"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"
"UKRAINE: YUSHCHENKO'S DISAPPEARING MOMENT"
"Ultimately, the disappointment is that Yushchenko has failed to make full
use of the brief months in which he will enjoy the sweeping powers that
Kuchma enjoyed. Working in tandem with Tymoshenko, he could have used
that time to give the impression of decisiveness and unity, to push forward
reform rapidly, to leave his progressive imprint more clearly on policy, and
to lay the foundations for long-term improvements.......
"Ukraine has a unique moment and its president has unique virtues: a man
with moral authority but also great constitutional powers, a man with both
expert knowledge and popularity, cautious yet courageous, revolutionary
but self-effacing.
Yushchenko should seize his days of real power with greater strength and
urgency." [article one]
"THE ACTION UKRAINE REPORT - AUR" - Number 507
Mr. E. Morgan Williams, Publisher and Editor
morganw@patriot.net, ArtUkraine.com@starpower.net
Washington, D.C. and Kyiv, Ukraine, WEDNESDAY, June 22, 2005
------INDEX OF ARTICLES------
"Major International News Headlines and Articles"
1. "UKRAINE: YUSHCHENKO'S DISAPPEARING MOMENT"
The disappointment is that Yushchenko has failed to make full use of
the brief months in which he will enjoy the sweeping powers. He should
seize his days of real power with greater strength and urgency
COMMENTARY: Our Take, TOL (Transitions Online)
