"THE ACTION UKRAINE REPORT - AUR"
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"
"THE ACTION UKRAINE REPORT - Number 464
E. Morgan Williams, Publisher and Editor
morganw@patriot.net, ArtUkraine.com@starpower.net
Washington, D.C. and Kyiv, Ukraine, MONDAY, April 18, 2005
------INDEX OF ARTICLES------
"Major International News Headlines and Articles"
1. "ORANGE GOLD"
Opening a way for Caspian oil from Kazakhstan to reach Europe
OP-ED By Vladimir Socor, The Wall Street Journal - Europe
New York, New York, Friday, April 15, 2005
2. "CASHING IN ON COLOR REVOLUTION"
By Julian Evans, The Moscow Times
Moscow, Russia, Mon, Apr 18, 2005. Issue 3148. Page 8.
3. UKRAINIAN PRESIDENT [ONCE AGAIN] ORDERS PROBE
OF PAST PRIVATIZATION DEALS
AP, Kiev, Ukraine, Monday, April 18, 2005
4. STEEL MILL MAY STAY IN UKRAINE'S HANDS
Associated Press, Kiev, Ukraine, Saturday April 16, 2005
5. UKRAINE: ECONOMIC GROWTH AND FINANCIAL INFRASTRUCTURE
Presentation by Michael Bleyzer, President, SigmaBleyzer
Member of the Panel: Does Ukraine Have A Financial
Infrastructure Sufficient to Sustain Its Recent Impressive Growth?
Ukraine US Business Networking Series, Forum II
New York, New York, Wednesday, March 30, 2005
6. FIGHT OVER UKRAINE TV STATION PROMPTS CRIES OF REVENGE
The station is bankrolled by Eduard Prutnik, former advisor to Yanukovych
Associated Press (AP), Kiev, Ukraine, Thu, April 14, 2005
7. YUSHCHENKO INSTRUCTS OLEH RYBACHUK TO HOLD
INTERNATIONAL INVESTMENT FORUM JUNE 16-17
Ukrainian News Agency, Kyiv, Ukraine, Sunday, April 17, 2005
8. VIMPELCOM CEO: UKRAINIAN ACQUISITION UP TO THE BOARD
Andrew Langley, Dow Jones Newswires
Moscow, Russia, Thu, April 14, 2005
9. AMERICAN INVESTORS FOCUS ON FURNITURE FACTORIES
Ukrainian Times - Investment Projects
Kyiv, Ukraine, Monday, April 18, 2005
10. WIFE OF GEORGIY GONGADZE WANTS TO BE INVOLVED IN
POLITICS OR DIPLOMACY
Ukrayinska Pravda, Kyiv, Ukraine, Monday, April 18, 2005
11. UKRAINE DEMANDS RUSSIAN RESPECT
By Sarah Rainsford, BBC News, Kiev
BBC NEWS, UK, Friday, 15 April 2005
12. RUSSIA BECOMES HAVEN FOR THOSE FLEEING
UKRAINIAN JUSTICE
PM Yulia Tymoshenko cancells her first official trip to Russia
By Taras Kuzio, Eurasia Daily Monitor
Vol. 2, Issue 74, The Jamestown Foundation
Washington, D.C., Friday, April 15, 2005
13. GEORGIA PRESIDENT DOES NOT EXPORT REVOLUTION
But Intends to Destroy the Empire
by Vladimir Novikov, Tbilisi; Boris Volkhonsky
Kommersant, Moscow, Russia, Monday, April 18, 2005
14. BEAUTY SALONS FUEL TRADE IN ABORTED BABIES
Racketeers pay Ukraine women to sell foetuses to
quack clinics for £10,000 courses of 'anti-ageing' jabs
Tom Parfitt in Kiev, The Observer
London, UK, Sunday April 17, 2005
15. "THE ORANGE REVOLUTION"
By Timothy Garton Ash, Timothy Snyder
NEW YORK REVIEW OF BOOKS
Volume 52, Number 7, New York, NY, April 28, 2005
=============================================================
1. "ORANGE GOLD"
Opening a way for Caspian oil from Kazakhstan to reach Europe
OP-ED By Vladimir Socor, The Wall Street Journal - Europe
New York, New York, Friday, April 15, 2005
Ukraine's successful Orange Revolution is rekindling interest in using the
oil pipeline from Odessa on the Black Sea to Brody on the Polish border,
opening a way for Caspian oil from Kazakhstan to reach Europe. For this
project to work, the pipeline would need to be extended all the way to the
Baltic Sea at Gdansk, as originally intended. Ukrainian President Viktor
Yushchenko recently said that this extension should be a priority for a
Europe looking to diversify energy supply sources and transport options.
Ironically, the pipeline's potential value as an alternative and viable
supply route for Europe's energy needs is exactly the reason why it hasn't
been built yet. Initially planned by Ukraine and Poland with U.S. political
support, the Odessa-Brody section was completed in 2002. The following
year, the Ukrainian and Polish governments and the European Commission
agreed on extending the line to Gdansk.
However, these plans have come to nothing so far mainly because Russia
and its state-connected oil companies have stood in the way, politically as
well as literally. Sitting astride the overland transit routes for
Kazakhstan's oil, Russia took advantage of its transit monopoly to prevent
Kazakh oil producers from using the Odessa-Brody pipeline. Russia has
no interest in facilitating a competitor's access to European markets. On
the contrary, Moscow seeks to maximize its market share and price leverage,
thwart the EU's supply diversification strategy, and ultimately exploit
Europe's growing dependence on Russian energy for its political objectives.
As a result, the Odessa-Brody pipeline remained dry and idle for more than
two years for want of access to Caspian oil. With the then-ruling regime of
President Leonid Kuchma tilting politically toward the Kremlin, the stage
was set in 2004 for the "reverse use" of this pipeline. Instead of pumping
Caspian oil northward, it is carrying Russian oil southward to Odessa for
export by tanker through the Turkish Straits to the Mediterranean basin.
The Russian-British company Tyumen Neft-BP (TNK-BP) is the main user
of the pipeline in the reverse mode. Agreements signed last year envisage
pumping nine million tons annually for a three-year period from Russian
fields operated by TNK-BP and various Russian companies. However,
the volumes being pumped since then amount to only a fraction of that
figure. The pipeline therefore operates at a substantial loss for the
Ukrainian government, which is unable to recoup its investment or even
cover the full maintenance costs.
Ukrainian officials are right to believe that the reverse-use idea was
always politically motivated -- namely to thwart the originally intended use
of the pipeline to transport Caspian oil to EU countries. Russian oil
producers have very little commercial interest in the Odessa-Brody route,
which they underutilize mainly in order to block access of Caspian oil.
At a recent international business forum in Kiev, Ukrainian, Polish and
European Commission experts renewed talks on the extension project. The
EU even opened a credit line for the technical and commercial feasibility
study on extending the pipeline into Poland. The construction is expected
to take three years and cost Euro 450-500 million. Receiving oil via Poland
through existing pipeline links could be particularly interesting for
Germany.
The Ukrainian government seeks a commitment of 10 million tons of Caspian
crude oil annually, with guarantees of uninterrupted supply for this
project. Ukrainian and Polish business proposals are based on Kazakhstan's
projected oil output growth to as much as 100 million tons by 2010 from some
50 million tons at present. The true potential for Kazakh oil production is
of course also a function of the availability of transport routes and
consumers and can only be fully assessed once Ukraine and Poland initiate
the formation of a consortium to extend the pipeline to Gdansk with EU
backing.
Mr. Yushchenko and Prime Minister Yulia Tymoshenko propose using oil
from the giant Tengiz field in the northwest of Kazakhstan, which is
majority-owned and operated by ChevronTexaco. At the moment, Tengiz oil
is being pumped to Russia's Black Sea port Novorossiisk through a major
pipeline owned and operated by the ExxonMobil-led Caspian Pipeline
Consortium (CPC). Ukraine intends to initiate discussions with the producers
and transporters of Kazakh oil, Russia's Transneft state pipeline monopoly,
and the Kazakh government to carry Tengiz oil from Novorossiisk by tanker
to Odessa.
An alternative option would involve shipping the oil from Kazakhstan on the
short trans-Caspian route to Azerbaijan, and pump it through BP's existing
pipeline to Georgia's Black Sea port of Supsa, for shipment to Odessa and
on to Poland. The attraction of this last option is twofold: It is shorter
than the route via Russia, and it would provide the first direct link
between the Caspian basin and Europe. As a result, it would be safe from
any Russian political manipulation.
Mr. Yushchenko and the German and Polish ministers of foreign affairs,
Joschka Fischer and Adam Rotfeld, discussed the project at their meeting
in Kiev. Since then, there has been a flurry of other meetings. In late
March, Polish President Aleksander Kwasniewski and Mr. Yushchenko
discussed the financing of the project while Mr. Kwasniewski and
Azerbaijan's President Ilham Aliev examined the transit options to Odessa.
The presidents of Georgia and Kazakhstan, Mikhail Saakashvili and Nursultan
Nazarbayev, just held talks in Kazakhstan to discuss the possibilities of
oil deliveries via Azerbaijan and Supsa to Odessa.
However, Moscow will almost certainly continue opposing the northward use
of the Odessa-Brody pipeline and its extension for the transport of Caspian
oil. This is why U.S. political support is so crucial. In 2003, U.S. Vice
President Dick Cheney prevailed on then-Prime Minister Viktor Yanukovych to
suspend the decision on reverse use, pending supply offers from American
companies in Kazakhstan. But the Kuchma-Yanukovych regime ignored that
offer and agreed to the reverse-use for Russian oil.
This time around, Moscow may find the combined pressure from Washington,
the American oil companies in Kazakhstan, and the transit and consumer
countries of the oil pipeline too strong to withstand. Success of this
project would finally begin to arrest Europe's worrisome slide into over-
dependence on Russia for its energy supplies. -30-
---------------------------------------------------------------------------------------------------------
Mr. Socor is a senior fellow of the Washington-based Jamestown
Foundation, publishers of the Eurasia Daily Monitor.
=============================================================
2. CASHING IN ON COLOR REVOLUTION
By Julian Evans, The Moscow Times
Moscow, Russia, Mon, Apr 18, 2005. Issue 3148. Page 8.
There is a widely held view that the revolutions in Georgia, Ukraine and,
most recently, Kyrgyzstan have somehow been a victory for the United
States and a slap in the face for poor old Russia. Certainly, the new pro-
NATO and pro-EU regimes seem to spell the end of President Vladimir
Putin's dream of a Slavic superstate. But the economic interests really
benefiting from these revolutions are not American, but Russian.
In Georgia, Ukraine and Kyrgyzstan, the revolutions deposed political
circles that had maintained a tight grip on the economy. That tight,
monopolistic grip meant it was very hard for any foreign business, Russian
ones included, to be treated fairly or to get access to key assets. The best
assets always went to local insiders.
A good example is the Kryvorizhstal steel mill in Ukraine. Severstal, a
Russian steel company, put together a strong bid for the mill when the
government of Leonid Kuchma and Viktor Yanukovych privatized it last year.
