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Action Ukraine Report

An International Newsletter, The Latest, Up-To-Date
In-Depth Ukrainian News, Analysis and Commentary

Ukrainian History, Culture, Arts, Business, Religion, Economics,
Sports, Government, and Politics, in Ukraine and Around the World

Ukraine's 18th Independence Day since August 24, 1991, the battle for
freedom, independence, statehood, democracy, security, rule of law,
economic reform, private property, and prosperity must remain strong.

Mr. Morgan Williams, Publisher and Editor, SigmaBleyzer Emerging
Markets Private Equity Investment Group,

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

Embassy of Ukraine to the USA, Wash, D.C., Tuesday, August 18, 2009

One Plus One TV, Kiev, in Ukrainian Sunday, 23 Aug 09
BBC Monitoring Service, UK, in English, Sunday, August 23, 2009

Editorial, The Ukrainian Weekly, Ukrainian National Association
Parsippany, New Jersey, Sunday, August 23, 2009

Interview with Nadia Diuk, Voice of America (VOA), Wash, D.C., Sun, Aug 23, 2009

By Zenon Zawada, Kyiv Press Bureau, The Ukrainian Weekly
Ukrainian National Association (UNA), Parsippany, NJ, Sun, Aug 23, 2009

Like people at this age – faces the choice of direction and friends.
Editorial, Kyiv Post, Kyiv, Ukraine, Friday, August 21, 2009

Press Office, President of Ukraine, Kyiv, Ukraine, Wed, August 19, 2009

Will not Default, will More Forward to New Economic Prosperty
Article by Morgan Williams, Welcome to Ukraine magazine
2 (48) '09, Kyiv, Ukraine, July, 2009

Analytical Report: by Olga Pogarska, Edilberto L. Segura
SigmaBleyzer Emerging Markets Private Equity Investment Group
The Bleyzer Foundation, Kyiv, Ukraine, Tuesday,August 18, 2009

Finding Newer, Cleaner Ways to Power the World, Providing Energy for Human Progress
U.S.-Ukraine Business Council (USUBC), Wash, D.C.,Wednesday, August 5, 2009

Interfax - Ukraine Business, Kyiv, Ukraine, Wed, August 12, 2009

Op-Ed: by Dr. Andreas Umland, Global Politician magazine, NY, NY, Thu, Aug 20, 2009

SHOULD DO MORE FOR UKRAINE, Hansjurgen Doss urges his home country
to do more to embrace Ukraine and promote its accession to Europe.
Op-Ed: By Hansgurgen Doss, Kyiv, Post, Kyiv, Ukraine, Friday, August 21, 2009

Russian President Dmitry Medvedev to President of Ukraine, Viktor Yushchenko.
The Ukrainian Weekly, Ukrainian National Association (UNA)
Parsippany, New Jersey, Sunday, August 16, 2009

Russian President Dmitry Medvedev's official blog,, Moscow, Russia, 12 Aug 2009

Provided by the Embassy of Ukraine, President Viktor Yushchenko’s August 13
letter to President Dmitry Medvedev of Russia. The English text of the Ukrainian
president’s letter was released on August 14.
The Ukrainian Weekly, Ukrainian National Association (UNA)
Parsippany, New Jersey, Sunday, August 23, 2009

Op-Ed: By Anders Åslund, The Financial Times, London, UK, Mon, Aug 17 2009

Window on Eurasia, by Paul Goble, Vienna, Saturday, August 15, 2009

Ominous warnings that suggest Russian intentions to escalate
Op-Ed: By Eugene B. Rumer and David J. Kramer
The New York Times, NY, NY, Thursday August 20, 2009

Moscow goes on the offensive against Ukraine and Georgia
By James Marson, Kiev, Time Magazine, New York, NY, Sun, Aug. 23, 2009

Op-Ed: By Yevgeny Kiselyov, The Moscow Times, Moscow, Russia, Fri, Aug 14, 2009

Op-Ed: By Vitaly Bala, Director of the Situations Modeling Agency, Kyiv
Eurasian Home website, Moscow, Russia, Thursday, August 13, 2009

Op-Ed by Valery Chaliy, Deputy General Director of Ukrainian Razumkov
Center for Economic and Political Studies, Kyiv
Eurasian Home website, Moscow, Russia, Wed, August 12, 2009

Op-Ed: by By Ken Blackwell, American Thinker, El Cerrito, CA, Sat, Aug 15, 2009

Embassy of Ukraine to the USA, Wash, D.C., Tuesday, August 18, 2009

18 years ago on August 24th, 1991 the Verhovna Rada of Ukraine declared the independence of Ukraine. This became one of the most prominent events of XX century. At the all-national referendum held on December 1, 1991 over 90% of Ukrainian citizens expressed their will and supported the Independence Act adopted by parliamentarians earlier.

That day became a turning point in the history of the Ukrainian nation’s development and a powerful impetus to unification for Ukrainians all over the world, inspiring work for peace and prosperity in our common homeland.

Though we celebrate only the 18th anniversary of Ukraine’s new Independence, the process of the Ukrainian statehood establishment has more than a thousand-year history. Ukraine is proud of her many fellow countrymen, worldwide known historical figures, who made their important contribution into the world’s history.

These are – Princes Volodymyr the Great and Danylo Halytsky, Hetmans (Cossack Chiefs) Petro Sahaydachny, Bohdan Hmelnytsky and Ivan Mazepa, author of the first Ukrainian Constitution Pylyp Orlyk, famous politicians at the turn of XX century Myhailo Hrushevsky and Volodymyr Vynnychenko, Organization of Ukrainian Nationalists - Ukrainian Insurgent Army (OUN-UIA) leaders and plenty of others.

They created the history of Ukrainian statehood, full of struggle for independence, for a chance for a free Ukraine to exist. Beginning from the Kyiv Rus and to contemporary Ukraine our country always possessed qualities of a democratic and European country seeking friendship and accord with other civilized countries.

Though Ukraine was not able to solve all its problems vital for the country during these 18 years we have been able to gradually from the Ukrainian nation with its distinct mentality and culture, language, traditions, history, without discrimination of views, faith or descent.

During the years of independence there grew the whole generation of people born in free Ukraine. They consider the concepts of ‘national interests’, ‘human right’, ‘freedom of speech, faith, movement or choice inseparable form the notion of ‘independent Ukraine’.

Ukraine has gone through dramatic changes during the last five years (since the Orange revolution) witnessing fundamental shifts that led to our reassertion as a European democratic nation.

A large amount of work has been accomplished. We are proud that Ukraine established a stable democratic system of power. It is based on European values and democratic traditions, market economy, respect to human rights and freedoms including freedom of the media.

The democratic nature of the Ukrainian authorities can be vividly shown by the fact that twice in the last couple of years the opposition parties had come to power as result of free and fair elections. This is a practical evidence of Ukraine’s political system maturity, effectiveness and stability.

Like in other democratic countries, Ukraine is also developing its highly competitive political environment. Sometimes it leads to heated political debates in the parliament, mass media and society on important issues of the national policy.

It is important to note though that the hottest political processes are always taking place within the constitutional framework, and fundamental decisions are made on the basis of political consensus. This is an undeniable evidence of Ukrainian democracy’s European nature.

Meanwhile Ukraine is going through the process of improving a balance between various branches of power, chief governmental institutions, President, Verhovna Rada and Cabinet of Ministers. The issue of a constitutional reform related to this process is widely debated in the society.

Despite complex internal political discussion and complicated international economic processes, just prior to the outburst of the global financial crisis Ukrainian economy had the best ratings of its growth in the last couple of years.

Starting from 2004 Ukraine has doubled its GDP. International investments in Ukraine increased by 4,5 times – from 8.6 billion US$ to 36 billion. The average monthly salary increased twofold for the same period. Starting form 2005 there have been 1.1 million new jobs created every year.

Unfortunately, like in many other countries, this dynamics was slowed down by the global financial and economic crisis. However, recently we have been noticing evidence that the Ukrainian economy started recovering from the crisis' negative consequences.

In June 2009, the gross industrial output grew by 3,1% comparing to May 2009, and in the processing industry production increased by 3%. During the same period, production and distribution of electrical power, natural gas and water increased by 5,2%.

Ukraine continued to strengthen its position internationally as an active participant of global and regional processes. Thanks to the balanced and predictable foreign policy Ukraine enjoys respect of other countries and develops friendly and mutually beneficial relations with its international partners.

The key priorities of the Ukrainian foreign policy remain European and Euro-Atlantic integration focused on acquiring the membership in the EU and NATO. This aspiration reflects our interest to reunite historically and culturally with the community of European nations as a system of advanced democratic values.

We in Ukraine truly believe that successful European integration is the best means of providing our national security, its steadfast democratic and economic development. These priorities are in conjunction with developing very friendly, substantial and equal relations with our strategic partners, other countries of the region and the world which regard Ukraine as an equal partner and a friend. Ukraine has already accomplished a lot in this area.

We may list to the accomplishments Ukraine's accession to WTO in May 2008 and negotiations with the EU to prepare Association agreement, free trade area and visa free regime.

We have drawn a comprehensive business plan to modernize our gas pipeline transit network paving the way for uniting Ukraine's and EU's energy grids and the signing of an Energy cooperation treaty.

Ukraine acceded to the Bologne education process.

Together with Poland we shall host Euro-2012 soccer championship further opening up our economy and tourist attractions to the world.

A genuine watershed in our relations with NATO was the decision of the 2008 Bucharest summit, corroborated by subsequent decisions, to have Ukraine as its future member. Currently, we work on this goal by implementing our annual national programs similar to membership action plan.

We enjoy a high level of strategic partnership with the United States of America. Key bilateral documents were signed last year - Charter on strategic partnership, the Road Map of cooperation priorities, agreement on trade and investments and on research and peaceful exploration of space, as well as a number of commercial contracts.

The basic institutional mechanisms of bilateral collaboration are the newly created Commission on strategic partnership, Working groups on non-proliferation and export control and on energy security and the Trade and Investments Council.

The United States supports Ukraine in various international fora, including its Euro-Atlantic integration, accession to WTO and membership in the UN Human Rights Council, as well as promoting energy security and investments. In 2008, the bilateral trade volume increased by 1.7 times to 5.7 billion US$ with a balanced export/import ratio.

The US Congress backed Ukraine on a number of important issues including NATO aspirations and the international recognition of the 1932-33 Ukrainian famine-genocide.

With the arrival of the new US Administration Ukraine-US relations continue to catch up its high dynamics, as testified by the recent visit of Vice-President Joseph Biden [to Kyiv, Ukraine] and the decision to create the above mentioned strategic partnership Commission.

Washington will further support Ukraine's Euro-Atlantic integration affirming the point that Ukraine is free to take its ultimate decision about NATO membership. Our American friends reiterated their commitment regarding national security assurances extended to Ukraine in accordance with the 1994 Budapest memorandum.

Under the current global financial crisis, the United States assists Ukraine in its constructive dialog with the IMF and the World Bank, notably the stand-by program. Despite this crisis, the trade and investment collaboration between the two countries continue to develop in a meaningful manner.

Energy cooperation is also very pragmatic and result-oriented aimed at engaging American companies to modernizing Ukrainian pipeline system, diversifying sources of nuclear fuel supply and its after-use containment, upgrading safety at our nuclear facilities, decommissioning Chornobyl plant and turning the new sarcophagus into an environmentally safe system.

Ukraine and the USA collaborate actively in preventing proliferation of WMD and in fighting terrorism.

The new US Administration announced its plans to increase the volume of technical assistance to Ukraine from 90 to 120 million US$. Part of this sum will go to support scientific research and joint high tech projects.

Celebrating the 18th anniversary of its independence, Ukraine is assured that its steady democratic progress and a favorable international environment will lead to its gradual integration into a united Europe.

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

One Plus One TV, Kiev, in Ukrainian Sunday, 23 Aug 09
BBC Monitoring Service, UK, in English, Sunday, August 23, 2009

KIEV - Ukraine has achieved much since it declared independence in August 1991, Prime Minister Yuliya Tymoshenko has said. In a pre-recorded address, showed on 23 August, on the eve of Independence Day, she said: "Nobody will ever call into question Ukraine's sovereignty, its unity and the independence of the Ukrainian nation. We are and shall be, and the entire world knows this for sure."

"There have been many achievements, good and happy events in the past 18 years," she continued. "However, there have also been failures and disappointments." Tymoshenko said that "the process to build a state cannot be easy and cloudless". "It is not that simple, not that easy to build a new state from scratch," she explained.

She said Ukraine would overcome the economic challenges it is currently facing. "The unwitnessed and unprecedented global financial crisis has not bypassed us, but I am firmly convinced that, although disappointing, this phenomenon is temporary. Together we are already overcoming the crisis and we will confidently defeat it thanks to your courage, hard work and strong will," she said.

Tymoshenko added that her "most cherished dream" was to build "a truly free, truly independent, happy and mighty European Ukraine".
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
U.S.-Ukraine Business Council (USUBC):
From 22 to over 100 Members in Two Years, Join Today
Editorial, The Ukrainian Weekly, Ukrainian National Association
Parsippany, New Jersey, Sunday, August 23, 2009

Last year’s anniversary celebrations of Ukraine’s independence were marred by Russia’s invasion, just over two weeks earlier, of Georgia. It was a dangerous time and the situation was seen as threatening to Ukraine. Many commentators opined at the time that “Ukraine could be next.”

Reacting to the events in Georgia, President Viktor Yushchenko underscored: “A threat to anyone’s territorial sovereignty is a threat to our own sovereignty.” And he gave this expression of solidarity even more substance by traveling, along with the presidents of Poland, Estonia, Latvia and Lithuania, to Tbilisi, where they stood in a central square to tell the people of Georgia: We are with you.

Soon afterwards, speaking at the 2008 Ukrainian Independence Day commemorations in Kyiv, President Viktor Yushchenko said: “We, the Ukrainian people, are the master (hospodar) of our dear land. No one will ever decide for us what language to speak and what church to pray in. No one will ever tell us what road to follow.”

He also spoke of Ukraine’s “complete return to a single European home” as “a matter of the nearest, already achieved prospect” and noted that joining the European security system (he did not use the word “NATO”) was the most effective way to defend Ukraine and Ukrainians.

Now, a year later, as Ukraine prepares to mark the 18th anniversary of its independence, there are new threats from Russia, expressed in the exceedingly arrogant letter from Russian President Dmitry Medvedev to President Yushchenko (see last week’s editorial) that alleged Ukraine has an “anti-Russian stance” and accused the Ukrainian president and his administration of a litany of wrongs that harmed relations with Russia.

“Ignoring the views of Ukrainian citizens as well as Russia’s well-known position, the political leadership of Ukraine stubbornly continues to pursue accession to NATO,” Mr. Medvedev wrote. (Imagine, Ukraine had the gall to ignore Russia’s position!)

In addition, Russia is once again asserting its “special interest” in Ukraine and inserting itself into Ukraine’s democratic elections, with Mr. Medvedev “hoping” for a new political leadership and declaring that he sees no prospects for improved relations under the current administration.

At about the same time, the patriarch of the Russian Orthodox Church, while visiting Ukraine, declared that the Russians and Ukrainians are one and the same people, and held the first-ever Kyiv sitting of the Russian Orthodox Church’s synod. (He also offered that he could become a citizen of Ukraine and spend more time there to maintain his religious influence. How helpful!)

