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Action Ukraine Report

"THE ACTION UKRAINE REPORT"
An International Newsletter
In-Depth Ukrainian News, Analysis, and Commentary

"The Art of Ukrainian History, Culture, Arts, Business, Religion,
Sports, Government, and Politics, in Ukraine and Around the World"

WHO IS THIS VIKTOR?
Ukraine's President-elect Yushchenko has won the right to rule.
Now comes the test of a lifetime. A close look at the man with
a nation's future in his hands. [article one]

"THE ACTION UKRAINE REPORT" - NUMBER 403
morganw@patriot.net, ArtUkraine.com@starpower.net
FROM: KYIV, UKRAINE, WEDNESDAY, JANUARY 5, 2005

NOTE: A new numbering system is being used for The Action
Ukraine Report. There were 124 issues in year 2003 and 276 issues
in year 2004 for a total of 400 issues. The first issue for 2005,
published last Saturday, Jan 1, 2005, now becomes number 401.
This issue is the third issue for 2005 and thus number 403. EDITOR

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

1. WHO IS THIS VIKTOR?
Ukraine's President-elect Yushchenko has won the right to rule.
Now comes the test of a lifetime. A close look at the man with
a nation's future in his hands
By Paul Quinn-Judge, Moscow and Yuri Zarakhovich, Kiev
Time Europe Magazine, January 10, 2005

2. YUSHCHENKO FACES CHALLENGES AFTER ELECTION WIN
Commitments from EU and ability to improve economy will play
a decisive factor in his presidency
By Kostis Geropoulos, Senior Staff Writer,
New Europe, Athens, Greece, Mon, January 3, 2005

3. DEARER COST OF GAS ADDS TO UKRAINE'S ECONOMIC WORRIES
Irish Times, Ireland, Tuesday, Jan 04, 2005

4. NEW YEAR, NEW UNCERTAINTIES FOR GLOBAL ECONOMY
By Stephen King, The Independent, London, UK, Tue, Jan 04, 2005

5. MOBILE TELEPHONE SUBSCRIBERS TO TOP 20 MILLION
40% of the Ukrainian population
Ukrainian News Agency, Kyiv, Ukraine, Sunday, January 2, 2005

6. KYIV BANKING UNION ASKS WESTERN UNION TO
LOWER MONEY TRANSFER FEES
Ukraine Today, ISI - Intellinews, Kyiv, Ukraine, Tue, January 4, 2005

7. BRUSSELS, KIEV TALK TEXTILE GOODS TRADE
New Europe, Athens, Greece, Mon, January 3, 2005

8. INBEV SWALLOWS RUSSIAN BREWER SUN INTERBREW
Sun Interbrew also has operations in Ukraine
By Andrew Clark, The Guardian, London, UK, Tue, Jan 04, 2005

9. GUNSHOT RIDDLE OF "PHANTOM TRAIN" MINISTER
New Europe, Athens, Greece, Mon, January 3, 2005

10. MARRIED TO A MARKED MAN
Ukraine’s new first lady talks to Askold Krushelnycky about poison,
politics and a triumph over tyranny
By Askold Krushelnycky, TimesOnLine, London, UK, Sun, Jan 02, 2005

11. ORANGE REVOLUTION GRABS WORLD ATTENTION
By Julia Ledoux, Sentinel Staff, Outerbanks Sentinel
Nags Head, North Carolina, Sunday, January 2, 2005

12. "ELECTION DAY IN UKRAINE"
COMMENTARY: By Grace Kennan Warnecke
Kyiv, Ukraine, Tuesday, December 28, 2004
The Action Ukraine Report, Kyiv, Ukraine, Wed, Jan 5, 2005

13. NEW UKRAINIAN REGIME'S FUTURE "DEPENDS DIRECTLY
ON RUSSIA'" SAYS PUNDITS
Moskovskiy Komsomolets, Moscow, in Russian 28 Dec 04 p 4
BBC Monitoring Service, UK, in English, Saturday, Jan 01, 2005

14. COMMENTARY: HISTORY AND DEMOCRACY IN UKRAINE
By Bohdan Kordan, Special to World Peace Herald
Saskatoon, Saskatchewan, Canada
World Peace Herald, Washington, D.C., Fri, December 31, 2004
=========================================================
1. WHO IS THIS VIKTOR?
Ukraine's President-elect Yushchenko has won the right to rule.
Now comes the test of a lifetime. A close look at the man with
a nation's future in his hands

By Paul Quinn-Judge, Moscow and Yuri Zarakhovich, Kiev
Time Europe Magazine, January 10, 2005

Late in the afternoon of Dec. 28, Viktor Yushchenko was working on a
speech in his small second-floor office at the headquarters of his party,
Our Ukraine. He had plenty to feel good about: he'd survived an
assassination attempt and a plot to steal Ukraine's presidency away from
him, and he was finally President-elect ­ the results were in from the Dec.
26 poll, and he had pulled over 2.2 million more votes than his opponent,
Prime Minister Viktor Yanukovych. That evening Yushchenko was to
address his supporters on the Maidan," or Maidan Nezalezhnosti, Kiev's
Independence Square: the symbol of the civil disobedience campaign that
erupted in November after Yanukovych "won" a vote marred by massive
fraud and led to the Dec. 26 rerun.

Yushchenko intended to call on the hundreds still camping on the
Maidan to fold up their tents, and invite them back to the square on New
Year's Eve to celebrate the orange revolution's victory. But as he was
about to leave for the speech, two close allies, M.P.s Volodymyr Felenko
and Taras Stetskiv, rushed into his office. Government sources had told
them Yanukovych planned to chair a Cabinet meeting the following day,
thumbing his nose at the still-unofficial result.

"It was an open insult to the people, and to the Rada [parliament] that
voted to fire Yanukovych earlier this month," Stetskiv told Time. He urged
Yushchenko to tell the Maidan about Yanukovych's plan, and to call outgoing
President Leonid Kuchma to demand that he stop the Cabinet meeting.
Yushchenko looked out the window to the wooded hill where, legend has it,
the Apostle Andrew erected the first Christian cross in what is now
Ukraine, and made up his mind: he would call for the tent city to be
dismantled, but also appeal to his supporters to blockade the Cabinet
office one more time the next morning, to stop Yanukovych from going in. He
then left for the Maidan. His gambit worked: the blockade took place and
Yanukovych folded. Three days later, Yanukovych submitted his resignation,
saying he would enter the parliament as leader of the opposition. When
Yushchenko appeared before the Maidan crowd on New Year's Eve, he said
triumphantly: "We have been independent for 14 years, but we have not been
free. Today we are independent and free."

Throughout the bitter, high-stakes months of Ukraine's presidential battle,
Yushchenko has been buoyed by such shrewd use of street power ­ it has
helped him emerge as a tough, decisive leader and a symbol of change. But
now he has to play a subtler game if he is to make good on his promise to
transform Ukraine from an outpost of Vladimir Putin's empire into a
vibrant, prosperous part of Europe ­ a bridge between Russia and the West.

He must establish a modus vivendi with a humiliated and angry Russian
President and heal the divisions inside his own country, where the Russian
speakers in the east are still bitter at the defeat of their candidate,
Yanukovych. Observers express concerns about some of Yushchenko's
lieutenants, who have shady reputations. There are continued worries about
the damage to his health from dioxin poisoning. And, most ominously, a top
Yushchenko aide told Time, some people close to him fear that those who
almost killed the candidate last fall may try again. There's even talk
among Yushchenko's aides ­ though it may be nothing more than healthy
paranoia ­ that the would-be assassin could be a traitor inside the
President-elect's camp.