But the auction was rigged in favor of local oligarchs, who bought the asset
at a lower price than Severstal offered. Putin's supposed close relationship
with the Kuchma-Yanukovych government did not count for much.
Even when Russian companies were able to buy assets in Ukraine, they
found themselves subject to the sort of arbitrary regulatory attacks that
are a natural part of closed, corrupt economies. Mobile TeleSystems,
for example, found itself almost stripped of UMC, the Ukrainian mobile
company and MTS's largest foreign asset, thanks to a local political
imbroglio.
The new government, by contrast, has made opening up the Ukrainian
economy to foreign investors a priority. It has said all investors, domestic
and foreign, will be treated equally.
This will naturally benefit Russian investors most because Russian companies
are easily the biggest foreign investors in the former Soviet Union.
President Viktor Yushchenko has already met with a large delegation of
Russian business leaders. Vasily Siderov, the CEO of MTS, said after the
meeting, "We heard what we wanted to hear. The regulators will treat market
players and government equally and this will only help our business."
Severstal could be a front-runner for the Kryvorizhstal mill when it is
eventually resold, while other Russian companies, such as Vneshtorgbank,
have already increased their investment in the post-revolutionary Ukraine.
A similar situation exists in Georgia. The new government may receive
generous financial support from the United States, but the companies reaping
the benefit of the improved investment climate under the new regime are
almost exclusively Russian.
So far, under Kakha Bendukidze, the larger-than-life minister on reforms
coordination, Georgia has sold a manganese production plant to Yevrazholding
and a bank to Vneshtorgbank. He also wants to sell the country's main gas
pipeline to Gazprom. This profoundly startled the U.S. ambassador in
Tbilisi, Richard Miles, who says selling the pipeline could undermine
Georgia's energy independence, in which the United States has invested so
much time and money.
Bendukidze says this is nonsense -- the pipeline runs straight to the
Russian border and can only be used for Russian gas. As a dyed-in-the-wool
liberal, he does not really care whether a company is Russian or American,
just who is offering the best price.
And the companies offering the best bid for Georgian assets are Russian.
Indeed, they're offering the only bid. Western companies are still very
reluctant to invest in Russia, let alone in Georgia or in Kyrgyzstan.
What little American investment there has been in Georgia has ended badly.
U.S. company AES bought the Tbilisi electricity generator but made many
enemies in its rather crass attempts to reform it. The CEO was eventually
murdered. When it decided to sell the asset, there was only one bidder,
Unified Energy Systems. UES is currently doing a much better job at turning
the company around and making a profit because it understands better how
to do business in an environment like Georgia.
Thus, Russian companies have benefited the most from the post-revolutionary
liberalization and regeneration of the Georgian economy. The more the new
government succeeds in improving the business climate in Georgia, the more
money Russian companies will make there. This point seems to be lost on the
Russian military hard-liners intent on destabilizing Abkhazia.
And so, finally, to Kyrgyzstan. The situation there is more complicated
because there is a danger the revolution will actually worsen the country's
business climate. The Kyrgyz revolution may have a positive effect on the
country's economy, by removing the economy from the monopolistic grasp
of the Akayev family and acting as a powerful warning to future political
leaders not to rule the country for the sake of their family rather than for
the general public. As in Ukraine and in Georgia, the economy could be
opened up to greater foreign investment, and Russian companies would
stand to benefit most.
As in Ukraine and in Georgia, Russian companies found themselves suffering
under the caprices of the corrupt former regime. Alfa Telecom, for example,
initially bought BITEL, the country's main mobile company, from former
President Askar Akayev's son Aidar. However, Aidar then decided he wanted to
keep the company, so he took it back. There are indications that Alfa may be
successful in securing ownership of the asset now that the family has been
booted out.
However, the new government in Kyrgyzstan has so far not shown itself
capable of protecting property rights, and some local businesspeople have
used the confusion in government to grab assets. It is in the interests of
Russian companies to make sure that the Kyrgyz revolution succeeds, that
the new government is less corrupt than the old one and that it treats
foreign investors fairly. Russian businesses would benefit most from a
more honest and open Kyrgyz economy. UES and Russian Aluminum are
already thought to be considering multimillion-dollar investments in metal
and hydroelectric power projects in the country.
But there is an important point to be made. Russian companies will be
welcome in the "near abroad" only if they are seen as good corporate
citizens who are not mere extensions of Russian state policy. If Russian
officials try to use Russian business as a way to meddle in other countries'
affairs, then Russian businesses will find themselves barred from more and
more deals, and Russian influence and prestige will be reduced.
If, on the other hand, Russian businesses act like good corporate citizens,
they will naturally dominate the former Soviet Union and even Eastern
Europe, and will project a brand of a progressive, prosperous "Russia,
Inc.," which will naturally attract neighbouring countries into Russia's
sphere of influence. -30-
----------------------------------------------------------------------------------------------------
Julian Evans is a freelance journalist based in Moscow. He contributed
this comment to The Moscow Times.
http://www.themoscowtimes.com/stories/2005/04/18/006.html
=============================================================
3. UKRAINIAN PRES ORDERS PROBE OF PAST PRIVATIZATION DEALS
AP, Kiev, Ukraine, Monday, April 18, 2005
KIEV - President Viktor Yushchenko Monday ordered the new head of
Ukraine's privatization agency to analyze all past deals, complaining that
the previous government awarded enterprises based on political connections.
"Everything that could have been handed out, (agency managers) handed
out like Catherine the Great doled out land to her lovers," Yushchenko said.
He named Valentyna Semenyuk, a Socialist, to head the State Property Fund,
and ordered her to carry out an urgent analysis of its work over the past
years. He argued that under the cover of privatization "objects of strategic
importance were simply distributed" without any significant gains to the
state.
Yushchenko again cited the privatization of Ukraine 's biggest steel mill as
an example of the corruption that he says flourished under former president
Leonid Kuchma. The steel mill was bought last year by Investment
Metallurgical Union, a consortium largely owned by Kuchma's son-in-law,
Viktor Pinchuk, and tycoon Rinat Akhmetov, for about $800 million, despite
reportedly higher offers from bidders from the U.S. and Russia.
Yushchenko's government has said that several dozen other shady
privatization deals are being investigated and could be overturned. -30-
=============================================================
4. STEEL MILL MAY STAY IN UKRAINE'S HANDS
Associated Press, Kiev, Ukraine, Saturday April 16, 2005
KIEV - Prime Minister Yulia Tymoshenko hinted that Ukraine has an interest
in regaining -- and keeping -- control of Ukraine's largest steel works,
according to a newspaper interview published Saturday. "If an enterprise
brings profits to the country, the state is not obliged to sell to private
owners," Tymoshenko was quoted as saying in the Ukrainian weekly
Zerkalo Nedeli, when asked about Kryvorizhstal mill.
The Ukrainian government is currently trying to reverse last year's
privatization of the mill, which was sold at what analysts call a
rock-bottom price to people close to former President Leonid Kuchma.
Investment Metallurgical Union, a consortium largely owned by Kuchma's
son-in-law, Viktor Pinchuk, and tycoon Rinat Akhmetov, bought the mill for
around US$800 million (euro624 million), despite reportedly higher offers
from bidders from the United States and Russia.
New President Viktor Yushchenko called the sale a theft and pledged that
his government would return the mill to the state. In February, a Kiev court
suspended the sale. It has been widely believed that if the government
succeeds in regaining control of the mill, the business would be put back
on the auction block. Analysts have said the government might receive
more than double what it sold it for last year. The state needs the money
desperately to fill its budget gap.
But Tymoshenko's statement suggests the mill, which produces about 20
percent of Ukraine's steel, could remain in government hands. -30-
=============================================================
5. UKRAINE: ECONOMIC GROWTH AND FINANCIAL INFRASTRUCTURE
Presentation by Michael Bleyzer, President, SigmaBleyzer
Member of the Panel: Does Ukraine Have A Financial
Infrastructure Sufficient to Sustain Its Recent Impressive Growth?
Ukraine US Business Networking Series, Forum II
New York, New York, Wednesday, March 30, 2005
NOTE: The Michael Bleyzer commentary was accompanied by
a power point presentation of forty-five slides. The following
information was taken from the Bleyzer power point presentation:
UKRAINE: CAN THIS ECONOMIC SUCCESS CONTINUE?
Few non-oil producing countries in the world can show the following
combination of economic achievements over the last three to five years:
.High average rate of economic growth of about 9% pa
.Low average annual inflation rate of less that 7% pa
.Low average fiscal deficit of about 1% of GDP
.High current account surplus of more that 8% of GDP
.Fairly stable foreign exchange rate
.High international reserves (currently $9.5 billion) in excess of three
months of imports
.Very low ratio of external debt to GDP of 23%
UKRAINE'S ECONOMIC SUCCESS IS NOT AN ACCIDENT
Since 1999, when Mr. Yushchenko was Prime Minister, a number of
crucial reforms were implemented, including:
.Tightening of financial budget discipline, including elimination of arrears
.Restricting barter or non-monetary transactions in the energy sector
.Accelerating privatization
.Liberalizing monetary and exchange rate policy
.Progressing with land privatization by allowing transfer of agricultural
land to individual farmers
.Initiating administrative reform
.Improving the banking system
External factors also favorable
.Ukraine's exports were helped by the hryvnia devaluation of 1998
.Increased demand and prices for Ukrainian goods, particularly metal
products
POSSIBLE RISKS TO FUTURE ECONOMIC GROWTH
Inflationary pressures are emerging in 2005 as a result of:
.Substantial fiscal loosening approved in 2004 (as a result of the
increase in pensions approved in September 2004)
.Spending of privatization receipts for current, non-investment
purposes
Lack of exchange rate flexibility
Rapid credit expansion and low quality of credit portfolio
External shocks (Ukrainian growth is, to a great extent, export-led )
If TIGHT fiscal and monetary policies are NOT implemented by
the new government, INFLATION may reach DOUBLE DIGIT
levels in 2005, DISCOURAGING INVESTMENTS AND GROWTH
IPCTF AND TBF INVESTMENT DRIVERS
Prime Minister Yushchenko requested a study in 1999 to help him
understand what drives Foreign Direct Investment (FDI). This study
was completed under the guidance of the International Private Capital
Task Force (IPCTF) and led to the establishment of The Bleyzer
Foundation (TBF). The nine investment drivers identified were:
1. Macroeconomic stability
2. Business liberalization and de-regulation policies
3. Stable and predictable legal environment
4. Corporate and public governance
5. Foreign trade liberalization and international capital movements
6. Healthy financial sector
7. Eliminating Corruption
8. Reducing Political uncertainties
9. Country promotion and image
MR. YUSHCHENKO'S PRESIDENCY
The following reforms and steps are being taken by President Yushchenko:
.On March 25, 2005, an amended Fiscal Budget for 2005 was approved
by Rada, eliminating most tax privileges and exemptions, introducing
moratorium on the creation of new free economic zones, and increasing
excise taxes.
