of taxes in Ukraine, only Uzbekistan
and Belarus have more - 118 and 124.

It takes 2,085 hours per year for Ukrainian businesses to comply with all
tax requirements - in this category we compete only with Brazil (2,600 hour
per year).

In Switzerland, for instance, it takes 63 hours per year to comply with all
tax requirements, in Singapore - 49, and in United Arab Emirates - only 12.

Law-abiding Ukrainian businesses pay 57% of their profit in taxes while the
world average is around 40%.

Ukraine occupies 174th position of the ranking in dealing with licenses. It
takes about 428 days to get a license in Ukraine. For comparison: it takes
34 days to get a license in Korea, 38 - in Finland, 40 - in USA.
EXTREMELY DIFFICULT PROCEDURES
One of the most important problems for Ukraine, along with tax system
reform, is simplifying the extremely difficult procedure of closing and
restructuring businesses, thinks Ron Barden, a partner of the tax and legal
department of PricewaterhouseCoopers, who participated in the Doing
Business research.

Ukraine has one of the most inefficient procedures for bankruptcy (140th
position) in the world, and in terms of protecting investors, our country is
only 141st.
NATIONAL CURRENCY REGULATION NEGATIVE
Mr. Barden believes that national currency regulation is another factor that
negatively effects the business environment. Besides, he adds that it is
necessary to make amendments to the Ukrainian Labor Code (Ukraine is
on the 102nd position according to the employing workers index).

Here are the results of the opinion poll of 2,500 managers of small and
medium size enterprises, which was conducted by International Financial
Corporation in the framework of "Business-environment in Ukraine-2007"
research:

[1] Two thirds of Ukrainian businessmen use "informal means" to deal
with state authorities on regulatory matters;

[2] Ukraine and Tajikistan are the only post-Soviet countries where
revisions are overall - 95-96% of the enterprises in the country;

[3] Ukrainian businessmen have spent 189 million Hryvna paying for the
work of their workers engaged in all kinds of revisions;

[4] Almost 100% of products produced in Ukraine are standardized
according to the rules, half of which were adopted during the Soviet Union.
WHEN IS THE TIME FOR REFORM?
Started in 2005, reforms in business regulations, particularly the widely
advertised "guillotine" reform directed on liberalizing the most restricted
sectors of the economy and getting the tax revisions in order, were not
finished.

No wonder - reforms are to be conducted by officials that are getting
benefits from today's system. Who will voluntarily kill the hen that lays
"golden eggs"?

In a word, there has to be a strong political will to introduce simple (in
the first place) reforms. However, realizing reforms is the only adequate
answer to the challenge of today's globalization and growing international
competition.

Analyzing Doing Business reports, it is hard not to notice how quickly most
of the countries of the world are reforming. Last year 98 countries
introduced 200 reforms, in 2005-2006 112 countries - 213 reforms, in
2004-2005 99 countries - 185 reforms.

It is also notable that most of the successful structural reforms (about
85%) in different countries were introduced during the first 15 months of
their new government's work.
NO PROGRESS IN REGULATORY AREAS
In this light, it is very depressing that during the past year, Ukraine
didn't have any progress in any of the regulatory areas studied by the
World Bank and International Financial Corporation.

What led us to these sad results?

There is a new Tax Code project in Ukraine. And, in Ron Barden's opinion,
our present government has actually done the first steps toward reforming,
but a number of legislative initiatives weren't fully realized as most of
them had to be approved by Verkhovna Rada.

It turns out that "the artificially created political crisis" is the reason
for the absence of positive progress in our country.

Should we reckon on a qualitative break-through in the future when all the
political forces are primitively following the "hopes and expectations of
electorate"? They are mostly concerned about raising salaries and pensions,
the quality of education and health care.
BUSINESS ENVIRONMENT IMPROVEMENT NOT IMPORTANT
The populist promises of Ukrainian leaders have reached the highest of the
entire 16-year history of independent Ukraine level, while issues of labor,
and improvement of the business environment are becoming not important.
And these matters won't become important in the near future either.

It's a pity as entrepreneurs, especially with medium and small businesses,
are the main part of the middle class that is the guarantor of a stable
economy and growing living standards.
SIMEON DYANKOV, ONE OF REPORT'S AUTHORS
ZN contacted Simeon Dyankov, one of the authors of the report, and received
exclusive comments on Ukraine's positions in the Doing Business 2008 report.

[Simeon Dyankov] Although the rank of Ukraine didn't get worse this year, it
didn't improve either. The positions of the Eastern European region, to
which Ukraine belongs, has considerably improved. Unfortunately, Ukraine
didn't take part in this process.

[Question] What, in your opinion, is hampering reforms in Ukraine?
REGULAR REFORMS ARE NOT A PRIORITY
[Simeon Dyankov] This question is quite extensive. A short answer to your
question is the fact that regular reforms are not priority in your state.

You should consider the successful experience of other former Soviet
countries, for instance, Estonia, Latvia, Lithuania, Azerbaijan, Georgia, as
well as your neighbors - the Czech Republic, Bulgaria, Rumania.

The governments of these countries were focused on developing and improving
the business environment. In their cases, the entire governments, not only
the Ministry of Finance or the Ministry of Economics, made it a priority to
reform and was responsible for their realization.

[Question] Do you cooperate with Ukrainian authorities?
[Simeon Dyankov] No. However, I know that other World Bank departments
cooperate with your government authorities quite actively. For instance,
"The Development of Business in Ukraine" project by the International
Financial Corporation is working with Ukrainian government on the reform
of the permits system.

[Question] How does the country's rank in the Doing Business report
correlate with the indices of economical growth and common wealth?

[Simeon Dyankov] These indices really do correlate, which is proved by
statistics and by the results of our own analysis and other independent
researches.

For example, if Ukraine is, tentatively, at the 120th place in some ranking
and after successful reform it raises up to 60th or 50th place then its
annual GDP growth (according to economic analysis) would be around 2%.

We have conducted such economic analysis once again this year and received
the same figure.

The countries with the highest amount of taxes have the lowest amount of
registered enterprises. Countries that ease the process of paying taxes also
have higher levels of employment and lower levels of unemployment,
especially among women.
UKRAINE AMONG THOSE WITH MOST BURDENSOME TAX SYSTEM
The reason is very simple - a burdensome tax system damages small
businesses, especially in the service sector, in which mostly women are
occupied. Today Ukraine is among the countries with the most burdensome
tax system.

But what would happen if your country reduces the number and duration of the
tax payments and procedures and improves tax administration? Our answer: in
this case the total number of businesses in the country would increase by
two times.

[Question] How long would it take?
[Simeon Dyankov] The leap wouldn't happen suddenly, of course, but over
some time. For example, if Ukraine could go up from today's 177th place in
the taxes ranking to 60th then we could surely forecast an increase in the
total number of businesses in the country by 2.5 times during 14 years.

[Question] Could you give us some other examples of the countries where
reforms gave a positive macro-economic effect?

[Simeon Dyankov] There a lot of examples of countries in the Eastern
European and Central Asian region, which introduced successful reforms and
improved the conditions for business operations.

First of all, we should remember Estonia - it is one of the most quickly
growing economies in Europe today. The index of their economy growth has
been about 9.5% during last five years, which is higher than any other
European country.

Another quickly growing economy is Latvia, which has also achieved success
through reforming its business environment.