Prague, Czech Republic, Monday, June 20, 2005
2. INTERNATIONAL INVESTORS EXPECT A CLEAR, TRANSPARENT
AND CONSISTENT ECONOMIC POLICY FROM UKRAINE
Ukrainian News Agency, Kyiv, Ukraine, Tue, June 21, 2005
3. PRIVATIZATION BRINGS GROWTH TO UKRAINE COMPANY CRIMSODA
Sales have increased by 45% since privatization
Ukrainian Times, Kyiv, Ukraine, Thu, June 23, 2005
4. AUSTRIA'S KRONOSPAN COMPANY TO BUILD WOOD PROCESSING
FACTORY IN UKRAINE'S VOLYN REGION FOR USD 270 MILLION
Plans to create 500 jobs at the enterprise
Ukrainian News Agency, Kyiv, Ukraine, Tue, June 21, 2005
5. GERMAN NEWSPAPER PUBLISHER TO START NEW PUBLISHING
COMPANY FOR FINANCIAL MEDIA IN UKRAINE CALLED EKONOMIKA
Abstracted from Financial Times Deutschland
Financial Times Deutschland, Tue, Jun 21, 2005
6. PRESIDENT YUSHCHENKO ENCOURAGES MEDIA MAGNATE
RUPERT MURDOCH TO INVEST IN UKRAINE
Associated Press (AP), Kiev, Ukraine, Tue, Jun 21,2005
7. GOVERNMENT GIVES DESTRUCTIVE PRESENTS TO TEXTILE INDUSTRY
New regulations threaten to destroy local textile and clothing industry
Top government officials ignore requests to revise recent decrees
ANALYSIS: Roman Bryl, Ukraine Analyst
IntelliNews - Ukraine This Week
Kyiv, Ukraine, Tuesday, June 21, 2005
8. PM TYMOSHENKO ASKS RADA TO ADOPT 14 BILLS NEEDED FOR
UKRAINE'S ACCESSION TO THE WORLD TRADE ORGANIZATION
(WTO) IN A SINGLE PACKAGE
Many objections raised by members to some of the WTO bills
Ukrainian News Agency, Kyiv, Ukraine, Tue, June 21, 2005
9. WILL UKRAINE BE READY TO ENTER WTO BY YEAR-END?
By Alla Bakulina, The Ukrainian Times
Kyiv, Ukraine, Thursday, June 23, 2005
10. UKRAINE SEEKING DEEPER BILATERAL RELATIONS WITH FRANCE
President Yushchenko goes to France
Ukrainian News Agency, Kyiv, Ukraine, June 21, 2005
11. OWNERS CHANGE REPORTED AT LEADING UKRAINIAN TV CHANNEL
Interfax-Ukraine news agency, Kiev, in Russian, 21 Jun 05
BBC Monitoring Service, UK, in English, Tue, Jun 21, 2005
12. TWO OF UKRAINE'S POWERFUL BUSINESSMEN FILE COMPLAINT
AT EUROPEAN COURT OVER TAKING BACK OF STEEL MILL
Paul Ames, AP Worldstream, Kiev, Ukraine, Tue, Jun 21, 2005
13. LEGISLATIVE ASPECTS OF THE DEVELOPMENT OF
BIOENERGETICS IN UKRAINE
By Tatyana Zheleznaya and Georgy Geletukha
Ukrainian Times, Kyiv, Ukraine, Thu, June 23, 2005
14. CONSOLIDATION OF UKRAINIAN ARMS INDUSTRY HAS BEGUN
Centre for Army, Conversion and Disarmament Studies
Defense-Express web site, Kiev, in Russian 9 Jun 05
BBC Monitoring Service, UK, in English, Tue, Jun 21, 2005
15. "THE ENTIRE COUNTRY SHOULD BE A FREE ECONOMIC ZONE"
Interview with Leszek Balcerowicz
Polish economist and Head, National Bank of Poland
By Vasyliy Zaria, Zerkalo Nedeli, Mirror-Weekly,
International Social Political Weekly
No. 23, (551), Kyiv, Ukraine, Sat 18-24, June 2005
16. ONE SHOULD NOT EXPECT INVESTMENTS IN UKRAINIAN IT BRANCH
UNIAN, Kyiv, Ukraine, Tuesday, June 21, 2005
17. UKRAINE NOT PLANNING TO PRIVATIZE UKRTELECOM IN 2005
UNIAN, Kyiv, Ukraine, Tuesday, June 21, 2005
18. DPM KINAKH HOPES GOVERNMENT WILL NOT USE ADMINISTRATIVE
MEASURES TO MANAGE THE ECONOMY AGAIN
UNIAN, Kyiv, Ukraine, Tuesday, June 21, 2005
19. INVESTORS CARE MORE ABOUT CLEAR STRATEGY OF REFORMS
IN UKRAINE AND GOVT INTEGRITY OF POSITIONS– WORLD BANK EXPERT
Should be one voice that can be predictable for investors
Ukraine needs to move faster to implement reforms
Interfax-Ukraine, Kyiv, Ukraine, Tue, June 21, 2005
===============================================================
1. UKRAINE: YUSHCHENKO'S DISAPPEARING MOMENT
The disappointment is that Yushchenko has failed to make full
use of the brief months in which he will enjoy the sweeping powers
He should seize his days of real power with greater strength and urgency
COMMENTARY: Our Take, TOL (Transitions Online)
Prague, Czech Republic, Monday, June 20, 2005
Six months after the revolution, Ukrainian politics is surprisingly
mundane - which is both encouraging and a little disappointing. Within
months, their country had emerged from international isolation, sanctions
had been raised, it had become a member of organizations such as the
United Nations and the OSCE, and EU membership had become a
prospect, albeit distant.
Yes, Serbians swiftly had reason to believe that their democratic revolution
in 2000 really had revolutionized the country. Ukrainians can feel the same.
Isolated by the scandals surrounding President Leonid Kuchma presidency,
subject to restrictions on aid from the United States for illegally selling
weapons to Iraq, and a no-go area for all but the most risk-averse
companies,
Ukraine is now on the best of terms with the United States and most of
Europe's leaders. It is making strides towards membership of NATO and -
until the French referendum on 29 May at least - it seemed to be making the
first small steps on a long journey towards the EU. Investors may not yet be
putting in much money, but they are looking seriously.
Still, disappointment has tinged many of the international (and Ukrainian)
commentaries about post-revolutionary Ukraine. Domestically, there has not
been enough of a revolution yet, they feel. Many of those hopes were,
however, unrealistic from the start. Even when it provides the kind of
relatively clean slate that Central Europe enjoyed after 1989, a revolution
is not just an event, but a chaotic, incoherent, and dangerous process.
The inevitable price of a democratic revolution - a revolution achieved
through elections and by the law book - is that the new government does not
have a clean slate. Parliaments remain packed with opponents. The old
regime's placemen in the bureaucracy and state organizations cannot be
removed as simply.
A new economic and political system cannot be built from scratch; the old
system has to be dismantled slowly. Deals cut to establish a united
opposition ensure that people with very divergent ideas sit behind the same
cabinet table. Deals cut with the former powers to ease the peaceful
transfer of power can slow down reform.