Observers in Ukraine saw Patriarch Kirill’s visit as an assertion of Russian religious and cultural domination, as well as a Kremlin backed exertion of Moscow’s authority in Ukraine. And, lest we forget, there was an overtly political component to the patriarch’s visit as well: he was met in Kyiv and accompanied to Donetsk by Viktor Yanukovych, leader of the Party of the Regions of Ukraine and a candidate for president.

Thus, as Ukraine gets set to celebrate its most important national holiday, Ukrainian Independence Day, on August 24, there surely is trouble on the horizon.
Much of it emanates from a neighbor that is hardly neighborly, but there are difficulties also within Ukraine. Political infighting in the country has halted progress on all fronts – political, economic, social, cultural, etc. Indeed, one could say this is a new post-Soviet period of stagnation.

With the presidential election season soon to begin, there is precious little hope that any significant progress will be made on those fronts. And, of course, the stagnation at home affects Ukraine’s standing on the international scene.

Hardly anyone speaks these days of Ukraine’s prospects for membership in NATO, and even the more likely accession of Ukraine to the European Union
seems to be on the back burner. The primary reason cited is the political disarray in Kyiv. Mr. Yushchenko’s talk last year of Ukraine soon returning to its
European home now seems a far-off vision as Western European leaders have chosen to basically ignore Ukraine.

Historian and political analyst Dr. Andreas Umland writes in this issue that the European Union bears some responsibility for the chaos in Ukraine, arguing that what the EU did in helping to stabilize and democratize Central Europe it most certainly did not do in Ukraine. The prospects of EU membership, he underscores, made those countries more successful both politically and economically.

The EU, however, has not offered Ukraine “a European perspective,” he notes, adding, “May it be that one cause for Ukraine’s frustrating domestic conflicts and halting economic transformation is the indeterminacy of the country’s foreign orientation?” As a result of the EU’s inaction, Dr. Umland writes, Ukraine today finds itself in “a geopolitical nowhere land.”

We strongly concur. While the new Obama administration deserves kudos for its attention to Ukraine – most notably the visit to Kyiv of Vice-President Joe Biden – the European Union deserves a reprimand. As the EU dithers in offering Ukraine a membership perspective, Russia attempts to reassert itself as a “great power.”

The EU’s inaction may ultimately turn out to be a detriment not only to Ukraine – area-wise the largest country in Europe – but to the members of the European Union themselves.

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

Interview with Nadia Diuk, Voice of America (VOA), Wash, D.C., Sun, Aug 23, 2009

MG: Joining us today at the Voice of America – Nadia Diuk, senior director for Europe and Eurasia at the National Endowment for Democracy. Thank you, Nadia, for coming today to our studio.

Ukraine is celebrating eighteen years of its independence. Do you think there is much to celebrate?

ND: Oh, I think there is a lot to celebrate. I think that despite all the current political difficulties that Ukraine is going through the people need to remember that eighteen years ago Ukraine was not a name that slipped easily off the tongue of anyone who was looking at the world or looking at geopolitics in any way.

And the fact that Ukraine has actually established an independent country with all of the institutions of an independent state I think is just phenomenal. As well, I think you have to pay attention to the fact that if Ukraine had not attained its independence I think the three Baltic states would have had much more difficulty in keeping hold of their independence.

And I think other states such as Belorus and Moldova would not have had a chance and the three Caucasus countries as well would by no means have had independence.

MG: So we would have a different Europe today?

ND: We would have a different Europe, indeed.

MG: What was the moment in the history of Ukraine’s independence, when the development of the country could have gone in a different direction?

ND: It’s interesting to speculate the “what ifs” of history. However I do think there are some that could be highlighted when there were some disappointments. During the nineteen nineties, I think, there was a very vibrant and vigorous community of politicians and civil society organizations emerging in Ukraine.

And I think around about the time of nineteen ninety-eight, nineteen ninety-nine, there was a pullback. And I think at the time not enough people were aware enough quickly enough that this was going to lead to the very difficult period of 2000-2004 where there was really a strong pullback on media freedoms, on freedoms of all kind as well.

President Kuchma didn’t do himself any favors in terms of international relations with various items that were going on at that time. But then that did lead to the Orange Revolution. And I think the fact of the Orange Revolution, the way that it occurred, the way that it engaged the entire society, the way that it actually helped in a sense to unify East and West Ukraine, I think that has been a very positive thing.

MG: Can we say that the Ukrainian people actually defended their independence in that period of time?

ND: I believe, yes, they were… independence in a very broad sense. I think specifically those four years between 2000 – 2004. I mean anyone who was visiting Ukraine at that time really felt, talking to the man on the street, not only the politicians, that there was a narrowing of political space, of social space, that somehow the gains that had been promised after independence were being pulled back.

And I think this was a reaction, a very sort of visceral and almost existential reaction to this pulling back. And also the desire to keep the momentum moving forward in a democratic direction, in a pro-West direction, for a great part of the population.

MG: To what extent do you think Ukraine still remain terra incognita for the world?

ND: Well, compared with how it was twenty years ago, when… You know, this was a nation of 52 million people, well, inhabitants. And I remember very distinctly the quote from Milan Kundera, the famous Czech author, who said, for decades now Ukraine, the world’s largest nation without a state, has been has been disappearing off the face of the Earth and no one has been paying any attention. Well, from that point to what we have now I think we’rv actually come a very long way.

Now you never, very rarely get people saying, “Oh, Ukraine, where is that? It’s in Russia somewhere.” Maybe I’m going back very far now, to pre-independence days. But. I think, there is no mixing up Ukraine and Russia much anymore. Ukraine has its own identity, which, I believe, is evolving.

It still has quite a way to go before it’s sort of fixed in people’s minds. But it’s seen in popular culture as well. I think sportsmen, pop stars, have done a lot to actually cement that image of Ukraine being a separate nation, a separate state with its own identity.

MG: And the last question – I would like you to foresee the future of Ukraine, let’s say for the next ten years.

ND: Next ten years…. My crystal ball, what do I see? Again, I think there is a generational factor at play. Even the generation of most of the candidates for president right now are still of the Soviet generation. They are people who not only went to school in Soviet times, but actually the first part of their career was pretty much conducted according to Soviet rules and regulations.

And I think that cannot help but have some sort of impact on the way they see the world. I think that after these ten years I do already see younger politicians and civic activists, particularly in Ukraine, who view the world differently.

They’ve traveled a lot more, they’ve spoken to people in the West a lot more, they see Ukraine as more a part of the world. They’re more aware of globalization. I think there will be some more difficulties over the next probably three to five years. But I think after ten years I fully expect to see Ukraine integrated much more into Europe, if not actually a candidate member or probably a member, maybe a member of Europe.

Because it’s a very large country, it’s an important country. And I think, as well, the Europeans are just beginning to come to grasp with the fact that they have this large land mass, this large population, that is basically sort of waiting for to be admitted. And Europeans also need to think something, to do something constructive to make that happen.

MG: So, the future of Ukraine is the new generation of Ukraine….

ND: I would say so. That’s a very easy thing to say. But in a funny way, it’s true. I think you need to get rid of the last vestiges of Soviet man. The people who looked to Moscow went to the MGU [Moscow State University] for their education. And there are a lot of very smart Ukrainians in Moscow who just stayed there, because Moscow, of course, took the best and the brightest. Not to say that there aren’t very good people in Ukraine too.

But I think a generation really…. You know, Moses had to lead the tribe around for forty years in the wilderness before they could create their own state. And I think there is something of that element that is going on in Ukraine now. The younger generation do have a different outlook. They have different expectations. They have a different level of energy. And I’m very hopeful that they will fulfill all of our ideals and aspirations.

MG: For Ukraine…

ND: For Ukraine.

[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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By Zenon Zawada, Kyiv Press Bureau, The Ukrainian Weekly
Ukrainian National Association (UNA), Parsippany, NJ, Sun, Aug 23, 2009

KYIV – Ukraine is stuck in a gray buffer zone between two systems of collective security, in the view of Valeriy Chaly, the deputy director of Kyiv’s Razumkov Center, and the nation’s permanent internal conflict has forced it to the geopolitical sidelines with the threat that only global powers will decide its fate.

Though the nation elected a firmly pro-NATO president in Viktor Yushchenko, Ukraine lost its chance at deeper Euro-Atlantic integration “because of the nonconsolidation of political elites and the inadequate understanding of national interests and priority tasks,” Mr. Chaly said.

“We are practically locked in a zone, which in my view is a rather dangerous situation for Ukraine,” Mr. Chaly noted during a mid-July press conference he
said was intended to raise awareness and spark discussion on Ukraine’s geopolitical future. “Our definitive place and role are undefined. It’s this transitional state of a buffer transit zone which is threatening, in my view.”

Mr. Chaly is among Ukraine’s foremost foreign policy experts, directing international programs for 12 years at the Razumkov Center for Economic and
Political Research, a leading Kyiv thinktank financed by scores of international funds and institutions.

The Vinnytsia native served on the National Security and Defense Council between 1997 and 1999, and attends the annual Yalta European Strategy conference, where Ukraine’s elite gathers to discuss the nation’s future.

Ukraine’s NATO entry isn’t relevant at the moment, Mr. Chaly said, as the Verkhovna Rada lacks a critical majority that would cardinally change Ukraine’s
foreign policy priorities and orientations. “NATO is not ready, Ukraine is not ready. And, unfortunately, politicization is continuing and it’s possible that this ping-pong game with NATO will be a subject for the presidential campaign,” he said.

While it’s often suggested that Ukraine’s leadership ought to opt for a neutral, non-aligned status between the North Atlantic Treaty Organization (NATO) and the Russian Federation, foreign policy specialists know that’s not a viable option, he said. Ukraine is already failing to finance its armed forces according to legislative standards and it would be very difficult, if not impossible, for the country to do so in a non-aligned status, Mr. Chaly said.

Additionally, Ukraine already has international and legal agreements to integrate with the European Union (EU) and NATO. Meanwhile, Russia has failed to
honor its agreement that it wouldn’t pressure Ukraine after it agreed to surrender its nuclear arsenal entirely. “Neutrality is simply unrealistic in my
view,” he said.

The Russian government is currently pursuing a foreign policy strategy of realpolitik with the goal of creating its own sphere of influence within the post-Soviet sphere, whether informal or agreed upon, and ultimately changing the balance of power, Mr. Chaly said.

Most notably, Russian Foreign Affairs Minister Sergei Lavrov proposed a European Security Treaty, or a new security architecture, duringinformal meetings in late June with NATO foreign ministers in Corfu, Greece, as part of the highest-level talks between NATO and Russian leaders since e South Ossetian

The proposals for the new security architecture addressed arms control, the deadlock in the implementation of the Treaty on Conventional Armed Forces in
Europe and the post-2008 crisis in the Caucasus, Mr. Lavrov said in a statement. Mr. Chaly said Germany, France, Italy and Finland are willing to consider
Russia’s proposal, while that’s not anoption for the U.S., Great Britain, the Baltic nations and most Eastern European states.

“Ukraine isn’t even following these processes in the appropriate way,” Mr. Chaly said. “Only the Ministry of Foreign Affairs is involved, in which diplomats are keeping track through their own efforts, without a minister.” The Ministry of Foreign Affairs has been without a minister since Parliament voted on March 3 to dismiss Volodymyr Ohryzko.

The Ukrainian news media have largely overlooked Russia’s proposals in Corfu, which have gotten adequate attention in the West. In the meantime, the
Defense Ministry is only partly involved and Ukrainian discussions within Ukrainian foreign policy circles are sluggish, he said.

“I think this is absolutely wrong,” Mr. Chaly said. “If we don’t want to remain further in this gray buffer zone, if we don’t want our fate to be decided by other sides, of course we are supposed to resolve our internal problems, consolidate the actions of the political establishment, I’m not saying the ‘elite,’ and consolidate the position of the Ukrainian people on the issues.”

NATO and Russian agreements on cooperation with regard to Afghanistan, Iran and other issues threaten to come at the expense of the interests of states that
don’t have geopolitical leverage, such as Ukraine.

“We must constantly state our view here because very dangerous phrases are currently being uttered about how it’s necessary to depart from the traditional
system of international law, that it’s ineffective and we need to act pragmatically,” Mr. Chaly said, referring to Russia’s new security architecture proposals.

Meanwhile, the situation with the Russian Black Sea Fleet remains unacceptable, he said. Ukraine is responsible for its maritime borders and territory, but de facto doesn’t have the instruments to do so because the Black Sea Fleet possesses the necessary navigation equipment, a situation which doesn’t conform to international regulations and documents.

“It’s unacceptable when a country doesn’t control its maritime waters,” Mr. Chaly said, also pointing out another recent scandal in which Russia ignored Ukrainian arms inspections and requirements for permits to transfer arms within Sevastopol. Yet, Ukraine doesn’t face a direct military threat from Russia despite the tensions, he said.

“The main threats to the country are from within, not from outside,” Mr. Chaly said. “It’s not the type of threat that destabilizes the situation, but if the effectiveness of state institutions becomes a victim to this political struggle, then there could be processes of fragmentation within the country itself.”

Russia is trying to maintain the status quo in maintaining its sphere of influence but the scenario won’t work, he said. “Western countries will hardly go for
such an exchange at the expense of countries in the regions, including Ukraine,” he said.

The more realistic scenario is a temporary condition which will consolidate the situation from one side and, on the other hand, leave open a window of opportunity for Euro-Atlantic integration in the future.

Political observers are beginning to compare Ukraine to a feudal state, where local princes decide matters in their regions amidst the erosion of legal mechanisms and a functioning court system, Mr. Chaly said.

“These are threatening moments,” he said. “I don’t see any positive scenario regarding the division of territory or the country’s decomposition.” Such scenarios are unrealistic and it won’t be allowed to happen, he added.

Ukraine is at a crossroads in which it faces a full spectrum of possibilities that range from a worst-case scenario – what Mr. Chaly called a “sovereignty default” resulting from the concurrence of Russian pressure, internal disorder and weak state institutions – to full membership in Euro-Atlantic structures.

The key issue is that other states, namely Russia, may resolve their national interests at Ukraine’s expense, Mr. Chaly said. “That’s what the problem is and I
stress that we should very carefully watch that our national interests don’t become a bargaining chip behind the scenes,” he underscored.

[return to index] [Action Ukraine Report (AUR) Monitoring Service]
Like people at this age – faces the choice of direction and friends.

Editorial, Kyiv Post, Kyiv, Ukraine, Friday, August 21, 2009

It’s Ukraine’s 18th birthday this week. The country is coming of age, but still has a lot of growing up to do.

The nation was born on Aug. 24, 1991, when its parliament approved the Act of Independence. Sovereignty was confirmed by 90 percent of the people who voted at a referendum on Dec. 1 later that year. Eighty-two percent of the electorate took part in the vote.

Polls show that Ukrainians would still support independence, but not as overwhelmingly. A study conducted last August by the think tank Razumkov Center showed that 52 percent of Ukrainians would vote for independence again, while 22 percent would vote against it.

For many, nationhood was an economic choice rather than a political one. People believed that an independent and free Ukraine will also be more prosperous and provide a better life and more choice for its citizens. Almost two decades later, another poll by the same center, conducted in late July 2009, showed that only 7 percent of Ukrainians think the country is going in the right direction, while 78 percent think it is not.

So, what is the right direction?

Coincidentally, direction in life is what every 18-year-old has to choose. It’s the age when one answers the basic questions of what kind of an adult one wants to be. What career choices to make? What qualities to develop? What relationships to form? It’s time to assess one’s strengths and decide how they can be applied.