Both countries have very high rankings in Doing Business compared not only
with other developing countries but with rich countries too (Estonia - 17th,
Latvia - 22nd in the world).

Georgia is one more notable example. This country has been one of the top
reformers in the world over the last three years. They started serious
reforms in 2004.

But the growth in their GDP is already quite significant. Georgia's GDP
growth was only 2.5-3.5% per year before the reforms started, but in 2004
GDP growth was already 4.5-5%, in 2005 - 8%. They had 9.5% GDP growth
last year, and they forecast around 12% this year.

We are not expecting that every reform would provide an immediate effect.
Some reforms, such as changing business registration procedures, can be
realized in one year.

And some may take two-three years if we talk about more complicated
reorganizations such as taxes or labor legislation. But during one-three
years, you would see the payoffs of reforming.

For instance, Slovakia can be a good proof for that. This country introduced
most of its reforms during 1999-2003. And starting from 2005 it became not
only the European, but the world leader in the amount of direct foreign
investments.

There are a lot more examples from other parts of the world. And these
examples as well as our analysis demonstrate that it is actually possible to
receive positive results by introducing necessary reforms in Ukraine.

The reforms stimulate economic growth and improve the basic indices, such
as the total number of enterprises operating in the country and the number
of working places, which are the main conditions of long-term development
of the economy.
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World Bank, International Financial Corporation, www.doingbusiness.org
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LINK: http://www.mw.ua/1000/1550/60645/

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[return to index] [Action Ukraine Report (AUR) Monitoring Service]

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4. TYMOSHENKO TEAM: SECOND TIME LUCKY.. PERHAPS

By Paulius Kuncinas, Oxford Business, Business Ukraine magazine
Kyiv, Ukraine, Monday, October 8, 2007

Political stagnation and continuous infighting in the run up to Sunday's
election is said to have helped rather than impeded economic growth in
Ukraine

Defying all expectations, the economy grew by around 7% so far in 2007-
one of the highest growth rates in Europe.

It may be alarming (for those who want politicians to take their hands off
the economy) that we may soon witness a more permanently installed
government willing to regain control of economic policy-making.

Especially worried are those critics who fear another round of
reprivatisations or price controls on such staples as fuel and sugar. Those
were, indeed, among the hallmarks of Yulia Tymoshenko's first term as
prime minister.

However, as she looks to return to her post more confident and
vindicated, there are some grounds for optimism.
LESSONS LEARNT THE HARD WAY
First of all, although reprivatisation might have been popular in some
quarters, the Tymoshenko team has come to appreciate the high political
and economic price it carries in the name of retrospective justice.

Economic slowdown in 2006 for instance, was largely blamed on a sharp
decline in business investment - itself a direct consequence of
reprivatisation scares.

For economic growth to continue and the country to catch up with the rest of
Europe in terms of productivity and living standards, the business community
must be assured of the sanctity of property rights.

Unfortunately, there is no obvious way to carry out reprivatisation without
undermining business confidence in property rights.

The same goes for arbitrary price controls. The populist desire to keep a
lid on prices at the expense of suppliers' profits is a self-defeating
policy.

As the grain and fuel crises have shown in the past, artificial, anti-market
price-controls lead to significant disruptions in supply. As the supply
shrinks and demand outstrips the goods available on the market it becomes
even harder to stave off hyperinflation.
SOVIET LOVE-AFFAIR WITH PRICE CONTROLS
It will be hard for the new government team to abandon the old Soviet
love-affair with price controls, but one hopes that there is now plenty of
evidence and advice on offer to impress policy makers that price controls
do not work.

These are the two main policy areas that keep financial analysts and
economists on their toes as they observe the almost certain return of the
Orange team to power.

On the positive end of things, almost everyone is sure that a more
pragmatic, battle-hardened and pro-Western political team will send a
positive signal to the markets and economy as a whole.
A LITTLE HELP FROM THE WEST
There is a widely held consensus that the first Orange team had its gaze
firmly fixed on the next parliamentary election and therefore opted for
short-term populist measures.

With no more elections in the near future the aim of the Orange government,
it is said, will be to restore its image as a capable manager of the
economy.

Working in its favour will be the fact that there is still abundant goodwill
available in the EU and the U.S. to give Ukraine a helping hand as it
struggles to distance itself from Russia.

As a result, we can expect acceleration in negotiating the final hurdles of
Ukraine's entry into the World Trade Organisation (WTO) and subsequent
free trade agreement (FTA) negotiations with the EU.

A more West-leaning, pro-business approach ought to unblock remaining
channels for foreign investment.

Foreign acquisitions in Ukraine's banking sector that continued throughout
the political crisis demonstrate that the appetite for Ukrainian risk is
currently very high. The return of a more level-headed Orange government
should act as a stimulus to new FDI inflows.

On the negative side, however, Moscow has already shown (through Gazprom)
earlier this week that it is not going to abandon its "zero-sum" game
approach, whereby every inch of closeness to the West is seen as a
distancing from Russia.

The new Ukrainian government will therefore face a tough job of absorbing
energy price hikes, without passing them through to the population.
Eventually, it will need to accept a few unpopular policy measures and
liberalise energy prices to bring them closer to open market levels.

Above all, as the last year has shown, the economy and business community
prosper when there is minimum interference in their affairs. However, it is
a great misconception that the government has no business in directing
Ukraine's economy.

The economy is in great need of a positive policy stimulus from above in
streamlining the institutions and trimming down heavy layers of Byzantine
bureaucracy, which act as the main break on sustainable economic growth.

One therefore hopes the second Orange team will spend its energy and
political capital on removing the bureaucratic roadblocks while leaving the
rest of the economy to run its course.

That should put the country in a good position to be the fastest growing
economy in Eastern Europe posting perhaps as much as 8% GDP growth
in 2008.
--------------------------------------------------------------------------------------------
LINK: http://www.businessukraine.com.ua/second-time-lucky-perhaps

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5. UKRAINE'S ELECTION RESULTS: NOTHING PERSONAL

ANALYSIS & COMMENTARY: By Yulia Mostovaya, Serhii Rakhmanin
Zerkalo Nedili (ZN), Mirror Weekly, Kyiv, Ukraine, # 37 (666) 6-12 Oct 2007

There is no envying Viktor Yanukovych: the election results came like a bolt
out of the blue, threatening the loss of power. Representatives of the Party
of Regions besieged the Presidential Secretariat on the night following
elections. They are willing to promise him everything, but got no guarantees
in return.

There is no envying Yuliya Tymoshenko, either: her fragile advantage gained
in a bright and vigorous campaign does not guarantee her the position of
Prime Minister. The results are close, but Lytvyn is shilly-shallying, the
President is setting conditions and Kliuyev is prowling around.

Nor is the President's position envious: he agreed to the snap elections,
hoping, inter alia, to keep his two major contenders at the 2009 elections
from being appointed prime minister. It does not seem to have worked out

his way.

Who can be envied are the optimists believing the "orange" coalition will
set and pursue a clear and definite course for the country's development.

The President, BYT and OU-PS leaders should unite; there is no doubt of
that. They held the first round of negotiations a the "democratic coalition"
format and principles in the Hyatt Hotel on October 5.

Yet the question is not even whether the allies will find common ground in
view of their past disagreements and future elections. The question is how
efficiently they will respond to the current challenges afterward.

Unfortunately, none of the possible arrangements for the parliamentary
coalition are ideal: wrong time, wrong players. We have made an attempt to
analyze pros and cons of various coalition designs for the key figures and
society. Our conclusions are not at all pleasant, particularly to those who
care more about the country than the coalition.