So maybe it's no surprise that as the postelection euphoria subsides, even
some close to the President-elect are worried about the challenges facing
him. Does Viktor Yushchenko have what it takes? How pro-Western ­ and
pro-democratic ­ is he? As a competent central banker in the '90s, he
helped protect Ukraine from the impact of the Russian financial meltdown in
1998 and established the Ukrainian hryvnia as a stable currency. He then
transformed himself into a low-key Premier, appointed in December 1999 in
a deal to dissuade him from running for the presidency against Kuchma. He
stood by Kuchma during allegations against the regime of corruption and
murder of political opponents. The most scandalous allegation concerned the
disappearance and subsequent murder of Heorhiy Gongadze, an investigative
journalist who had been deeply critical of the Kuchma administration.

Opposition leaders openly accused the President of having a hand in the
killing, but the murder was never solved. At the same time Yushchenko
pushed ahead with reforming the Ukrainian economy, and won high marks for
paying pensions, salaries and student grants on time. Dumped in April 2001
when Kuchma felt he had outlived his usefulness, he became a popular but
not particularly dynamic opposition leader. Everything shifted again with
this year's presidential election campaign and the nearly successful
assassination attempt late last summer. "That poisoning attempt really
changed him," said Andriy Gusak, whose Pora movement played a key role
in the orange revolution. "He had never been a real fighter until then, but
he became one after the attempt on his life showed how . high the stakes
were."

His path to power has been nothing short of stunning, but heading a loose
opposition coalition and ruling a riven nation are very different jobs.
Konstantin Bondarenko, director of Kiev's Institute of National Strategy
and one of Ukraine's most prominent political analysts, already expresses
doubts about Yushchenko's team, which he says is squabbling openly. One
important crony, Yuliya Tymoshenko, made her millions in energy and has
been accused by both the Russian and Ukrainian authorities of bribery and
embezzlement. (Tymoshenko says the allegations are political smears.) She
is sniping at Petro Poroshenko, who made his millions in the candy
business. Both want to be Prime Minister. "Some top lieutenants are saying
that Yushchenko's health will not hold out for more than a year or two, so
he'd better make sure he picks up 'the right kind of Premier,' meaning the
person who is saying this, of course," says Bondarenko.

A close Yushchenko aide, who spoke to Time on condition of anonymity,
shares Bondarenko's apprehensions. "Let's face it: the key people in the
Yushchenko team ­ [M.P.s] Yuliya Tymoshenko, David Zhvania, Petro
Poroshenko ­ are from the same oligarchic mold as our opponents," he said.
Economic interests, not political principle, pitted them against the
Yanukovych camp. "I know they're already standing in line: one person wants
natural gas, one wants oil; dozens more want ministerial positions." The
fear is that turning over chunks of state power to entrenched oligarchs
will make Yushchenko's government little different from its predecessor.

The Ukrainian economy is a haven for venality and insider deals: as the
U.S. State Department puts it, its economy "remains burdened by excessive
government regulation, corruption and lack of law enforcement." The
anticorruption watchdog Transparency International calls it one of the
world's most corrupt countries, on par with Sudan and just above Iraq.

Still, others are confident that Yushchenko is committed to transforming
Ukraine's corrupt economy and institutions into a more robust democracy.
Mykola Yakovyna, a key campaign staffer, said: "There is much more to
Yushchenko than meets the eye." He may at times seem soft and irresolute,
but "nothing can be further from the truth."

Yushchenko is determined to both integrate Ukraine into Western structures
like the European Union and inculcate Western values: "Democracy,
individuals' rights and freedoms, free speech and expression, human dignity
and integrity," he said. The E.U. is making encouraging but vague noises
about the new Ukrainian leader. "He has a good track record," says a
knowledgeable European Commission official. "But the question is whether
he will have the means to push through the socially painful reforms that are
necessary now."

This pro-Western stance does not sit well with Putin, and Yushchenko hasn't
done much so far to improve relations with Moscow. In an interview with the
Russian daily Izvestiya, Yushchenko last week said that the order to
assassinate him came from "those in power." The interview was meant to
mollify Russia: Yushchenko stressed that his first foreign visit would be
to Moscow. But few could fail to spot the implicit link between those in
power in Kiev and in Moscow. Last month Yushchenko focused suspicion
on his Sept. 5 dinner with the heads of the Ukrainian security service, the
sbu. But that theory faded after experts noted that dioxin needs days or
weeks to take effect. The plotters' identities remain unknown.

Even if Yushchenko can't pin his poisoning on the Kremlin, Russia did back
Kuchma and Yanukovych as energetically as the West pulled for Yushchenko,
which makes for an awkward status quo. Having failed embarrassingly in his
efforts to engineer a pro-Russian regime in Kiev, Putin will likely opt for
a waiting game, and discreetly sow discontent among the Russian speakers of
eastern Ukraine. He'll be hoping that Yushchenko will be overwhelmed and,
like his predecessor, turn to Russia for support.

For all the external pressure on Yushchenko, he is already fully aware of
one of democracy's sometimes uncomfortable iron laws: the people who put
you in power can take you out, too. Back in Ukraine, Pora and the other
groups that formed the vanguard of the orange revolution will be watching
their President carefully. The Pora coalition is thinking of turning itself
into a political party or bloc, says political activist Gusak. He is
confident Yushchenko will not let them down. "But if his team starts
awarding each other state property and Yushchenko fails to stop this, the
opposition will turn against him," he warns. "The Maidan will leave the
streets, but the Maidan will not leave the political scene." -30-
(With reporting by James Graff/Paris)
=========================================================
2. YUSHCHENKO FACES CHALLENGES AFTER ELECTION WIN
Commitments from EU and ability to improve economy will play
a decisive factor in his presidency

By Kostis Geropoulos, Senior Staff Writer,
New Europe, Athens, Greece, Mon, January 3, 2005

Viktor Yushchenko last Tuesday was declared winner of an unprecedented
third round in Ukraine’s fiercely waged presidential contest. But the
presidency is no easy task. The former National Bank head will certainly
have his hands full in 2005. He will have to forge a national compromise
between the elites and between western and eastern Ukraine, build new
relations with its neighbours and adapt an economic plan that will promote
a proper market economy and rule of law.

Yushchenko received 51.99 percent of the popular vote, and his opponent
Prime Minister Viktor Yanukovich 44.19 percent, after a 100 percent count of
ballots cast on December 26, the Central Election Committee (CEC) announced.
The results were still to be treated as preliminary and a formal
announcement was not expected for another week, election officials told news
agencies.

Yanukovich filed four election complaints with the Ukrainian Supreme Court
but the country’s top judicial institution by last Thursday had already
rejected three of them. Meanwhile, Yushchenko supporters reinstated a
blockade preventing Yanukovich from going to work. Latvian President Valdas
Adamkus and Moldovan President Vladimir Voronin were the first foreign
leaders to congratulate Yushchenko after the victory was announced. Polish
President Alexander Kwasniewski and Georgian President Mikhail Saakashvili
had congratulated Yushchenko by telephone last Monday, while the vote was
still being counted.

As expected, the Kremlin entourage of President Vladimir Putin maintained a
grim silence at the news of Yushchenko’s victory. His decision to nominate
radical opposition leader Yulia Timoshenko as his prime minister was an
additional slap in the face.

“Yushchenko’s victory is a defeat for Russian policy,” the Komsomolskaya
Pravda newspaper said. “Ukraine has gone to the West.” The Kommersant
newspaper noted that it was a mistake trying to transpose Russia’s model for
“managed democracy” onto Ukraine. “We made just one mistake: We thought
Ukrainians were like Russians,” it wrote.