In Ukraine, those problems common to the revolution in Serbia (and Georgia
and Kyrgyzstan) were compounded by a legacy of fear from the election
campaign: a fear that the country could fall apart and a fear that
Yushchenko, already a victim of poisoning, could fall victim to
assassination, just as Serbia's Zoran Djindjic did.
Six months later, the notion that Ukraine could split in two is barely
mentioned. Ukraine's government is split but less so than the 18-party
coalition that led Serbia. Its political scene is very fragmented but less
acrimoniously so than Serbia's was. Nor do the differences between
Yushchenko and Tymoshenko stand comparison with the divisions between
Djindjic and Kostunica.
Investigations into one touchstone case of the Kuchma era - the murder of
the journalist Georgi Gongadze - have cost fresh lives, but, beyond that,
there is less sense of political violence in the air than there was in
post-war Serbia. The Ukrainian military, long more interested in closer ties
with NATO than with Russia, seem to pose no threat, and the secret services
and special units seem under the government's control. That was not the case
in Serbia.
In fact, Ukrainian politics now looks surprisingly mundane. There have been
political crises about price-capping, a protracted dispute about
privatization and other evidence of deep differences over economic policy,
and fear that the government's policies could stoke inflation - but
Ukrainians can look at that list, compare it with pre-revolution scenarios
and the precedent set by Serbia, and feel happy.
A few years of such mundane politics could make a big difference. In five
years' time, Ukraine may well have progressed as far - or farther than -
Serbia has since 2000. It should, since it has not been ravaged by war.
Conceivably, it could even look like other countries in the western
Balkans - countries that, as it happens, are knocking on the doors of the
EU.
EMBEDDING THE REVOLUTION
The problem for Yushchenko and Tymoshenko, of course, is that neither
commentators nor ordinary Ukrainians will judge them by the example of
Serbia or by the dangers they have avoided. When parliamentary elections
come in March 2006, what ordinary Ukrainians will want to see are signs of
tangible change and a sense that the government understands the intangible
wishes expressed in the revolution.
Somehow the government has to achieve that while pursuing its key strategic
aims: to make the revolution safe, and - as both Yushchenko and Tymoshenko
have made absolutely clear is their wish - to take the country westward, a
strategy that goes well beyond geopolitics to fundamental economic and
institutional reform.
In this context, victory in the elections is of paramount importance. Again,
Serbia offers a warning: In 2003, Milosevic's supporters made a
near-comeback both in presidential and parliamentary elections.
At the moment, the possibility of electoral defeat looks remote, partly
because the government can reasonably expect some political dividend from
the past six months. Most obviously, many Ukrainians will have very direct,
self-interested reasons to feel good about the government, because in March
the government passed a budget that raised welfare spending by 50 percent,
giving pensioners, public-sector workers, and young families (among others)
more money.
Arguably, politically Tymoshenko had little choice but to make these huge
hikes, since Yushchenko's rival in the presidential elections, Viktor
Yanukovych, had as prime minister promised most of these increases.
Yushchenko's government was therefore not so much trying to buy votes as
attempting to defuse the residual antipathy felt towards Yushchenko in
eastern Ukraine and the chances of the old leaders making a political
comeback.
The danger is that Ukrainians could find their new money eaten into by
inflation. Prices are rising fast (14.7 percent year on year in April),
though not much faster than in 2004 (a little over 12 percent). But
Yushchenko made his international name as a central banker; he can safely be
expected to act to prevent the economic costs of electoral victory becoming
long-term. There are other insurance policies against inflation spinning out
of control: the budget slashes government investment and probably
understates the revenues it might make from privatization. Even if
Tymoshenko has miscalculated, extra borrowing may be bearable since
Ukraine's debt is relatively low.
The government's biggest budget gamble may have been to assume that tax
cuts will reduce tax evasion and so raise enough revenues to cover the extra
spending. That may prove overly optimistic. Still, at least this tax-cutting
sends the attractive political message to the electorate that the government
wants to lower taxes.
There is another danger: Ukraine's economy will not grow as fast in 2005 (1Q
2005: 5.4 percent) as it did in 2004 (12.1 percent). How important is that?
For economists and potential investors, it may be very important. For
ordinary Ukrainians, economic growth coupled with a sense of an improvement
in the overall economic climate may be more important. And if Ukraine's
deeply corrupt big businesses are forced to tighten their belts, they will
feel that the climate is improving.