Coalition BYT-OUPS (228 seats)
As matters stand, the alliance between the "white" and the "orange" seems
most probable. Leaders of the two political forces vowed to their voters to
establish the so-called "coalition of democratic forces" in the new
Verkhovna Rada.

Thus the people are entitled to expect their elected representatives to at
least keep this promise, especially since the Yuliya Tymoshenko Bloc and

Our Ukraine - People's Self-Defence can do that on their own: as mentioned
above, they have started negotiating.

What implications could this political alliance have?
Personal gains
1. The main advantage of the BYT - OUPS coalition is obvious: to the two
political forces' electorate it looks most comforting and logical. We would
venture a guess, however, that their leaders are more concerned with their
own prospects than with their supporters' comfort and peace of mind.

The democratic coalition will allow them to prevent electorate drain.
Yushchenko's post-Maidan behavior has already caused a migration of his
sympathizers to the Tymoshenko camp.

Should the "orange" majority fail to materialize, his and her voters could
change allegiance. Some of them could get completely disillusioned about the
two forces' ability to join together and honor their commitments. Neither
Yushchenko nor Tymoshenko can let that happen. Both of them are equally
interested in keeping the "orange" electorate loyal to them, at least until
the next presidential elections.

2. The head of state will get other benefits from the democratic forces'
outward unity. He will remain the leading candidate in the 2009 presidential
elections.

Moreover, if the previous agreements stand, the pro-presidential OUPS will
have half of the government and parliamentary positions, in spite of the
significant gap in their ratings. As a part of any other coalition, the
Yushchenko team would have had to give away many more posts.

What could Yuliya Tymoshenko gain? First, she will get access to levers of
power and resources. Second, the Prime Minister post (which she still yearns
for) will provide her with a stage to perform in public and a springboard
for a future presidency.

Even if her tenure proves short and ineffective, she will be able to blame
it on her "obstructive" opponents (although under the circumstances it will
be difficult to identify them).

Both Tymoshenko and Yushchenko are thinking about 2009. Neither, it seems,
rules out the possibility of restoring presidential powers in their
previous, pre-constitutional reform, form.

Both viewed the snap parliamentary elections as a prelude to the
presidential campaign. But for the proximity of the latter, the former could
have never taken place.

The need to divide power between two forces only is advantageous for both
of them: the more stakeholders, the smaller dividends each receives.
Personal losses
1. Both OUPS and (especially) BYT made lots of totally unrealistic promises.
Once they come to power, they will have to try and fulfill at least some of
them. However, they will never be able to deliver on the majority of what
they pledged, which will inevitably damage their trustworthiness, bringing
down their ratings, and those of their leaders.

2. One should bear in mind that Yushchenko and Tymoshenko, as situational
allies, are confirmed competitors. By creating the coalition they will
breathe new life into the myth of "orange" unity, but they will deprive
themselves of the opportunity to criticize each other and work towards
outrunning the rival in the 2009 race. Over the life of a potential
democratic coalition, a single presidential candidate will remain a strong
possibility.

3. When the two teams and their leaders start working together their, mutual
dislike and distrust could get in the way of productive cooperation.

Almost inevitable in-fighting (which the opponents will be instigating and
covering broadly in their media) and fairly predictably low efficiency will
scale down the authority of BYT and OUPS, on the one hand, and Tymoshenko
and Yushchenko's personal ratings, on the other. With a two-member
coalition, the allies will not be able to pass the buck onto a third party.

4. A formidable opposition (not only amounting to almost half of Parliament
but also representing half of the country) will be a real challenge for the
coalition.

5. In addition, Viktor Yushchenko will have to cede several governor
positions to his comrades-in-arms. The current conflict between heads of
administrations and heads of councils underway in some regions will not be
resolved. Instead, a potential for new conflicts will arise.

Heads of oblast and district state administrations appointed by Yushchenko
will have difficulty working with the prime minister, while governors
promoted by Tymoshenko will not always see eye to eye with the President.
Public gains
1. For the first time in Ukraine's history, political forces claiming to be
democratic will get a chance to form the parliamentary majority. Formal
impediments to effective operation of the state machinery will be removed.

The Verkhovna Rada will not have to worry about the president vetoing the
laws they pass, while the president - about Parliament's overriding his
veto. Governors (who will remain dependent on both the President and
Cabinet) will at least have to report to a relatively unified center of
influence.

The decision making and implementation processes should, in theory, be
streamlined and simplified. Yet whether theory will be translated into
practice is hard to say, because it requires a common vision and monolithic
unity in the coalition, and this is where questions arise.

2. If the democratic majority is formed, Ukraine will be able to clearly and
non-controversially define its foreign policy course and adopt relevant
legislation without looking back at the minority's resistance.

3. If, as agreed before, the 50/50 principle is observed in the process of
dividing responsibilities, the resulting power institutions will be
relatively democratic.

Neither political force represented in the Cabinet of Ministers will be able
to push any decision through the government despite the other partner's
objections (as the Party of Regions has been doing). It will reduce the risk
of errors and limit opportunities for abuse and corruption.

4. Various political players could have their grievances (justified or
otherwise) against Prime Minister Tymoshenko. Yet there is no denying that
she was the only head of government whose work was not reduced to
primitive firefighting.

She identified specific issues and bottlenecks and tried to develop action
plans to address them. Hopefully, she has preserved this propensity for
strategic planning.

5. What is a disadvantage for individual politicians can prove useful for
the country at large. Ambitious and self-confident authorities could dream
of having the Party of Regions in opposition. Competition and argument with
such a potent challenger make those in power stronger, more resilient and
agile.

Regions led by Yanukovych and Akhmetov will both control and motivate.
They will raise clamor over every blunder, every abuse of power by the
"white-and-orange". A common rival and fear of losing power could strengthen
the coalition's unity and urge it to do good things for the country and its
people.
Public losses
Sad as it might be for the numerous proponents of the democratic coalition
to read this part, the post-Maidan alliance has as many downsides as
benefits.

1. If the election winners fail to deliver on their election promises, their
credibility will suffer. On the other hand, in trying to fulfill those
promises they run the risk of bringing the country to an economic abyss. The
introduction of declared social benefits will undermine Ukraine's financial
system. The abolition of the draft staring January 1, 2008 will kill the
Armed Forces in a couple of moths.

2. The majority is very volatile. The coalition of these two forces will
only muster 228 votes. Some MPs might not be absolutely reliable. The law
still lacks a provision prohibiting MPs from changing factions; thus the
risk to this fragile majority exists - by bribing three MPs, the coalition
will fall apart.

Even if Andriy Kliuyev fails to accomplish his mission and find formal
deserters, the majority is in for hard times. Every vote will be precious:
an individual MP's position could make or break a decision, a law or the
entire coalition.

Should this individual MP want something (cheap land, lucrative contract,
tax benefits, preferential treatment of their company), the coalition will
be forced to satisfy the blackmailer's demands as it will need his vote
badly to adopt the budget or pass a vital law.

Even if the so-called "imperative mandate" is legalized, it will be of
little help. The law can forbid MPs' faction-hopping but not their refusal
to vote. The very first voting by the new coalition could be a problem.

3. Even in an ideal world where every member of the parliamentary majority
is squeaky clean and selfless (which is impossible in principle), they will
not be allowed to fall ill, go on a business trip or miss a Rada session for
any other reason. Otherwise, they will jeopardize the law-making process.