But Yushchenko has pledged to forge new relations between the neighbouring
countries. “Ukraine will have to forge some kind of relations with Moscow,”
sources in Russia told New Europe. He could build formal relations with
Moscow and informal with the EU and other Euro-Atlantic structures, they
noted.

Russia and Ukraine will remain tightly bound together. “No one can sever
these historical ties,” foreign policy specialist and parliamentarian Dmitry
Rogozin was quoted as saying.

Moskovsky Komsomolets tabloid expressed the hope that Ukraine will for
simple economic reasons stay close to Russia, while rejecting any form of
coercion to this end. “All the cries of ‘shut off the gas (supplies to
Ukraine)’ are just not serious,” it wrote.

Yushchenko has repeatedly said that his presidency would be dedicated to
imposing law and order in Ukraine, which would be in the interests of
Russian business people.

The smooth functioning and profitability of Russian gas and crude oil
pipelines crossing Ukraine has long been a bone of contention for the two
countries; Ukraine has a long tradition of illegally siphoning Russian
energy. As far as Yushchenko is concerned, the pipelines are “one of the
main economic priorities of our country (Ukraine), an economic absolute
that we neither can nor should avoid.”

Economic facts speak for themselves. Ukraine receives more than 90 percent
of its energy from Russia, and around two thirds of the Ukrainian economy is
in some way connected with Russian markets as customers or suppliers.

“There is no way for anyone to change this (interdependence), and I am a
trained economist who knows that manipulating markets never produces
anything good,” Yushchenko said in an interview on Channel 5 television.
“Russia needs Ukraine and Ukraine needs Russia.” Analysts say Yushchenko
will most likely stay away from re-privatisations.

At the same time he will need to encourage foreign investment. In order to
do that, Yushchenko would have to change legislation, improve the Taxation
system, even ensure tax amnesty for past shadowy businesses.

“When Ukraine develops a proper market economy and rule of law, perhaps
then the Europeans will look at us differently,” Yushchenko said during a
campaign swing through the country’s industrial Donbass region. “But for
now, no one is waiting for us in Europe.”

European Union officials have been outspoken in saying that Ukraine won’t be
a member of the EU anytime soon, if ever. Yushchenko’s presidency, however,
may help Ukraine get the long-awaited market economy status soon. “The EU
may want to use the market economy status as a reward for the new
president,” an EU official has said.

Ukraine could also attract European businesses looking to transfer their
production to a country that is not a member of the EU but is close to its
borders to avoid high labour costs. “Poles are looking at Ukraine and say
‘hey let’s move across the border guys.’

Because what they have realised is the increased costs to them of being
within the EU as compared to the production in Ukraine which is a much more
liberal approach,” Martin Nunn, a chief executive at Whites International, a
public relations firm based in Kiev, told New Europe. “The cost benefits are
enormous.”

The commitments that Yushchenko will get from the EU leaders as well as the
ability to improve the economic situation in Ukraine will play a decisive
factor in his presidency. Expectations are very high and many Ukrainians see
this as a new beginning. -30- [Action Ukraine Report Monitoring Service]
=========================================================
3. DEARER COST OF GAS ADDS TO UKRAINE'S ECONOMIC WORRIES

Irish Times, Ireland, Tuesday, Jan 04, 2005

UKRAINE: The Ukrainian President-elect Mr Viktor Yushchenko has promised
Ukrainians a modern market economy, even as prices of vital gas imports
soared by one-third. Turkmenistan cut gas supplies to Ukraine on January 1st
and the central Asian state only promised to reopen the taps yesterday after
Kiev agreed to the price increase.

Dearer gas adds to Ukraine's economic worries including a bulging budget
deficit and average wages of $60 a month - just a tenth of those in European
Union newcomer Poland - eroded by years of policy neglect and corruption.

Mr Yushchenko, a west-leaning liberal who beat Mr Viktor Yanukovich in
an election re-run last month, said his country of nearly 50 million people
should feel the benefits of sound government within a year. Mr Yanukovich
announced on Friday he was resigning as prime minister.

"I will prove one thing," Mr Yushchenko said, "if this country is governed
by honest people, who love their country and their people, and this
government can survive, then within 365 days, each person will feel the
effects of the economic development plan."

As Mr Yushchenko spent the New Year holiday with his family, news came
through from central Asia that Ukraine would have to pay $58 per 1,000 cubic
metres of Turkmen gas, up from $44 previously. Ukraine will import 36
billion cubic metres of Turkmen gas in 2005 - nearly half its needs.

The Turkmen President, Mr Saparmurat Niyazov, thanked Ukraine for its
"wisdom and understanding" in agreeing to pay more. The self-styled "chief
of the Turkmen" also recognised Mr Yushchenko as Ukraine's legitimate
leader - something Russian President Vladimir Putin, who originally backed
Mr Yanukovich, has yet to do. Although the gas dispute shows Ukraine is
still locked in to the former Soviet Union's economic infrastructure 13
years after independence, Mr Yushchenko sees following countries like Poland
into the West as the key to economic success. -30-
==========================================================
4. NEW YEAR, NEW UNCERTAINTIES FOR GLOBAL ECONOMY

By Stephen King, The Independent, London, UK, Tue, Jan 04, 2005

IT'S THAT time of year. The time to be looking ahead, thinking about the
risks that might upset the forecasters' apple cart. It's a rare year indeed
when the consensus forecasts prove to be totally accurate. In some years,
the growth forecasts will be about right but the inflation forecasts wrong.
In other years, we will see the reverse. In still other years, forecasters
get growth and inflation right, but are unable to spell out the implications
for interest rates, exchange rates and stock markets.

None of this will surprise you. The world is an uncertain place for
economists. The best we can do is build theories from limited information.
We can be quite good at saying, in hindsight, why a particular theory did
not work out so well. We are not so good, in advance, at spotting the
potential banana skins, the events and relationships that may find us lying
flat on our faces before the year is out.

The most obvious threat to the forecasters' consensus is the US current
account deficit. The problem here is twofold. First, it's quite likely that
the deficit will get a lot bigger: with the consensus still expecting decent
growth in the US but feeble growth in the eurozone and Japan, it seems
inevitable that the deficit will head towards 6 or 7 per cent of GDP in
coming quarters. Second, if the deficit does get a lot bigger, markets will
increasingly wonder how it will be funded. In turn, this carries
implications for the dollar, for interest rates and for the value of all
sorts of different dollar-based assets.

There's an overwhelming consensus that the dollar will weaken further this
year. The problem, however, lies in spelling out fully the implications of a
dollar decline. Which currencies will rise against the dollar? To what
extent could the US use protectionist threats to force greater flexibility
in currencies that, to date, have kept their pegs against the dollar? Would
a dollar decline ultimately unsettle the stability of the US Treasury
market, pointing to significantly higher bond yields? What would happen to
equity values when faced with a higher-risk premium? What would be the
best hedge against the dollar? Perhaps it is the euro, but maybe it is
commodities that are priced in dollars but which will rise in value should
the dollar soften.

A second threat comes from global political change. The West takes comfort
in the view that, given the choice, countries will always opt for democracy.
Ukraine's experience supports this view, and maybe the elections in Iraq
might lend credence too. But Russia's democratic traditions are fairly odd
by Western standards - autocracy never seems far away - and there is no
guarantee that a democratic process in the Middle East would not simply
deliver theocracies rather than liberal democracies.