That seems to be the logic that Tymoshenko followed in her budget: she
argued the government could invest less and still receive the same benefits
since procurement processes were previously wildly corrupt; and she has cut
most of the tax privileges that Kuchma gave to his friends.
That approach is populist but has some rational justification. Viewed in the
same political light, even one of the biggest problems of the government -
the dispute over re-privatization - may have its benefits. The capitalism of
Kuchma's Ukraine was crony capitalism. The capitalism that Yushchenko
promotes - and that Ukraine will eventually have to adopt if it is serious
about applying for the EU - is a liberal form of capitalism. Tymoshenko's
current position - leaning more towards re-nationalization rather than
re-privatization - has been likened by some to "state capitalism."
Whatever the outcome of that dispute, the government may win rather than
lose votes. It may win votes since Ukrainians who associate liberalization
with the wild privatization and wild capitalism of the 1990s may be glad to
see that there are some strong statist tendencies in the government; it may
not lose votes, because the debate reduces the risk that Ukrainians will
feel the new elite is simply interested in taking possession of the old
elite's property.
Beyond that, voters should also sense numerous changes in other aspects of
Ukraine's life. Though many reforms have barely started, a report published
in mid-June by Freedom House, the U.S.-based NGO that monitors governance
around the world, noted improvements in all but two aspects of Ukraine's
public life (the two exceptions, with unchanged ratings, were local
governance and - surprisingly - corruption).
Cumulatively, these improvements and policies (plus residual revolutionary
sentiments) should be enough to ensure victory in parliamentary elections in
March 2006. In April, over 50 percent of Ukrainians where happy with the new
government's performance; just 16 percent were unhappy. Moreover, the
government's key strategic aim - to join the EU - has the backing of
two-thirds of the population. Tymoshenko is rising in popularity (she was
popular with 55.3 percent of Ukrainians in April), while Yushchenko's rating
remains high (60 percent in May, though his popularity is dropping).
Together, they will make a formidable team in the elections.
If they deliver victory, their parties will also benefit from a new
political system that Yushchenko agreed to in negotiations during December's
Orange Revolution. A system where politics was largely a matter of factional
maneuvers around a central figure, the president, will be replaced by a
party system clearly recognizable to the EU. That will, hopefully, gradually
lay the institutional foundations for a political system that is more
comprehensible and that makes national and local politicians more
accountable for their policies and for their corruption.
LOSING THE MOMENT?
That look on the bright side indicates that the Ukrainian government is
giving people reasons to vote for them in March 2006. But, unfortunately,
the government is also giving Ukrainians too many reasons to feel
disappointment and doubt.
The doubts are particularly important since many of the reasons for optimism
are based on assumptions - that Yushchenko will impose economic discipline,
that the differences between Yushchenko and Tymoshenko will not develop into
deeper problems, that anti-corruption efforts will yield rapid economic
results.
But the disputes over privatization and about price caps on oil, for
example, have already scuppered Ukraine's hopes of being recognized by
the EU as a market economy in June, and have created the impression of a
leadership at odds with itself and incapable of resolving tensions at the
discussion stage. What might go wrong next is a very legitimate question.
Moreover, the government, largely made up of men and women who once
had ties to Kuchma, is not doing enough to lift the inevitable doubts that
it is truly different from the previous government. Legal cases against the
oligarchs close to Kuchma have been fairly limited in number, but it is
always going to be accused of selective justice unless there is reform of
the judiciary and unless government ministers set a good example. Critics
say judicial reform is too slow.
Moving faster here needs to be a priority, because unless there is a clear
sense that Ukraine's law and institutions are being improved, trials against
oligarchs and re-privatization (or re-nationalization) will either be a mess
or be interpreted as the Yukos case has been in Russia: as a vendetta rather
than as a legal correction of past distortions.
The government already has a potential sacrificial lamb it could use as an
example. Justice Minister Roman Zvarych has been embroiled in one scandal
after another, first for threatening to resign over a bill that would have
hurt the interests of the oil company for whom his wife works, then for
misrepresenting his educational credentials, and then for alleged bigamy.
Yushchenko calls these "intrigues." Tymoshenko published an open letter
accusing journalists of behaving like "hired killers." The combined effect
is to create the impression of a government that refuses to recognize a
problem and acts like a bully.