The Party of Regions will keep a watchful eye on the majority, never letting
their opponents vote in lieu of their fellow faction-members (as PR MPs used
to do all the time). If need be, they will appeal any decision made by the
coalition, stipulating that every MP should vote personally.

Unfortunately for Tymoshenko's and/or Yushchenko's supporters, the coalition
of democratic forces has no margin of safety. Poorly concealed distrust and
rivalry can slacken this unstable alliance even further. With a limited
number of seats, the coalition will not be able to get the Constitution
amended, even through the planned referendum.

4. PR, if left in the opposition, could disrupt the work of Parliament. If
175 MPs representing this party refuse to be sworn in, the sixth convocation
of the Verkhovna Rada will be illegitimate.

The previous Rada is hardly legitimate, either. The repeat of snap elections
will have to be authorized by the Constitutional Court, which is
inoperative. In this case we are in for anarchy and, probably, an open civil
confrontation.

The Party of Regions could disrupt the new Rada's work on purpose, eager
to keep its government in office. Yet it will not have any legal authority.
Presidential decrees supersede the acts of the Cabinet of Ministers.

Yushchenko will suspend them and send them to the Constitutional Court
for scrutiny. The latter might not be able to even convene. There will be no
Parliament, so laws will not be passed. The crisis will further aggravate.

5. Exclusion of PR from the coalition will nip in the bud all hopes for
negotiating common rules for the political game in this country, for signing
a "pact of elites".

PR's absence in the parliamentary majority and non-representation in
executive power structures will widen and deepen the rift of the nation. The
coalition between BYT and OUPS will reanimate the myth of the "orange"
forces' unity and their capability of carrying out reforms. So much the
worse the people's disappointment will be.

As a matter of fact, both teams lack intellectual capacity; their respective
leaders show no political will to shoulder responsibility for unpopular
decisions. Will they have enough courage to conduct the necessary systemic
transformations?

Coalition BYT-OUPS - Lytvyn Bloc (248 seats)
It will not differ much from the format described above. The downside for
BYT and OUPS is that the ministerial posts will have to be divided among
three forces. The upside is a formal reserve of seats. Yet there should be
no illusions.

The overwhelming majority of Lytvyn's mini-faction members see neither
ideological nor practical reasons for allying with Tymoshenko and
Yushchenko. Therefore, if they do, they will hardly be steadfast partners.

Volodymyr Lytvyn and his team are not in a hurry to join any camp. Contrary
to stories about him, he is not dying to get the Speaker's post. He is in
demand, and he has listened attentively to Yushchenko's opinion,
Yanukovych's conditions and Tymoshenko's offer.

Lytvyn and his men are considering their options. They might, eventually,
choose active neutrality. In Ukrainian politics, it is convenient to be
wanted by everyone but not obliged to anyone.

Coalition PR-BYT- OUPS (403 seats)
A lot has been said and written about Ukrainian President's mistakes and
weaknesses. His party's result at the last elections testifies that people
are aware of his limitations. However, the President's stance on the issue
of national unity is much more mature than that of his colleagues in the
"big three.

Ukraine cannot move ahead, develop steadily and successfully unless its
major political players and forces reach a consensus on a number of key
issues of domestic and foreign policy.

Our western neighbors and the Baltic States have left Ukraine far behind
because their political elites managed to do so at the beginning of their
transition toward a democracy and market economy.

Universally accepted ground rules can be set and followed only if the three
biggest political forces coordinate their efforts and work together toward
effective implementation of agreed programs.

Viktor Yushchenko did not succeed in promoting this idea in the summer of
2006 when he insisted that the last election's winners should sign the Pact
of National Unity.

The document was ill-timed and covered an incorrect set of issues, instead
of compromise and consensus it resulted in Viktor Yanukovych's appointment
as prime minister.

Today, the country is again in dire need of a "pact of elites". If Ukrainian
politicians cared about national interests, they would now be negotiating a
coalition with three leading parties. If they were really concerned about
the country, rather than about their control of its resources, Ukraine would
have never got in such a quandary, in the first place.

Nevertheless, the President keeps trying to promote his idea: he calls on
the "orange" coalition to involve the Party of Regions in forming a new
parliamentary landscape where its representatives will chair key
parliamentary committees, be elected vice-speakers and even appointed
ministers.

What are the pluses and minuses of the PR-BYT-OUPS coalition for the
main players and society?
Personal gains
1. The President, who stumped for one political bloc during the campaign,
would position himself as the uniter of the nation. Viktor Yushchenko does
not seem to worry about low (3%) public support for the idea of a "broad
coalition".

He would regard the "orange" electorate's dissatisfaction as temporary, and
the role of national reconciliation leader - as noble and promising in view
of running for a second term.

The mission of making and keeping the peace between the speaker and Prime
Minister, whose intra-coalitional confrontation would be the focus of his
effort, would remind all political forces and their voters that Yushchenko
is the nation's arbitrator.

Behaving wisely but resolutely, he could be acknowledged for the coalition's
successes, whereas the speaker and prime minister would be held accountable
for errors in implementing the coalition's strategy.

2. The coalition, with a substantial reserve of votes, would give the
President a leeway in proposing laws for the Rada to adopt, since within the
broad coalition there can be at least three combinations of factions
ensuring a simple majority of votes.

3. The alliance of three will allow Yuliya Tymoshenko, as prime minister, to
point the finger at those who stopped her from fulfilling her electoral
promises. The "orange" coalition will not give her such an opportunity.

4. The "broad coalition" would enable Viktor Yanukovych to stay at the helm,
albeit of the legislature. It is a gift of gods for a person who was removed
from power for one long year (2005).

As one of the top leaders, Viktor Yanukovych is likely to achieve his goal
of converting his long-standing political capital into tangible assets
(property and business).
Personal losses
1. The overwhelming majority of voters will react negatively to the
coalition "of the three", which means that each leader will lose part of his
or her electorate. The only remedy will be the coalition's effective work.

Alas, Ukrainian history knows very few examples of observed agreements.
Instead, we have witnessed a chain of political treasons and breaches in
commitments. There is no system of guarantees against violation of
agreements. So these forces will hardly be able to achieve any positive
results together.

2. Viktor Yushchenko as an initiator of the broad coalition will take the
lion's share of the flak. His ratings could suffer a crushing blow, which he
will be able to parry only on two conditions: the first is the success of
the coalition; the second is highly professional and effective spin.

The first condition is almost unreal given the cooperation capacity of the
coalition members. The second condition is problematic given the
presidential consultants' failure to offer anything creative to the OUPS
election campaign.

3. If Yuliya Tymoshenko agrees to a broad coalition, she will dilute her
distinct political identification, recognized and comprehensible by the
voters. With the 2009 presidential elections in mind, she cannot afford such
a faux pas.

4. Viktor Yanukovych is losing the role of a powerful leader. When he was
prime minister, diverse polls and surveys defined him as the country's most
influential person.

As the Verkhovna Rada speaker, he will only be one of three national
leaders; in public perception, he will be held accountable for the most
reviled institution - Parliament; he will lose control of the economy and,
consequently, attractiveness to those members and groups in his faction that
tolerated Yanukovych as a leader for the sake of their business interests.
Public gains
1. The Constitution and ground rules negotiated and accepted by the "big
three" will most adequately match their expectations, which means Ukraine
could, at last, start restoring the rule of law. In the past, neither Kuchma
nor Moroz was happy with the 1996 Constitution but at that historical point,
for that political elite, it became a generally acknowledged compromise.