Ukraine has too often kept the baggage of its parent, the Soviet Union, inheriting its extreme bureaucracy, outdated healthcare and education system and major heavy industries. Ukraine has missed many chances to form its own social, administrative and economic identity. It has so far failed to create a sustainable development strategy with foresight. But maybe that is too much to expect.

Ukrainians have grown out of some frivolous activities. They are skeptical about this year’s Independence Day parade, especially those who know it will eat Hr 70 million out of the budget. But the leaders, heavily involved in their favorite election games, continue to play on.

Peer groups are supposed to give way to true adult friendships. Ukraine is struggling to find true friends in this world. Its Russian neighbor has turned out to be a sulky, bullying kid unable to recognize the value of someone else’s personality and freedom to make choices. Older peers, such as Europe, have turned out to be cold and arrogant and too set in their ways.

But slowly, Ukraine is finding new friends. Poland comes to mind. It is a slightly more mature country that was able to move on from the shared bloody past to become Ukraine’s biggest advocate in the world.

Ukraine is showing many signs that it can grow into a good, reliable and mature adult. But its childhood is over. It’s time to grow up.

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

Press Office, President of Ukraine, Kyiv, Ukraine, Wed, August 19, 2009

Ukraine is interested in developing dynamic and effective partnership with the Russian Federation emphasized President Victor Yushchenko at today's press conference in Poltava region. "Certainly, it is important to have active Ukrainian-Russian relations. This corresponds with national interests", he said.

However, the President said, Ukraine stands for mutual respect of our two countries to one another, building equal relations, including trade, and against the "policy of constraints" it faces today.

In this context, Victor Yushchenko pointed to a number of unresolved issues, particularly creation of a free trade zone. "We're sorry that since the establishment of the CIS only 4% of the reached agreements within its framework have been actually implemented... We support pragmatism in our relations.

But pragmatism means that we must form primarily the modern market economic relations, which should of course be based on a free trade zone ", said Victor Yushchenko. Separately he pointed to the need to form a new customs policy. "Customs economic border should not be a blood clot in the channel of exchange of goods, services or investment", he said.

Ukraine also constantly stresses the importance of consistent, and later single tariff policy, the President said, "so that it was not used today as a form of pressure on the organization transit trade flows". "We oppose any restrictions in the area of goods, services, investment and labor trade", noted the President.

"We of course expect that our partners adequately approach realization of our common opportunities. So once again I, as the President, address the President of Russia and Russian authorities with a call to enhance our dialogue, our relations, to stop involving politics in these relations as it has happened a few weeks ago ... when simply wiredrawn questions were raised only to raise the temperature of negativism in our relations", said Victor Yushchenko.

[return to index] [Action Ukraine Report (AUR) Monitoring Service]
Will not Default, will More Forward to New Economic Prosperty

Article by Morgan Williams, Welcome to Ukraine magazine
2 (48) '09, Kyiv, Ukraine, July, 2009

The world financial crisis rolled over Ukraine last fall just as it did over many other countries around the world. Ukraine was especially hard hit by the crisis. Ukraine’s economy and people were thrown into an economic whirlwind and the financial numbers went down rapidly and dramatically.

The world’s financial press have written articles about Ukraine which make it appear that Ukraine’s government could default on its obligations. The articles in the financial capitals of the world make Ukraine look like an economic basket case.

Yes, there are serious problems in Ukraine but many of the articles are over-the-top and exaggerate the real situation found in Ukraine. The articles make it appear Ukraine has little ability to make an economic comeback anytime soon and question its ability to move forward to new economic prosperity.

Almost all leading economists who monitor the situation agree that Ukraine’s prospects of defaulting on its obligations is almost zero. Based on the information today, several months into the crisis, they really believe there is no chance of default. They also have agreed that many of the articles that have appeared in London and New York about Ukraine paint the financial and economic picture much bleaker than it really is and thus do not tell the story of what is going on in Ukraine accurately.

Max Alier, the International Monetary Fund (IMF) Resident Director in Ukraine, said in London in late April, that he attributed an almost zero chance of sovereign default this year by Ukraine.

Dr. Edilberto Segura, Partner and Chief Economist for the SigmaBleyzer Emerging Markets Private Equity Investment Group/The Bleyzer Foundation in Kyiv, recently made two presentations entitled, “Ukraine — Dealing with the Financial Crisis” to a large number of members and guests of the U.S.-Ukraine Business Council (USUBC). One USUBC meeting was held in Kyiv and one in Washington, D.C. Michael Bleyzer, Founder and President of SigmaBleyzer, also spoke at the USUBC meeting in Kyiv.

Dr. Segura headed the World Bank program in Ukraine in the mid-1990’s. SigmaBleyzer is one of the leading private equity investment firms working in Ukraine and has about one billion dollars in investments under their management.

Dr. Segura stated in his presentations, “Ukraine today is perceived as a country facing possible default. But it is not likely to default on its sovereign obligations (external public debt was only 11% of GDP at end-2008. From 2003–2007, Ukraine was one of the fastest growing economies in the region. The growth was supported by booming domestic demand for Ukrainian goods and services and by strong exports.”

According to Dr. Segura Ukraine’s macroeconomic performance from January to September 2008, continued to enjoy good results: real GDP grew by 6.3 yoy, inflation was going down, the fiscal budget was in surplus and public debt was declining, exports of goods grew by 50% yoy, the current account had a deficit but it was met by capital inflows, international reserves reached $37 billion.

But, Dr Segura pointed out, “Since October 2008, the global crisis hit Ukraine more than other emerging markets: real GDP declined by 8% yoy in the last quarter of 2008, exports dropped by 1% in the last quarter of 2008, but fell by 16% yoy in Nov-Dec 2008 yoy.

In January – February 2009, the contraction continued with industry declining by 32.8% yoy and construction by 57% and exports fell more drastically by 38% yoy in January – February 2009. Ukraine’s exports contracted significantly due to reduction in commodity prices and the significant economic slowdown in the rest of the world.

Ukraine was more vulnerable to the crisis than other emerging markets, Dr. Segura believes, due to a combination of large current account deficits, large external debt burden and banking sector weaknesses. “In 2008, exports grew fast at 33% pa, but imports grew even faster at 39% pa. As a result the current account deficit reached around $13 billion in 2008, or 7.2% of GDP.

In the last two years total external debt doubled from $53 billion to $103 billion by the end of 2008, a lot of which was short-term private debt (about $36 billion). During 2006–2008, bank credit grew from 70% pa, supported by increases in money supply and borrowing from abroad. As in many other countries, these high rates of credit growth led to high levels of non-performing assets.

Dr. Segura discussed his belief, based on his extensive international experience with USUBC memberships, that to resolve successfully the financial crisis the following five ‘pillars’ should be implemented in Ukraine.

(1) Establish strong organizational arrangement to confront the crisis
(2) Secure substantial foreign financial assistance (especially the IMF)
(3) Implement a comprehensive program for troubled banks and their borrowers
(4) Implement a macroeconomic stabilization program
(5) Implement structural reforms to revive economic and export growth.

Dr. Segura pointed out to the members of Ukraine’s business community that the successful implementation of the measures stated before, particularly the IMF program, would address Ukraine’s vulnerabilities as follows:

(1) Current Account Deficits. The current account deficit would be contained by the control of aggregate demand through tight fiscal policies (fiscal deficit consistent with non-monetary financing) and tight monetary policies (control of money supply and credit) as well as by the current devaluation. Thus, the current account deficit should be about $3 billion, a manageable amount.

(2) High short-term foreign debt service in 2009. The repayment of this short-term foreign debt would be feasible with the IMF disbursement of $10 billion and likely financing available from other international institutions. Thus, this vulnerability could also be under control.

(3) Weak Banks. The banking sector problems are being handled relatively well. If the current recapitalization plans are successful, systemic issues may be under control, though a number of medium and small banks may fail.

Under this scenario, the crisis would be contained during 2009. The exchange rate would stabilize and GDP recovery could take place in 2010, following the recovery of the world economy.

In an article for The Moscow Times published in late April 2009, Dr. Anders Aslund, Senior Fellow at the Peterson Institute for International Economics, Washington, D.C., a Senior Advisor to USUBC and a long-time observer of Ukraine’s economy, wrote: “A month ago, I wrote a column about Russia’s return to sane economic policy, but Ukraine has undertaken an even more impressive turnaround. Few countries have been more misunderstood than Ukraine, which has been particularly hurt by the global financial crisis”.

“Fortunately, the Ukrainian government acknowledged the crisis in early October and asked for help from the International Monetary Fund. Within four weeks, Ukraine concluded a deal with the IMF — a large, strong two-year standby agreement with $16.4 billion of credits.”

“The IMF program was standard with three key demands: a nearly balanced budget, a floating exchange rate and bank restructuring. Ukraine has delivered. After some hesitation, the country’s Central Bank let the exchange rate float. Although it depreciated by about 50 percent, it has since stabilized, giving Ukraine a new cost competitiveness.

“Together with the international financial institutions, the Central Bank has examined all of Ukraine’s banks and quantified their bad debt. Compared to the West, Ukraine’s share of toxic debt is small.

“The Ukrainian parliament agreed to increase excise taxes on alcohol, tobacco and diesel, and the prime minister decreed further revenue measures to reduce the budget deficit by 2 percent of GDP. With substantial financing from various international financial institutions, the IMF mission considered that the shortfall was almost covered and recommended a second enlarged tranche.”

“Thanks to early and resolute anti-crisis actions, international reserves remain reassuring at $25 billion, or eight months of imports. Industrial production increased in both February and March over the preceding month, suggesting that Ukraine might already have turned the corner (although GDP will probably still decrease by 8 percent to 10 percent this year). Even the bond and stock markets have soared in the last month.”

“Ukraine has shown exemplary crisis management thanks to a few Ukrainian top officials — notably Prime Minister Yulia Tymoshenko,” Dr. Anders Aslund concluded.

Over 100 members of the U.S.-Ukraine Business Council (USUBC),, strongly believe Ukraine will survive the financial crisis, will not default and will move forward to new economic prosperity. They are not leaving Ukraine but making plans to increase their operations in the future. Ukraine with its 47 million people is a too large and promising market. Companies do not want to be left out of this largest emerging market in Ukraine.

NOTE: Morgan Williams is director, government affairs, Washington office of the SigmaBleyzer Emerging Markets Private Equity Group,, and serves as President/Ceo of the U.S.-Ukraine Business Council, He has been active in the economic and business development of Ukraine since 1993. In 2007 he received a Presidential Award from President Viktor Yushchenko for his service to Ukraine.


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

Analytical Report: by Olga Pogarska, Edilberto L. Segura
SigmaBleyzer Emerging Markets Private Equity Investment Group
The Bleyzer Foundation, Kyiv, Ukraine, Tuesday, August 18, 2009

USUBC NOTE: The entire Ukraine Macroeconomic Situation analytical report for August 2009 from SigmaBleyzer/The Bleyzer Foundation, a member of the U.S.-Ukraine Business Council (USUBC),, is found below and is also found in the attachment to this e-mail in a PDF format which includes several detailed statistical charts in color.


[1] May-June real sector data provided evidence that the bottom in economic activity may have already been reached. However, despite the early signs
of improvement, we have downgraded our GDP forecast for 2009.

[2] A deep economic downturn caused significant deterioration of fiscal accounts, although the government tried to be economical in describing budget
performance. The size of the overall fiscal deficit (including the pension fund, Naftogaz and bank recapitalization costs) may exceed 11% of GDP in

[3] As the government has been working to secure sufficient external resources to cover the fiscal gap and considering depressed economic activity, such
a large fiscal deficit may have limited pressure on inflation this year. However, an increasing public debt burden in forthcoming election years
(2010-2011) and a slow economic recovery raises serious concerns over the sustainability of public finances in the medium-term.

[4] The disinflation trend, observed in the first five months of the year, reversed in June-July. With both upward and downward pressures to be present
in 2H 2009, consumer price inflation is forecasted to stay at around 15% yoy in 2009.

[5] Following stabilization of the foreign exchange market over April-June, depreciation pressures resumed in July. The market is expected to remain
volatile through the rest of the year, depreciating to UAH 8.5-9.0 per US Dollar.

[6] During June-July, good progress in dealing with the banking sector difficulties was observed. However, the risks in the banking system remain


Following the first signs of stabilization in March-April, real sector data for May and particularly June provided additional evidence that the drop in activity may have already reached bottom. In particular, the pace of output contraction in a number of key sectors, such as industry, retail trade, transportation and construction, moderated in June. This sentiment is supported by growing ‘green shoots’ in the data of a number of developed countries (the US, EU-15) as well as emerging markets (China, Brazil).

However, despite improved global economic prospects, we expect Ukraine’s economic recovery to be quite slow and weak. Moreover, we have worsened the near-term outlook for Ukraine. The forecast revision reflects i) the severity of the economic downturn in 1Q 2009, ii) weak economic activity in 2Q 2009, and iii) strained financial market conditions.

According to the provisional national accounts for the first quarter of 2009, real GDP fell by 20.3% compared to the corresponding quarter of 2008. Amid a sharp decline in external demand, Ukraine’s real exports of goods and services fell by 16% yoy.

However, Ukraine’s demand for imports declined even more sharply – more than 35% yoy, softening the decline in real GDP. Increased unemployment (from 7.5% in 4Q 2008 to 7.5% in 1Q 2009, ILO methodology) and a large decline in real household income (by almost 13% yoy in 1Q 2009) have weighed on consumption.

Consumer spending was down 11.6% yoy, but less than we anticipated and at a smaller rate than the drop in real income. Spending was apparently supported by savings made in previous years.

Deterioration in investment activity was particularly severe, much worse than we expected. In particular, investments into fixed capital declined by almost 50% yoy in real terms. Facing lower demand (both domestic and external), declining corporate profits and tight access to credit resources, corporate enterprises have revised their investment plans downwards.

Moreover, entering 2009 with very high inventories (UAH 15.5 billion, or $1.9 billion), despite the run-off in the fourth quarter of 2008, enterprises continued to aggressively destock inventories in 1Q 2009. Considerable inventories at the beginning of 2009 may be another explanation for the sharp decline in industrial output as well as imports observed in the first half of 2009.

Despite some improvement in June, available data suggests that the rate of economic decline in 2Q 2009 may be comparable with that in the first quarter of 2009. In particular, retail sales turnover, frequently taken as a proxy for consumption, declined by 15.2% yoy in 1H 2009 on a cumulative basis compared to a 11.5% yoy drop in 1Q 2009.

Preliminary external trade statistics for May-June was remarkably weak. Although imports fell even sharper in 2Q 2009, to a large extent this was achieved on the back of lower volume of imported energy resources.

The latter was not only the result of depressed economic activity, but also delays in the import of natural gas to be pumped into gas storage to secure continuous gas transit during the next heating season. Imports of fossil fuels are likely to receive strong impetus in the second half of the year.

Investment activity is likely to remain depressed amid poor credit availability and firms’ deteriorating financial conditions. Some improvement, supported by inventory rebuild, may be expected in the second half of the year.

At the same time, with a deeper and likely longer economic recession than was previously anticipated, there is growing concern over the possibility of a second wave of the financial crisis, now related to the growth of non-performing loans accumulated by the banks.

Although the NBU has already performed diagnostic stress-tests for most banks and requested that the banks raise their capitalization (either by the shareholders’ or the state), the capital projection may be insufficient to deal with the ongoing problems in the banking sector as the test was based on a 9% GDP contraction in 2009.