.De-regulation and virtual elimination of the use of government institutions
to intimidate the private sector
.Friendlier approach by Government to small and medium size businesses
.Reducing the size of the shadow economy
.Fairer government and legal systems
.Stronger working relationship between Ukraine and the West
.Increased interest and support from international institutions
Yushchenko's track record as both Chairman of the National Bank and
Prime Minister set the basis for Ukraine's recent economic performance,
and bode well for Ukraine's future
FINANCIAL SECTOR OVERVIEW
Ukraine's excellent economic performance was supported by significant
progress made in improving its financial infrastructure
Significant growth in financial assets took place, expanding by about
44% per year during the last five years
Financial sector growth in Ukraine on average has exceeded growth in
other comparable countries.
Banking asset growth in Ukraine decelerated in 2004 due to political
uncertainties during the Presidential elections.
Despite this growth, Ukraine's financial sector is still small relative to
the size of its economy, with financial assets at 46% of GDP, below
Central Europe and developed countries
But Ukraine's financial sector should continue to grow due to strong
GDP growth, increased demand for financing, and better regulations
The banking sector dominates with a share of 89% in total financial
assets. It is followed by Insurance with 10%, and Credit Unions with
0.7%.
As is the case in other countries, as Ukraine further develops, the
share of non-banking activities should increase significantly
IMPROVEMENTS IN BANKING INFRASTRUCTURE
The following improvements in banking infrastructure have helped to
increase confidence in the sector:
.A new Banking Law gave the NBU better governance and banking
regulations
.The implementation of a modern electronic payments system reduced
settlement times
.The liberalization in the opening of bank accounts permitted firms to
have more than one account
.The elimination of old regulations terminated the past practice of
confiscation of deposits by tax authorities
.The strengthening of the supervisory capacity of the NBU helped to
identify problem banks early
THE BANKING SECTOR -- OVERVIEW
A better banking sector infrastructure facilitated the expansion of bank
assets, which increased four-fold from $6 billion in 2000 to $26 billion
in 2004
But the size of the banking sector is still small (at 40% of GDP -25%
including informal GDP), below the world average of 60% and the below
the developed counties (Germany, 220%; Japan, 150%, and the US,
60%- which has a large non-banking sector)
Banks' ability to fund lending was boosted by strong increases in
banking liabilities, particularly bank deposits
Bank deposits and money supply in general expanded as a result of the
purchases of dollars by the NBU in the inter-bank market, as it had to
issue more hryvnias to buy dollars
Increased confidence in the hryvnia and in banks contributed to rapid
bank deposit growth
THE BANKING SECTOR -- CREDIT AND DEPOSIT GROWTH
.Up to October 2004, Credit and Deposit growth was similar to previous
years .However, the political uncertainties in November/December led
to a sharp decline of deposits and credits.
The situation was stabilized by February 2005 thanks to temporary
measures taken by the NBU (credit ceilings, band for foreign exchange
rates, and limitation on early withdrawals)
THE BANKING SECTOR -- CREDIT AND GDP RATIOS
.Bank credit to GDP in Ukraine reached 25% in 2003 and 26% in 2004.
.It compares well with other Central/Eastern European transition
economies, whose ratios for 2003 were: Bulgaria 25.8%, Romania 9.5%,
Poland 17.8%, Czech Republic 17.9%, Hungary 42.3%, Slovakia 25.0%.
THE BANKING SECTOR -- OWNERSHIP
The banking system is mostly privately-owned
Of a total of 160 licensed banks, only 2 are state-owned banks (the
government also owns minority stakes in few other banks)
Seven banks are 100% foreign-owned, and 12 banks have foreign
participation in equity
Foreign banks account for about 10% of total paid-in capital
The banking sector is led by strong national banks (PrivatBank,
Prominvestbank, Aval, UkrSibbank, First Ukrainian Int.) as well as
subsidiaries of well-known international banks (Calyon, Raiffeisen, ING,
HVB, Citibank, Alfa)
The sector is concentrated, with 15% of the banks (25 banks) accounting
for 75% of bank assets, as noted below
THE BANKING SECTOR -- LENDING
Lending to the real sector amounts to 62% of total banking sector assets
Bank lending is concentrated on a few very large industrial clients, with
few resources going to medium and small firms
Consumer loans represents only 10% of banking assets and 4% of GDP
THE BANKING SECTOR -- LENDING STRUCTURE
.Consumer loans are also under-represented in other regional countries,
at less than 10%
.In some Western countries consumer loans to GDP exceed 100%
THE BANKING SECTOR -- ISSUES
The IMF estimates the share of non-performing assets in total assets at
28%, much higher than the 3.4% reported by the NBU
The NBU uses loan classifications different from internationally recognized
ones: the NBU includes only past-due loans as non-performing debts,
whereas the international practice is to include also sub-standard loans as
non-performing (which amount to 21% of assets in Ukraine)
The NBU also give undue weight to collateral valuations
Furthermore, the bad practice of just extending the maturity of past-due
loans, to avoid charges to Provisions, is used extensively
Mandatory Provisioning against these non-performing assets is also
inadequate at 6% of total assets
The rapid and indiscriminate growth of lending was probably the main
reason for the poor "quality" of banks' portfolios
Ukraine's level of non-performing assets, compares unfavorably with
other countries
Capital Adequacy is another problem area, despite the increase in the
minimum Capital Adequacy ratio to 10% since March 2004
This is because, contrary to international Basel standards, banks include
as "real" capital such "non-tier I capital" items as loan loss reserves,
fixed assets revaluation reserves, and current earnings
Furthermore, given rapid credit growth, capitalization is not sufficient and
market risk is relatively high
In addition, minimum equity size is small: depending on specialization
and location, the capital requirements for a bank vary from EUR 1.3
million to EUR 6 million
Compared to other countries, the profitability of Ukrainian banks is low.
THE BANKING SECTOR -- AREAS FOR IMPROVEMENT
Rules for Loan Classification and Provisioning must be made consistent
with international standards
Capital adequacy requirements must be increased and better enforced
Ownership of banks must be disclosed
Rules on related-party lending must be tighten
NBU's Resolution 482 must be repealed as it requires special bank
accounts for capital inflows that lead to multiple foreign exchange
conversions at additional cost and delays
Bank consolidation must be encouraged
Greater participation of foreign banks should be encouraged
Related legal framework should be improved by enacting the Joint Stock
Companies Law, removing inconsistencies between Civil and commercial
codes, and improving the judiciary and its enforcement
NON-BANKING INSTITUTIONS -- EXCHANGES
Non-banking financial institutions are even less developed than banks,
accounting for about 10% of all financial assets
Ukraine's stock market capitalization at 8.7% of GDP compared poorly
with Central Europe (about 25%) and developed countries (US- 110%,
Canada-80%, Japan-65%, Western Europe- 60%)
Stock exchanges are underdeveloped in part because many stock
market transactions take place outside formal markets
In last two years, corporate bond issues have increase rapidly with a
threefold increase in 2003 and a twofold increase in 2004
Corporate bonds now represent 5% of bank assets and account for
60% of the transactions in the official securities exchange
Bonds are issued by few large companies, some of them not fully
creditworthy
The stock exchange index increased substantially last year, given good
macroeconomic performance and positive expectations about the future
To sustain further growth, the following improvements in security
exchanges are needed:
.Upgrading the capacity of regulatory agencies
.Improve the operations of depositaries
.Improve clearance and settlement systems
.Further develop credit rating agencies
.Improve stock market regulations to encourage greater transparency
and accountability
NON-BANKING INSTITUTIONS -- INSURANCE
Insurance is the most rapidly growing non-banking financial sector, with
premiums reaching $3.5 billion in 2004
New insurance products have been introduced, including agriculture risk
insurance, life insurance, mandatory car insurance
Ukraine's ratio of premium-to-GDP in 2003 was 3.5%, comparable to the
ratio for emerging countries (3.8%) but below the Western European
average(8.3%) In 2004, this ratio in Ukraine increased to 5.7% of GDP
On a premium-per-capita basis, however, Ukraine has one of the lowest
ratios of premiums per-capita to GDP, at US$35 in 2003 and $57 in 2004
.The number of insurance companies have also increased in the last
years, reaching 378 companies in 2004
The government holds stakes (one controlling and two blocking) in three
insurance companies only
.Approximately 50% of the Total Insurance Premiums have been paid to
re-insurers, including US$345 million to non-resident
.In 2003, 65% of insurers in Ukraine were profitable, and 2/3rd of these
reported profitability levels exceeding 60%
However, market penetration rates (total premiums/ GDP) and insurance
density rates (total premiums/ capita) are over-estimated in Ukraine due
to the large pseudo-insurance activity in Ukraine
A large portion of insurance transactions do not reflect real insurance
activities: Commercial banks that own insurance companies find it attractive
(for tax purposes) to transfer some operations to their insurance
subsidiaries. Insurance premiums are also inflated to export capital
overseas through reinsurance
Nevertheless, in Ukraine there is room for growth in the insurance sector
as coverage of estimated insurable risk is only 5% (compared to 90% in
developed countries)
Future growth of the sector will require changes in the Insurance Law to
better regulate the sector, improve governance, improve capitalization,
improve creditworthiness, and eliminate discrimination against foreign
insurance companies
NON-BANKING INSTITUTIONS -- LEASING
The amendment to the Leasing Law in late 2003 was expected to stimulate
leasing operations:
.It reduced the number of required provisions in leasing contracts from 14
to 3, making them more transparent
.It also eliminated inconsistencies between Civil and Commercial codes on
leasing
But leasing operations are still limited: the Ukrainian Leasing Association
reports that 50 leasing companies have so far generated limited leasing
services so far
Following recently approved related leasing legislation (tax and
depreciation treatments), leasing has become more viable
But improvements are needed in the law on state registration of property
rights and in mechanisms for enforcements of contracts
NON-BANKING INSTITUTIONS -- PENSIONS
A three-pillar pension system was introduced in Ukraine in January 2004:
the new legislation foresees the rationalization of the existing
government's pay-as-you-go system (pillar I), and the introduction of a
compulsory (pillar II) and voluntary (pillar III) accumulation capitalized
systems
The major rationalization of the pay-as-you-go system (pillar I) relates to
the benefit formula - pensions are now calculated based on "covered
service period" (number of years during which an individual paid pension
contributions) and the wage on which pension contributions were paid.
Earlier a person could choose either any of 60 months in a row or last 24
months of service to calculate pension benefits
The second pillar will be introduced after establishing a State Pension
Accumulation (Capitalization) Fund, which is expected to start operating
in 2007
The non-government pension component (pillar III) is managed by Non-
State Pension Funds (NPFs), insurance companies and banks
Participation in the third pillar is voluntary but encouraged by a number
of tax privileges for both employers and employees
Currently the sub-sector infrastructure is being built up; there are 26
Non-state Pension Funds registered in the country and 33 Asset
Management Companies have been licensed or applied for a license to
manage the pension funds' assets
The sub-sector activity is in its initial phase: NPFs' assets are estimated
to be only 0.01%-0.02% of GDP
Future growth will also require the resolution of a number of legal and
regulatory issues for Pillar III, including more satisfactory standards for
capital adequacy, liquidity, asset allocation, portfolio diversification,
and currency matching for assets and liabilities.