Of course, the Constitution was not written to please transient political
elites but those who wrote it were only nominal elites. Without consensus,
adoption of a new Constitution will, yet again, involve uncivilized methods
of obtaining the missing votes, and the opposition will view it as coercion,
as an imposition of hostile rules on them.

2. Any coalition, other than that of the PR, BYT and OUPS, will not be able
to conduct popular and unpopular multi-sector reforms that are long overdue
in Ukraine. The 2009 presidential elections are looming large as a deadline
for those reforms.

Coalitions in other formats will not risk their election chances and,
therefore, take only popular steps to produce quick and obvious results.

If the situation requires that unpopular decisions should be made (which is
the case today), those in power will not dare to exasperate the population
for fear of giving odds to the opposition in the presidential race.

So, hard and comprehensive reforms will take place only if the related
political risks are allocated equally among the three big parties.

3. The PR-BYT-OUPS coalition has more chances to preserve national/public
property or manage it in a sustainable and meaningful way. Unavoidable
suspicion in relations among coalition members will force officials in
charge to make cautious and justified decisions.

The replacement of first deputies in all concerned ministries and law
enforcement bodies will complicate their work, perhaps, but it could put an
end to the hushed and all-pervading embezzlement of public property.

Of course, one should not forget tenders, which have become multinational.
In this context, it does not matter which political force held a majority of
shares, and has to content itself with a minority one, and was paid a good
salary. What does matter is that at a certain point in time, some people in
all three political forces refused to put up with the rotten system and
waged a public fight against it.
Public losses
1. The authorities would lose a strong opposition and society - an effective
controller of authorities' actions.

2. This moment can be positive and negative. If a PR-BYT- OUPS coalition
stimulates social responsibility among big businesses, then the gains of
such a coalition are obvious: new jobs, a state budget increase, new quality
tax code, judicial reform, new investments. If they start dividing the
spheres of influence between three political forces it would be a
catastrophic jump backwards.

3. The alliance between three political opponents would inevitably lead to
demoralization and disappointment of electorate.
PR + OUPS (247 seats)

The odds of this format are smaller only than those of the coalition between
the Yulia Tymoshenko Bloc and the Our Ukraine - People's Self-Defense and
this format does not only meet the Regions Party's interests: Viktor
Yushchenko may benefit from it as well. The search for contacts between
Bankova and the Donetsk clan began before the election.

According to reliable sources, the RP conveyed concrete proposals to
Viktor Yushchenko via his chief of staff Viktor Baloga several days before
September 30.

The proposals boiled down to sharing power 50/50. Yushchenko and
Yanukovych met on Friday to discuss them, and it is unknown what
agreement they reached, if any.

The negotiating process is not over yet, though it is obviously stalled -
largely due to the active resistance of the pro-presidential bloc.

Its formal leaders Yuri Lutsenko and Vyacheslav Kyrylenko have repeatedly
ruled out the possibility of any alliance with the RP. 40 of 72 newly
elected Orange MPs have sent an appeal to Yushchenko, demanding to put
an end to any political contacts with the White-and-Blue camp.
Personal gains
1. Yushchenko would not have to nominate Yuliya Tymoshenko for Prime
Minister (which he is reluctant to do).

2. In the talks with Tymoshenko he feels like a "minority stakeholder". In
talks with Yanukovych he would be the master of the situation, knowing that
he can form a coalition without the RP and the RP cannot form it without
him.

That is, evidently, Yushchenko's own opinion. He is sure of dictating his
will, but the Donetsk clan would hardly let him. Of course, they want to
rule the country and would never let go of power, but it is naОve to think
that they would easily cede law enforcement to him and sacrifice
Yanukovych's Prime Ministerial ambitions.

3. There is also a strategic goal: in Yushchenko's view, an alliance with
the RP would bring him the glory of a "leader who brings the country
together". He earnestly believes that by "uniting" the nation he would
regain his position in the West and gain supporters in the East and so would
win the presidential race in 2009.

However, according to a recent survey conducted by the Razumkov Center of
Economic and Political Studies, a mere three percent of Ukrainians support
the idea of such an alliance.

There is one more nuance: if Yushchenko fails to become President in 2009,
the RP leaders are ready to secure his comfortable well-to-do retirement.
Tymoshenko is obviously not. Besides, his confidants have found a common
language with Yanukovych's more easily than with Tymoshenko's.

4. A coalition of OU-PS and the RP would guarantee the latter's investors
and sponsors personal security and freedom - there would be no need and no
one to keep them in check.

No one would meddle in their private agreements. The RP bosses would get rid
of their phobias - from the subconscious fear of (very unlikely) criminal
prosecution to the fear of (quite possible) re-privatization.

5. The RP lobby in parliament would not have to be afraid of the President's
vetoes anymore.

If Yushchenko OKed Yanukovych as Prime Minister, the latter might become
Ukraine's first long-lived politician in the role. Yanukovych might turn out
to be a very convenient Prime Minister for both Akhmetov and Yushchenko.

6. If OU-PS and the RP allied in parliament, Yanukovych would lose some of
his political weight and to Akhmetov's hand.
Personal losses
1. If OU-PS allied with the RP, Yushchenko would have to forget about
popular trust in him.

2. Tymoshenko would lash out at him with merciless criticism. His alliance
with Yanukovych would untie her hands.

3. Yushchenko would lose not only his situational political ally and
electoral support but also a large part of his faction in parliament. That
would tell very badly on his reputation and the coalition's numerical
strength. It would take quite a while and enormous expenses to recruit
neophytes (mostly from the Lytvyn Bloc).

4. The RP would also have problems. Although its voters are more tolerant to
its leaders' sudden political turns, some of them might disagree with such a
sharp yaw.

The Donetsk clan would have to share power with someone else and they
surely hate to lose their total control over law enforcement.

Yanukovych would have to part with his hopes for presidency because only
a few supporters would not forgive him his alliance with his political
enemies. Besides, in exchange for the coalition, Bankova would demand that
the RP support Yushchenko in the 2009 presidential election.

The RP is unlikely to promise that. Even if it did, it would hardly keep
this promise (as so many times before). And after all, its "helping hand"
would do Yushchenko more harm than good.
Public gains
1. The Tymoshenko Bloc, Our Ukraine - People's Self-Defense, and the Regions
Party gave certain pre-election promises, and each of which will cost the
national budget a certain sum. The TB + OU-PS sum looks bigger than the RP +
OU-PS sum. This means that the latter alliance has better chances to keep at
least some of the promises.

In a way, this coalition of former enemies is more capable since it has
sufficient resources. However, if Yushchenko and Yanukovych fail to achieve
any tangible results, both are doomed as political leaders and both are
aware of it.

2. Some call such an alliance of political opposites "useful" - at least as
a pacifier and unifier of the nation. The nation would hardly feel "united",
but foreign countries might take it as a good sign.

The controversial issues that aggravate confrontation in the country (the
status of the Russian language and Ukraine's accession to NATO) would not
be raised, at least until the next election race.

Ukraine might host the Euro-2012 soccer finals at a decent level as nobody
would haggle for the right to flay the bear that is still alive.
Public losses
1. The coalition of the OU-PS and the RP would disorient the majority of
voters by destroying their political frame of reference.