At the same time, even if the second wave of the crisis is avoided, the process of cleaning up commercial banks’ balance sheets (which is likely to be protracted) and the virtually closed debt markets will undermine the banks’ ability and willingness to resume credit, thus dragging on real growth. All these considerations made us reduce our GDP growth forecast for Ukraine from the previous -8% to almost -14% in 2009.


A deeper than initially forecasted economic recession has intensified concerns about the sustainability of Ukraine’s fiscal accounts. At first glance, the budget revenue statistics delivered by the government did not underline the challenges state finances were facing.

In particular, the government kept reporting above-planned budget revenues in May-June. Thus, according to the government, referencing the State Treasury, proceeds to the state budget were over-fulfilled by 4.6% in January-May and by 4.1% in January-June.

Moreover, total state budget revenues were down less than 1% in nominal terms in the first five months of 2008 compared to the respective period last year. The Ukrainian authorities used successful execution of budget revenue targets as an argument to explain their reluctance to carry out fiscal adjustment. At the same time, a deeper fiscal data reading revealed significant fiscal deterioration, raising worries about the likely size of fiscal deficit as well as the sources of its financing.

The declared over-fulfillment of state budget revenues became possible thanks to a downward revision of the targets. Thus, according to the original plan, revenues to the general fund of the state budget actually collected were more than 10% below target in 1H 2009. [1]

Moreover, collections to the budget notably deteriorated in May-June. In the previous months, the government relied heavily on one-off proceeds and early payments of tax bills and other charges. However, being inherently unsustainable, these sources of funds may have started to dry up.

Over the first five months of 2009, tax receipts to the state budget declined by 11% yoy in nominal terms. The deterioration came mostly from corporate profit tax, VAT and import duties. The decline in revenue was particularly pronounced for corporate proceeds, which have plunged by more than 20% in nominal terms.

Import duties declined almost 60% yoy in line with a sharp drop in import values over the respective period. VAT revenues, which account for almost 60% of total tax proceeds, have fallen by 7.5% yoy over the period.

On the upside, state budget revenues were supported by non-tax collections and excise proceeds, which went up by about 40% yoy each in nominal terms. [2] At the same time, the situation with budget revenues looks even more worrisome considering increased VAT refund arrears, resumed mutual offset deals between the budget and enterprises (mainly state-owned) as well as advance tax payments.

In contrast to revenues, state budget expenditures proved to be inelastic, advancing by 9% yoy in January-May 2009. An increase in expenditures occurred on the back of increased social spending (due to an increase in the minimum wage, medical spending, etc.). Thus, current spending grew by 11.2% yoy over the first five months of the year, while capital expenditures fell by more than 50% yoy.

As a result of falling revenues amid growing expenditures, Ukraine’s consolidated budget gap widened to UAH 3.2 billion ($0.4 billion) in January-May 2009. A consolidated budget deficit this high has not been seen in ten years.

Moreover, we believe the major deterioration in fiscal accounts will occur in the second half of the year. Despite an expected improvement in economic activity in 2H 2009, particularly in the last quarter of the year, budget revenues may remain depressed due to early payment of taxes in the first half of the year.

On the other hand, expenditures are likely to increase due to their seasonal nature (typically expenditures rise markedly in the last couple of months of the year) and delivery of fiscal stimulus (to the agricultural sector, construction, mining, etc.). Plus, there may be growing pressure to increase budget spending in the run-up to presidential elections scheduled for January 17th 2010.

Also noteworthy, the reported consolidated budget deficit does not account for the pension fund deficit and quasi-fiscal deficit (imbalances of state-owned enterprises, primarily Naftogaz). According to pension fund authorities, the fund’s revenues stood at UAH 71.2 billion in 1H 2009, 4.3% above target. There is evidence that the plan was revised downwards.

At the same time, planned expenditures in the amount of UAH 81.1 billion were fully executed. As a result, the pension fund deficit amounted to almost UAH 10 billion ($1.3 billion) in 1H 2009, or about ¾ of the targeted amount for the full year.

The fund’s higher than expected deficit was covered by the cash balances accumulated in the previous year and loans from the state budget. Although the situation with the pension fund is likely to improve in the second half of the year (in mid-April, the government approved a number of corrective measures - capping maximum pensions, increasing deductions to the pension fund for entrepreneurs who chose a simplified taxation system), the end-year deficit may be wider than foreseen in the budget. [3]

The financial stance of the state-run natural gas monopoly Naftogaz Ukrainy raises serious concerns. The deep economic crisis, high indebtedness (particularly foreign) and a wide gap between imported natural gas prices and the sale prices to households and heating companies have put the company’s ability to meet its obligations in question.

Although the government approved a number of measures to improve the company’s financial situation – boosting the company’s capital by UAH 18.6 billion ($2.4 billion), approving a 20% price increase for households in September and for heating companies in October, as well as developing a schedule of quarterly price increases since the beginning of 2010 – Naftogaz’s net financing needs were still estimated at about 2.5% of GDP in 2009.

Given all the above and adding the planned financing of bank resolution program, the total fiscal deficit of Ukraine may exceed 11% of GDP. So far, the government has relied on the issuance of domestic debt securities to finance the deficit (the lion's share of which was bought by commercial banks, and then were re-purchased by the Ukrainian banks or directly by the NBU) as well as external financing.

With closed external financial markets, Ukrainian authorities have been working to secure external financing from a number of international financing institutions (the World Bank, EBRD, etc.). Moreover, it was agreed with the IMF that half of the second and all of the third tranches would go to finance government and quasi-government external obligations.

Recently, a consortium of international financial institutions announced it is considering an offer of a $1.7 billion loan for Naftogaz’s financing needs. The loan will be conditional on a number of reform efforts in the energy sector of Ukraine. Furthermore, in June the government expressed its firm intention to resume the stalled privatization process and offered for sale a number of potentially interesting enterprises (Odessa port plant, several oblenergos).

Amid depressed economic activity and with all of these funds successfully obtained, the impact of such a high fiscal deficit on inflation may be rather limited in 2009. However, with a slow recovery in 2010, a high social security net burden and 2010-11 being election years, Ukraine risks running high budget deficits beyond 2009. Hence, restoring/maintaining fiscal prudence will be on the agenda for Ukraine in the medium term.


As expected, following rather fast disinflation from 22.3% yoy in January to 14.7% yoy in May 2009, the trend reversed in June-July. In particular, the consumer price index gained 1.1% mom in June, bringing consumer price inflation back to 15% in annual terms. While food price growth continued to be on a downward trend falling below 9% yoy in June, a rise in total CPI was supported by faster price growth for tobacco and alcohol, utilities and transportation services.

Thus, due to a more than twofold increase in excises on tobacco and tobacco products, prices on these commodities grew by 9.5% mom in June and were 40% higher than in June last year. The scheduled tariff adjustment on railway transportation and further increase in fuel prices explain a 3% mom price increase in the transportation sector. Utility services were 4.1% mom more expensive in June, mainly on account of tariff adjustment in Kyiv, the capital of Ukraine.

However, the suspension of the utility tariffs increase in July caused a 3.3% mom downward adjustment in the utility services price index that month. Moreover, food prices seasonally went down by 0.2% mom in July. However, as the favorable statistical base effect vanished, annual consumer inflation picked up to 15.5% in July.

Weaker consumption, decelerating money supply growth and tighter credit should exert downward pressure on consumer prices. However, its impact is likely to be offset by planned increases in utility tariffs (natural gas prices for households will be raised by 20% in September; suspension of utility tariffs adjustment in Kyiv may be temporary, though the scale of adjustment may be lowered).

As a result, we maintained our forecast of end-year inflation at 15% in 2009. Observing good disinflation progress and stabilization of the exchange rate market during May-June, the NBU reduced its discount rate by 100 basis points to 11%, effective mid-June.

The foreign exchange market has been virtually stable during June, supported by the NBU interventions, regular foreign currency auctions as well as administrative measures that restrained commercial banks’ forex transactions. At the same time, to secure a successful IMF program review, the NBU committed to softening administrative regulation of the foreign exchange market.

This decision concurred with the improved liquidity in the banking system as well as increased demand for foreign currency, causing higher volatility of the Hryvnia-Dollar exchange rate since the end of June.

The liquidity of the banking system notably improved in June-July, evident from the increased cash balances on the banks’ correspondent accounts and rather low interest rates on the interbank market.

While the reduction of the NBU discount rate may have a limited effect, better liquidity in the Ukrainian banking system was attributed to a drop in deposit withdrawal, the sale of government securities from the banks’ portfolios and NBU support with its refinancing resources (the NBU provided UAH 8.9 billion of refinancing support in June alone). All of this came on the back of virtually stalled credit activity.

The stock of commercial bank loans to the economy of Ukraine declined by 2.6% from January to June 2009. At the same time, excluding loans of state-owned banks to state-run companies (e.g., to finance Naftogaz purchases of natural gas), the drop in credit would be much more pronounced.

Excess liquidity may have been directed to the foreign exchange market, causing higher volatility since the end of June. Recent NBU decision to tighten reserve requirements [4] for commercial banks may be linked to such practices.

Uncertainty regarding the disbursement of the third tranche under the IMF program, the accumulation of foreign currency to service/repay external debts as well as expectations that depreciation pressures will intensify in the fall of this year spurred the demand for foreign currency. Combined with limited supply of foreign exchange due to depressed foreign trade, these factors led to a 5% depreciation in the average Hryvnia exchange rate to UAH 8.0 per USD on the interbank forex market in July.

Due to large debt services maturing in the second half of the year, the likely worsening of the foreign trade balance, growing political instability ahead of the presidential election and concerns over banking sector stability, the exchange rate is likely to remain volatile through the rest of the year, depreciating to UAH 8.5-9.0 per USD.

Despite some recent progress in dealing with banking sector difficulties, the risks in the banking sector remain significant. On a positive note, the run in bank deposits have ceased in 2Q 2009. Following the NBU’s stress tests and requests for additional capitalization, the capital of most first-tier (mainly subsidiaries of foreign banks and state-owned banks) and a number of the second-tier banks were boosted by existing shareholders. Seven large banks were recommended for state recapitalization with three of them recapitalized in mid-June 2009.

Moreover, a number of international financial institutions (the EBRD, the WB, etc.) have allocated about $2 billion to support Ukraine’s commercial banks by acquiring minority stakes. On the other hand, the likely Hryvnia depreciation in 2H of 2009, high debt service repayments and deteriorating quality of commercial banks assets [5] increase the likelihood of further stresses in the banking sector.


Following a sharp reduction in 1Q 2009, Ukraine’s current account kept rapidly adjusting during the second quarter of the year. According to preliminary data, the current account reported a surplus of $160 million in 2Q 2009. The adjustment largely reflects the narrowing in Ukraine’s trade deficit, which stood at $1.8 billion in 1H 2009, almost 2.5 times lower than in the respective period last year.

Although export performance deteriorated in 2Q 2009, imports fell even more sharply. In particular, exports dropped at an annual rate of 51% in the second quarter, exceeding the 39% yoy decline in 1Q 2009. Import of goods fell by 58% yoy in 2Q 2009, with imports of machinery and transport vehicles showing particularly strong declines.

The deterioration of goods imports this year was influenced by sharp Hryvnia depreciation in the fall of 2008, import restrictions, low world commodity prices and falling domestic demand.

At the same time, the trend may start to reverse in the coming months, affected by resumed growth in energy products and larger volumes of natural gas imports (necessary to pump into Ukraine’s underground storages to secure smooth gas delivery during the peak consumption in winter).

Moreover, demand for imports may also start to recover in 2H 2009, reflecting the need to replenish inventories (due to sharp destocking in 1H 2009). Although the rate of export decline is likely to decelerate in 2H 2009 as the global economy shows signs of improvement, the current account gap is likely to widen in 2H 2009.

Similar to the current account, the capital account balance also improved in 2Q 2009. Thanks to the stabilization of the foreign exchange market, resumption of the IMF stand-by agreement for Ukraine and financing from other international financial institutions, Ukraine successfully met its external financing needs for 1H 2009.

Although external debt financing needs are estimated to intensify in 2H 2009, with growing evidence of successful private debt restructuring/refinancing amid available financing from IFIs, the gap may exert relatively moderate pressure on the exchange rate.

[1] Source: Economic and Social Development Chief Service at the Secretariat of the President of Ukraine.
[2] An increase in excise payments is related to a rise in excise tariffs on tobacco and tobacco products. Larger non-tax revenues reflect an early payment of
the positive difference between the NBU’s revenues and expenditures in 2008 to the budget.
[3] According to the Ukrainian legislation, the deficit of the Pension Fund of Ukraine should be covered by the state budget funds. State Budget Law foresaw
a UAH 13.5 billion gap between revenues and expenditures of the Pension Fund of Ukraine in 2009.
[4] According to Ukrainian legislation, commercial banks have to build their reserves on a daily basis. However, during the day these funds could be used
for commercial banks operations but should be replenished by the end of the day. In mid-July, the NBU issued a resolution that starting August 3rd, 2009,
commercial banks will have to accumulate 40% of their daily reserves on a special account with the NBU. Commercial banks will not have access to
these funds during the day.
[5] According to the NBU, the level of non-performing assets (doubtful and loss loans) grew from less than 4% at the end of 2008 to almost 9% at the end of
June 2009. However, actual asset quality may be much worse as the existing practice of defining NPLs in Ukraine does not include substandard loans and
allows for manipulations when classifying the loan as sub-standard or doubtful. According to various estimates, NPLs may account for 17-25% of total
commercial banks’ loans.

NOTE: To read the entire SigmaBleyzer/The Bleyzer Foundation Ukraine Macroeconomic Situation update report for August 2009 in a PDF format, including color charts and graphics click on the attachment to this e-mail or go to the following link, and click on Ukraine August 2009,

SigmaBleyzer/The Bleyzer Foundation also publishes monthly Macroeconomic Situation reports for Bulgaria, Romania and Kazakhstan. The present and past reports, including those for Ukraine can be found at SigmaBleyzer is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C.,
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
Finding Newer, Cleaner Ways to Power the World, Providing Energy for Human Progress
U.S.-Ukraine Business Council (USUBC), Wash, D.C.,Wednesday, August 5, 2009

WASHINGTON, D.C. - Chevron, one of the world's largest integrated energy companies, has been approved for membership in the U.S.-Ukraine Business Council (USUBC), the USUBC executive committee announced today on behalf of the entire USUBC membership of over 100 companies and organizations who have business operations, investments or other development programs in Ukraine.
Chevron,headquartered in San Ramon, California, conducts business in more than 100 countries.Chevron explores for, produces and transports crude oil and natural gas; refines, markets and distributes transportation fuels and other energy products; manufactures and sells petrochemical products; generates power and produces geothermal energy; provides energy efficiency solutions; and develops the energy resources of the future, including biofuels and other renewables.
Chevron's diverse and highly skilled workforce consists of over 60,000 employees worldwide . In 2008, Chevron produced 2.53 million barrels of net oil-equivalent per day. About 75 percent of that volume occurred outside the United States in more than 20 different countries. Chevron had a global refining capacity of more than 2 million barrels of oil per day at the end of 2008.

Chevron's marketing network supports more than 22,000 retail outlets on six continents and they have invested in 13 power-generating facilities in the United States and Asia.