CONCLUSIONS
Ukraine's excellent economic performance in recent years has been
supported by a rapidly growing financial sector
So far, the financial sector has avoided major crises despite the
relatively high level of non-performing assets
The future stability of the financial sector and its ability support to
further economic growth will depend on substantial improvements in
Ukraine's financial infrastructure. -30-
----------------------------------------------------------------------------------------------------
SigmaBleyzer is the creator and manager of a growing family of
private equity investment funds. These funds focus purely on investing
in regions that are making the transition to free market economies –
specifically countries of the Former Soviet Union and Eastern Europe.
---------------------------------------------------------------------------------------------------
NOTE: To see the entire power point presentation made by Michael
Bleyzer at the Ukraine US Business Networking Series, Forum II,
in New York on Wed, March 31, 2005, click on this link:
http://sigmableyzer.com/files/Financial_Infrastructure_v12.pdf.
Additional economic reports by SigmaBleyzer about Ukraine can be
found at: http://www.sigmableyzer.com/index.php?action=downloads.
=============================================================
6. FIGHT OVER UKRAINE TV STATION PROMPTS CRIES OF REVENGE
The station is bankrolled by Eduard Prutnik, former advisor to Yanukovych
AP, Kiev, Ukraine, Thu, April 14, 2005
KIEV - President Viktor Yushchenko's pledge to safeguard media rights -a
promise that helped swing support behind last year's Orange Revolution -is
facing its first real test in a bitter legal battle over a TV company linked
with the former regime. The dispute could topple Ukraine 's NTN television,
the funding for which comes from a businessman linked to former Prime
Minister Viktor Yanukovych, who lost last year's hotly contested
presidential race.
But analysts also say it could just as easily backfire on Yushchenko if the
nation is left with the impression that the new government's commitment
to a free press doesn't extend to media outlets owned by its opponents.
Prosecutors are challenging NTN's right to beam its news programs into
homes across this nation of 48 million, claiming NTN is using frequencies it
didn't pay for and wasn't entitled to. NTN denies the charges, calling the
challenge a politically motivated effort to transfer its airspace to more
friendly hands. "It's one of those cases that I think many people believe is
justified, but they have yet to see proof ... and that isn't reassuring,"
said Kiev-based political analyst Inna Pidluska. A Kiev court is due to
consider the case on May 19.
NTN is a relatively new player on Ukraine 's clan-controlled media field,
but its sleek design, fast-paced programming and aggressive attitude has
won it a dedicated following. Editor-in-chief Nataliya Katerynchuk said the
station strives for an independent viewpoint, with a motto that journalists
have to at times "spill the blood of politicians."
So far, it has adopted a moderate course. The station's biggest problem with
the new government came amid their attempts to profile government ministers
at home - with those "living in big country homes with Rolls Royces being
the most unreceptive," Katerynchuk said.
The station is bankrolled by Eduard Prutnik, a former adviser to Yanukovych
from eastern Ukraine , a region hostile to Yushchenko. Originally granted a
license to broadcast only in Kiev and the surrounding region, the station
sought agreements last year to use military frequencies to expand its reach
to 75 cities.
Ukraine 's National Television and Radio Council had refused to approve the
expansion, prompting NTN to seek approval to expand its license in the
courts. It won approval in two court decisions.
The council has called such a backdoor method illegal, and said that if NTN
wants to expand its license, it must go through an open bidding procedure.
Ukrainian prosecutors filed a lawsuit against the company, saying it
shortchanged the state budget; NTN says it paid 2.16 million hryvna
($411,000).
While prosecutors remain largely silent about the proceedings, awaiting next
month's court hearing, NTN has launched a full-court defense. It co-opted
Yushchenko's orange campaign color - draping an orange banner across its
logo with the words "Keep Silent."
A video clip montage - resembling the pro-Yushchenko advertisement that
aired continuously during the Orange Revolution on a competitor's station -
features journalists with their mouths muzzled with orange tape. NTN's
reporters have held noisy protests in central Kiev, and the station has
erected tents outside subway stations to collect signatures in its support.
Valeriy Ivanov, of the Ukrainian Academy of Press, said that the method
NTN used to acquire its license was "cloudy enough ... but the question
does arise: why is only NTN being singled out?"
Such fears of political retribution resonate now in Ukraine , where the
short honeymoon granted to the new authorities has already given way to
political posturing ahead of next spring's parliamentary election, a contest
that Yushchenko's supporters must win if they want to see the Orange
Revolution remain intact.
Most analysts said they expected the government to seek some kind of
compromise that won't close NTN, a move they said could hurt Yushchenko's
friend-of-the-media credentials and prompt tougher criticism from other
media outlets in the hands of Yushchenko's opponents. -30-
============================================================
7. YUSHCHENKO INSTRUCTS OLEH RYBACHUK TO HOLD
INTERNATIONAL INVESTMENT FORUM JUNE 16-17
Ukrainian News Agency, Kyiv, Ukraine, Sunday, April 17, 2005
KYIV - President Viktor Yuschenko has commissioned Deputy Prime Minister
for European Integration Oleh Rybachuk to hold an international investment
forum on June 16 through June 17. The presidential press service made the
statement to Ukrainian News.
The steering committee led by Rybachuk consists of 20 persons. As Ukrainian
News reported earlier, on April 11, President Yuschenko approved the new
composition of the Consultative Council on Foreign Investments, which is
made up of 23 people and is headed by the president. -30-
=============================================================
8. VIMPELCOM CEO: UKRAINIAN ACQUISITION UP TO THE BOARD
Andrew Langley, Dow Jones Newswires
Moscow, Russia, Thu, April 14, 2005
MOSCOW -- OAO Vimpel Communications (VIP), Russia's second-largest
wireless operator, Thursday distanced itself from a dispute between its two
main shareholders over a potential acquisition in Ukraine . VimpelCom has
expressed a desire to buy Ukrainkiye Radiosystemy, or Ukrainian
Radiosystems, a medium-sized mobile phone operator in the former Soviet
republic.
Russia's Alfa Group (ALFAGP.YY), which owns 33% of VimpelCom's voting
shares, wants to expand its presence in the fast-growing Ukrainian market
through this acquisition, while Telenor ASA (TELN), which holds 26.6% in
VimpelCom, opposes such a move for fear VimpelCom will then compete
with Telenor-controlled Kyivstar, Ukraine 's second-largest mobile phone
business. Telenor owns 56% of Kyivstar, and Alfa holds 43%.
"Management develops and presents opportunities and the board then
decides," VimpelCom Chief Executive Alexander Izosimov said in a
conference call for investors.
VimpelCom's board is due to meet April 22 to discuss the Ukrainian
Radiosystems deal. "The independent directors will play an important role,"
Izosimov added. VimpelCom has two independent directors on the board.
Telenor has four representatives, and Alfa has three.
Previously VimpelCom's charter called for a supermajority decision on
acquisitions. However, on Tuesday, the Krasnodar court struck the clause
after a minority shareholder complained that it violated his rights. In
reaction to the court decision, Telenor on Wednesday urged management
to appeal the case, and said a subcomittee of the board has been appointed
to support VimpelCom's management in an effort to put the supermajority
rule back in effect. -30- [The Action Ukraine Report Monitoring Service]
--------------------------------------------------------------------------------------------------------
By Andrew Langley, Dow Jones Newswires; +7 095 974 80 55;
andrew.langley@dowjones.com; Web site: http://www.vimpelcom.com
=============================================================
9. AMERICAN INVESTORS FOCUS ON FURNITURE FACTORIES
Ukrainian Times - Investment Projects
Kyiv, Ukraine, Monday, April 18, 2005
KYIV - The company Fleming of the United States plans to invest five
million euros in the creation of a modern furniture factory in the city of
Ivano-Frankivsk. It will be based on the premises of a former radio
manufacturing plant. According to the president of the company, if the
factory runs at full capacity, it will employ about a thousand new workers.
Ivano-Frankivsk regional authorities have promised the investors to
promote the implementation of the project.
In addition, the Radyvyliv furniture factory, which makes marketable
furniture out of natural wood, is ready to sell 49% of its shares to
investors.
Drawn up by American experts, a business plan provides for two invest-
ment projects valued at $850,000 and $3 million. The furniture factory is
situated at a railroad junction, at a distance of 100km from four regional
centers such as Lviv, Lutsk, Rivne and Ternopil, and it is not far from
Ukraine's Polish and Hungarian frontiers. Importantly, the Radyvyliv factory
has the idle industrial premises occupying the area of 7,000 square meters
and the chain of outlets throughout Ukraine. -30-
=============================================================
10. WIFE OF GEORGIY GONGADZE WANTS TO BE INVOLVED IN
POLITICS OR DIPLOMACY
Ukrayinska Pravda, Kyiv, Ukraine, Monday, April 18, 2005
KYIV - The wife of Georgiy Gongadze [Myroslava Gongadze] wants to
become a deputy of the Verkhovna Rada or to be engaged in diplomacy.
She told about that in an interview to the Day newspaper. "There are two
directions which I am interested in, they are politics and diplomacy", said
Gongadze, specifying that in politics the position of a deputy of Verkhovna
Rada takes her profound interest. At the same time she did not confirm
rumors that she had been offered a position of press-secretary of the
Ministry of Foreign Affairs.
"I can say nothing. I am interested in politics above all. But in general I
have not yet decided whether to come back...", she marked. When asked
whether she would go to the people as the candidate by the list of the
People's Union Our Ukraine, Gongadze answered that "nobody had talked
to her about it".
She reported that she planned to have a meeting with the president
Yushchenko. "I spoke to Poroshenko and Zinchenko, they promised to
make it possible as soon as Yushchenko came back to Ukraine... In
relation to the date it may be on 16th-18th", she noted.
Being asked what her attitude is toward the investigation group, Gongadze
answered that she still had hope, but the completion of investigation of the
case is still a long way off.
"I met with the investigation group. And today I have already worked with
them. They gave me hope and today I have held some investigation, filed
an inquest. I see that their work is advanced and they try to take this
investigation to the end. I saw what exactly they were doing, and that
disposed me more or less optimistically...", she marked.
She stressed also that it was important for her to know the tapes of
Melnychenko were brought to the case, but she does not concern herself
with who has organized the audio surveillance of Leonid Kuchma and what
relationships are established between Melnychenko and Russian oligarch in
exile Boris Berezovsky or somebody else.
When asked about the mother of Georgiy, Myroslava answered that she
had not communicated with her. "I know (how Lesya Gongadze lives). Of
course, it is not precise information, as I have not seen her for four
years. My father maintains friendly relations with her: he visits her,
brings groceries and other things like that. They communicate more
frequently. She is sick now, but after her trip to the office of prosecutor
she could not come to herself", emphasized Myroslava. -30-
=============================================================
11. UKRAINE DEMANDS RUSSIAN RESPECT
By Sarah Rainsford, BBC News, Kiev
BBC NEWS, UK, Friday, 15 April 2005
KIEV - Ukrainian Prime Minister Yulia Tymoshenko says she cancelled
her first official visit to Moscow because she wants Russia to respect
her country.