2. Such a coalition would embark on changes in selected sectors but would
never carry out systemic reforms. Such an alliance interests those who want
to retain or replenish their assets. They need no reforms.

3. Tymoshenko would never make a compromise with such a coalition and the
coalition would never invite her to cooperate. New amendments to the
Constitution (if adopted) would be subjective. The Tymoshenko Bloc would
stay away, which means that nearly one-third of the nation would not accept
such constitutional reforms.

4. From the public point of view, it is worse to fake attempts to bridge the
country than to own to the cleft. A sober look at problems dispels
illusions.

PR + BYT (331 seats)
A formalized coalition of these two political forces is impossible. Neither
Tymoshenko nor Yanukovych are interested in a formal alliance.

Moreover, Yanukovych's shareholders are not interested in a bipolar
political system where they would have to deal with Tymoshenko. They need
a "streak" - the President as a third player.

The RP + TB format is definitely out of question. That notwithstanding,
their leaders and representatives meet for sporadic talks that have resulted
and might further result in joint votes on key bills.

Of course, it is very important to have a formal coalition to the executive
vertical, but all formal coalitions in the Ukrainian parliament have
suffered from "intestinal" problems because too many members are at odds
with one another, too many undependable, and mutual distrust among key
players is too deep.

Now that the same people are taking the same seats, any formal coalition is
likely to prove inefficient. There might be an informal coalition (as in
April, when the TB and the RP jointly overrode the President's veto on the
Law on the Cabinet of Ministers).

They might just as well join forces again - say, for lifting the moratorium
on selling agricultural land or for adopting a new Constitution. Who can
rule out the abolition of a presidency in Ukraine (in which both Tymoshenko
and Yanukovych are interested)?

It should be noted that the TB and the RP factions taken together would have
331 seats - more than required for changing the Organic Law.

The coalition in the previous parliament was a cartel of ideologically
diverse political forces dictated by the major one. Informal alliances were
situational and few. In the new parliament, the factor of informal alliances
is likely to be very influential and even decisive.
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LINK: http://www.mw.ua/1000/1550/60726/

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6. FIVE COUNTRIES BACK ODESSA-BRODY OIL PIPELINE EXTENSION
Expert says problem finding investors for such a commercially dubious project

By Ed Crooks in London and Roman Olearchyk in Kiev
Financial Times, London, UK, Thursday, October 11 2007

A plan to build a pipeline to reduce central and eastern Europe's dependence
on Russian oil was signed by five former communist countries in Lithuania
last night.

Ukraine, Poland, Lithuania, Azerbaijan and Georgia agreed to back an
extension to the Odessa to Brody pipeline through Ukraine, to take it to
Plock in Poland.

From there, the oil, sourced in the Caspian region and shipped across the
Black Sea, could go to Gdansk on the Baltic coast or to Lithuania.

Ukraine's pro-western president, Viktor Yushchenko, said: "This is a
historic moment when the project of transporting Kazakh oil to Europe shifts
from a political to practical sphere."

However, some analysts said yesterday they doubted whether the extension
would ever be built, given the competing demands on oil produced in the
Caspian region, and the prospect of strong competition from Russian
supplies.

The pipeline would provide an important alternative source of oil for
countries that have been heavily dependent on Russia, giving them access to
supplies from Azerbaijan, where production is rising fast, and possibly from
Kazakhstan as well.

The agreement comes at a time of heightened concern over Russian energy
supplies following the threat by Gazprom, the Russian state-controlled gas
company, to cut gas to Ukraine if it was not paid a debt owed by Ukrainian
gas companies.

Lithuania has a particularly strong incentive to seek alternative sources of
oil. Its supply traditionally came from a spur off the main Druzhba pipeline
that carries Russian oil west into Europe, but last year the spur was shut
off for technical reasons, according to Russia. Now Lithuania's oil imports
have to come by sea.

The pipeline from Odessa on the Black Sea to Brody in western Ukraine is
working in the opposite direction from what was originally intended.

It was completed in 2001 to carry Caspian oil north, but never used. In
2004, the direction was reversed and it began shipping Russian oil south
from Druzhba to tankers sailing from Odessa.

Sergei Kuyun, acting director of Upeco, a Kiev-based energy consultancy,
said a shortage of supply from the Caspian would continue to be a problem
for the pipeline.

"Azerbaijan . . . do not appear to produce enough oil to fill the pipeline
and do not have enough free oil, not under contract," he said. "The main
problem is that Kazakhstan is not a member of this political alliance."

Another problem would be finding investors to back such a commercially
dubious project, he added.
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7. ODESSA-GDANSK PIPELINE TO BE EXTENDED

Opinion & Analysis: By Vladimir Saprykin, Energy Program Director
Ukraine's Razumkov Center for Economic and Political Research.
RIA Novosti, Moscow, Russia, Friday, October 12, 2007

MOSCOW - The success of the informal energy summit held by Azerbaijan,
Georgia, Lithuania, Poland and Ukraine in Vilnius, Lithuania, on Wednesday
will be judged later, when the agreements reached there become reality.

But it was certainly an achievement, because it offered more cooperation
possibilities for participants, who endorsed the extension of the
Ukrainian-Polish Odessa-Brody pipeline to Poland's port Gdansk and refinery
in Plock. The pipeline is designed to pump oil from the Caspian to Europe,
bypassing Russia.

The sides' oil producing and transporting companies signed a corporate
agreement, which became the first practical step to preparing a feasibility
study for the pipeline project.

The president of Kazakhstan did not come to Vilnius, but his energy and
mineral resources minister, Sauat Mynbayev, said Kazakhstan viewed the
project as a practical possibility and could take part in it.

A scheme of interaction between companies involved in the project should be
ready for consideration by spring. They can establish a consortium or opt
for some other corporate structure.

By that time, the sides should calculate framework transit prices, preparing
the ground for practical discussions of the amount of oil to be pumped
through the pipe.

The parties to the project - Azerbaijan, Georgia, Lithuania, Poland and
Ukraine - signed an intergovernmental agreement on creating a legal and
contractual framework for its implementation, and can be expected to honor
it.

Russia will not be too happy with the appearance of a new oil route to
Europe, but this should not affect its gas relations with Ukraine.

The project is a strategic element of Ukraine's policy of integration into
the European Union. This is probably why President Viktor Yushchenko
proposed drafting a concept of a Baltic-Black Sea-Caspian energy transit
space.

His meeting with Azerbaijani President Ilkham Aliyev during the energy
summit points to the growing importance of Azerbaijan as a partner, which is
planning to increase oil production. In principle, Kazakhstan also has
enough oil for supplies across the Black Sea.

The project will become effective no sooner than in two years, but the
agreements reached at consultations and discussions in Vilnius will
facilitate its implementation.

Oil companies now need to determine how much oil they will provide to the
pipeline and when, while partners should prepare calculations to
substantiate the economic expediency of the project for each participant.

There could be some technical problems, though. In particular, the
refineries that will process Caspian oil should overhaul their equipment,
because it was tuned to refine Russian crude.