Ultimately, the disappointment is that Yushchenko has failed to make full
use of the brief months in which he will enjoy the sweeping powers that
Kuchma enjoyed. Working in tandem with Tymoshenko, he could have used
that time to give the impression of decisiveness and unity, to push forward
reform rapidly, to leave his progressive imprint more clearly on policy, and
to lay the foundations for long-term improvements.
Moreover, it is his tenure as governor of the central bank that lends the
government much of its economic credibility; he and the government are
losing some of that credibility.
In Yushchenko, Ukraine has a unique advantage over Serbia and Georgia.
In Serbia, Vojislav Kostunica acted as a somewhat gray figurehead for the
revolution, while the more revolutionary ideas came from Djindjic. In
Georgia, Saakashvili led with fieriness, but relied on the gravitas of Zurab
Zhvania in particular.
In Ukraine, Yushchenko needed Tymoshenko's fieriness, but the leader of
the revolution and the person with the more revolutionary - or, at least,
progressive - ideas was also the one with the greatest credibility and
gravitas, Yushchenko.
Ukraine has a unique moment and its president has unique virtues: a man
with moral authority but also great constitutional powers, a man with both
expert knowledge and popularity, cautious yet courageous, revolutionary
but self-effacing.
Yushchenko should seize his days of real power with greater strength and
urgency. -30- (Link: http://www.tol.cz)
===============================================================
2. INTERNATIONAL INVESTORS EXPECT A CLEAR, TRANSPARENT
AND CONSISTENT ECONOMIC POLICY FROM UKRAINE
Ukrainian News Agency, Kyiv, Ukraine, Tue, June 21, 2005
KYIV - International investors, who participated in the Extraordinary
Roundtable on Ukraine held by the World Economic Forum on June 16-17,
expect a clear, transparent, and consistent economic policy from Ukraine.
"Investors would like to understand clearly what will happen. Investors need
a notion that Ukraine is becoming a stable and successful market," said the
director of Delta Private Equity Partners LLC, Kirill Dmitriyev. He added
that investors have so far received no answer to this question.
They are worried about the revision of privatization tenders and would like
to know for certain in what way the government is going to do that and what
will follow its declarations to support investors that were made during the
roundtable.
"The changing phraseology that we have heard inspires optimism. But we
will watch practical actions of both executive and judicial authorities in
this area," said the president of Renaissance Capital company, Oleg
Kiselyov.
Permanent representative of UN Development Program in Ukraine Francis
O'Donnell said the revision process must apply to few enterprises and be
transparent, equal for all participants, lawful, and quick. "If to not make
it promptly, at the end we will raise USD 1 billion and lose USD 8-9 billion
that we could have received from investors," Kiselyov said.
"The most important thing for us, financiers, present and future investors,
is first of all to be confident about the fact that private ownership rights
are sacred," said Kamen Zahariev, the country director in Ukraine of the
European Bank of Reconstruction and Development.
Investors said that the Extraordinary Roundtable on Ukraine did not provided
them with final answers to privatization issues. "The forum participants did
not see the full picture, did not hear the full explanations about this
process," said Executive Chairman of the World Economic Forum Klaus
Schwab.
He added that uncertainty in reprivatization makes investors feel uncertain.
On behalf of the roundtable participations, Schwab expressed hope that the
list of enterprises subject to privatization will be compiled as soon as
possible.
As Ukrainian News earlier reported, on the first day of the Extraordinary
Roundtable on Ukraine, President Viktor Yuschenko, Prime Minister Yulia
Tymoshenko, and Parliament Speaker Volodymyr Lytvyn signed a
memorandum on property right guarantees. -30-
===============================================================
3. PRIVATIZATION BRINGS GROWTH TO UKRAINE COMPANY CRIMSODA
Sales have increased by 45% since privatization
Ukrainian Times, Kyiv, Ukraine, Thu, June 23, 2005
KYIV - The German company RSJ holds almost 90% of its highly profitable
subsidiary, Crimsoda, in Ukraine. Soda is the main product, used primarily
in the glass, chemicals and washing-powder industries.
As the largest domestic producer, Crimsoda meets 80% of Ukraine's needs
for soda ash. The company's share of the global market is now 2.5%.
International customers can be found in all continents except Australia. The
company has its sights on further target markets.