Thomas R. Bard, Exploration and New Ventures Manager - Eurasia, San Ramon, CA, will represent Chevron on the USUBC board of directors. USUBC will also be working closely with Diana Sedney, Manager, International Relations, Policy, Government and Public Affairs, Chevron, Washington D.C. and Kosta Jovanovic, Commercial Manager, Chevron Corporate Business Development.

Technology is propelling Chevron's growth with a focus on technologies that improve their chances of finding, developing and producing crude oil and natural gas. They also are investing in the development of emerging energy technologies - such as finding better ways to make nonfood-based biofuels, creating hydrogen fuel systems, devising commercial uses for nano-materials and expanding their renewable energy resources.

Chevron traces their earliest roots to an 1879 oil discovery at Pico Canyon, north of Los Angeles, which led to the formation of the Pacific Coast Oil Co. That company later became Standard Oil Co. of California and, subsequently, Chevron. The company took on the name "Chevron" when they acquired Gulf Oil Corp. in 1984, nearly doubling their worldwide proved oil and gas reserves. The merger with Gulf was at that time the largest in U.S. history.

Another major branch of the family tree is The Texas Fuel Company, which was formed in Beaumont, Texas, in 1901. It later became known as The Texas Company and eventually Texaco. In 2001, the two companies merged to form ChevronTexaco.

The name was changed to Chevron in 2005 to convey a clearer, stronger and more unified presence around the world. The acquisition of Unocal Corporation in 2005 strengthened Chevron's position as an energy industry leader, increasing our crude oil and natural gas assets around the world.

More information about Chevron is available at

"USUBC is especially pleased to have a major international company like Chevron as a member, " said Morgan Williams, Director, Government Affairs, Washington Office, SigmaBleyzer Emerging Markets Private Equity Investment Group,, who serves as President/CEO of the U.S.-Ukraine Business Council (USUBC).
"USUBC has increased its membership four times over the past two and one-half years and now has a membership base of over 100 companies and organizations which allows USUBC to provide its new members such as Chevron, with a full-time operation and a significantly expanded program of work on behalf of the members and their business and development work in Ukraine," according to Williams.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
Interfax - Ukraine Business, Kyiv, Ukraine, Wed, August 12, 2009
KYIV - The Ukrainian government,in settling a conflict with the U.S. Overseas Private Investment Corporation (OPIC), has instructed the Defense Ministry to transfer unusable and superfluous ammunition to TASKO Corporation in 2009-2010.

A posting on the government's Web site says that the cabinet resolution was approved on July 17 to execute a memorandum on mutual understanding between the Ukrainian and U.S. governments of November 10,2008,which was signed to settle the problematic situation with OPIC.

However,only cabinet resolution No. 874 of July 17 on ammunition disposition is posted on the Web site. According to the resolution,the Defense Ministry is to transfer 6,000 tonnes of ammunition to Ukroboronservice, a state company selected by NATO,to implement an agreement signed between the cabinet and the NATO Maintenance and Supply Agency (NAMSA). The funds raised should be sent to the national budget.

Morgan Williams, President/CEO of the U.S.-Ukraine Business Council (USUBC), said that the cabinet's decision could settle the conflict with OPIC and would allows the organization to resume providing guarantees,financing and insurance for projects in Ukraine in which U.S. investors participate.

Williams underlined the personal role played by Ukrainian Premier Yulia Tymoshenko and Vice Premier Hryhoriy Nemyria in settling the issue. The USUBC said that at present OPIC has proposed projects worth over $500 million for Ukraine.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

Op-Ed: by Dr. Andreas Umland, Global Politician magazine, NY, NY, Thur, Aug 20, 2009

Much can be heard from Western visitors of Ukraine or observers analyzing the post-Soviet region that Kyiv politics today is a “mess.” Hardly anybody (least of all, Ukrainians themselves) will disagree. Even lowbrow EU citizens may come up with an opinion on current Ukrainian affairs, and criticize the ensuing political chaos, in Kyiv.

Sometimes, Western ignorance mixes with European arrogance to re-produce stereotypes about Ukraine eerily similar to the way in which former KGB officers in Moscow would like to portray Europe’s largest new democracy.

Worse, what mostly remains unmentioned in West European assessments of current Ukrainian affairs, is that the foremost Western organization dealing with Ukraine, the EU, bears responsibility for the current political disarray, at Kyiv. Most analysts would readily agree that the EU perspective played a considerable role in, or even was a necessary precondition for, the quick stabilization and democratization of post-communist Central Europe.

Many political scientists would admit that, in Western Europe too, peace, stability and affluence during the last 60 years have been closely linked to European integration. However, few EU politicians and bureaucrats are prepared to state in public what would seem to logically follow from these observations, concerning the Ukrainian case.

If EU prospects and membership had a clearly beneficial effect from Tallinn to Dublin, then the absence of a European perspective for a manifestly European country means also – the absence of that effect, in the case of Ukraine.

The post-war notion of “Europe” is intimately linked to the economic, social and political dynamism of increasing pan-continental cooperation. When we say “European” today we often mean the EU and the largely positive repercussions which the integration process had and has on securing economic, political and social progress across borders.

In the light of these historically recent achievements, some, however, forget about the state of Europe, in general, and of some European countries, in particular, before integration. Much of pre-war European history was, by contemporary standards, far “messier” than today Ukrainian politics is. Remember the League of Nations, Weimar Republic or Spanish Civil War?

Enlightened East European intellectuals too might admit that, without the prospect of EU membership, their countries could today look more like Belarus or Georgia rather than Portugal or Ireland. Both West and East European political elites and governmental apparatuses needed a road map towards a better and common future.

Only when European integration, whether after the Second World or the Cold War, provided such a vision was it that politicians, bureaucrats and intellectuals of many EU member states got their act together, and made their countries more politically and economically successful.

If one admits the relevance of the prospect of, preparation for, and eventual attainment of, EU membership for the internal development of many European states, one should also acknowledge the effects that an explicit denial of such a vision has, on Ukraine’s elites.

Kyiv finds itself left in the “old Europe” of the pre-war period. Unlike politicians in most other European countries, Ukraine’s leaders still have to navigate through a world of competing nation states, shifting international alliances, introverted political camps, and harsh zero-sum-games where the win of one national or international actor is the loss of the other.

That is how domestic and European politics functioned across Europe before (and eventually resulted in) the two world wars. East of the EU’s current borders these incentive structures are still largely intact and led to, among numerous other negative repercussions, the recent wars, on the Balkans and Caucasus.

Most Ukrainians themselves would be the first to admit that Ukraine is today not ready for EU membership or even for the candidacy status. However, many pro-European Ukrainians find it difficult to understand EU policies and rhetoric concerning these issues: Why, on the one hand, is Turkey an official candidate for EU membership, and Romania or Bulgaria already full members, when Ukraine, on the other hand, is not even provided with the tentative prospect of a future candidacy?

Is Turkey more European, and are Romania or Bulgaria really that much higher developed than Ukraine? Didn’t the Orange Revolution and two following parliamentary elections – all approved by the OSCE, Council of Europe and EU – show the adherence of Ukrainians to democratic rules and values? Hasn’t Ukraine been more successful than other post-communist countries in averting inter-ethnic strife and in integrating national minorities?

Didn’t the elites and population of Ukraine show restraint when tensions were building up between conflicting political camps, in Kyiv, or as a result of provocative Russian behaviour, on Crimea?

Of course, there are also recent developments, in Ukraine, that point in the opposite direction. They include continuing governmental corruption, increasing political stalemate, stagnating public administration reform, or silting industrial restructuring.

However, with every passing year since the Orange Revolution, one asks oneself more and more: Are the various setbacks in Ukraine’s recent political and economic transition the reasons for, or rather a result of, the EU’s continuing unwillingness to offer a European perspective for Kyiv?

May it be that one cause for Ukraine’s frustrating domestic conflicts and halting economic transformation is the indeterminacy the country’s foreign orientation? Could it be that the EU’s demonstrative scepticism with regard to Ukraine’s ability to integrate into Europe is becoming a self-fulfilling prophecy? Aren’t the leaders of the EU themselves, to some degree, becoming responsible for Ukraine’s continuing failure to meet “European standards”?

As a result of EU introvertedness, Kyiv is left in a geopolitical nowhere land. Lacking a credible long-term vision of its own, Ukraine becomes the unofficial battlefield in a political proxy war between pro-Western and pro-Russian governmental and non-governmental organizations fighting for the future of this key, yet unconsolidated European country.

Without the disciplining effect that a credible EU membership perspective provides, there is no commonly accepted yardstick against which the elite’s behaviour could be measured. Ukrainian politicians, bureaucrats and intellectuals lack a focal point in the conduct of their domestic and international behaviour.

They are left to guess what the West’s and Russia’s “real” intentions with regard to Ukraine are, and how they should behave in order to secure economic development and political independence, for their country.

A stabilization of Ukraine is not only in the interests of the citizens of this young democracy, but should be also a key political concern for Brussels, Paris and Berlin. An economically weakened, politically divided and socially crisis-ridden Ukrainian state could destabilize and exhibit disintegrative tendencies. Ukraine’s population could polarize along linguistic lines with the ukrainophone West and Center put against the russophone South and East.

Such a development, in turn, could serve as a pretext for Russian intervention – with grave repercussions not only for East European politics, but also Russian-Western relations. In a worst-case scenario, the entire post-Cold War European security structure could be called into question.

The EU membership perspective constitutes a key instrument, for the West, to influence Ukrainian domestic affairs. The prospect of future European integration would reconfigure political discourse and restructure party conflicts, in Kyiv.

Neither the Ukrainian common man nor Russia’s political leadership are, in distinction to their stance on Ukraine’s possible NATO membership, principally opposed to the idea of a Ukrainian future entry into the EU. Even an entirely official statement by the EU on a possible admission of Ukraine to the EU some day would oblige the Union and member states to little, during the next years.

The Delegation of the European Commission at Kyiv is already engaged in a wide range of cooperation projects with the Ukrainian government. Offering Ukraine a European perspective would require only few practical changes in the current conduct of EU policies towards Kyiv. Yet, such an announcement would have a benevolent impact on the behaviour of Ukraine’s elites and make a deep impression on the population of this young democracy (as well as in Russia).

The EU’s leaders should try to see the larger picture, remember the recent past of their own countries, and stop their unhistorical cognitive dissonance. They should try do understand Ukraine’s current issues against the background of the West and Central European states' experience of instability before their participation in European integration. In the interest of the entire continent and all its peoples, they should offer Ukraine a European perspective sooner rather than later.

NOTE: Dr. Andreas Umlanda is a former fellow at Stanford, Harvard and Oxford who has been published in the Washington Post, Wall Street Journal, Financial Times, Jerusalem Post, Moscow Times, Kyiv Post and many other periodicals and scholarly journals.

[return to index] [Action Ukraine Report (AUR) Monitoring Service]
Year 2004 - 2009:
SHOULD DO MORE FOR UKRAINE, Hansjurgen Doss urges his home country
to do more to embrace Ukraine and promote its accession to Europe.

Op-Ed: By Hansgurgen Doss, Kyiv, Post, Kyiv, Ukraine, Friday, August 21, 2009

On Ukraines 18th national holiday, it is worth taking a look at the future of relations among Ukraine, the European Union and Germany. The picture of Ukraine drawn by the German media is rarely flattering.

This is all the more painful because, as a long-time advocate of German-Ukrainian friendship and as the Honorary Consul of Ukraine in Germany, I have come to know and love Ukraine and its citizens as an admirable, intelligent and extraordinarily warm people.

But when Ukraine is reported on in the German media, the picture is often a negative one. Reports are usually about the political problems and the delays in the preparations for hosting the European soccer championship in 2012.

The preparations for the European championship are not only of interest to Germany as a soccer nation, but also because Germany is being mentioned behind closed doors as a possible alternative, should the Union of European Football Associations decide to revoke Ukraines hosting rights.

Both topics, the political standstill and the Euro 2012, put Ukraine in a negative light. In fact, Germany and the EU have neglected Ukraine to date. Though the founding of Ukraine was welcomed by the German government and the Orange Revolution was favorably received, Germany, as the most populous and influential country in the EU, is too reserved.

For more than 10 years, Ukraine has been striving to join the European Union. It has every right to do so, because Ukraine is an integral component of Europe.

Brussels' reserve in the 1990s may have been due to the massive efforts of preparing for the largest expansion in EU history. But later advances by Ukraine were also received cautiously by the EU.

All the more surprising is the often-repeated comment in the German media that Poland has been acting in an exemplary manner in its preparations for Euro 2012. One must keep in mind, however, that Brussels is financing up to 50 percent of the estimated 20 billion euros in infrastructure expenses and construction costs for Poland to put on the games.

Ukraine, on the other hand, has no outside help to shoulder the 15 billion euros in investments it needs to adapt sports, transportation and telecommunications to UEFA standards. The bulk of the investments are to be contributed by private investors. This is organizationally more complex, as well as a challenge during these times of financial crisis.

Statements about what EU membership would have done for Ukraine are, of course, hypothetical. But experts assume that 400,000 jobs have been created by the EU since Poland joined the 27-nation political and economic bloc. Average monthly wages have increased by 150 euros per month since 2004. Poland has experienced economic growth directly connected to its EU membership.

The criticism in the Western media regarding Ukrainian political gridlock also appears to be legitimate at first glance. On the other hand, out of all of the former countries of the Soviet Union, only Ukraine and Georgia do not have an autocratic system. They have democratic structures.

I am confident that Ukraine will overcome the stalemate among president, parliament and government in the near future. Again, in the past, democratic changes were implemented most rapidly in countries where EU entry was offered as a prospect.

Germany, as the nation that profited the most from the end of the Cold War, should play a special role in opening the EU door to Ukraine. The fact that 14 million citizens of the former East Germany profited from their economically stronger West Germany brother should not make them arrogant. Instead, it should inspire more responsibility towards Ukraine, with whom we are linked tragically by World War II.

Already 52 percent of Ukrainians support EU membership. The IFAK Institute has also found that more Ukrainians trust the euro than the U.S. dollar.
This support has been greeted by an EU partnership agreement, which is more of an affront to Ukrainians than a friendly signal.

Ultimately, Germany and the EU should ask themselves whether it remains in their interests to keep Ukraine at a distance, contributing to unsettled issues with Russia. A decision about a concrete perspective of joining the EU is economically and politically overdue for Ukraine.

Despite media reports, Ukraine is enjoying growing popularity in Germany. Numerous German foundations and organizations are present in the nation.
So what specifically can be done to support Ukrainian entry into the EU?

The Ukrainian government should lobby important EU countries, starting with image campaigns and PR to improve the distorted image. Also, quite a bit can be done on a civil-society level. There are already numerous initiatives from foundations, communities and industries to promote a closer exchange between the two countries. Opinions in democracies are not just formed by the media, but also among the population, which is the essence of political participation.

Everyone can do something to concretely bring Ukraine closer to the EU by participating in grassroots initiatives and dialogue. Everyone can make their own personal contributions. My hopes are for a fruitful future together. And I wish Ukrainians all the best on their 18th Independence Day.

NOTE: Hansjurgen Doss is honorary consul of Ukraine in Mainz, Germany. He is also president of the German-Ukrainian Society (Deutsch-Ukrainische Gesellschaft) and was a member of the Bundestag of the Federal Republic of Germany from 1981 to 2002. He can be reached at

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

Russian President Dmitry Medvedev to President of Ukraine, Viktor Yushchenko.
The Ukrainian Weekly, Ukrainian National Association (UNA)
Parsippany, New Jersey, Sunday, August 16, 2009

The text, which appears on the Official Web Portal of the President of Russia, notes that the message “reads in part” as follows.