The project's endorsement means that the region will have a new source of
oil supplies and a new transit junction. Although nobody has ruled out
diversification, one more oil route should enhance competition between
suppliers and the reliability of oil deliveries to Europe. Most importantly,
this is not a political, but a purely economic project.
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NOTE: Vladimir Saprykin is energy program director at Ukraine's

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8. UNWAVERING STRUGGLE
Centenary, birth of Petro Hryhorovych Grigorenko 16 Oct 1907- 21 Feb 1987

COMMENTARY: By Halya Coynash
Kharkiv Human Rights Protection Group
Published by the Action Ukraine Report (AUR) #879, Article 8
Kyiv, Ukraine, Monday, October 15, 2007

16 October 2007 marks the centenary of the birth of Petro Grigorenko, Soviet
General, friend and defender of the Crimean Tatars, founding member of the
Ukrainian Helsinki Group, Moscow dissident and later voice for the Ukrainian
dissident movement in the West.

Such labels invariably limit a human being and the broader the stature of
the man, the more confining we feel them to be. On the other hand, they
can help us to understand why this is no mere circled date for a very large
number of people.
SOVIET GENERAL
He died stripped of all military honours, and in forced exile, however it
would be wrong to pass by this part of his history.

Petro Grigorenko, born in the Zaporizhya region, was a young lad during the
years which followed the October Uprising.

He saw barbarism from all sides, and placed his trust in the Communist
Party, being active in the Komsomol and later a Communist Party member.

He was a professional military man from 1931 and was a Major General

during World War II.

In short, he was apparently the sort of person who in later years could have
rested on his accolades and lived a privileged Soviet life. He didn't.
ANOTHER TIME - OR NOW
It was his son's 16th birthday, Grigorenko recalls in his memoirs and one of
those Party conferences where nothing original is said and you have plenty
of time for your own thoughts.

This time, though, one main thought was "do I or don't I?" He could run
through lots of excuses and it was simply easier to "put it off". He
didn't, however.

The "daringness" of his words may not, almost half a century on, seem clear,
but the Party's response to his criticism was swift. He was shut up, and on
that occasion issued a severe reprimand, and soon transferred to the Soviet
Far East.

The first arrest came three years later, in 1964, when he was stripped of
his rank and incarcerated in a special psychiatric hospital. Lest anyone be
misled by the terminology, these were penal-medical institutions under the
control of the KGB (or its predecessors). He was released in 1965.
NO OTHER TIME
There was no going back now, and Petro Grigorenko soon became one of
the main voices of conscience in the Soviet Union. He met and worked with
dissidents investigating punitive psychiatry, wrote appeals, defended many
of those arrested, spoke out over Czechoslovakia. The list is very long,
and all is very much worthy of mention.

With limited space, however, I will focus here[1] on his efforts to right
the terrible wrong committed against the Crimean Tatars, deported en masse
from their native Crimea in May 1944. General Grigorenko speaks of the
influence which the Russian writer Alexei Kosterin had on his thinking with
regard to the Crimean Tatars.

Whether or not such influence would have been needed is immaterial here.
Suffice it to say that both Alexei Kosterin and Petro Grigorenko occupy a
very special place in the hearts of all Crimean Tatars, and with cause.

In a Decree issued on 6 September 1967 and from then on, while the foul
charges of treason against the Crimean Tatars were revoked, the latter were
labelled "citizens of Tatar nationality, previously living in the Crimea".

Their return to their homeland was made dependent on the passport regime
where without registration you could find no work, housing etc. This
effectively meant that those Crimean Tatars who chose nonetheless to return
lived in terrible conditions and without any proper status.

According to Gulnara Bekirova, 13 February 1968 is seen by many specialists
as marking the beginning of close cooperation between the Crimean Tatar and
human rights movements, with Petro Grigorenko playing a special role.

It was a birthday gathering with a sad difference, organized by Crimean
Tatars in honour of Alexei Kosterin who was too ill by then to attend.
Petro Grigorenko spoke therefore for himself and for his friend.

After speaking of the terrible injustice perpetrated against them and
pointing to the Soviet Constitution to demonstrate that "the law is on your
side", he warned against underestimating their opponent and the means the
latter would use.
He then gave the following advice:
So begin to demand. And demand not just parts, pieces, but all that was
taken from you unlawfully-demand the reestablishment of the Crimean
Autonomous Soviet Socialist Republic

Don't limit your actions to the writing of petitions. Fortify them with all
of those means which the Constitution provides you-the freedom of speech and
of the press, of meetings, assemblies, of street marches and demonstrations

And in your struggle do not shut yourselves in a narrow nationalist shell.
Establish contacts with all the progressive people of other nationalities of
the Soviet Union. Do not consider your cause to be solely an internal Soviet
matter".[2]

It is easy to understand why those present were so enthusiastic in their
support. It was indeed a programme statement not for the Crimean Tatars
alone, but for all those fighting a lying and repressive regime. Resist,
defending your rights as enshrined in your constitution.
THE HARD BATTLE
The words were uplifting, but General Grigorenko was quite right in his
assessment of the enemy. He himself was arrested in 1969 over his defence

of the Crimean Tatars and was this time held in a psychiatric "hospital" until
1974, with his release in large measure due to pressure from the
international community.

It must be mentioned that among those most vocal in their protest were
Crimean Tatars both in the Soviet Union and abroad. There were
demonstrations in Moscow, and a petition was signed by what in Soviet times
was an incredible number of people.

Following his release, Petro Grigorenko plunged straight back into human
rights work. Among those whom he defended were Crimean Tatars, including
Mustafa Dzemilyev, who will be attending all events in honour of the General
next week.
ONE UNWAVERING PATH
As well as continuing his support for the Crimean Tatar cause, Petro
Grigorenko played a crucial role in the Helsinki movement, being a founding
member of the Moscow Helsinki Group and from November 1976 the Ukrainian
Helsinki Group.

The human rights and Crimean Tatar movements are indeed closely intertwined,
in no small part thanks to the General. The Helsinki movements were after
all aimed at using the laws and international agreements which the Soviet
Union had signed in thoroughly bad faith to force the latter to stop
violating human rights.

"Obey your own laws!" was not a sign of naivety; it was the deliberate stand
of courageous people whose conscience and striving for justice would not
allow them to stay silent and who believed that their government must
protect their people, not crush them.

People have sought freedom from oppressors in many ways over the centuries,
most often with violence. It is significant that both the Crimean Tatar and
the human rights movements in Ukraine and the Soviet Union were peaceful,
stressing non-violence and referring to the law. Gulnara Bekirova mentions
that this was of importance to General Grigorenko who in later years said of
the Crimean Tatars:

"There would seem to be an antidote to terrorism coded within this nation. I
thank God that a people so terribly oppressed, who as the result of the
regime's terror lost hundreds of thousands of their sons, have not
themselves descended to terror."[3]

In 2004, when Ukrainians came out onto the streets to uphold their
democratic choice, the world quite openly awaited bloodshed. They watched
stunned as "orange" supporters provided food to those supposedly from the
other side of the barricades who'd been brought to Kyiv and left to their
own devices.

There was no bloodshed. There are doubtless many reasons for this however
the legacy and vital work of people like Petro Hryhorovych Grigorenko should
not be underestimated.

They knew the enemy they were fighting. The enemy, on the other hand, was
incapable of understanding the strength of conscience and integrity which
guided the actions of those like Petro Grigorenko to whom we all owe a very
great debt of gratitude.