Crimsoda has already received many national and international awards for the
quality of its products. For instance, the Crimean soda plant earned a gold
medal for a victory in the national contest "The Best Domestic Commodity of
the Year", which took place at the Kiev-based complex Expocenter of Ukraine.
Reportedly, Crimean products won the victory over goods displayed by 23
regions of the country.
At the same time, work continues to further reduce the need for raw
materials by continually optimizing technical processes. Not least, this
also benefits the environment.
The company has succeeded in increasing sales by 45% since being taken
over by RSJ. At the same time, there was a considerable rise in profits. And
this has been achieved together with a 17% increase in salaries.
Presently, RSJ is financing the expansion of production capacity by up to
25%. And extensive investment is already planned for considerable further
expansion and extension of the product range.
A financial success brings obligations: a correspondingly high level of
social commitment naturally forms part of corporate policy. This not only
includes the provision of comprehensive social facilities for employees but
it also finds expression in the sponsoring of numerous social programs. As
the largest local taxpayer, Crimsoda faces up to its responsibilities to the
society. -30- [The Action Ukraine Report Monitoring Service]
===============================================================
4. AUSTRIA'S KRONOSPAN COMPANY TO BUILD WOOD PROCESSING
FACTORY IN UKRAINE'S VOLYN REGION FOR USD 270 MILLION
Plans to create 500 jobs at the enterprise
Ukrainian News Agency, Kyiv, Ukraine, Tue, June 21, 2005
KYIV - The Kronospan holding company (Austria) intends to build a
woodworking factory on the basis of the Noteks open joint-stock society
(Novovolynsk, Volyn region) at the cost of USD 270 million. A representative
of the enterprise disclosed this to Ukrainian News.
According to him, USD 200 million will be spent on purchase of equipment,
USD 40 million on purchase of chipboards for lamination. Construction work
is forecast to end in 2-3 years (the maximum period is 5-7 years).
The enterprise will launch a line for laminating chipboards in the
August-September period and plans to start production of such boards in
2006. Seventy percent of the boards will be produced from wood chips and
shavings while the remained will be produced from wood materials that will
be purchased from local woodworking enterprises.
In the future, there are plans to produce oriented chipboards, MDF (Medium
Density Fiberboard, laminate, and materials for production of furniture. The
enterprise's products will meet European standards and will be sold on the
domestic market as well as in Eastern and Western European countries.
There are plans to create 500 jobs at the enterprise. In total, about 2,500
people will be involved in servicing it. Noteks specializes in production of
cotton yarn. It ended operations in 2004 because of the sale of its assets.
===============================================================
5. GERMAN NEWSPAPER PUBLISHER TO START NEW PUBLISHING
COMPANY FOR FINANCIAL MEDIA IN UKRAINE CALLED EKONOMIKA
Abstracted from Financial Times Deutschland
Financial Times Deutschland, Tue, Jun 21, 2005
Handelsblatt, the German newspaper publisher belonging to German
publishing group Holtzbrinck, is planning to found a new publishing company
for financial media in Ukraine, together with Ukrainian publishing group
Invest Gazeta. The new company will be called Ekonomika.
Handelsblatt will have a 51 per cent stake in the new company, while the
managing partners of Invest Gazeta will each have a stake of 14.5 per cent.
Handelsblatt has announced further expansion plans in central and eastern
Europe; the company is already active on the Bulgarian and Slovakian
markets through stakes in other companies. -30-
===============================================================
6. PRESIDENT YUSHCHENKO ENCOURAGES MEDIA MAGNATE
RUPERT MURDOCH TO INVEST IN UKRAINE
Associated Press (AP), Kiev, Ukraine, Tue, Jun 21,2005
KIEV, Ukraine - Ukrainian President Viktor Yushchenko met Tuesday with
Rupert Murdoch, and encouraged the media magnate to invest in Ukraine's
media.
Yushchenko told Murdoch, the chairman of media giant News Corp., that
Ukraine is looking for serious investors, and called his government's
commitment to freedom of the press "steadfast," Yushchenko's office said.
Murdoch's visit comes amid widespread rumors that two popular television
stations, Inter and 1+1, may go on the market. Both are currently controlled
by Viktor Medvedchuk, an opposition leader and former chief-of-staff of
former President Leonid Kuchma.
Ukraine's television market is still dominated by figures linked to the
former government, including Kuchma's son-in-law Viktor Pinchuk. But since
last year's Orange Revolution helped usher Yushchenko to power, most
stations now offer more balanced coverage.