It should have been her first official trip since taking office in the wake
of the victory of the Orange Revolution. But it was postponed after
Russia's state prosecutor warned that she remains on a wanted list
relating to claims of fraud in the 1990s.
Officially, the trip was delayed as the prime minister was "too busy".
She is supposed to be tied up with urgent agricultural matters as it is
spring sowing season in Ukraine.
But speaking to the BBC Radio 4 Today programme, Ms Tymoshenko
made it clear she was protesting against "an act of stupidity" by a
bureaucrat, and one that she insists must be corrected. I know the
Russian political elite has got used to the Ukraine suffering from an
inferiority complex, but I want this to disappear from our relationship.
"I think everyone remembers how certain Russian bureaucrats used to
work against the Ukrainian opposition, I think it is hard to drop old
habits," she said. "I want to believe the statement is just the stupidity of
one bureaucrat and that it is not the national politics of Russia. If that
is the case, then that bureaucrat must correct his stupidity."
The incident has reignited tensions between Moscow and Kiev - already
strained since the controversial elections that sparked the Orange
Revolution here. Russia campaigned openly then for the candidate of
power, Viktor Yanukovych. Now Ms Tymoshenko says it is time Russia
stopped treating Ukraine as its inferior, and learned some respect.
EU ENTHUSIASM
She called for the two countries to build a long-lasting relationship as
equals. Ms Tymoshenko also spoke about Ukraine's relationship with the
European Union. One of the rallying cries of the revolution had been future
EU membership. "The Ukrainian government and the president are working
towards EU membership with great enthusiasm and I'm sure it will result in
success," she said.
"If nothing changes in the internal workings of the EU then I'm certain that
the people of every country in Europe will support us joining the European
family." The EU was supportive of Viktor Yushchenko and the revolution as
hundreds of thousands of peope took to the streets after the disputed
elections.
Ms Tymoshenko said she never doubted for one day that Mr Yushchenko
would become president. "I watched as that faith was justified," she said.
"The old bastions of the post-communist regime collapsed before my very
eyes. The monsters who had kept Ukraine in a criminal state left the stage."
Ms Tymoshenko dismissed rumours of a growing divide between the two
leaders of the revolution, Mr Yushchenko and herself, as groundless.
I feel a huge sense of responsibility towards the people, I have to produce
results so they don't think they have made a mistake
She told the BBC she planned to work side-by-side with the president for
decades and insisted the two had no serious disagreements. Ms
Tymoshenko also revealed she was aware of some of the other things
people on the streets were saying about her.
HEAD FOR FASHION
As well as the orange jumpers and outfits, her braided hair became a
trademark feature during the days of protests - a style that has since been
copied around the world. "I just heard the latest joke about my hair: 'Do
you know what that is on her head? It's a steering wheel to drive the
state'," she said.
"It's just comfy this way and I think it suits me. I'm honoured that models
around the world are sporting the same style on catwalks these days, that
means Ukraine is not only forming the fashion for politics and democracy
but for hairdos too, and I am very proud of that." -30-
=============================================================
12. RUSSIA BECOMES HAVEN FOR THOSE FLEEING UKRAINIAN JUSTICE
PM Yulia Tymoshenko cancells her first official trip to Russia
By Taras Kuzio, Eurasia Daily Monitor
Vol. 2, Issue 74, The Jamestown Foundation
Washington, D.C., Friday, April 15, 2005
Ukrainian Prime Minister Yulia Tymoshenko cancelled her first official visit
to Russia this week. The Russian Prosecutor-General's office has continued
to insist that she be brought in for questioning in connection with a
long-forgotten case from the 1990s in which she is accused of bribing
Russian Defense Ministry officials. Ukrainian authorities under former
president Leonid Kuchma unsuccessfully tried to smear her with these and
other charges in 2001-2003.
Russia, in a bid to demonstrate its support for Kuchma last year, placed
Tymoshenko on the Interpol wanted list. Interpol meanwhile, removed her
from all wanted lists on March 3-4; now she cannot be arrested on the
charges laid out by Russia. Yet Moscow doggedly insists that the case
remains open.
Although Tymoshenko has diplomatic immunity, the Ukrainian government
decided to cancel the visit for legal reasons and to protest Russia's
refusal to close the case. The cancellation confirms that Russia still is
unable to come to terms with Viktor Yushchenko's election victory last
December.
Moscow is at a loss about what to do with a Ukraine under Yushchenko. This
bewilderment compounds Russia's pre-existing inability to deal with Ukraine
as a truly foreign country. In an interview given to Kommersant (April 12),
Russian President Vladimir Putin compared Russia and Ukraine to East and
West Germany. Ukraine's Foreign Ministry dismissed this comparison as both
"absurd and illogical" (Ukrayinska pravda, April 13).
What then is the source of this newfound uncertainty in Moscow? As Sergei
Karaganov, deputy director of the Institute of Europe, pointed out, it is
the threat of the entire western ex-USSR joining NATO and then moving on to
join the EU (RIA-Novosti, April 11). The idea of Belarus and Moldova joining
NATO is far fetched for now, as one is ruled by a neo-Soviet autocrat and
the other by Communists who only have set their sights on the EU. The
reality, as Izvestiya (April 8) explained, is that Ukraine and Russia see
the United States and the West in different ways, with Moscow viewing
"America through Cold War stereotypes" and Kyiv seeing "America as its
ally."
Tensions between the former allies are likely to increase as Russia
increasingly becomes a haven for people fleeing justice in Ukraine.
For example, Maxim Kurochkin, formerly vice-president of the Russian Club
in Kyiv, is in hiding in Moscow after Ukraine's Prosecutor-General launched
charges against him. The Russian Club was created in summer 2004 as a
lobbying center for Russian interests and the headquarters of the Russian
"political technologists" working for Viktor Yanukovych's campaign. The
Russian Club was officially opened by the Russian Embassy and Yanukovych.
Kurochkin is wanted on at least three charges, including extortion and theft
of state property through Ihor Bakay, then head of the State Directorate for
Affairs, a government branch that controlled Kyiv's Hotel Dnipro, various
markets, and tourist resorts.
Kurochkin is also accused of having links to organized crime and even
survived a mafia-style hit in Kyiv in November 2004. The links among
organized crime, Russian "political advisors," and the Yanukovych campaign
have been publicly exposed. Deputy Interior Minister Hennadiy Moskal
outlined that state property worth close to $1 billion was transferred
illegally to this "Muscovite criminal authority" (Ukrayinska pravda, March
22).
Moskal believes that extradition would be a long process, as Kurochkin is
both a Russian citizen and "he is an influential person with many ties"
(Ukrayinska pravda, April 13). When he resided in Ukraine, "The entire
leadership of the Interior Ministry and the presidential administration were
his best friends." Meanwhile, Kurochkin is living quite comfortably in
Moscow and is not worried about being deported to Ukraine (Lvivska
hazeta, March 24).
Bakay, another high-ranking official from the Kuchma regime, is wanted on
countless corruption and money-laundering charges. Bakay's extradition
would also be difficult. According to his former allies in the Social
Democratic United (SDPUo) party, Bakay is a Russian citizen. However,
Ukraine does not recognize dual citizenship.
Bakay is living near Moscow where he fled in late December. According to
Minister of Transport Yevhen Chervonenko, Bakay fled Ukraine with "five
sacks full of cash". One private plane flew Bakay to the Maldives and a
second transported his personal property to a dacha near Moscow
(Ukrayinska pravda, April 12).
As head of the State Directorate on Affairs between 2002 and 2004 (and
formerly CEO of Naftohaz Ukrainy in the 1990s), Bakay is a controversial
figure. Kuchma brought him back to divide up remaining state property among
his allies as election bribes. The spoils included the Hotel Dnipro, which
was transferred to Kurochkin between rounds one and two of the presidential
elections. The Prosecutor-General has launched seven serious criminal
charges against Bakay that relate to widespread, officially sanctioned theft
of state property and theft from the state budget (Ukrayinska pravda, March
22).
Chervonenko linked Bakay and former Transport Minister Heorhiy Kirpa (who
committed suicide in December 2004) to Viktor Medvedchuk, head of the
presidential administration under Kuchma. Medvedchuk accused Chervonenko
of "character assassination" on 1+1 television (April 12). Nevertheless, the
connections between Kurochkin's Russian Club, Bakay's State Directorate for
Affairs, and the presidential administration are easy to prove. Warehouses
controlled by Bakay's State Directorate were used during last year's
elections to store anti-Yushchenko leaflets, while the Russian political
advisors used the Russian Club for offices and a press club. -30-
-----------------------------------------------------------------------------------------------------------
Taras Kuzio, is a Visiting Professor at the Institute for European Russian
and Eurasian Studies, George Washington University, Washington, DC.
tkuzio@gwu.edu; www.ieres.org; www.taraskuzio.net.
-----------------------------------------------------------------------------------------------------------
LINK: http://www.jamestown.org
=============================================================
13. GEORGIA PRESIDENT DOES NOT EXPORT REVOLUTION
But Intends to Destroy the Empire
by Vladimir Novikov, Tbilisi; Boris Volkhonsky
Kommersant, Moscow, Russia, Monday, April 18, 2005
Last Friday Georgia President Mikhail Saakashvili announced at the meeting
with Georgia General Prosecutor's Office workers that soon another CIS
country would have a revolution and change its authority. The president said
that the country would become known on April 22, at the GUUAM summit in
Chisinau. Besides that, Georgian leader promised to snatch Abkhazia from the
"imperial claws" soon. This statement combined with harsh speeches of other
high officials of Georgia have been received by many observers as ground
testing for a serious announcement by countries, opposing the Russian
monopoly in CIS.
"We have overcome our enemies in Georgia, Ukraine, and Kyrgyzstan, and
have one more country on our list," Saakashvili said at the meeting with
Georgia General Prosecutor's Office workers. He did not specify the country,
suggesting it would become known during the GUUAM (an organization formed
by Georgia, Ukraine, Uzbekistan, Azerbaijan, and Moldova) summit, which will
be held in Chisinau on April 22.
At the same time the Georgian President named among the first priorities of
Georgia the need to "snatch Abkhazia from the empire's claws." He again did
not specify the empire, but mentioned that that empire "had nothing else
left to do." The opposition politicians state that Saakashvili's
announcement was made in view of the visit of U.S. President George Bush
to Georgia, scheduled for May.
On the same day the media spread the announcement by Chairman of the
Defense and Security Committee Givi Targamadze that Tbilisi allegedly
intended to solve the problems of Abkhazia and South Ossetia by force.
Yesterday, Targamadze called "wicked calumny" the Russian media's
statements which attributed him the threat to solve the problems of Abkhazia
and South Ossetia in the nearest future by force. "It's true that we are
forming a modern and powerful army. In order to reach peace, one must
have powerful army," he emphasized in his interview to Georgian journalists.
"However, Georgia will not be the first one to start any military action in
Abkhazia or in South Ossetia. We are exclusively for peaceful settlement
of these problems." According to Targamadze, his words were taken out
of context, and were intentionally misrepresented for propaganda purposes.