Eternal Memory
----------------------------------------------------------------------------
[1] A very special thanks to Gulnara Bekirova, whose articles, including
The Role played by Petro Grigorenko in the Crimean Tatar National

Movement, were of invaluable help for writing this article.
[2] The full text of the speech, published in his memoirs, can be found
here: http://www.iccrimea.org/surgun/grigorenko.html
[3] Cited in The Role played by Petro Grigorenko in the Crimean Tatar
National Movement ,
[4] I wavered about explaining Grigorenko, not Hryhorenko. I believe his
son's foundation uses that spelling.
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9. UKRAINIAN COURT RULES RUSSIA'S SEIZURE OF CRIMEAN
LIGHTHOUSES ILLEGAL SAYS YOUTH MOVEMENT LEADER

Interfax, Kyiv, Ukraine, Friday, October 12, 2007

KYIV - The Ukrainian Supreme Economic Court has ruled that the
Russian Defense Ministry violated existing agreements on the Black
Sea Fleet and illegally took control of navigation and hydrographic
facilities in Crimea, Oleh Yatsenko, the leader of the Student
Brotherhood all-Ukrainian youth movement, said.

The Ukrainian Supreme Economic Court completed "the six-year
examination of a suit by the Ukrainian Prosecutor General's Office on
the immediate return of 22 navigation and hydrographic facilities, in
particular lighthouses, in Crimea by the Russian Black Sea Fleet to the
Ukrainian Transport and Communications Ministry," the Student
Brotherhood's press service said on Friday.

The court ruled that Russia's argument that talks were needed to
reach new agreements on the status of the lighthouses was without merit,
Yatsenko said.

The Student Brotherhood calls on the Justice Ministry to enforce,
together with the Security Service, the Interior Ministry, and the
Prosecutor General's Office, the court order as soon as possible, the
statement says.

Earlier, the Russian Black Sea Fleet Command stated that the
Ukrainian-Russian agreement on the status and conditions of the Black
Sea Fleet presence in Ukraine was the only document that regulates
navigation and hydrographic relations in Crimea and that it does not
abide by the orders of Ukrainian courts. Russia will not fulfill the
Sevastopol court's orders dealing with the transfer of lighthouses to
Ukraine, Russia's Ambassador to Ukraine Viktor Chernomyrdin said.

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10. CHARLES H. CAMP, ATTORNEY, LAW OFFICES OF CHARLES
H. CAMP, JOINS U.S.-UKRAINE BUSINESS COUNCIL (USUBC)

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11. BURMA MILITARY EASILY FINDS SUPPLIERS FOR WEAPONS
Largest suppliers to Myanmar (Burma) are Russia, China and Ukraine

By Grant Peck, Associated Press, Bangkok, Friday, October 12, 2007

BANGKOK - Military-ruled Myanmar is a pariah state to many because of its
dismal human rights record, slapped with an arms embargo by the U.S. and
European Union. But to some of the world's other top weapons dealers,
Myanmar is just another customer.

India, the world's most populous democracy, and North Korea, Asia's most
repressive dictatorship, are both suppliers to Myanmar's military, and
neither has signaled it would stop business after the junta's crackdown on
pro-democracy protests last month.
RUSSIA, CHINA AND UKRAINE BIGGEST SUPPLIERS
As is the case with the biggest suppliers to Myanmar - Russia, China and
Ukraine - such arms sales may be widely criticized for helping the regime
stay in power, but they don't clearly violate any laws, treaties or
international agreements.

"Together these countries can supply anything Burma could possibly want, and
they have more or less done so in the last 15 years," said Siemon Wezeman, a
researcher for the Arms Transfers Project of the Stockholm International
Peace Research Institute, or Sipri.

Most known arms transfers to Myanmar are legal, and some are even reported
to the U.N. But other transactions are murkier, as countries more sensitive
to international opinion apparently try to mask their activities. Analysts
say these include India, as well as Israel and Singapore.

The only restrictions on selling military equipment to Myanmar, also known
as Burma, are self-imposed. The tightest embargoes are maintained by the
U.S. and the E.U., while several other nations, such as South Korea, have
less sweeping or informal sanctions.

The U.S. and European restrictions ban sales and re-sales of virtually all
military-related equipment to Myanmar. But it is difficult to stop third
parties from selling used equipment and licensed technology.

As a result, the junta has become the eager client of countries that "have
garnered reputations for being willing to supply almost any regime," said
Dr. Paul Holtom, another SIPRI researcher.

Myanmar's army of more than 400,000 is the second-largest in Southeast
Asia after Vietnam's, and bigger on a per-capita basis.

Because it is one of Asia's poorest countries, its military has until
recently operated without much of the sophisticated weaponry of its
neighbors, but has made huge modernization efforts since 1988. The

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12. THAILAND SUSPENDS PURCHASE OF 96 UKRAINIAN APCs
Armoured personnel carrier deal runs into controversy

Deutsche Presse-Agentur (DPA), Bangkok Thailand, Sat, 13 Oct 2007

BANGKOK - Thailand has suspended plans to purchase 96 armoured personnel
carriers (APCs) from Ukraine for 4 billion baht (117.6 million dollars)
after the deal ran into controversy, media reports said Saturday.

'Because problems have arisen, I must suspend it until we get a
clarification,' Defence Minister Booonrawd Somtas told The Nation newspaper.
Members of the National Legislative Assembly (NLA) questioned Boonrawd

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17. TURKEY AND THE US ON COLLISION COURSE
The Turkish republic of Ataturk is not responsible for the atrocities
committed against the Armenians by the Ottoman Empire. But nor
can it evade this blood-soaked chapter of Turkish history.

EDITORIAL: Financial Times, London, UK, Sun, Oct 14 2007

Collisions between allies rarely come much bigger than the current spat
between the US and Turkey: Ankara has recalled its ambassador to
Washington, outraged at a vote in Congress declaring the massacres of
Armenians by Ottoman Turks in 1915 to be genocide.

The vote, by the foreign affairs committee of the House of Representatives,
has yet to go to a full vote and does not reflect the view of the Bush
administration, which lobbied fiercely against it.

Indeed, eight former secretaries of state signed a letter to Nancy Pelosi,
the House speaker, warning of repercussions for US national security.

Ms Pelosi and the main sponsor of the bill, Adam Schiff, who both represent
Californian districts with big Armenian populations, brushed all this aside.
Now for the fall-out.

The relationship between these Nato allies had already deteriorated as a
result of the US invasion of Iraq and policy in the Middle East. The
architects of the Iraq war are still angry about the Turkish parliament's
refusal to allow the US to open a northern front from Turkey's soil.

Turkey is incensed by the occupation's consecration of a de facto state in
Iraqi Kurdistan, which it believes encourages secession by Kurds in
south-east Turkey, and is a base to relaunch insurgency by the Kurdistan
Workers' Party.

After the Armenian vote, Ankara is likely to ignore US pleas and send in its
forces to flush out the rebels, opening a new front in the multi-sided civil
war in Iraq and further destabilising the region.

Turkey may also start to sever links with the US military and deny it the
use of the Incirlik base, one of the main conduits for American troops and
supplies into Iraq.

But the worst of it is that nine out of 10 Turks are now hostile to the US,
whose policies are feeding a revival of rightwing nationalism and radical
Islam. These are not problems that will be resolved by gesture politics in
the US Congress.

The Turkish republic of Ataturk is not responsible for the atrocities
committed against the Armenians by the Ottoman Empire. But nor can it
evade this blood-soaked chapter of Turkish history.

Recep Tayyip Erdogan, the prime minister, has called on international
scholars to establish the facts and offered them access to the Ottoman
archives. Nothing has happened because his neo-Islamist government has

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