Yushchenko has made media freedom a central tenant of his presidency,
saying he will never resort to the hands-on control that predominated under
Kuchma. Under Ukrainian law, foreigners are barred from owning more than
30 percent of shares in a television company. -30-
===============================================================
7. GOVERNMENT GIVES DESTRUCTIVE PRESENTS TO TEXTILE INDUSTRY
New regulations threaten to destroy local textile and clothing industry
Top government officials ignore requests to revise recent decrees
ANALYSIS: Roman Bryl, Ukraine Analyst
IntelliNews - Ukraine This Week
Kyiv, Ukraine, Tuesday, June 21, 2005
Companies and ministry officials oppose
government’s new regulations --------
Ukrainian government targeting to reach a non-deficit state budget in 2005
initiated a wide range of new regulations. Some of the changes threaten to
destroy the local textile and clothing industry. Since the new regulations
stepped in effect in the end of March, this short period of time was enough
to sound the alarm even among some government officials not to mention,
textile companies.
Officials who are responsible for textile and clothing industry development,
mostly from the ministry of industrial policy have appealed in several open
letters to PM Yulia Tymoshenko and head of state tax administration
Alexander Kyreev with demands to revise recent decrees.
However, top government officials continue to ignore these demands.
Textile, clothing output declines sharply in the last two months -------
The fuss among textile lobbyists of all levels is provoked by a simple fact:
the sharp decrease of textile and clothes production in Ukraine during the
last two months. State Statistics Committee data shows a y/y production drop
appeared in 8 out of 12 main textile and clothing segments in May. Fabrics
and stockinet production each decreased 8.5%. Most ready-made clothes
items witnessed a 5-30% decline in output last month.
Government complicates registration procedure
for imported materials --------
We can presume that this fall in production volumes is only the beginning of
the sector’s stagnation. Because the trend has originated from concrete
reasons that are not connected with market principles but are provoked by
definite governmental resolutions.
FIRST, government changed the registration procedure of goods made on
commission. The changes are included in the law on changes to the state
budget for 2005 that was ratified on March 25, 2005. The amendments
concerning registration procedures stepped in effect on Apr 1, 2005. They
are put down in a separate legislative enactment within the state budget
law. Textile companies working on imported goods made on commission
should collateralize their promissory notes.
Before, a textile producer only had to render to tax authorities promissory
notes not collateralized by the bank. The change complicated customs
formalities. A company needs a lot more time to register its imported
materials, which leads to imported materials lying idle at customs
warehouses. Furthermore, the new registration procedure increases the
total volume of payments to banks.
According to ministry of industrial policy, it will amount to USD 11mn per
year for all textiles and clothing manufacturers. While the measures were
likely aimed to stimulate domestic production, they have had a counter
effect, since Ukraine does not produce cotton and other raw materials
needed for textile production.
Lugansk region suffers most from new rules --------
It is necessary to take into consideration that 95% of all Ukrainian
textiles and clothing enterprises work exclusively on imported goods made
on commission. Thus, government’s initiatives disrupted the schemes of
imported goods delivery for local enterprises, and most of them suddenly
suffered considerable financial losses. Here are a few examples.
According to Svetlana Kalashnikova, head of textiles and clothing industry
department in Lugansk region’s administration, two main players in the
region (Sverdlovsk garment factory and Kramo) were made to stop production
for two weeks because of problems with imported goods registration. They
lost USD 50thsd each in Apr 2005 alone. Another large textile company Lutry
lost USD 20thsd.
Maybe it seems the losses are not so huge. But to give you a sense of the
figures, all textile companies in Lugansk region combined produced goods
worth USD 20mn in Jan-May 2005. Thus, the losses of just these three
mentioned companies make up 3% of average monthly production in region.
The difficulties resulted in a decrease of production.
The indicator dipped 6.4% y/y over Jan-May after posting growth in Q1.
Footwear production declined 28.3% during the same period.
Government introduces new VAT rate for textile -------
The example of Lugansk region is characteristic for other regions. Moreover,
government does not stop to make unpleasant surprises for textile and
clothing companies. Amendments to the VAT law levy a 20% rate on the cost
of works made with goods on commission. Before the amendments zero-rate
existed for such goods. The new VAT rate increases the tax burden for an
enterprise to USD 200-400thsd.