Nevertheless, independent observers cannot guess why such sharp
announcements have been voiced just now. Not so long ago, Saakashvili
had been saying time and again that he had no intentions to export the
revolution. However, lately, he has been often saying that Georgia's
problems including the restoration of its territory "depended on being freed
from Russia and the destruction of imperial structures on post Soviet
territory."
Some observes supposed that these statements were made with hopes of
gaining the support of other participants of the GUUAM summit, mainly
Ukraine. According to Georgian media the last few days Saakashvili and
Viktor Yushchenko have talked on the phone several times. Besides that,
Yushchenko plans to visit Georgia in the nearest future, and in link with
that, the media has been giving special attention to the subject that one
of the main direction of GUUAM activities will be the support of democratic
tendencies on the post Soviet territory. -30-
-------------------------------------------------------------------------------------------------------
LINK: http://www.kommersant.com/page.asp?id=570933
=============================================================
14. BEAUTY SALONS FUEL TRADE IN ABORTED BABIES
Racketeers pay Ukraine women to sell foetuses to
quack clinics for £10,000 courses of 'anti-ageing' jabs
Tom Parfitt in Kiev, The Observer
London, UK, Sunday April 17, 2005
Aborted foetuses from girls and young women are being exported from
Ukraine for use in illegal beauty treatments costing thousands of pounds,
The Observer can reveal.
The foetuses are cryogenically frozen and sold to clinics offering 'youth
injections', claiming to rejuvenate skin and cure a raft of diseases.
It is thought that women in the former Soviet republic are being paid £100 a
time to persuade them to have abortions and allow their foetuses to be used
in treatments. Most of the foetuses are sold in Russia for up to £5,000
each. Some are paid extra to have abortions late in their pregnancy.
Border guards stopped a train entering Russia from Ukraine last week and
arrested a 'mule' carrying 25 frozen foetuses hidden in two vacuum flasks.
The man said he had bought them from a medical research centre.
Ukrainian law allows an aborted human foetus to be passed to research
institutes if the woman involved consents and her anonymity is protected.
But police say staff at state health institutions are selling them to
private clinics offering illegal therapy.
'It is extremely difficult to detect this because there are corrupt
agreements between respected doctors and academics,' said one senior
officer.
Beauty salons in Moscow that buy the aborted material to provide 'foetal
therapy' are flourishing, despite a Russian ban on all commercial treatments
using human cells other than bone marrow. The salons offer injections of
stem cells, the undivided cells present in embryos that can adapt into any
kind of tissue, although they are still at the trial stage worldwide.
Sergei Shorobogatko, a former Kiev policeman who is investigating the
trade, said abortion clinics in the poor eastern regions of Donetsk and
Kharkiv are selling foetuses - often untested for viruses such as Aids -
without permission.
Abortions performed more than 12 weeks into a pregnancy are restricted
in Ukraine. Older foetuses fetch extra because their curative powers are
thought to be greater.
'When a doctor wants a foetus [to sell], he tells a girl there is a medical
reason for an abortion later than 12 weeks,' said Shorobogatko. 'A special
procedure extracts it with the placenta.'
The woman would be paid to wait until a late stage of her pregnancy, or
might never even know she was duped, he said. Her aborted foetus would
be passed to a middle-man or institution, which would cut it into separate
organs before placing these in storage. The material was then sold and
taken abroad.
Beauty courses of injections using blends of foetal cells are banned in
Ukraine and Russia, but they are widely available in salons that charge up
to £10,000. Wealthy clients are told the treatment can stop the ageing
process, or eliminate such debilitating conditions as Parkinson's disease or
Alzheimer's. One fashionable Moscow clinic approached by The Observer
promised to 'take 10 years off your face'.
'We are talking about a huge, corrupt and dangerous trade in quack
therapies,' said Professor Vladimir Smirnov, director of the city's
Institute of Experimental Cardiology. Outside state institutes, Russian law
allows only extraction and storage of human cells, but enforcement is lax.
Earlier this month the Ministry of Health announced that 37 out of 41
clinics offering stem-cell treatments in Moscow were acting illegally. Yet
most continue to operate. 'What is unclear is what people are injected
with,' said Dr Stephen Minger, of King's College, London. 'Are they really
stem cells or a mixture of tissues?'
Ukrainians, accustomed to tales of illegal privatisations and government
corruption, are not surprised. 'They used to say we were selling Ukraine,'
said one reporter. 'Now we are selling Ukrainians; moreover, in parts.'
=============================================================
15. "THE ORANGE REVOLUTION"
By Timothy Garton Ash, Timothy Snyder
NEW YORK REVIEW OF BOOKS
Volume 52, Number 7, New York, NY, April 28, 2005
Last autumn, Ukraine imprinted itself on the political consciousness of the
world for the first time in its history. In what was christened the "orange
revolution," vast crowds wearing orange scarves gathered in subzero
temperatures in Kyiv's Independence Square to demand a fair election for
president. They won. Under its new president, Viktor Yushchenko, Ukraine
can move toward what he and his allies hope will be a working democracy
and market economy under the rule of law, and toward membership in the
European Union.
Observers have placed Ukraine's "orange revolution" in a sequence of
peaceful democratic revolutions stretching from the "velvet revolutions" of
1989 in Central Europe, through the "rose revolution" in Georgia in 2003,
to what some are already calling the "cedar revolution" in Lebanon. Many
Ukrainians are understandably delighted by this attractive labeling, so
different from the largely negative or nonexistent image they have had in
the past. Yet we must look beyond the news headlines to discover how
and why this change has come about, and what its consequences may be.
1.
The history of Ukraine begins a thousand years ago, when the rulers of a
trading state based in Kiev-or Kyiv, to use the Ukrainian spelling-converted
to Byzantine Christianity. After the Mongol invasions, Kyiv and surrounding
lands were absorbed by the then combined state of Poland-Lithuania, in
which Ukrainians were exposed to the influence of the Renaissance and the
Counter-Reformation. As Russian power extended westward, educated
Ukrainians offered their services to the Russian empire. The Ukrainian
language, related to both Polish and Russian, allowed them to assimilate
easily. As nationalism emerged in the nineteenth century, Russians came
to see Ukraine as a branch of their own nation. At the same time a Ukrainian
national movement began to articulate a distinctive Ukrainian culture.
However, Ukraine failed to achieve independence in 1918. Attempts by
Ukrainians to found a state were blocked by Bolshevik and Polish forces.
Woodrow Wilson did not think Ukraine was a nation, and the Western powers
conceded Ukrainian lands to the Russian White Armies in the hope that they
would defeat Bolshevism. In 1921, Ukraine was divided up between the
Bolsheviks and Poland.[1] The Bolsheviks granted Ukraine generous space
within the new Soviet Union, but the peasantry in Soviet Ukraine was
destroyed by the collectivization of agriculture, while the Orthodox Church
was subordinated and corrupted, and the intelligentsia was decimated.
Among Stalin's worst crimes was the organized famine of 1932-1933,
which took the lives of at least three million people in Soviet Ukraine. His
regime was displaced in 1941 by the Nazis, who regarded Ukrainians as
racially inferior, and brutally treated them as such. Ukraine's Jewish
population was all but eliminated in the Holocaust, in which the German
occupiers were aided by the collaboration of a minority of Ukrainians.
Some Ukrainian nationalists attacked and killed local Poles. Hundreds of
thousands of Ukrainian soldiers starved to death in German camps.
Yushchenko's father, who survived Auschwitz, was one of the lucky few.
With the return of Soviet power at the end of the war Ukrainian lands were
gathered into one political unit. In 1945, Stalin annexed western Ukraine
from Poland, thereby bringing people with a different experience of politics
into the Soviet Union. Some of them came from Galicia, a part of Austria
between 1772 and 1918 that was incorporated into Poland. These Ukrainians
were mostly Greek Catholics, their "uniate" church combining an Eastern
liturgy with subordina-tion to the Vatican. Between the two wars the
Galicians had been citizens of Poland, which, while an increasingly
authoritarian state, generally allowed free expression and accepted the rule
of law. After 1945 Nikita Khrushchev, the Communist official in charge of
Ukraine, took control of the Soviet pacification of its western part. It was
he who added the Crimean peninsula to Soviet Ukraine in 1954, giving the
country its present shape.
Soviet power weakened or eliminated in Ukraine those elements of civil
society-private farms, churches, the intelligentsia-that had helped to
prepare the way for the velvet revolutions in its more fortunate neighbors,
such as Poland and Czechoslovakia. Still, when the USSR collapsed in 1991,
Ukraine had a name, a capital, a place on the map. But its independence
arrived without a major popular movement to shape it.[2] Its foundations
were fragile. Many in Russia refused to accept the reality of Ukrainian
independence.
2.
During the 1990s, Ukraine was an electoral democracy undergoing a shaky
transition to a post-Soviet version of capitalism. Between 1994 and 2004,
the regime of President Leonid Kuchma, in which the President appointed
almost everybody that mattered, adopted increasingly corrupt, brutal, and
undemocratic methods. Kuchma pioneered what has been called "the
blackmail state."[3] Having itself encouraged widespread corruption, his
administration blackmailed officials and private citizens by threatening
them with evidence of wrongdoing gathered by the secret police-such
evidence being known as kompromat, the old Soviet term for "compromising
material." Kuchma also cultivated intimate relations with some of Ukraine's
new industrial barons, letting them take over state assets-particularly
coal, steel, and natural gas-and giving them other favors in return for
their political support. The system seemed to work.
After World War I, the Ukrainian conservative Vyacheslav Lypyns'kyi had an
optimistic thought: even a corrupt Ukrainian state, if it lasted, could
create a Ukrainian nation. The rich would adapt to its laws and seek
connections with state officials. Those with no cultural attachment to
Ukraine would see themselves as citizens of a Ukrainian state if they had a
stake in its institutions.[4] The 1990s put these ideas to the test. Agile
businessmen and women took over former state assets, created and exploited
monopolies, and made lucrative investments. In far-eastern Ukraine, near the
Russian border, Rinat Akhmetov, the son of a miner, accumulated a fortune
now estimated at more than $3 billion, starting with coal and steel. By
financing political parties, these oligarchs- generally Russian speakers
from the east-got themselves elected to parliament. Many of them moved to
Kyiv and courted favor with President Kuchma. One of them, Viktor Pinchuk,
married Kuchma's daughter. Such oligarchs had a vested interest in the
survival of Ukraine. In an enlarged Russia, or a restored Soviet Union, they
would have been small fish in a big pond, their connections of little value.
Kuchma's Ukraine endorsed the institutions and the symbols of independent
statehood. It had embassies, an army, its own police. The national anthem
used by the briefly independent Ukrainian People's Republic after World War
I was restored in 1992, and amended in 2003. Every night on television
people saw the outline of their country on the weather map. Ukrainian was
the state language. Foreign journalists were asked to use the word "Kyiv"
rather than "Kiev." Teachers at elite schools used Ukrainian in their
classes, and the texts of civil service and university exams were in
Ukrainian. Even as much of the political elite continued to speak Russian
off camera, the public use of the Ukrainian language became a sign that the
state was established.[5] Kuchma himself published a book entitled Ukraine
Is Not Russia.