Problems in bilateral cooperation have, of course, existed before. This was natural following the disintegration of the Soviet Union, when we had to
develop relations between two sovereign states.

However, what we have witnessed during the years of your presidency cannot be interpreted as anything other than the Ukrainian party’s departure from the principles of friendship and partnership with Russia, embodied in the Treaty of 1997 [Treaty of Friendship, Cooperation and Partnership between Russia and Ukraine]. I already wrote to you about this in November last year and the situation has not improved, but rather degraded.

Let me cite a few examples that characterize the current state of affairs created by the conscious actions of your administration. A negative public reaction was caused by Ukraine’s anti-Russian stance in connection with the brutal attack on South Ossetia by Saakashvili’s regime. A year after those tragic events, once again the question of why civilians and Russian peacekeepers in Tskhinval [sic] were killed with Ukrainian weapons has arisen.

Those in Kiev [sic] who supplied the Georgian army with weapons and, by the way, do not intend to stop doing so, fully share with Tbilisi the responsibility for the committed crimes.

Ignoring the views of Ukrainian citizens as well as Russia’s well-known position, the political leadership of Ukraine stubbornly continues to pursue accession to NATO. And as a so-called argument you hint at a “Russian threat” to Ukrainian security, something which, as you are well aware, does not and cannot exist.

Unfortunately, the logical continuation of this destructive reasoning is the incessant attempts to complicate the activities of Russia’s Black Sea Fleet in violation of the fundamental agreements between our countries governing the parameters of its base in Ukraine.

At the same time, it seems that Kiev [sic] has consistently sought to sever existing economic ties with Russia, primarily in the field of energy. These
actions threaten the ability of our countries to reliably use what is, in fact, a unified gas transmission system that ensures the energy security of Russia, Ukraine and many European nations.

Despite our repeated appeals at various levels, virtually nothing has been done to stop the violation of property rights of Russian investors in Ukraine. All this has essentially undermined the formerly solid economic foundations of our bilateral partnership.

Russian-Ukrainian relations have been further tested as a result of your administration’s willingness to engage in historical revisionism, its heroization of Nazi collaborators, exaltation of the role played by radical nationalists, and imposition among the international community of a nationalistic interpretation of the mass famine of 1932-1933 in the USSR, calling it the “genocide of the Ukrainian people.”

The ousting of the Russian language from public life, science, education, culture, media and judicial proceedings continues. In this context, the harmful practices of intervention by the government of Ukraine in the affairs of the Orthodox Church beg attention.

The conditions that were created artificially on the eve and during a recent pastoral visit to Ukraine by Patriarch Kirill of Moscow and All Russia could hardly be described as favorable. Against this background, it is particularly gratifying to see the genuine and broad support for the unity of Orthodoxy demonstrated by Ukrainians who welcomed the patriarch.

Among the obstacles that authorities accountable to you have devised to hinder the positive development of Russian-Ukrainian relations is the provocation,
unprecedented in the entire post-Soviet space, by expelling two of our diplomatic representatives from Ukraine without any justification. This attack – that incidentally, immediately preceded the patriarch’s visit – conveys the essence of the current Ukrainian authorities’ approach to relations with Russia.

Naturally, we could not but retaliate to this unfriendly measure.

I would like to inform you that in view of the anti-Russian position of the current Ukrainian authorities I have decided to postpone sending a new Russian ambassador to Ukraine. Specific date will be determined later in light of the future development of Russian-Ukrainian relations.

For Russia, from time immemorial Ukrainians have been and remain not just neighbors, but also a fraternal people for whom we will always cherish the very best feelings, with whom we share a common history, culture and religion, ties stemming from close economic cooperation, and strong kinship and human relations.

I am convinced that the leadership of Russia and Ukraine is obliged to cherish these neighborly feelings, this wealth that is also our common competitive advantage in a globalizing world.

The challenge of responsible public figures is to resist the temptation to artificially divide our peoples for any geopolitical projects or political machinations, but rather safeguard the friendship between Ukrainians and Russians in every possible way, strengthen the foundations of our cooperation for the mutual benefit and prosperity of our countries.

It is unacceptable to subject centuries-old relations to such serious tests for the sake of short-term developments, thereby encouraging younger generations to harbor a mutual grudge by playing with nationalist complexes.

In Russia we hope that the new political leadership of Ukraine will be ready to build relations between our countries that correspond to the genuine aspirations of our peoples and help strengthen European security.

[return to index] [Action Ukraine Report (AUR) Monitoring Service]
Ukraine Macroeconomic Report From SigmaBleyzer:

Russian President Dmitry Medvedev's official blog,, Moscow, Russia, 12 Aug 2009

PRESIDENT OF RUSSIA DMITRY MEDVEDEV: A few days ago, I sent a letter to the President of Ukraine. It was not an ordinary document, I should say, as it contains a number of complex and unflattering characteristics of the actions by the top political leadership of Ukraine. In my today’s address I would
like to explain the reasons behind my step.

There has been public concern in both Ukraine and Russia of late over the state of our bilateral relations. Ukrainian politicians themselves have admitted that relations are at an extremely low point today, and it is hard not to agree. The strain in relations between our countries has indeed hit unprecedented levels.

I have on many occasions stated that Russia seeks to be a predictable, strong and comfortable partner for its neighbours, all the more so for a country with which we share common historical and cultural roots. We are more than just neighbours; our ties are those of brothers.

Nikolai Gogol, the great writer and son of both Ukrainian and Russian peoples, said, “There are no bonds more sacred than the bonds of brotherhood”. As we celebrate the 200th anniversary of Gogol’s birth, we remember these words once again. These celebrations are yet another vivid illustration of our peoples’ spiritual closeness.

Set against this background, the difficult – to say the least - relations our countries have been experiencing make an even stronger contrast. Let’s
take a look at what is actually happening.

The leadership in Kiev took an openly anti-Russian stand following the military attack launched by the Saakashvili regime against South Ossetia.
Ukrainian weapons were used to kill civilians and Russian peacekeepers.

Russia continues to experience problems caused by a policy aimed at obstructing the operations of its Black Sea Fleet, and this on a daily basis and in violation of the basic agreements between our countries.

Sadly, the campaign continues to oust the Russian language from the Ukrainian media, the education, culture and science. The Ukrainian leadership’s outwardly smooth-flowing rhetoric fits ill with the overt distortion of complex and difficult episodes in our common history, the tragic events of the great
famine in the Soviet Union, and an interpretation of the Great Patriotic War as some kind of confrontation between two totalitarian systems.

Our economic relations are in a somewhat better situation and are developing, but we have not yet succeeded in tapping their full potential. Again, the problem is that Russian companies frequently face open resistance from the Ukrainian authorities. Bypassing Russia, Ukraine’s political leaders do deals with the European Union on supplying gas – gas from Russia – and sign a document that completely contradicts the Russian-Ukrainian agreements reached in January this year.

But no matter what the complexes or illusions motivate the actions of individual Ukrainian officials, we will always value our fraternal ties with the Ukrainian people and will strive to strengthen our humanitarian cooperation. It is with this aim in mind that we plan to open branches of the Russian Science and Culture Centre in several Ukrainian cities and will do all we can to support Ukrainians living in our country in their efforts to develop their national culture.

Patriarch Kirill’s recent pastoral visit to Ukraine was also an event of great significance. I had a meeting with the Patriarch following the visit, and he shared his impressions and said many cordial words. We both are of one and the same opinion that the two fraternal peoples may not be separated as they share common historical and spiritual heritage.

I am confident that our relations with Ukraine’s people will overcome any problems. They cannot be destroyed by politicians’ selfish interests, fickle
changes in the global situation, or individual leaders’ mistakes, and all the more so, cannot be undone by empty words and pseudo-historic research.

I am certain that a new era will begin. Nevertheless, in the current situation, I have made a decision to refrain from sending the Russian ambassador to Ukraine. The new ambassador will commence his duties at a later stage, and naming the exact date for it will depend on the positive dynamics in bilateral relations.

There can be no doubt that the multifaceted ties between Russia and Ukraine will resume on a fundamentally different level – that of strategic partnership – and this moment will not be long in coming. I hope that the new leadership of Ukraine will be ready for the break through. We will in turn make our best for it to happen.

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

Provided by the Embassy of Ukraine, President Viktor Yushchenko’s August 13
letter to President Dmitry Medvedev of Russia. The English text of the Ukrainian
president’s letter was released on August 14.
The Ukrainian Weekly, Ukrainian National Association (UNA)
Parsippany, New Jersey, Sunday, August 23, 2009

Respected Dmitry Anatolyevych:

I have perused your letter of 6 August 2009. Straightforwardly speaking, I am very disappointed with its unfriendly nature.

I agree that there are serious problems in the relations between our countries, but your absolute denial of Russia’s responsibility for them surprises me.

Our state has never betrayed the principles of friendship and partnership fixed in the Agreement of 1997 [and] was doing its best to ensure fruitful and mutually beneficial development of bilateral relations.

Moreover, in accordance with the abovementioned agreement our countries were to build up relations with each other based on principles of mutual respect and sovereign equality.

Yet, I would like to set aside the emotions and proceed to the objective analysis of the state of bilateral relations. Ukraine’s position on last year’s events
in Georgia is well-known and coincides with positions of almost all other countries of the world. Its core is indisputable respect towards sovereignty, territorial integrity and inviolability of borders of Georgia or any other sovereign state.

The accusations of supplies of weapons to Georgia are groundless. It’s a shame that, despite numerous clear and comprehensible explanations of the legality
of its activity on the arms market from the Ukrainian side, the Russian side continues the consecutive campaign aimed at shaping the image of Ukraine as a state that does not obey international regulations and regimes in the sphere of military technical cooperation.

In this regard I would like to remind that Georgia has never been and is still not a subject to any international sanctions or embargo on supplies of arms, military equipment and dual-use goods imposed by either the U.N. Security Council, the OSCE, the European Union or other international organizations.
Moreover, the proposition to impose such restrictions within the framework of the OSCE, made by Russia after the Russian-Georgian conflict, found no support.

Ukraine’s NATO integration course may not be subject to Russia’s political criticism either. It forces us to again repeat the common truth that the right to
choose international means of ensuring one’s national security, including the participation in military-political alliances, is an integral part of the national sovereignty of any state and Russia has to respect that.

I would like to remind you that the Law of Ukraine “On Foundations of National Security of Ukraine” approved by the Verkhovna Rada of Ukraine in 2003 with support from the leadership of the current opposition provides for integration of Ukraine with NATO up to fullfledged membership. The president of Ukraine follows that.

Also [I] would like to once again emphasize that the desire of our country to gain membership in NATO is in no way aimed against Russia and that the
final decision on accession of Ukraine to NATO will be made only after a national referendum.

I would like to point out separately that Article 17 of the Constitution of Ukraine prohibits deployment of foreign states’ military bases on Ukrainian territory. Yet, our state keeps to its international treaty obligations on the temporary deployment of the Russian Black Sea Fleet in Ukraine until May 28, 2017, and fully complies with provisions of the relevant basic agreements of 1997.

On the other hand, I am forced to admit serious problems in compliance of the Russian side with the basic agreements regarding use of land, real estate, radio frequencies, navigation equipment, etc. Throughout the period of deployment of the Black Sea Fleet of Russia in Ukraine, its command has been
rudely and systematically violating the bilateral agreements and legislation of Ukraine, and the Ukrainian side has been constantly informing the Russian side
about that.

Ukraine consistently supports the development of pragmatic economic relations with Russia, especially in the energy field. Ukraine has started a program of
modernization of its gas transport system to bring it to the highest international standards and is ready to invite the potential of European countries and of other parties to the process. Our country has many times proved in practice its reliability as a partner in the transportation of energy resources: gas, oil and nuclear energy fuel.

Ukraine was one of the few countries in the world which in June this year welcomed the initiative of the Russian Federation to start a multilateral dialogue on improving the international legal framework in energy security that in our opinion should be based upon the Energy Charter and other relevant documents.
Your letter also repeats regular and well-known accusations aimed at depriving Ukraine of its view of its own history, our own national interests, foreign policy priorities. I am convinced that such questions as history, along with native language, culture and family ethics are fundamental principles for development of the state and identification of the Ukrainian nation.

By raising the question of recognition of the Holodomor in Ukraine of 1932-1933 at the international scene the Ukrainian people also pay tribute to millions
of Russians, Belarusians, Kazakhs and representatives of other nationalities who died of starvation in the Volga region, the Northern Caucasus, Kazakhstan and other parts of the former USSR.

It is known that during the “Light the Candle” campaign dedicated to the 75th anniversary of the Holodomor in Ukraine, burning candles in hundreds of cities worldwide, including in Russia, proved multi-ethnic solidarity with Ukraine in recognition of the fact.

In no way I can agree with the allegation about the ousting of the Russian language from public life in Ukraine. Elementary impartial evaluations of the
language situation in Ukraine and Russia show completely opposite facts. It is in the Russian Federation where members of the Ukrainian minority have virtually no ability to realize the right to fulfill their national and cultural needs. The well-known findings of international organizations prove that.

Responding to concerns about the alleged intervention of the Ukrainian government in the affairs of the Orthodox Church, I would like to note the following.
The Ukrainian leadership respects the canons and traditions of Churches and religious organizations. The Church in Ukraine is separated from the state; each
citizen has the right to profess any religion.

However, no one may prohibit the citizens to freely express their position on any issues, including those religious.

Regarding the visit of Patriarch of Moscow and All Russia Cyril [Kirill] to Ukraine, it is worth mentioning that he expressed words of gratitude to the leadership of our nation for the high level of organization of his stay in Ukraine. And, of course, the Russian Orthodox Church prior [primate] did not make any negative or critical remarks similar to those contained in your letter and discrediting the very spirit of the visit. Generally speaking, we consider the connections between the visit of Patriarch Cyril and bilateral political relations to be wiredrawn and irrelative [irrelevant].

Speaking about the forced decision of the Ukrainian side regarding the two diplomatic representatives of Russia, it should be emphasized that before making
such a step we have three times officially argued to the Russian side about the wrongful actions of the abovementioned senior diplomats.

The Ukrainian party has provided sufficient evidence of their activities in Ukraine, which harmed the national interests of Ukraine. On the other hand, the responsive actions of the Russian side against the Ukrainian diplomat were totally unjustified and baseless.

I hope that in the future our two countries will manage to avoid recurrence of such unfortunate situations, which cast a shadow over bilateral relations.
Summarizing the listed, I would like to express my conviction that solving current problems in Ukrainian-Russian bilateral relations requires intensive work.

Therefore, the decision to postpone the arrival of the new Russian ambassador to Ukraine will certainly not contribute to constructive development of our relations. Ukraine remains a supporter of broad cooperation with the Russian Federation based upon mutual respect and equality, by means of maintaining constructive dialogue, including that at the highest level.

At least three times last year I have proved my willingness to engage in dialogue at the negotiating table in my letters to you. Today this call still applies. Unfortunately, in response to that I only received invitations to take part in the race for the prize of the president of Russia or other multilateral arrangements. I hope that this time your response will be constructive.

I believe in the good future of Ukrainian-Russian relations, which are based on the deep tradition of friendship and neighborliness between the peoples of our two countries that are stronger than the interests of certain political circles and not influenced by situational conditions of the political moment.