What would happen were relationships between Russia, the Middle East and the
West to come under mounting strain? The most obvious implication would be
further instability in oil prices. Think of a world where oil prices were to
rise still further, perhaps up to $80 a barrel. Headline inflation might be
a little higher but I suspect the real damage would be seen through lower
growth, squeezed profits and higher unemployment.

A third threat comes from house prices. Everyone knows that the UK housing
market is not quite the beacon of strength it once was. And the debate over
how far house prices could fall in 2005 continues to be a major topic of
discussion.

What is less clear is the impact of falling house prices on broader economic
activity. The Bank of England's view is that there is little relationship
these days between house prices and consumer spending. The Monetary Policy
Committee claims that income and consumption have grown in line, thereby
suggesting that house prices have played only a small part in supporting
demand growth.

I am not comfortable with this view: mortgage equity withdrawal has been
buoyant, suggesting that, in the absence of house price inflation, consumer
spending might have been a lot less resilient than it has been. Perhaps 2005
may finally be the year when we discover the true relationship between house
prices and consumer spending. If the relationship proves to be closer than
the Bank thinks, we are likely to see both base rate cuts and, eventually, a
lower level for sterling against the euro and, possibly, against the dollar.
Throw in a bit of post-election political uncertainty - strains between
numbers 10 and 11 - and maybe we will end up with a good old-fashioned
sterling crisis.

A fourth risk comes from productivity. This time, however, the news may
prove to be rather good. If there has been a surprise in recent years, it
has been the split between growth and inflation, most obviously in the US
but, more recently, in the UK. For a given growth rate, inflation has been
lower than expected or, put another way, for a given inflation rate, growth
has been higher than expected.

Why has this happened? Primarily, it seems, because of supply-side
improvements. Some of these may reflect changes within the labour market
but, increasingly, it seems likely that the introduction of new technologies
is creating another productivity wave that may have raised the UK economy's
speed limit. Certainly, an improvement of this kind would go some way to
explaining why the Monetary Policy Committee has persistently undershot its
inflation target.

A fifth risk relates to policy regimes. This risk is a bit like a slow
burning fuse: we are not likely to know the answer until well beyond 2005.
But suppose that the housing market does go wrong in the UK. Suppose, also,
that the growing US current account deficit leads to problems for American
asset prices - equities, housing - in the light of a persistently weak
dollar. Let us say that, in both countries, demand unexpectedly weakens:
suddenly people start to worry about the possibility of economic downswings,
possibly even outright recessions. What would this tell us about the policy
framework?

Presumably, developments along these lines would suggest that inflation
targeting regimes, on their own, do not provide a lasting guarantee of
macroeconomic stability. Remember, it was only because the Bank of England
and Federal Reserve adhered to their inflation targets, and because the UK
and US governments loosened fiscal policy, that we had a combination of
rapidly rising house prices and widening current account deficits in the
first place.

If it turns out that these factors are new sources of instability, it
becomes increasingly difficult to argue that simple inflation targeting
regimes are the answer to all macroeconomic problems. Perhaps a
reassessment will be prompted, with central banks and governments forced
to reflect on what went wrong. After all, experience suggests that any
policy regime will eventually break down - think of the full employment
policies of the 1960s or the monetary targeting regimes of the 1980s.

To sum up, I would say that most of the threats to the economic outlook in
2005 are fairly familiar - a weak dollar, lower house prices, a productivity
miracle. The consequences of these threats, however, are a lot less obvious
and it is in these areas that the hot debates will be maintained throughout
much of the year. -30- [Action Ukraine Report Monitoring Service]
----------------------------------------------------------------------
Stephen King is managing director of economics at HSBC.
Contact: stephen.king@hsbcib.com
=========================================================
5. MOBILE TELEPHONE SUBSCRIBERS TO TOP 20 MILLION
40% of the Ukrainian population

Ukrainian News Agency, Kyiv, Ukraine, Sunday, January 2, 2005

KYIV - Ukrainian mobile cellular communications operators are forecasting
that the number of mobile-telephone subscribers will increase to over 20
million by the end of 2005. "This is a pessimistic forecast. [The number of
mobile telephone users] will be 40% of the population. We will be very close
to the standards of the European Union," said Eric Franke, the
director-general of UMC.

According to Franke, three or four national mobile-telephone operators will
operate on the Ukrainian market in 2005. At the same time, he believes that
the record rate of increase in the number of mobile-telephone subscribers,
which resulted the number of subscribers almost doubling in 2004, will slow
in 2005. "We are not confident that the record increase of this year will be
preserved," Franke said.

Zhanna Revnova, the head of the department of corporate relations at
Kyivstar, is more optimistic. Revnova believes that the rate of increase in
the number of mobile-telephone subscribers will not fall in 2005, thus
enabling mobile-telephone operators to reach a mobile-telephone penetration
level of 50% of the population.

"We are forecasting that the rate of increase of the subscriber base will
not fall. According to our estimates, the mobile-telephone penetration will
near the 50% level next year, with one in every two Ukrainians using mobile
communication," Revnova said.

According to her, the Ukrainian mobile-telephone market is one of the most
dynamically developing in Europe. According to her, this is attributable to
on the one hand, the sharp fall in rates resulting from the general
development of the market and, on the other hand, to the sufficiently fierce
competition among operators. Therefore, Revnova believes that the tendency
for mobile-telephone rate to fall, which was observed in 2004, will be
preserved in 2005.

As Ukrainian News earlier reported, mobile cellular communications services
are provided in Ukraine by four operators, namely UMC (in the GSM 900/1800
and NMT 450i bands), Kyivstar GSM (GSM 900/1800), Golden Telecom
(GSM 1800), and WellCOM (GSM 900).

The largest operators - UMC and Kyivstar - jointly control over 95% of the
market. The number of mobile-telephone subscribers increased by 0.74 million
or 6.5% to 12.12 million in November, compared with October. -30-
==========================================================
6. KYIV BANKING UNION ASKS WESTERN UNION TO
LOWER MONEY TRANSFER FEES

Ukraine Today, ISI - Intellinews, Kyiv, Ukraine, Tue, January 4, 2005

KYIV - Kyiv Banking Union (KBU), which unites 74 financial institutions,
asked Western Union to reduce its fees for money transfers from American,
European, Asian countries and Australia to Ukraine. KBU appeals to the need
to create a competitive atmosphere on the market of money transfers.
According to KBU, Western Union accounts for more than 50% of all private
money transfers to Ukraine.

In March, NBU called Antimonopoly Committee of Ukraine (AMCU) to
investigate the possible existence of a monopoly on the money transfer
market. In June, AMCU began its investigation, saying Western Union has
taken advantage of its monopoly position to establish inflated tariffs equal
to 12-13% of the amounts of money transfers.

According to Association of Ukrainian Banks, the majority of banks in
Ukraine currently use the international transfer systems of Western Union
and MoneyGram. Besides, such money-transfer systems as Anelik, Unistream,
Ria Telecommunications, and Safe Money Transfer Spain are also used. -30-
=========================================================
7. BRUSSELS, KIEV TALK TEXTILE GOODS TRADE

New Europe, Athens, Greece, Mon, January 3, 2005

The agreement in the form of an exchange of letters between the European
Community and Ukraine, represented by the government of Ukraine, concerning
the extension and amendment of the agreement between the European Economic
Community and Ukraine on trade in textile products of 1993 was initialled on
December 22 in Brussels, the Mission of Ukraine to the EU said in a document
released to New Europe on December 29.

The main provisions of the agreement stipulate extending its application for
one year, till December 31, 2005. If Ukraine does not access the World Trade
Organisation (WTO) in 2005 the agreement will be extended for one more year.