In 2004, the Kuchma system outdid itself. Viktor Pinchuk and Rinat Akhmetov
acquired the privatized Kryvyi Rih steelworks, although their bid was $800
million lower than that of a consortium led by US Steel. One favor deserves
another, so Akhmetov helped to finance the presidential campaign of Kuchma's
prime minister and handpicked successor, Viktor Yanukovych. Had Yanukovych
become president, Ukraine would have remained independent, but its resources
would have been even more tightly controlled by a few oligarchs. However,
Kuchma's system had two major flaws. First, Ukrainians had the right to
vote. Both Kuchma's regime and its candidate, a supremely uncharismatic
politician with two criminal convictions in his youth, were unpopular.
Second, not everyone with money and political power was satisfied.
Julia Tymoshenko, for example, was an oligarch with a grievance. An
economist from the east Ukrainian industrial center Dnipropetrovsk, she made
her money speculating in natural gas, exploiting loopholes that allowed
state-owned firms to pay for energy with goods that could be resold rather
than in cash. In this way middlemen (or women) could amass their own
fortunes. Tymoshenko was known as the "gas princess." Then, as a government
minister between 1999 and 2001, she closed those very loopholes, and forced
the energy sector to become part of the cash economy. Along with the former
central banker Viktor Yushchenko, then prime minister, she worked to reform
Ukraine's economy.
Kuchma fired them both, and put Tymoshenko in prison. Her courage and her
refusal to be cowed made her an appealing figure. She was soon freed.
However, it was Yushchenko who became the most popular Ukrainian politician.
He was able to attract those entrepreneurs who believed they could prosper
in an economy where connections with the regime counted for less and the
rule of law counted for more.
3.
In November 2000, the headless body of Heorhiy Honhadze, a journalist known
for his criticism of Kuchma, was discovered in woods outside Kyiv.
Audiotapes purportedly leaked by one of Kuchma's bodyguards recorded a
voice that sounded like Kuchma's giving orders that Honhadze be done away
with. For a few months, Ukrainians took to the streets to demand a "Ukraine
without Kuchma." Protesting students built a tent city in Kyiv. Although
their movement failed, this popular mobilization was a new experience for
thousands of Ukrainians.
Three years later, Viktor Yushchenko led a candle-lit vigil in memory of the
millions of victims of the Stalinist political famine of 1932 and 1933. The
presidential campaign was well underway, and many Ukrainians admired the
way Yushchenko asked quietly for public remembrance of the national past.
But his opponent, Prime Minister Viktor Yanukovych, had Kuchma's support,
financial backing from oligarchs, and unlimited television coverage. With
little access to television, Yushchenko campaigned everywhere in person.
He countered televised attacks on him by making personal visits to villages,
shaking hands, showing his face.
Last September, several weeks before the election, he was poisoned by a
dose of dioxin. The first symptoms appeared after he had dinner with senior
secret police officials, although no connection with the poisoning has yet
been definitively established. He returned to the campaign with his formerly
handsome face horribly ravaged by severe acne and scar tissue. This, he
said, "is the face of Ukraine today." The Kuchma administration secretly
instructed television channels to call the claim of deliberate poisoning a
"bare-faced lie" and a campaign trick.[6] A TV channel owned by Viktor
Medvedchuk, an oligarch close to Kuchma, suggested that Yushchenko's
illness was caused by questionable personal habits.
Despite all these obstacles, Yushchenko won a plurality in the first round
of presidential elections last October 31. On Sunday, November 21, during
the second round, the Kuchma regime coordinated a campaign to falsify the
voting results. That evening, it announced a victory for Yanukovych with a
margin of about 3 percent. President Vladimir Putin hurried to congratulate
him. However, independently commissioned and Western-funded exit polls
made it clear that Yushchenko had won a decisive victory.
And so the orange revolution began -with protests against the rigged
election. While the Kuchma regime dominated television, the student move-
ment that called itself Pora[7] -"It's time"-used the Internet, googling
information about the ways other protests had been organized, from Slovakia
to Georgia. This use of the Web was something new in the history of East
European velvet revolutions. "I'm not a child of the Internet," a Belgrade
student demonstrator said in 1997, "but I'd like to be."[8] When Ukrainian
students started erecting tents on Kyiv's main shopping boulevard in the
early hours of Monday morning, their Web site immediately announced this
fact to the world, in English, at 02:33:11 AM.
They later explained that they had expected the regime to falsify the
results of the second round, and had therefore prepared their next moves
well in advance. That same Monday, many Ukrainian diplomats, both in Kyiv
and abroad, announced their "total and unconditional support" for
Yushchenko. Their statement was e-mailed around the world.
What changed everything, however, was the response of ordinary people. At
first thousands of Kyiv's citizens demonstrated, then hundreds of thousands;
soon after, people from the rest of the country answered the call to come to
Kyiv. Warming himself by a brazier of burning timber on one of those
freezing winter nights, Svyatoslav Smolin, a burly, pasty-faced man in a
khaki jacket, explained to one of the authors how he came to be living in
the improvised revolutionary "tent city," having abandoned his usual job,
which is to check the radiation levels around Chernobyl. On that Monday
evening, he heard through the single opposition television channel that
thousands of people were gathering in the capital to protest against the
"stealing" of the second round of the presidential election. He turned to
his wife and said, "I just have to go." Vasil Korkhuda, from a village near
the Carpathian mountains, where he runs a small travel agency, made the same
spontaneous decision. So did Elena Mayarchuk, an attractive young woman in
a fur coat and the by-now obligatory orange scarf, who runs the Mary Kay
beauty shop in a small town in western Ukraine.
Here were ordinary people doing an extraordinary thing. One was irresistably
reminded of Prague in 1989 or Poland during the first Solidarity revolution
in 1980 and 1981. But where in Poland a quarter-century before it was
workers and peasants who were in the vanguard, here it was a fledgling
middle class-students, travel agents, the owner of a beauty parlor.
During those revolutionary days last autumn, Yushchenko and Tymoshenko
usually appeared together on the platform in Independence Square: he a tall,
solid, reassuring figure, the horrible pockmarks on his face from the dioxin
poisoning now the stigmata of a national hero; she a small, intense woman
often in Ukrainian national dress, with her blonde-dyed hair braided in
faux-peasant style. The "gas princess" became the "goddess of the
revolution," though all the time looking more like Marie-Antoinette.
The orange revolutionaries' first commandment was: never use violence. This
is the feature that most plainly distinguishes velvet revolutions from the
Jacobin and Bolshevik models of 1789 and 1917. As in several other cases
during and since 1989, members of the security forces stepped back from the
very brink of using force against the protesters.[9] Yushchenko, Tymoshenko,
and their allies kept Independence Square full, they maintained peaceful
blockades around government buildings, and they waited for the chance to
negotiate.
The Supreme Court ordered the central election commission not to make any
announcement of victory, pending an investigation of fraud. On December 3,
the Supreme Court found that fraud had indeed taken place, and ordered that
the second round of elections be repeated by December 26. Meanwhile, aided
by international mediators at a series of "round table" meetings, Yushchenko
made a deal with outgoing president Kuchma, who agreed to step aside and to
stop supporting Yanukovych. Yushchenko, for his part, agreed to a reduction
of presidential power. Parliament passed the appropriate constitutional
amendments on December 8. So even as the revolution proceeded, the
outlines of a healthy separation of powers emerged: a judiciary with
remedial authority, an executive branch with less power, and a legislature
with more.
Yushchenko won the December 26 repeat of the second round of the elections,
and was inaugurated as president in January. Tymoshenko was confirmed as
prime minister on February 4. Their new government is attempting to move
Ukraine closer to Western European standards of economic and political
behavior. After returning some corruptly privatized companies to public
control, to be offered for sale again, the new government will undertake to
enforce property rights. Yushchenko has proposed an amnesty for people who
have acquired fortunes by dubious means, the better to collect their taxes.
In Europe's fastest-growing economy, with 9.6 percent GDP growth in 2003 and
an estimated 12 percent in 2004, there is plenty of new wealth to go around.
Oligarchs who originally opposed the newly elected leaders seem to be giving
their grudging assent to the new order. Speaking to one of the authors at
the World Economic Forum in Davos this January, Pinchuk said that he would
support the new powerholders if they do not resort to illegal actions, and
he thought that Rinat Akhmetov, the supreme oligarch in eastern Ukraine,
would do the same. All they asked for, said Pinchuk, was respect for the
law. To anyone who knows their record, this may sound like humbug; but it is
useful humbug.
4.
Much has been made of a supposedly sharp religious, historical, and
linguistic division between the Ukrainian western half of the country and
the Russian eastern half. The reality is more complicated. Ukraine is a
country with a variety of religions, including considerable numbers of Greek
Catholics, but Orthodox believers are a large majority, and their votes were
split between the two candidates. Culture and history influence today's
political outcomes, but they do not dictate them-contrary to the argument of
Samuel Huntington's Clash of Civilizations. A Ukrainian historian has
observed that after the fall of the Soviet Union, the longer a particular
part of Ukraine was ruled by Poland in the past, the more likely were its
voters to support candidates emphasizing Ukrainian patriotism. In the first
presidential elections in 1991, the candidate of the Rukh independence
movement won provinces that had been ruled by Poland for five hundred years.
In 1994, the pro-Western candidate gained provinces ruled by Poland for
three hundred years. In 2004, Yushchenko added those ruled by Poland for
only one hundred years.[10] Western Ukraine keeps expanding eastward.
"The whole country speaks Russian!" said a plainly irritated President
Vladimir Putin during the orange revolution.[11] In fact, the country is
bilingual. Soviet policies ensured that educated Ukrainians spoke Russian, a
kindred but quite distinct Slavic language. Today there are young people in
western Ukraine who cannot spell in Russian, and there are many Ukrainians
and Russians in the south and east who never speak Ukrainian. But most
people speak both languages, and many of them shift between the two
languages to suit the mood or circumstance-often, disarmingly, in
midsentence. Political preferences, not language, determined the outcome of
the elections. Yushchenko had decisive majorities in provinces where Russian
is the major spoken language: in Chernihiv he won 71 percent of the vote, in
Poltava 66 percent, in Sumy 79 percent, and in Kyiv 78 percent.
Kyiv is a Russian-speaking city whose people know when to speak Ukrainian.
Kyivans always pronounce the name "Independence Square" in Ukrainian,
even when they are speaking Russian. During the campaign, Yushchenko and
Tymoshenko spoke in Ukrainian at their public appearances. Declaring victory
for the revolution on December 8, Yushchenko led the crowd in singing the
national anthem with his hand on his heart-a habit only recently acquired,
apparently from watching US presidents. Across the square, Russian-
speaking Kyivans put their hands on their hearts and sang it too, or at
least tried to sing it, in Ukrainian: "The glory and freedom of Ukraine live
on/Fate my young brothers will smile upon us yet/Our enemies shall vanish
like dew in the sun/And we shall rule, brothers, in our own land...."