Viktor Yushchenko

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Op-Ed: By Anders Åslund, The Financial Times, London, UK, Mon, Aug 17 2009

Relations between Russia and Ukraine have always been difficult. Since Ukraine’s Orange revolution in late 2004 they have been dismal. Conflicts have involved gas, agricultural trade, the Russian naval base in the Crimea, the war in Georgia and Ukraine’s interest in Nato. Even so, politicians from the two countries rarely meet.

Last year Vladimir Putin, then Russia’s president, escalated the conflict by publicly questioning Ukraine’s sovereignty and territorial integrity. He has repeated his claims as prime minister.

President Dmitri Medvedev’s strident open letter to President Viktor Yushchenko amounted to a further escalation, with its declaration that Russia would not send a new ambassador to Kiev. Mr Medvedev offered no constructive proposals but listed old Russian grudges, claiming that all faults lie with Ukraine.

The language was reminiscent of Leonid Brezhnev in its detachment from reality. Mr Medvedev claimed that no Russian threat against Ukraine exists, as if he were unaware of his prime minister’s statements. He went on in Soviet vein: “Russia endeavours to be a predictable, strong and accommodating partner” to its neighbours. Well, hardly, as Mr Yushchenko noted in his response.

Mr Medvedev’s obvious aim was to influence the Ukrainian presidential elections scheduled for January, expressing hopes for improved relations with the “new Ukrainian leadership”. Mr Yushchenko is no longer a credible candidate, having proven himself an ineffective ruler.

The two leading candidates are instead Yulia Tymoshenko, the current prime minister, and Viktor Yanukovich, the former prime minister, with Arseniy Yatseniuk, the former speaker, as the only other plausible contender.

But however much effort Moscow puts into the Ukrainian elections, it is not likely to achieve its aims, as the Orange revolution illustrated. Contrary to common misconceptions, no real separatism exists in Ukraine. The Kremlin has given up on Mr Yanukovich, the leader of largely Russian-speaking eastern Ukraine, realising that no serious Ukrainian politician can be pro-Russian. Recently, the Kremlin has preferred Ms Tymoshenko as somebody they can do business with, but there is no love lost.

The Kremlin’s misunderstanding of Ukrainian politics is based on the fact that, unlike Russia, Ukraine is a democracy. The Russian leaders think they can “buy” Ukrainian politicians, but in the end they must listen to their voters, not Moscow, to gain office.

This is an alien thought to the authoritarian Muscovites, who believe everything is manipulated from above and by Washington. Persistent anti-Ukrainian propaganda on Russian state television also turns eastern Ukrainians against the current Russian regime.

Mr Medvedev’s statements appear to be a reflection of the rivalry between the Putin and Medvedev camps, which confuses all central policymaking in Russia at present. Ominously, Mr Putin has made Ukraine-bashing one of his trademarks and Medvedev needs to keep up. Russian economic policy is suffering as a result of this strife and Ukraine may do so too.

The broader problem for Russian foreign policy is that the country’s rulers do not know how to deal with their post-Soviet neighbours. Their policy objectives are mixed. Gazprom wants to monopolise gas supply, transportation and sales. Private businessmen aspire to expand their corporations. Agricultural interests block imports. Russian nationalists persist in neo-imperialism and populist politicians try to win domestic support by attacking their neighbours.

The result is that post-Soviet nations are trying to develop relations with anybody but Russia. Kazakhstan and Turkmenistan are opting for gas exports to China. Most starkly, Georgia and Ukraine are turning to the west, but even Belarus, the ultimate Russian loyalist, is fed up with the Kremlin and seeking other options.

For the west, the conclusion is that it needs to solidify its support for Ukraine regardless of who wins the elections. Fortunately, it is doing so. Joe Biden, the US vice-president, made this point clearly during his recent trip to Kiev, while the European Union is pursuing efforts at integration, notably through a forthcoming European Association Agreement on trade.

NOTE: The writer is a senior fellow of the Peterson Institute for International Economics and author of "How Ukraine Became a Market Economy and Democracy."

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Window on Eurasia, by Paul Goble, Vienna, Saturday, August 15, 2009

Vienna, August 15 – Underlying the current escalation of tensions between Moscow and Kyiv is a fundamental difference in the way the two nations define themselves, a leading Moscow commentator says. For Ukrainians, “Ukraine is Ukraine,” but for Russians, “Russia is Russia plus Ukraine.”

In his Ekho Moskvy blog, Leonid Radzikhovsky argues that this difference in national self-conceptions is more important than any other factor in explaining why Moscow “again and again” acts as if Ukraine is Russia’s “INTERNAL affair,” something Ukrainians quite naturally view as outside inference in their own (

Obviously, President Dmitry Medvedev hopes to win support at home by his attacks on Ukraine and Ukrainian officials, the Moscow commentator continues, but that is “SECONDARY” as an explanation for what is going on. The “PRIMARY” factor is “THE DEMAND OF SOCIETY.”

And that demand, Radzikhovsky continues, is not so much about rebuilding the empire or supporting Yanukovich whom, the Moscow writer suggests, “80 percent of the population of the Russian Federation” haven’t heard of, but rather about the feeling among most Russians that “WITHOUT UKRAINE, RUSSIA IS INCOMPLETE!”

To feel itself whole, he says, “Russian society doesn’t need alien Central Asia. And it doesn’t need the alien Baltic. And it does not need the unloved Transcaucasus” – although the North Caucasus, Radzikhovsky continues, is “an anything but simple” matter. “But [Russian society] NEEDS Ukraine! Even more than it does Belarus.”

Given their interwoven history as Slavs, given Russia’s self-definition of its history as beginning with Kievan Rus’, and given their religion, Russians are inclined to see Ukraine and Ukrainians as part of themselves, failing to acknowledge to anyone including themselves that Ukrainians do not see the Russians in the same way.

Because Ukraine means so much more for Russians than Moscow means for Ukrainians, he continues, Russians feel that their love is “unrequited,” and consequently, their feelings have shifted toward “a cruel jealousy” in which Russians are demanding something that the Ukrainians are not in a position to give.

“Note,” Radzikhovsky continues, “Russia is not able to formulate its REAL pretensions toward Ukraine … The transit of gas, NATO, the Black Sea fleet, and the terror famine are just details. With whom are there no such details?” But Russia’s obsession with them is because it cannot say in full voice “’Love me!’”

And because this cannot be said openly, there is all the continuing blather about “’fraternal peoples’ or even about ‘a DIVIDED people.’” What makes this so disturbing is that it is not just a question of Kremlin PR. This is how millions, even TENS OF MILLIONS of people in Russia feel.”

But the situation in the Ukraine is very different. Despite frequent Russian suggestions that Ukraine will fall into pieces, that has not happened. And while “the Russian and Russian- speaking population of Ukraine does not want to join NATO, [those same people] do not want to join RUSSIA either.” Instead, they like others in Ukraine WANT TO JOIN EUROPE.”

“Many Ukrainians do business in Russia, and all want to travel there without visas, but with this, the ‘list of their desires’ is exhausted.” They do not want more from Russia, but Russia very much wants more from them, Radzikhovsky says.

“Russia and the Russian people need Ukraine for their own SELF-IDENTIFICATION. Russia equals GREAT Russia equals Russia plus Ukraine,” the Moscow analyst suggests. “They are consumed with an unsatisfied feeling of GREAT POWERNESS. Given Russian history, it could not be otherwise.”

But “Ukraine and its people including both ethnic Russians and ‘Russian Ukrainians’ for their SELF-IDENTIFICATION need … only Ukraine.” For them, “Ukraine equals Ukraine. They do not have a Great Power sense of themselves. They are satisfied with the sense of being a ‘middle size power.’”

As a result, the Ukrainians will ‘NEVER UNIFY WITH ANYONE ELSE into a single whole.” (Joining the EU is an entirely different thing, Radzikhovsky says.) “Russia in general understands this. But it cannot accept it,” and consequently, Moscow will continue to talk about a “divided” nation when Russia should be talking about two.

Radzikhovsky says that talk of that kind could have “AN ENORMOUSLY POSITIVE MEANING” if it were directed to dealing with “the various forms of separatism ‘INSIDE RUSSIA’” because then it would promote a sense of the “SOLIDITY OF THE NATION” and the “VALUE OF EACH INDIVIDUAL.”

But if such discussions among Russians remain focused on Ukraine, not only will the Russians further alienate the Ukrainians, Radzikhovsky suggests, but they will fail to address the very problems within their own borders that a more adequate understanding of themselves and of Ukrainians would permit.
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Ominous warnings that suggest Russian intentions to escalate

Op-Ed: By Eugene B. Rumer and David J. Kramer
The New York Times, NY, NY, Thursday August 20, 2009

Russia’s president, Dmitri Medvedev, has had a busy August.

On Aug. 8, he met with Russian troops, who a year ago had, according to the Kremlin Web site, repelled “Georgian aggression against South Ossetia.”
On Aug. 10, he introduced a bill in the Duma to allow him to send Russian troops abroad to defend Russian citizens or prevent aggression against another state.

On Aug. 11, he wrote to the Ukrainian president, Viktor Yushchenko, announcing his decision to delay — indefinitely — the dispatch of the new Russian ambassador to Ukraine. Mr. Medvedev explained his decision by citing Mr. Yushchenko’s anti-Russian policies. He also hinted that the decision might be reversed after Ukraine’s presidential election in January, when the country will have “new political leadership.”

Few things can give Mr. Yushchenko, up for re-election with barely 3 percent support in the polls, a better boost than an attack from the Kremlin. But that was probably not Mr. Medvedev’s intent. The letter contains ominous warnings that suggest Russian intentions to escalate already tense relations after the latest gas cutoff last January.

The list of Mr. Medvedev’s complaints about Kiev’s policies covers virtually every aspect of Russian-Ukrainian relations: Mr. Yushchenko’s government supported Georgia in the war with Russia last year and supplied it with weapons. Kiev interfered with Russia’s Black Sea fleet based in Sevastopol; it disrupted Russian natural gas deliveries to Europe; it used the specter of a Russian threat to seek NATO membership; it mistreated Russian investors; it engaged in historical revisionism in the glorification of Nazi collaborators; and it even tried to disrupt the visit of the Russian Patriarch to Ukraine.

The alleged offenses are so grave that Medvedev’s letter leaves little room for defusing the tensions. If the letter is “merely” an attempt to interfere in Ukraine’s domestic politics and warn voters that they should not re-elect the Western-leaning Mr. Yushchenko, it would not be the first time.

During the 2004 presidential election, which preceded Ukraine’s “Orange revolution,” the Kremlin intervened heavily on behalf of Mr. Yushchenko’s opponent, Viktor Yanukovich. But Moscow’s intervention backfired, and Mr. Yushchenko emerged as the nation’s democratic leader, propelled to victory in part by widespread resentment of Russian actions.

But what if Mr. Medvedev’s letter is not simply a replay of 2004? Relations between the two countries have been so bad for so long that everyone has become used to fiery exchanges between the two capitals. In this regard, the situation is reminiscent of Russian-Georgian relations on the eve of the war a year ago.

Relations between Moscow and Tbilisi had been so bad for so long, and signs of increasing tension had become part and parcel of Russian-Georgian relations to such a degree, that even many close observers were taken by surprise when the war began.

Who would have predicted that Georgia’s tiny military could go to war against the Russian Army? And Russia, conventional wisdom held, would not attack Georgia for fear of damaging its relations with the West.

Is Mr. Medvedev’s letter a sign that Russian patience with Ukraine is running out, that Russia is preparing to take drastic action — to reclaim the Crimean peninsula, for example, with its ethnic Russian majority?

Conventional wisdom holds that such a move would cause irreparable harm to Russian relations with Europe and the United States. Conventional wisdom also suggests that the bill Mr. Medvedev introduced on Aug. 10 on the use of Russian troops abroad is probably just a routine piece of legislation intended to fix glitches in existing Russian laws. Russia, after all, moved against Georgia without such legislation.

Conventional wisdom further argues that Russian leaders would not be so careless as to use military force in Crimea, where ethnic Russians reportedly have been obtaining Russian passports and where Russian naval personnel serve at the Sevastopol naval base. And conventional wisdom argues that Ukraine could pose a greater challenge for the Russian military than did Georgia, thus acting as a further deterrent.

Conventional wisdom is reassuring. But relying on conventional wisdom can lead to unimagined results, as last year’s Russian-Georgian war demonstrated. Mr. Medvedev’s letter to the Ukrainian leader is an occasion to engage in unconventional speculation as to what might be the real reason behind it, and an opportunity to exercise our collective imagination in pursuit of a course of action that would boost our confidence in conventional wisdom.

NOTE: Eugene B. Rumer is a senior fellow at the Institute for National Strategic Studies, National Defense University, Washington. David J. Kramer is senior fellow at the German Marshall Fund of the United States in Washington and served as a deputy assistant secretary of state responsible for Russia, Ukraine, Belarus and Moldova in the George W. Bush administration.

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Moscow goes on the offensive against Ukraine and Georgia

By James Marson, Kiev, Time Magazine, New York, NY, Sun, Aug. 23, 2009

The much-trumpeted "reset" of relations between Russia and the U.S. was dealt a slap in the face last week as Moscow went on the offensive against Ukraine and Georgia.

After Russian President Dmitri Medvedev waded into Ukrainian politics with barbed criticism of his Ukrainian counterpart's "anti-Russian" policies, Prime Minister Vladimir Putin embarked on a provocative trip to reaffirm support for Abkhazia, the Moscow-backed territory that enjoys de facto independence from Georgia.

While Washington insists that it will not recognize a Russian "sphere of influence," the moves by Medvedev and Putin place a question mark over the Obama Administration's ability to check Russia's determination to forcefully push what it calls its "privileged interests" in its neighboring countries.

The flurry of diplomatic activity came symbolically on the anniversary of last summer's Russia-Georgia war, in which Moscow intervened on behalf of the breakaway Georgian regions of South Ossetia and Abkhazia.

The reset, announced by U.S. Vice President Joe Biden in February, was meant to signal the rebuilding of the relationship between the U.S. and Russia that had soured under George W. Bush. But despite some progress on issues such as arms control and Afghanistan when U.S. President Barack Obama visited Moscow in July, it's back to business as usual for Russia with its neighbors, as it tries to assert its authority despite the U.S.'s disapproval.

"The one thing that could most endanger the reset policy would be really bad Russian behavior in the post-Soviet states," says Steven Pifer, a former U.S. ambassador to Ukraine and now a visiting fellow at the Brookings Institution in Washington, D.C. "The Russians don't want to recreate the Soviet Union, but they do want a system in which their neighbors pay close deference to what Moscow determines to be its vital national interests. The United States has a different view." .)

After weeks of escalating diplomatic tensions between Russia and Ukraine, including mutual expulsions of diplomats, Medvedev on Aug. 11 unleashed a tirade of complaints in a letter and video blog posted on the Kremlin web site, in which he accused Ukrainian President Viktor Yushchenko of bringing relations to "unprecedented lows."

Since coming to power in 2005 — after mass protests known as the Orange Revolution overturned a ballot rigged in favor of Moscow-backed candidate Viktor Yanukovych — Yushchenko has riled the Kremlin with his attempts to drag Ukraine away from Russia's sphere of influence and toward the West.

After an extensive list of gripes, covering Ukraine's attempts to join NATO, its sale of weapons to Georgia, its interpretation of Soviet history and its attitude toward the Russian language, Medvedev announced that he was delaying the dispatch of the new Russian ambassador to Kiev until things improved.