An exclusion from the agreement of the article on double checking of textile
products being delivered from Ukraine to the EU was the other very important
moment, the document read.

The existence of such agreement between Ukraine and EU provides quota-free
regime of trade in textile products between two sides for two more years. At
the same time, the exclusion from the agreement of the article on double
checking removes an official procedure of receiving export licences by the
Ukrainian exporters and import licences by the European importers. The
initialling of this agreement draft made it possible to implement it from
January 1, 2005. -30- [The Action Ukraine Report Monitoring Service]
=========================================================
8. INBEV SWALLOWS RUSSIAN BREWER SUN INTERBREW
Sun Interbrew also has operations in Ukraine

By Andrew Clark, The Guardian, London, UK, Tue, Jan 04, 2005

The world's largest brewer, InBev, has signalled its determination to crack
the Russian beer market by striking a euros 259m (pounds 183m) deal to
take nearly complete control of the country's second leading player, Sun
Interbrew.

Belgium-based InBev, which makes Stella Artois, yesterday said it was buying
out Alfa-Eco's 21% share in Sun. The agreement follows a buyout of a stake
held by India's Sun Trade in August and between them, the two deals will
lift InBev's control from 38% to 97%.

A throng of multinationals have been clamouring to cash in on Russia's
thirst for branded beer. Scottish & Newcastle and Carlsberg have enjoyed
rapid growth from Baltika, the country's biggest beer, which they jointly
own.

In an interview last year, InBev's chief executive, John Brock, said he
wanted the firm to become the biggest player in both Russia and China. InBev
was formed through a pounds 6bn merger of Belgium's Interbrew with Brazil's
AmBev.

Sun Interbrew's flagship brand is Klinskoye, a beer it says is "brewed with
the purest artesian water, hops and malt of the highest quality and which
will not disappoint even the most proficient beer lovers". Its secondary
brand is Tolstiak, renowned in Russia and Ukraine for its catch phrase,
"Time flies unnoticed in the company of Tolstiak".

A Russian appeals court last week overturned an earlier decision to block
InBev from gaining control of Sun Interbrew on competition grounds. InBev's
products include Staropramen and Bass. The company expanded rapidly in
Britain five years ago by purchasing the brewing arms of Whitbread and Bass,
both of which opted to quit beverages in favour of hospitality. -30-
=========================================================
9. GUNSHOT RIDDLE OF "PHANTOM TRAIN" MINISTER

New Europe, Athens, Greece, Mon, January 3, 2005

The shooting death of Transport Minister Georgy Kirpa was just as mysterious
as the hundreds of “phantom trains” rumbling about the country during
Ukraine’s election crisis, Deutsche Presse-Agentur (dpa) reported last week.
His body was discovered late on December 27 at Kirpas summer residence in
the scenic and rural Bortnichy district northeast of Kiev. Police found a
pistol next to the body, and a bullet was lodged in Kirpas head, the UT-1
television station reported.

Kirpa is the highest-ranking Ukrainian official killed by a firearm since an
assassin shot MP Vadim Hetman, also head of the financially-influential
Interbank Currency Exchange Committee, in 1998. The Ukrainian prosecutor
generals office last Tuesday opened a criminal investigation into Kirpas
death on forced suicide charges. Kirpa was well-known in Ukrainian politics
as a railroad boss closely linked with outgoing President Leonid Kuchma.

Prior to becoming Transport Minister Kirpa, 58, had been head of the Lviv
branch of the national railroad Ukrzheleznitsia. As Ukraine’s election
crisis heated up in late November thousands of eyewitnesses reported
Ukrzheleznitsia cashiers were refusing to sell tickets in regions, and to
persons, likely to support the anti-government candidate former National
Bank head Viktor Yushchenko.

Opposition MP Olexander Zinchinko, among many others, accused the rail
company of operating hundreds of phantom” trains, used by the government to
haul supporters of Yushchenko’s opponent, Prime Minister Viktor Yanukovich
about the country at the states expense. Kirpa at the beginning of the
Presidential campaign called on his subordinates, ministry of transport
employs several hundred thousand, to vote Yanukovich.

Kirpa however reportedly broke with Yanukovich shortly before the November
21 run-off, refusing to provide Yanukovich thirty trains each with eighteen
cars, according to Tribune, a Ukrainian investigative magazine. Yanukovich
has denied he used the national rail company in support of his election
campaign, and has called allegations about his attack on Kirpa pure
fantasy.”

Petro Poroshenko, a Yushchenko ally, last Tuesday alleged Kirpa had been
murdered to cover up illegal activities by the national rail company in
support of the Yanukovich campaign, and to hide the embezzlement of hundreds
of millions of dollars. Police investigation into Kirpas death continues. He
is survived by a wife and two children. -30-
=========================================================
10. MARRIED TO A MARKED MAN
Ukraine’s new first lady talks to Askold Krushelnycky about poison,
politics and a triumph over tyranny

By Askold Krushelnycky, TimesOnLine, London, UK, Sun, Jan 02, 2005

The past year has been an odd mix of nightmare and dream come true for
Kateryna Yushchenko, the American-born new first lady of Ukraine. Last
week the country triumphantly voted in her husband, Viktor, as its new
president. She was overjoyed as she stood beside him, waving at a sea of
orange flags, hats and ribbons, the emblems of Ukraine’s opposition.

The so-called orange revolution, a peaceful uprising which has seen people
power overturn a previous — rigged — vote for Viktor Yanukovych,
Russia’s favoured candidate, has brought a sense of euphoria to Kiev,
Ukraine’s capital. It also marks a political shift in which the country is
turning its gaze towards the West, a culture gap neatly bridged by
Kateryna, the daughter of an émigré family, brought up in Chicago.

But while Yushchenko’s victory has been the culmination of her family’s
dream for her, it has come at a terrible price. Last September her husband
nearly died after being poisoned by political enemies. He was in hospital
for nearly a month and left badly disfigured. His body was covered in
pustules and for much of the election campaign he was in immense pain.

“Watching the change in his appearance was like something out of a bad
horror novel,” she says. “I was afraid that I would lose him and there was
nothing I could do except pray.”

Yushchenko believes he may have been poisoned by being fed soup laced with
a type of dioxin derived from the Soviet Union’s answer to America’s Agent
Orange. He was taken ill last September after a dinner with senior Ukrainian
security officials. Kateryna says if that is where the poisoning took place,
it was counter-productive: “Viktor became more determined than ever to win
the election, not for himself but to rid the country of the kind of people
who use such methods.”

If the dose of poison had been any higher, the 50-year-old politician might
have died. As it is, he should slowly recover and regain his looks. “But,
you know, the children were not frightened or repelled by the
transformations and that’s because they love him and he’s still their dad,”
she says. “I think we all became stronger because of that experience.”

We meet in a restaurant in Kiev, where staff have been distributing free
food for weeks to some of the hundreds of thousands of opposition supporters
who have taken over the city centre. There is a warm swirl of emotion as
they cluster around. Kateryna hugs them and happily poses for photographs.

One suspects that living under the watchful eye of security men does not
come easily: Kateryna is often seen doing the family’s grocery shopping and
her husband worries his bodyguards by insisting on driving himself.

But since the poisoning they have moved with their children Sophia, 5,
Chrystyna, 4, and their eight-month-old son, Taras, from their own home into
the country home of a friend, which is easier to guard. Kateryna has come to
accept such precautions as a necessity.

“Deep in my heart I always knew that if Viktor’s enemies could not ruin him
politically they would try to destroy him physically,” she says.