Yushchenko and Tymoshenko speak better Ukrainian than Kuchma and
Yanukovych do. They also speak better Russian. They are both easterners,
proof that Ukrainian identity is not limited to the west. Yet they know that
they have to make their case to the miners and steelworkers in the east.
Immediately after the revolution each traveled to Donetsk, Akhmetov's
eastern bastion, to face the doubters. The "goddess of the revolution"
appeared on Akhmetov's television station. Facing hostile questions in
Russian, she held her own. "The whole country speaks Russian!"-the
words may not be as comforting to President Putin as he seemed to
believe.
5.
Putin's government angrily accused the United States and the European
Union of stirring up the orange revolution from abroad. Almost daily, the
Dutch foreign minister-the Netherlands then held the rotating presidency
of the European Union-received angry telephone calls from his Russian
counterpart.
Yushchenko leaves no doubt that he wants his country to be part of Europe.
In Independence Square, he said, "The world has seen that Ukraine can
already be called European." Speaking in Davos, he said, "Our application
for EU membership is intended to be filed in the near future." The EU
contributed to the revolution simply by its attractiveness as a club that so
many want to join. This is an enduring feature of postwar European politics.
Konrad Adenauer, the founding father of the Federal Republic of Germany,
spoke as early as the 1950s of Magnet Europa.
Some members of the European Union-Britain and the Netherlands were
singled out by one Ukrainian activist-gave significant direct support to
election monitors as well as to Ukrainian students, professionals, and other
groups from civil society. In May 2004, the EU enlarged its membership to
take in eight Central and East European countries, including the Baltic
states, which, like Ukraine, had been Soviet republics until 1991, and
neighboring Poland. This brought the magnet to the Ukrainian border.
Under its Dutch presidency, the EU was uncharacteristically sharp in its
denunciation of November's electoral fraud. The EU's "high representative"
for foreign policy, Javier Solana, the nearest thing the EU has to a
collective foreign minister, then played a leading part at the "round table"
negotiations with Ukrainian leaders in Kyiv. Also at the table was the
Lithuanian president.
However, the informal chair of the talks was Aleksander Kwas´niewski,
the president of Poland, the country that in 1989 had pioneered round-
table talks as a method of achieving regime change.
The Poles came early to the revolution. A large Polish delegation arrived in
Independence Square during its first week, to loud cheers, bearing aloft
both the red-and-white Polish flag and, significantly, the yellow-on-blue
star-spangled banner of the European Union. The Polish presence in Kyiv was
the latest evidence of a sustained strategy. In the 1970s, back when Poland
was still a Soviet satellite, the influential émigré monthly Kultura, based
in Paris, proposed a new policy for Poland after the end of communism. Poles
should accept the new postwar eastern borders, even though Stalin had seized
half of their country. If Poles accepted these borders in advance and did
not demand the return of their former lands, they could better cooperate
with the democratic opposition movements in the neighboring Lithuanian,
Belarusian, and Ukrainian Soviet Republics, and establish friendly relations
with them when the Soviet Union collapsed.
These premises were accepted by the anti-Communist Polish opposition in
the 1980s, and after 1989 they were central to the foreign policy of the
Solidarity-led governments of Poland.[12] Warsaw treated Soviet Ukraine as
an independent state even before the collapse of the Soviet Union in 1991.
Then Poland quickly signed a treaty with independent Ukraine that recognized
the current borders and protected national minorities in both countries.
After 1995, Poland's president, Aleksander Kwas´niewski, a former Communist,
adopted the strategy developed by an anti-Communist, émigré magazine, and
pioneered by Solidarity. Along with President Kuchma, Kwas´niewski jointly
commemorated the national tragedies of both Poles and Ukrainians. That he
developed a close relationship with Kuchma is one reason Kwas´niewskii was
an acceptable mediator for both sides in the most critical moments of the
revolution. Poland has constantly lobbied for a more generous approach by
the EU to Ukraine. In addition to the reluctance of older EU members to
accept a relatively poor Eastern European country, the main problem was the
Kuchma regime. Now Kwas´niewski can speak in bolder tones. Sharing the
podium with Yushchenko at Davos, Kwas´niewski delivered a passionate appeal
for EU membership for Ukraine, "this wonderful country...a great nation with
great leaders."
What of the American involvement in the election? The US government- and
individual American donors-did more to support Ukrainian democrats than
Western Europeans did. The US State Department has said it spent $65 million
in Ukraine over the last two years. George Soros's foundation in Ukraine,
the International Renaissance Foundation, reported on October 20, 2004,
that it had allocated $1,201,904 to nongovernmental organizations for
"elections-related projects." Most of these US dollars (like West and
Central European funding) went to NGOs, including groups that provided
training for student activists and support for an independent press and
television, as well as an election-monitoring organization and two
independent exit polls. As we have noted, these exit polls had a significant
part in helping to start the revolution.
Was all this activity "intervention in the country's internal affairs," as
the old Soviet Union would have put it? It certainly was. So were the very
large sums poured into Yanukovych's campaign by Russian sources, which
have been estimated in the Russian press to amount to some $300 million.
So were the Russian political advisers who helped design the dirty campaign
against Yushchenko. So was the summons delivered to Tymoshenko by
Russian authorities demanding that she submit to interrogation on criminal
charges. (She responded: "Please do not hinder the struggle for liberation
of the Ukrainian nation.")[13] So were the two campaign appearances in
Ukraine by Putin, supporting Yanukovych. The investigation of the poisoning
of Yushchenko continues, with the initial evidence suggesting that the toxin
likely came from Russia.
Some "interventions" by foreigners are justifiable, some are clearly not.
There should be an open debate about the ground rules of external, mainly
financial intervention to promote democracy, just as there is already a
sophisticated debate about the criteria for military intervention on
humanitarian or other grounds.[14] But American and European policies in
Ukraine were well inside morally defensible limits. The orange revolution
was not made in Washington, or imposed by Brussels. The West helped
citizens of Ukraine to do what they wanted to do for themselves.
6.
After he was elected, Viktor Yushchenko went on holiday in the Carpathian
mountains with Mikheil Saakashvili, who last January became president of
Georgia after that country's "rose revolution." The two issued a Carpathian
Declaration, hailing the changes in their two countries as the beginning of
"a new wave of liberation of Europe which will lead to the final victory of
freedom and democracy on the European continent." In an article in the
Financial Times, President Saakashvili made it clear that this "third and
final wave of the European liberation" should embrace "the whole post-
Soviet region."[15]
Wishful thinking? Perhaps. Yet some conservatives in Moscow seem to
agree. During the Ukrainian events, Rossiskaia gazeta, a journal close to
the Kremlin, wrote: Russia cannot afford to allow defeat in the battle for
Ukraine.
Besides everything else, defeat would mean velvet revolutions in the next
two years, now following the Kyiv variant, in Belarus, Moldova, Kazakhstan,
Kyrgyzstan and possibly Armenia.[16]
As we write, Kyrgyzstan is in turmoil after a rigged parliamentary election.
One young Kyrgyz told the BBC, "We want to be more like Europe." On
March 25, Belarusian students took to the streets, defying their dictator by
waving the EU flag.
Ukraine's "orange revolution" will also have a direct impact on Putin's
increasingly undemocratic state. If nothing else, the free press and
television of a large, Russian-speaking neighbor will challenge his regime's
control of information. In a poll commissioned by a Russian news service,
Russians were asked, "Do you think a political crisis similar to that in
Ukraine is likely to occur in Russia?" Some 42 percent replied, "never," 35
percent said, "yes, but not now," and 17 percent, "yes, and it will happen
soon."[17] In a conversation this January, Viktor Pinchuk claimed his
Russian business partners, his brother oligarchs, are envious of the world
esteem being enjoyed by their Ukrainian counterparts. Then he recalled a
joke heard recently in Moscow: "Leonid Kuchma wrote a book called Ukraine
Is Not Russia. Now Putin is writing a book called Russia Is Not Ukraine."
------------------------------------------------------------------------------------------------------------
Timothy Garton Ash is Professor of European Studies at the University
of Oxford and a Senior Fellow at the Hoover Institution, Stanford. He is
the author, most recently, of Free World: America, Europe and the
Surprising Future of the West. (April 2005)
Timothy Snyder, an associate professor of history at Yale, is the author
of The Reconstruction of Nations: Poland, Ukraine, Lithuania, Belarus,
1569-1999 and the forthcoming Sketches from a Secret War: A Polish
Artist's Mission to Liberate Soviet Ukraine. (April 2005)
------------------------------------------------------------------------------------------------------------
LINK: http://www.nybooks.com/articles/17957
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NOTES:
[1] Smaller parts of today's Ukraine fell to interwar Romania and
Czechoslovakia.
[2] The pro-independence movement Rukh set the terms of debate during
1991, but failed to win elections.
[3] Keith A. Darden, "Blackmail as a Tool of State Domination: Ukraine
Under Kuchma," East European Constitutional Review, Vol. 10, Nos. 2/3
(2001), pp. 67-71.
[4] See Ivan L. Rudnytsky, Essays in Modern Ukrainian History (Edmonton:
Canadian Institute for Ukrainian Studies, 1987), pp. 447-461.
[5] See Oxana Shevel, "Nationality in Ukraine: Some Rules of Engagement,"
East European Politics and Societies, Vol. 16, No. 2 (2002), pp. 386- 413.
[6] Text in "Temnyk po khvorobi Iushchenka," Ukrains'ka pravda, October 1,
2004. A temnyk was a secret instruction issued by Kuchma's aides to
television stations, guiding the presentation of certain topics.
[7] This was a reference to a well-known line by the poet Ivan Franko, "It's
time to live for Ukraine!" But "it's time" was also a slogan in Belgrade in
2000 and Prague in 1989.
[8] See Timothy Garton Ash, "In the Serbian Soup," The New York Review,
April 24, 1997.
[9] C.J. Chivers, "How Top Spies in Ukraine Changed the Nation's Path,"
The New York Times, January 17, 2005.
[10] This modifies slightly Iaroslav Hrytsak, "Re: birth of Ukraine,"
Krytyka (Kyiv), 1-2, 2005.
[11] Online edition of Pravda, December 3, 2004.
[12] For a fuller treatment of this theme, see Timothy Snyder, The
Reconstruction of Nations: Poland, Ukraine, Lithuania, Belarus, 1569-1999
(Yale University Press, 2003).
[13] Reported in Rzeczpospolita, January 27, 2005, p. 6.
[14] See Timothy Garton Ash, "The $65 Million Question," in The Guardian,
December 16, 2004, and Michael McFaul, "What Democracy Assistance
Is...and Is Not," in Hoover Digest, No. 1 (2005).
[15] Financial Times, December 20, 2004. On earlier
Polish-Ukrainian-Georgian liberation projects, see Timothy Snyder,
Sketches from a Secret War: A Polish Artist's Mission to Liberate Soviet
Ukraine (Yale University Press, forthcoming).
[16] Quoted by Richard Pipes in National Review, December 27, 2004.
[17] RBC News, January 10-11, 2005, 6,130 respondents.
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