Yushchenko responded with his own letter directed at Medvedev, criticizing the Russian President's meddling in Ukraine's foreign policy decisions, saying that while he agreed relations were bad he was "surprised that you completely deny Russia's responsibility for this."

The Russian leadership has long been battling with Yushchenko over what they see as his attempts to tear apart two countries that are, according to Medvedev, "not just neighbors, but brother nations." In his letter, Medvedev signaled that Moscow would like to see a more cooperative leader in place in Kiev after Ukraine's presidential elections in January, a statement that hit a raw nerve with Ukrainians, who still remember Russia's forays into the 2004 elections in support of Yanukovych.

Valeriy Chaly, deputy director of the Razumkov Center think tank in Kiev, says that the publication of Medvedev's letter showed that the President was trying to insert the topic of Russia into election discussions as it did in 2004: "It's a test of loyalty for the presidential candidates."

But observers in Kiev say Medvedev's attack only proves that Russia has learnt nothing from its botched intervention in 2004, and that the latest move is likely to backfire — despite a generally positive attitude toward Russia, Ukrainians often react negatively when they feel they're being bullied.

And although the leading contenders for the Ukrainian presidency are less overtly opposed to Russia's demands than the incumbent (who is running despite low approval ratings), Moscow is set to be disappointed if it thinks a change in leadership is going to bring Ukraine back into its fold. Even ostensibly pro-Russian Yanukovych has in the past blown hot and cold on NATO integration, a goal of Yushchenko's that has consistently irked Moscow.

"Ukraine's position is pretty consolidated," says Chaly. "It's not anti-Russian, but the country's foreign and domestic policy depends on national interests, so even pro-Russian politicians aren't going to lead us toward goals declared by the Russian President."

The breakaway Georgian territories of South Ossetia and Abkhazia are proving more pliable. With Nicaragua the only country other than Russia to recognize their independence, they are reliant on support from Moscow, which has been happy to oblige.

The day after Medvedev's letter was made public, Prime Minister Putin visited Abkhazia, pledging around $500 million in military aid. Georgia reacted angrily, calling the visit "a provocation carried out quite in the tradition of Soviet special services," a reference to Putin's KGB past.

The anniversary of the conflict in South Ossetia also saw Medvedev backing an initiative that would give a legal basis for deploying the Russian military
abroad to defend Russian citizens and armed forces from attack — precisely the reason given by Moscow for its intervention last year. This raises concerns about the Kremlin's designs on Ukraine's Crimean peninsula, which has a large ethnic Russian population and is home to the Black Sea Fleet.

While Russia continues to reach into its neighbors' affairs, there appears to be little that Washington can do. Although Biden was in Ukraine and Georgia in July to show support, the response to Medvedev's letter was low-key, with a State Department spokesman repeating the customary defense of Ukraine's sovereignty and its right to make its own choices.

"The Russian leadership thinks that despite its rhetoric the U.S. is so heavily focused elsewhere that it is not really interested in the former Soviet Union," says Dmitry Trenin, director of the Carnegie Moscow Center, an independent think tank in Moscow. "The reset was done on the U.S. side; the Russians didn't feel they had anything to correct."

PHOTO: Ukrainians holds hold a poster depicting Russian President Dmitry Medvedev and Prime Minister Vladimir Putin and a comment reading "No more drinking for Medvedev" in front of the Russian embassy in Kiev, Ukraine. The poster, right, reads "All life in Moscow is impregnated with lies."
Sergei Chuzavkov / AP

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Op-Ed: By Yevgeny Kiselyov, The Moscow Times, Moscow, Russia, Fri, Aug 14, 2009

There is an old Russian anecdote that would shock most people in the West, but it reflects the mores here all too well. A man comes home from work and no sooner does he step through the doorway than he wallops his wife with such a backhand that it sends her sprawling on the floor.

“Vanya, what was that for? I didn’t do anything wrong,” she asks. “I know. If you really had done something wrong, I would have killed you!” he replies.

I was immediately reminded of this joke after hearing President Dmitry Medvedev’s video address posted on his blog Tuesday. Out of the blue, Medvedev struck out against President Viktor Yushchenko and announced that he would postpone sending Russia’s new ambassador to Kiev, a political demarche that is roughly equivalent to recalling an ambassador entirely.

Everybody was left scratching their heads and wondering, “What could have prompted such a disproportionately harsh speech by Medvedev?” The only thing worse than this would have been to break off diplomatic relations with Ukraine entirely, as Moscow did with Georgia last year and with Israel over 40 years ago.

Recall that when Israel trounced its Arab enemies in the 1967 Arab-Israeli war, the Soviet Union, which had placed all of its political eggs for that region in the Arab basket, broke off diplomatic relations with Tel Aviv out of spite.

This example is a good illustration of the consequences of such reckless and poorly thought-out policies. For the 24 years during which the Soviet Union had no diplomatic relations with Israel, the Kremlin lost almost all influence in the Middle East. (Official relations were restored only in 1991, just weeks before the Soviet Union’s collapse.)

Today, Russia is formally a sponsor of the Middle East peace process, but that is probably more a weak consolation prize from the other participants in the negotiations than recognition of Moscow’s actual influence in the region. Unfortunately, the same fate awaits Russia in the Caucasus. Just like with Israel, Moscow will one day — perhaps in 24 years? — need to establish normal diplomatic relations with Georgia once again.

And the same scenario could unfold in Ukrainian relations if the Kremlin continues its inflammatory rhetoric. The arguments Medvedev used to defend his diplomatic attack against Kiev do not hold water. All of the problems the president mentioned do exist, but they first appeared long ago and most had arisen even before Yushchenko took office.

They include the disagreements over the transit of Russian gas through Ukrainian territory, the future of Russia’s Black Sea fleet, the status of the Russian language in Ukraine, conflicting interpretations of Russian-Ukrainian history and difficulties encountered by Russians doing business in Ukrainian markets, to name a few.

Moreover, Medvedev clearly inflated the importance of these problems. They hardly justify the president of one country leveling such scathing statements at the president of a neighboring country.

What is really going on?

One conspiracy theory holds that Yushchenko violated some type of secret agreement between Moscow and Kiev concerning the only issue that Russia truly cares about — gas shipments. But this theory has not yet been substantiated.

Another version of the conspiracy theory — which seems bizarre at first glance — suggests that Medvedev is actually trying to help Yushchenko’s re-election bid by publicly lambasting him just before Ukraine’s presidential election. According to this theory, by interfering in Ukraine’s internal affairs, Medvedev will help increase Yushchenko’s popularity by giving credence to his anti-Russian platform.

After all, Yushchenko is practically the only presidential candidate who speaks openly about the so-called Russian threat to Ukraine’s national independence.

Yushchenko’s critics have always held that he suffers from paranoia, but Yushchenko has had little hard evidence to support his alarmist anti-Russian statements. In this sense, Medvedev’s speech is a huge gift for Yushchenko. Now he can say, “Look, I told you so. Russia is openly threatening us and trying to dictate our policies.”

The obvious question is: What does Moscow have to gain from this approach? However paradoxical it might seem, the so-called anti-Russian Yushchenko may actually be advantageous for Russia. Moscow views Yushchenko as a weak politician, but this presents an excellent opportunity that Moscow can exploit to its advantage.

Yushchenko can do the Kremlin’s work for it by continuing to paralyze Ukrainian politics through his constant bickering with Prime Minister Yulia Tymoshenko and other opposition politicians. In addition, Yushchenko has always supported RosUkrEnergo, the shady intermediary for gas transports between Moscow and Kiev.

True, this theory does have one major flaw: Yushchenko’s electoral support is so low that Medvedev’s help would probably be too little to boost Yushchenko’s miserable ratings. Interestingly enough, in 1996, former President Boris Yeltsin had about the same level of support when he started his successful re-election campaign.

The big difference, however, is that Yushchenko lacks Yeltsin’s charisma and his notorious administrative resources. As former President Leonid Kuchma famously said, “Ukraine is not Russia.”

Therefore, it remains to be seen how Ukrainian voters will react to Moscow’s new anti-Ukraine campaign. But if Medvedev’s strategy is successful, we might see an amazing, come-from-behind victory for Yushchenko in January’s presidential vote.

NOTE: Yevgeny Kiselyov is a political analyst and hosts a political talk show on Ekho Moskvy radio.

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Op-Ed: By Vitaly Bala, Director of the Situations Modeling Agency, Kyiv
Eurasian Home website, Moscow, Russia, Thursday, August 13, 2009

Dmitry Medvedev’s address to his Ukrainian counterpart Viktor Yushchenko indicates that Russia is acting towards its neighbors like in the early nineties, when the doctrine on Moscow’s exclusive interests in the former Soviet Union prevailed.

This address is intended for both Ukrainian and Russian audience. Russia has a difficult time because of the economic crisis. Georgia is of no interest to the Russians any more, while according to the public opinion polls, Ukraine is one of the most unfriendly states for Russia.

The Russian authorities propagate the “aggressive patriotism” in the country, which would allow the government to ignore the domestic problems and give it a free hand in addressing external problems. For instance, the Russians backed the actions by the Russian troops in Georgia in August 2008.

In terms of the diplomatic practice this approach is wrong and the address’ meaning is pure nonsense. Linking the arrival of a new Russian Ambassador in Ukraine to the change of power in Ukraine is the demonstration of disrespect to the Ukrainian people.

If that is so, quite a few Ambassadors are to leave Moscow since many countries are displeased with the policy followed by the Russian President. It is improperly to say what president Ukraine should have as this is the people’s choice.

So the initiators of Dmitry Medvedev’s address to the Ukrainian President have made a strategic mistake. We can see another wave of the Ukrainian society consolidation.

Now those who were disappointed in the Ukrainian authorities and might not turn out to vote or might vote against everybody, will come to the polling stations. Many Ukrainians took Dmitry Medvedev’s address as their personal insult.

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Op-Ed by Valery Chaliy, Deputy General Director of Ukrainian Razumkov
Center for Economic and Political Studies, Kyiv
Eurasian Home website, Moscow, Russia, Wed, August 12, 2009

On August 11, Russian President Dmitry Medvedev announced his decision to delay the arrival of the new Russian Ambassador in Ukraine. Dmitry Medvedev did it in the address to his Ukrainian counterpart Viktor Yushchenko.

In the diplomatic practice an address to the official, who is in charge of the state foreign policy (in Ukraine this is the President), is in effect the address to the Ukrainian people. So, such a division in the address is regarded in Ukraine as artificial, despite the fact that Yushchenko’s foreign policy is severely criticized in the country. And as an analyst I also expressed the criticism concerning the President’s foreign policy many times.

From the political point of view Medvedev’s address is a pretty tough demarche. And it’s regarded in such a way in Ukraine. Now the meaning as well as the form of Medvedev’s address is being actively discussed in Ukraine.

The Ukrainian experts don’t have common opinion. Some of them point out the correctness of some Medvedev’s arguments, which should be analyzed. But there are statements which are the direct intervention in the Ukrainian domestic affairs.

The fact that this address appeared exactly in August is not fortuitous. This falls on the active phase of the presidential campaign in Ukraine. Some Ukrainian politicians have already tried to take advantage of this address: some of them support the Russian President’s position, other say that there is a need to oppose him.

But such an address could have a boomerang effect for Russia. The statements about Kyiv’s anti-Russian policy could stir up the anti-Russian forces in Ukraine, including the presidential candidates sharing this position.

Thus, in my opinion, this address is very arguable in terms of achieving the goals. It is expected in Russia that if the regime in Ukraine is changed and then becomes more loyal to Moscow, Kyiv’s policy will change radically.

But, firstly, this expectation is strongly exaggerated. Foreign policy in Ukraine is shaped not only by the President, but also by the Parliament. Secondly, the form of the address could favour the consolidation of the anti-Russian forces in Ukraine.

I’d like to emphasize that one should seek the roots of such a form of the address in Russia not in Ukraine. I believe that in this connection new reshuffles will take place in Russia.

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Op-Ed: by By Ken Blackwell, American Thinker, El Cerrito, CA, August 15, 2009

It's really amazing how soon the Obama administration's chickens are coming home to roost. They made a big deal out of finding a "reset" button for U.S.-Russia relations. They wanted to reject what they saw as George W. Bush's truculence over the Russian invasion of Georgia last summer. So they went out of their way to send a message to Russia that they wanted a new beginning in their relations with Moscow.

Well, they've gotten it. London's prestigious Financial Times reports that Russian President Dmitry Medvedev has sent a tough "ultimatum" to Ukraine's leadership.

Medvedev sent his blunt warning in the unusual form of an "open letter." He wants the world to know what he's telling President Yushchenko.

And what he's telling him is chilling. Medvedev charged that Yushchenko was "ignoring the opinion of your country's citizens" in seeking membership in NATO. Medvedev roughly accused Yushchenko of meddling in the Russia-Georgia territorial dispute by helping to supply invaded Georgia.

Medvedev told Yushchenko he was risking Europe's supply of natural gas. How can this be? Russia has most of Europe's natural gas and they can turn off the spigot whenever Medvedev or his boss, Vladimir Putin, decide to turn up the pressure on the West.

The 2004 elections in Ukraine were widely hailed in the West as an "orange revolution" because that was the color of Viktor Yushchenko's victorious political party. That party was dedicated to preserving Ukraine's always perilous independence from Moscow.

Ukraine has for centuries been under Russia's thumb. When the Soviet Union broke up in 1991, the Ukrainians took advantage of an historic opportunity to make a break for freedom. Persuaded by the U.S., Ukraine gave up nuclear weapons. It seemed a good idea at the time, to reduce the number of countries with nukes might make non-proliferation treaty enforcement easier, it was believed.

That was when Boris Yeltsin's star was on the rise in the Russian Republic. It seemed reasonable to think that Russia might be headed for a new future as a free and democratic state.

That was before former KGB agent Vladimir Putin eased the aging, alcoholic Yeltsin into an early retirement on the eve of the new Millennium. Putin doesn't drink. Putin is a martial arts enthusiast. With his brutal crackdown on Chechnya (a restive part of the Russian Republic) and last summer's invasion of Georgia, Putin is showing the world just how adept he is at "the martial arts."

Even liberals understand what's happening now. Lilia Shevstova is a senior analyst at the Moscow Carnegie Center. She told FT that the Medvedev letter is "a message to any new leader [in Ukraine] that we will deal with you only when you accept our demands."

To underscore his seriousness, Medvedev is holding back on appointing a new Russian ambassador to Kiev, Ukraine's capital, until the Ukrainians come around to his line of thinking.

Is this Joe Biden's crisis, the early test of Barack Obama's leadership? You'll recall that Biden told a group of Seattle Democratic donors that Barack Obama would be tested in the first six months of his presidency and that it would not be immediately apparent that we would be on the right side.

Russia is clearly turning up the pressure on Ukraine. The freedom of 45 million people in Eastern Europe is very much at risk. If Ukraine is clawed back into Moscow's orbit, can Poland, the Czech Republic, and Slovakia hold out? What about the tiny, freedom-loving Baltic States?

When we see Barack Obama embracing Hugo Chavez and Raul Castro, handing out Medals of Freedom to the anti-American UN apparatchik, Mary Robinson, and his administration of amateurs falling all over themselves to appease Russia, is it any wonder Vladimir Putin is pressing his own reset button? It's Ukraine--and Putin is pressing it hard.

Ken Blackwell is a former US Ambassador to the United Nations Human Rights Commission and a senior fellow at the Family Research Council.

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