“I often asked his colleagues about it. They always reassured me, yet I
always had this sort of sad feeling knowing that it was a possibility. And
then we came to the realisation that what we feared had really come to be.
It’s something we have to live with.”

Kateryna was born in Chicago in 1961 to parents snatched from their native
Ukraine during the second world war to work as slave labourers in Germany.
Her father was an electrician, her mother a seamstress. Unable to return
because of the cold war, like tens of thousands of others, they longed for
Ukraine’s independence and wanted their daughter to be proud of her
heritage. “I had to blend two lives,” she says.

“I went to American schools and had American friends but at home we spoke
Ukrainian. I went to Ukrainian churches and Ukrainian dance classes.” In
1975 and 1979 she travelled to Ukraine with her mother to visit her wider
family and discovered a love for the country that endures today.

She worked as a waitress to put herself through college and gained an MBA
in banking at the University of Chicago in 1986. During President Reagan’s
second term in office she worked in the White House on eastern European
ethnic affairs and in the State Department on human rights. In 1991 she went
to work for an American aid group in Ukraine.

Soon after, she accompanied a group of 10 Ukrainian bankers to America
to teach them about western financial systems. Aboard the plane she found
herself in the same row of seats as the head of the delegation, the then
Ukrainian national bank chief, Viktor Yushchenko.

He asked an elderly colleague sitting between them to swap seats “so this
young woman can tell us where we are going and what we are going to do”.
Kateryna says their romance did not start until some time later “although I
couldn’t help noticing what a good-looking man he was”.

She discovered they shared many of the same interests and was touched when
she discovered, by accident, that he was discreetly providing support for
orphanages, a psychiatric care home for women and various cultural
activities. They married in 1998.

That was an idyllic time, she says, before politics hijacked their lives.
“We were never a ‘laze at home on Saturday morning’ couple. We would be
out looking at museums, going to the movies or to classical concerts or the
theatre, which we both love.

“Viktor is a Renaissance man, he paints very beautifully. He does woodwork
and wrought iron work. He is very artistic and learns very quickly.”

She says it is not unusual for her husband to relax in the midst of a
political crisis by painstakingly gluing together shards of an ancient pot.

In 2000 Ukraine’s president, Leonid Kuchma, appointed Yushchenko prime
minister. But the new leader’s efforts to curb corruption angered many and
he was fired the following year. Disgust with President Kuchma’s
increasingly corrupt and authoritarian regime grew, and fractured opposition
forces coalesced around Yushchenko, who stood for deepening his country’s
frail democracy and turning towards the West, the European Union and Nato.

Yushchenko’s enemies have accused his wife of being an American agent sent
to snare him and propel him to the presidency as an American puppet. But she
says politics is the last thing they talk about: “Viktor likes to keep a
distance between politics and family life. He wants to know how the kids
have been and what their day has been like. He often comes home late and
wakes up the little ones because he wants to spend time with them.”

The outcome of last week’s election is being disputed by Yanukovych, but
Yushchenko’s lead seems unassailable. Following inauguration later this
month, the new first lady plans to use her position to create a welcoming
climate for the millions of Ukrainians in the West, including Britain,
hoping they might invest and offer help to develop their homeland. Many
have been discouraged in the past by lawlessness and the lingering presence
of Soviet-era officials and attitudes.

Her father is dead, but she hopes her sister, Lydia, who lives in America,
and her mother will be able to attend the inauguration.

“I hope my father will be watching, somewhere. I will be hoping that Viktor
will be able to accomplish everything he wants to accomplish. And I will be
hoping Ukraine becomes that place that we all dreamed about all our lives.”
------------------------------------------------------------------------
http://www.timesonline.co.uk/printFriendly/0,,2-525-1422340,00.html
=========================================================
11. ORANGE REVOLUTION GRABS WORLD ATTENTION

By Julia Ledoux, Sentinel Staff, Outerbanks Sentinel
Nags Head, North Carolina, Sunday, January 2, 2005

Not very many people can say they spent their Christmas holiday giving
legitimacy to an election being held half a world away. Southern Shores
resident Jack McDonald is one of 20 former U.S. lawmakers who can
make that claim.

McDonald, a former congressman from Michigan, was on hand to verify the win
of Ukrainian opposition leader Viktor Yushchenko over Prime Minister Viktor
Yanukovych in elections held there Dec. 26. Claims of fraud in the country's
Nov. 21 vote brought hundreds of thousands of Yushchenko supporters - clad
in their trademark color of orange - into the streets of the capital city of
Kiev.

"It's amazing when you see a million people in the square," said McDonald.
He described the opposition rallies as well-run and extremely peaceful.
Alcohol and narcotics were not allowed in the Kiev square. The Ukrainian
Supreme Court eventually annulled the November vote, which gave the win to
Yanukovych who received backing from Moscow. Yushchenko is seen as more
pro-western and has an American wife.

The United States Ukraine Foundation, partially funded by USAID, asked the
Former Members of Congress Association to send members to the former Soviet
block country to monitor the re-vote. "They agreed to do that, and then they
asked members who wanted to give up their Christmas and go there. There was
20 of us who did that," said McDonald.

The group teamed up with 10 former members of the European Parliament from
the United Kingdom, the Netherlands and Germany. "We had a very good
briefing at the U.S. Embassy, and then we broke up into small teams,"
McDonald said.

McDonald partnered with former European Parliament member Richard Moreland
of the United Kingdom. The pair then fanned out across the south and east of
Ukraine, which is strongly pro-Russian and whose residents speak Russian.
"We went particularly to areas that had the most problems in the last
election, which is south and east," he said.

Upon arriving in a town, they met with chairmen of both parties. "They both
expected a lot of bad stuff to happen," said McDonald, who described the
complaints they received as "tiny." Among those they heard was that someone
had an orange flag sticking out of their bedroom window down the street.

McDonald and Moreland visited 12 polling places. "In each case, I first
registered with the person who was in charge and then talked to people who
worked there," he said. "Also, I went around and talked to what we would
call challengers."

McDonald stayed for the count, which went on from about 8 p.m. to midnight,
at the last polling place he visited. "This is a Russian-speaking area and I
was told by one person who did speak a little English there that the
Election Supervisor was the one that authorized stealing the votes from that
precinct in the last election - she had people take handfuls of ballots and
destroy them," recalled McDonald.

During last week's vote, McDonald said the supervisor kept her eye on him
the entire time he was there. When the vote was counted, he had all 12
workers at the precinct sign the form that showed Yanukovych with 631 votes
and Yushchenko with 582. The results of the previous vote gave Yanukovych
approximately 700 votes and Yushchenko around 200.

"When I left the voting at midnight, the 12 people stood up and clapped," he
said. "They were so happy that I was there to make sure it went fairly. It
was wonderful. It was worth missing Christmas."

A system called mobile voting is used in the Ukraine. It involves taking a
small box only to the homes of those who are unable to get out to vote.
"They allowed in the first election at least five percent of the voters to
be incapacitated," McDonald explained. "It's ridiculous." For the Dec. 26
election, mobile ballots were limited to a half-percent of the total votes
cast. "Everywhere that box went, a person from both parties went with it,
so I went with one of these boxes," he said.

McDonald was greeted at one home by a man who immediately said he would
vote for his elderly mother, who was bedridden. "This poor woman is lying in
bed, probably with her last breath, but they made her sit up and tried to
make her vote.

She couldn't see the ballot and so on, so I walked out of the room because I
knew she was going to vote for Yanukovych anyway," he said. On the
wall was a picture of the woman in a Russian uniform bedecked with medals.
"She was a Russian paratrooper in World War II," said McDonald.

McDonald said both sides treated the observers well and with respect. "A
journalist came up to me, he was smiling from ear to ear, he grabbed me and
he said if you were here the last time, we wouldn't have to have this
election,'" recalled McDonald. In all, about 12,500 foreign observers were
on hand to monitor the election.

"This has never happened in history before, ever," McDonald said. "With this
many observers, the whole foreign community, with the exception of Russia,
knows this was a fair election." Approximately 75 percent of Ukraine's
eligible voters cast a ballot in the election. They elected Yushchenko by a
margin of about two million votes.

Russia does not want to give up control of Ukraine, he said. "Everybody else
around them - Czechoslavika, Romania, Poland - they all have joined or are
joining the European Union and NATO [North Atlantic Treaty Organization],"
said McDonald. Ukraine has no middle class and is governed by a few
oligarchs.

"If somebody wants to come in and start a business and they don't get a
piece of it, they don't start it," said McDonald. "These young people and
older people know that, and that's why they had the orange bloodless
revolution." McDonald arrived in Ukraine Dec. 21 and returned home
Dec. 28. -30- [The Action Ukraine Report Monitoring Service]
---------------------------------------------------------------------------
E-mail: julia@obsentinel.com
=========================================================
12. "ELECTION DAY IN UKRAINE"

COMMENTARY: By Grace Kennan Warnecke
Kyiv, Ukraine, Tuesday, December 28, 2004
The Action Ukraine Report, Kyiv, Ukraine, Wed, Jan 5, 2005

As I arrived in Kiev the day before the third round of the Ukrainian
presidential election, my senses were assaulted by a city not only festooned
with Christmas decorations but also with everything interlaced with orange,
the color of challenger Victor Yushchenko's campaign and symbol of the
Orange Revolution. People on the street sported orange parkas, ties, hats,
hair and face paint. Orange ribbons flew from pompous historical monuments
and adorned Yuschenko supporters as headbands, wreathes, cravats, tassels
and trim.

Even the mannequins in the smart shops wore orange accessories. Babushkas
were selling orange scarves - the new cottage industry - all along
Kreshchatik, the main street. Crowds of people had come from all over
Ukraine to participate in this historic moment. It was very moving to see
this immense, good natured and orderly outpouring of public sentiment.

I had come as an observer in the first Ukrainian presidential election, on
Oct. 31, and was asked back by the International Republican Institute (IRI)
to observe the third round. The Ukrainian Supreme Count had declared
Round Two - held on Nov. 21 - illegal because of massive fraud.

On Election Day we left Kiev early in the morning to drive to Chernihiv,
where I was deployed as an international election observer. Strategically
located at a distance of 150 km north of Kiev and 70 km from both the
Russian and Byelorussian borders, Chernihiv was once a religious and
political capital of the region but today is a sleepy oblast capital. The
road to Chernihiv, dotted with empty stork nests, intersected old-fashioned
villages that the modern world had barely touched. Chernihiv seemed very
far from Kiev - little orange was to be seen.

My IRI partner and I immediately started visiting polling stations - mostly
in schools but one in a railroad station and another in a nursing home. Each
polling station was staffed by 12 to 16 commissioners, half representing
Yushchenko and the others Prime Minister Victor Yanukovych, and was run
by a chairman and secretary - again, one for Yuschenko, the other for
Yanukovych. This scrupulous division of authority was in reaction to the
abuses of the first runoff election, in which many of the Yuschenko
commissioners in eastern Ukraine were not even allowed to enter their
polling stations.

In each station the commissioners sat at long tables checking the
registrations and passports of the voters as they appeared. Everything was
above board. More than 13,000 international observers had been credentialed
by the time of this second runoff, and as observers we were uniformly
welcomed. It was a staggering feat to organize a new general election in a
month, with a new Central Election Commission and many new poll watchers,
but the Ukrainians did it with a 77% voter turnout and 28,000,000 votes
cast.

At 8 p.m. the polls closed. We were locked in to the polling station in
which we had chosen to watch the count. More than 2,000 citizens voted in
this polling station, all with paper ballots. They could vote for either
candidate or for "against both," as 158 voters did. After unused ballots
were counted, the commissioners set about laboriously hand counting the
ballots. This part of observing is crucial but about exciting as watching
ice melt. The count came in one vote short. The commissioners were brought
back to the table. "Count them again," ordered our sturdy chairwoman,
dressed in a crisp black pantsuit. Four times the ballots were counted as
the minutes ticked by on the wall clock in the high school gym and our eyes
started glazing over.

Finally, when each ballot had been stuffed into an appropriate envelope
signed by all members of the commission, and the results were tabulated in a
protocol, the protocol and ballots were put in a cardboard box and driven to
a territorial election commission. We followed closely in our car as we
careened through the empty streets of Chernihiv on the dark winter night to
make sure the ballots weren't tampered with, as they had been in previous
elections. I realized that this experience justified missing our family
holiday celebrations.

The next day, in the elevator of our Chernihiv hotel an attractive
well-dressed woman, who identified herself as a Russian observer from
the nearby city of Bryansk, started talking. After I introduced myself, she
sighed, "Just between us, it would be good if we could have an Orange
Revolution in Russian. We've had enough of Putin."

The reverberations of this election are just beginning. Yushchenko, his face
still ravaged by Dioxin poisoning, at 2 a.m. on Election night, made a
surprise appearance on the Maidan, or Main Square, where a crowd was
still celebrating. He warned his supporters, "This is only a partial
victory, and many more steps have to be taken." But whatever happens in
the future, Ukraine will never be the same. A political earthquake has taken
place, and everyone has felt the tremors. Happy New Year, Ukraine! -30-
----------------------------------------------------------------------
Grace Kennan Warnecke was the Country Director in Ukraine for
Winrock International from 1999-2003. We knew her when she worked
in Ukraine and were well aware of her outstanding leadership. She collected
Ukrainian art and became very attached to Ukraine and her people. It was
great to have Grace back in Ukraine two times this fall serving as an IRI
international election observer. EDITOR
=========================================================
13. NEW UKRAINIAN REGIME'S FUTURE "DEPENDS DIRECTLY
ON RUSSIA'" SAYS PUNDITS

Moskovskiy Komsomolets, Moscow, in Russian 28 Dec 04 p 4
BBC Monitoring Service, UK, in English, Saturday, Jan 01, 2005

Text of article by Aleksandr Grishin followed by Mikhail Romanov report
citing comments by pundits Vyacheslav Nikonov and Sergey Markov, "New
Ukrainian regime's future 'depends directly on Russia'" published in Russian
newspaper Moskovskiy Komsomolets on 28 December:

With [President-elect Viktor] Yushchenko Ukraine will drift toward the West.
And that is a predetermined matter. How will our relations be built and will
Russia be able to influence the policy of the former fraternal republic?

The "orange" republic has destroyed Putin's all plans for a single economic
space and has turned to face the EU. Specific dates for Ukraine joining the
EU and even NATO are already being discussed everywhere. It is true that
with such economic indicators Ukraine stands no chance of getting into
Europe. In the past couple of months gold and currency reserves have
declined by a factor of 4.5 while the budget deficit has soared to 22 per
cent (the permissible level in the EU is 3 per cent). And the hryvnya
[national currency] could see its value almost halved in the very near
future. So that Yushchenko is in no position right now to turn from Russia
with its cheap gas and oil.

However, mutual relations between our countries will largely depend on who
becomes prime minister under the new Ukrainian president. For all the wealth
of candidates, there are just two possibilities. Either the economy will be
led by moderates (Ukrainian socialist leader Oleksandr Moroz). Or else by
the radicals, who are prepared to drive their own country like a horse just
as long as they can wreak revenge on the "cursed Russians" (Mrs Yuliya
Tymoshenko).

Our country has options for an appropriate response. Cries of how we will
"divert the pipeline" are groundless. How can we do that when we have just
three routes for transporting gas and oil to Western Europe: via Ukraine,
Belarus, and the Baltic states. Most likely, we will be able to influence
Ukraine via other levers. For instance, Russia is almost the only country
with which Ukraine has a positive foreign trade balance (trade turnover last
year was 12bn dollars). And the lion's share of foreign currency also comes
to Ukraine from Russia.

However paradoxical it may seem, right now the future of the regime which
has come to power in Ukraine depends directly on Russia. And each step taken
to spite us will only bring the new president and his team closer to the
collapse of the Ukrainian economy. And lead to the Ukrainians going out onto
Independence Square again, as is their habit. But then, when they chant
their favourite word, "out!", they will preface it with a completely
different name.

What consequences do you see for Russia in the outcome of the Ukrainian
elections? Mikhail Romanov asked political scientists:

Vyacheslav Nikonov, president of the Politika Foundation: The "orange
revolution" will have long-term adverse consequences for bilateral relations
and for the atmosphere of our relations with the West. And if the elected
president also wants to leave the single economic space with Russia and join
NATO, there is a risk the difficulties could last for a long time.

Sergey Markov, director of the Political Research Institute: This will mean
a slowing down of economic growth rates, a cooling of relations with the
West, a humanitarian tragedy for millions (for instance, obstacles to
communications between relatives), and the reduction of Russia's
geopolitical influence in an important zone of the near-abroad. Add to that
the growth of Russia's self-isolation. It is not the Russian spin doctors
who have lost the election in Ukraine but our elite. -30-
=========================================================
14. COMMENTARY: HISTORY AND DEMOCRACY IN UKRAINE

By Bohdan Kordan, Special to World Peace Herald
Saskatoon, Saskatchewan, Canada
World Peace Herald, Washington, D.C., Fri, December 31, 2004

SASKATOON, Saskatchewan -- On December 26, the citizens of Ukraine
cast their ballots in the second round of a run-off in Ukraine's hotly
contested presidential race. The battle between the two contenders for the
presidency -- the opposition leader Victor Yushchenko and the current Prime
Minister Victor Yanukovych - is open to many interpretations. For instance,
in the economic climate of post-Soviet transition, where cronyism is the way
of doing business, the contest is portrayed as a veiled struggle between
millionaires (the former) and billionaires (the latter).

In the context of hegemonic jockeying, where Russia and the United States
are at odds over a whole host of questions, the presidential contest is also
singled out as replay of the East-West confrontation with the liberal and
pro-Western Yushchenko pitted against Putin's man - Yanukovych. There
is some truth to all of this but the real meaning of the election has deeper
symbolic importance. It stretches back to the early days of the collapse of
the Soviet Union.

The Soviet Union formally ceased to exist on Christmas day 1991 when the
flag bearing the hammer and sickle was drawn down from the Kremlin
flagstaff, replaced as it was by the Russian tricolour. Arguably, however,
the USSR died when Ukrainians voted overwhelming for independence,
December 1. But what was the meaning of the independence vote? In
principle, it signalled no less than the beginning of a new political
reality when peoples emerged from the shadow of empire. From the
perspective of Ukrainian national democrats this, of course, was the
fulfilment of a lifetime of dreams. Yet there was a price to be paid.

Independence did not mean democracy. And among the power political
elite of the old-Soviet regime, at a time when the political dust had not
yet settled, in exchange for political amnesty and power-sharing they were
prepared to support an independent Ukraine. Failing to appreciate the
opportunity for real change (as was understood in the Baltic states), for
those who had been fighting in the trenches for national self-determination
over the many years, it was a price worth paying. Five hundred years of a
capricious and cruel history taught those striving for national independence
that national survival was predicated on statehood. Aware that the moment
might not present itself again, the compromise was accepted.

Not surprisingly, in the ensuing years that followed Ukraine's independence,
the question of statehood was the anvil on which the routine of politics was
hammered out. Subsequently, paralyzed and silenced by the prospect of losing
Ukraine's independence, the national democrats lost politically on a number
of important fronts to the old entrenched political interests. The economy
was hijacked and the institutions of the state harnessed or undermined to
benefit a self-serving economic elite, the so-called oligarchs, who worked
in tandem with a corrupt and aggrandizing old guard.

In time, however, as Ukraine became internationally marginalized because of
the regime's roguish behaviour and as the Ukrainian economy and society
teetered on the brink of collapse, the national democratic movement realized
that Ukraine's independence was at risk. This especially so when in an
effort to position itself politically, the discredited government of Leonid
Kuchma sought closer economic and political ties with Russia, a neighbour
whose regional and geo-strategic interests included a more compliant if not
subservient Ukraine.

It is in this context that the political will for Ukraine's future was being
played out; first in the form of the parliamentary elections of 2002, and
then the 2004 presidential elections. Pro-government forces effectively
outmanoeuvred the opposition in the 2002 parliamentary elections,
demonstrating not only the capacity of the anti-democratic pro-government
forces but the weaknesses in their own movement. Hence, the extraordinary
developments associated with the November 21 election for President of
Ukraine, a much bigger prize with far greater consequences for the future
given the power of the office.

For the national democratic opposition, the prospect of a defeat come
November 21 meant nothing less than losing Ukraine. With this in mind, the
opposition was not only galvanized but also willing to gamble by calling the
government into question on the issue that mattered most for Ukrainians,
democracy.

The call for democracy as an alternative to 'the politics of usual' found an
especially receptive audience among both the young citizens of Ukraine whose
future is yet to be made and countless others across the generations who
over the years were offended and fed-up by the thuggish, brazen and
rapacious behaviour of a corrupt regime engaged in documented criminal
activity.

The fraudulent election of November 21 demanded action and act they did
to their own delight and to the amazement of others including the
authorities, which desperately tried to roll back the democratic tide. The
opposition called on the population to defend their collective political
right to freedom and justice, and Ukrainians, young an old, climbed onto
the proverbial barricades to face down a bankrupt regime. In the life of
the Ukrainian nation it was a historic moment.

The last round of the presidential election is the last scene in the first
act of the ongoing drama in the democratic and national evolution of a
people who recognized that to consolidate their democracy they would have
to act collectively as a nation. This is a remarkable achievement in light
of the programmatic de-nationalization which historically has dogged the
Ukrainian nation. That there is a clear connection made between national
independence and democracy has unquestionably strengthened the future of
Ukraine and in that lies the real meaning of the struggle which played
itself out over these last few weeks in Ukraine.

To be sure there will be challenges ahead. The prospect for a just society
will depend on opening up to democratic ideas and rule parts of the country
governed for the longest while as personal fiefdoms. That the
anti-democratic political and economic forces have demonstrated an unusual
capacity to adapt and morph as the landscape changes suggests that the
contest ahead will not be without difficulty. But that is the nature of
political democracy. It is also the next chapter in the ongoing story of
transition in Ukraine. -30- [The Action Ukraine Monitoring Service]
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Bohdan Kordan is Professor of international relations at St. Thomas More
College, University of Saskatchewan. He specializes in Russian and
East-Central European politics, and his books include Black Sea, Golden
Steppes: Antiquarian Maps of the Black Sea Coast and the Steppes of Old
Ukraine and Other Anxieties: Ukraine, Russia and the West.
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