This can lead to bankruptcy of a large part of local sector companies.
According to a closed analytical report issued by ministry of industry
policy (which we obtained), as of the new VAT rate and new regulation on
registration procedure of goods made on commission, many foreign partners
are refusing to cooperate with Ukrainian companies. In the table is some
exclusive information.
Ukraine experiences tremendous rise in textile imports --------
The SECOND big problem for representatives of the textile and clothing
industry is a sharp rise in imported goods. According to state statistics
committee’s data, in Q1/2005, imports of footwear rose 25-fold, suits -
12-fold, chemises – 12-fold, T-shirts – 9-fold, jerseys – 6-fold, socks -
5.5-fold. At the same time the average customs value of imported footwear
and clothing that is the basis of assessment decreased in Q1/2005 3-fold
y/y.
This data reveals deliberate under-declaration of customs value for the
purpose of tax evasion. As a result, in Q1/2005 Ukraine experienced the
largest ever volume of imported textile and clothing goods in a single
quarter. It is worth reminding that during Q1 government was implementing
the customs revision program “Stop Contraband!”.
According to a government report, all major contraband channels and customs
rules violation schemes were completely suppressed. IntelliNews doubts that
the actions taken could enforce order in customs authorities in such a short
period of time. Customs were considered one of the most corrupt state
institutions during president Leonid Kuchma’s rule. The textile and clothing
import data proves our suspicion.
97% of all leather materials made in Ukraine in 2004
were exported to Moldova --------
The THIRD alarming trend in the textile and apparel industry concerns the
drop in leather product output. In Jan-Apr 2005 leather goods production
decreased 9.9% y/y, because leather footwear fell 11.2%. The decline has
its objective reasons, emanating from reduction of cattle livestock.
According to state statistics committee’s data, cattle livestock made up
7.2mn heads as of May 1, 2005. This figure stands for only 47% of cattle
livestock in 1997 and 28% of cattle livestock in 1990.
As a result, Ukraine suffers a leather material deficit that is aggravated
by uncontrolled exports to Moldova. According to the free trade agreement
signed between Ukraine and Moldova in 2004, leather materials are not
charged with export duties. Ukrainian leather producers prefer to export
production to Moldova where revenues are higher.
Thus, 97% of leather materials produced in Ukraine in 2004 were exported
to Moldova. In March 2005, the ministry of industrial policy appealed to the
government to ban the 0% duty on export of leather materials to Moldova.
But the government still keeps silent...
New rules threaten to destroy positive impact of EU lifting restrictions for
Ukrainian textile --------
All mentioned problems the Ukrainian textile and clothing industry faces
today appeared at a time when it seemed the sector got its chance to recover
from a major decline after the Soviet Union’s collapse. At the end of 2004,
EU signed a bilateral agreement with Ukraine that lifted almost all export
restrictions for Ukrainian textile and apparel.
EU is the second largest export market for Ukrainian textile and apparel.
The total volumes of Ukrainian exports made up USD 510mn in 2004.
Lowering the tariffs and lifting the restriction was regarded as a huge
stimulus to Ukrainian producers. They obtained a possibility to increase
exports to this lucrative market due to low production cost.
The average salary in the industry does not exceed USD 70 per month, an
industry trade union representative stated in a recent interview to a
foreign edition. These opportunities were hardly sufficient to bring back
Ukraine textile industry to its Soviet Union levels of development, but
still. Now things are even worse, with the new regulations.
Ukraine supplied 50% of Soviet Union demand in textile
products in 1991 ---------
To remind you, Ukraine supplied 50% of Soviet Union’s demand in textile
products in 1991. Ukraine has about 160 big textile factories with more than
1,000 employees, producing cotton, wool, linen, artificial fabrics and so
on.
Today 6,000 producers are present, but only 1,300 of them have more than 20
employees. Over the last 15 years, the number of employees in the industry
decreased 3-fold to 230thsd employees. Also, the total production volume of
fabrics fell to 67mn m2 in 2000 from 1.2bn m2 in 1991.
Major local textile companies originated from Soviet enterprises and some of
them (SC Donetsk, JSC Kherson Cotton, Voshkod JSC and Texterno) are still
market leaders. Though, we should admit that only several companies have
undertaken total equipment modernization (JSC Kherson Cotton, Texterno).
More than 80% of outer garments made from intermediate
export products are produced for exports --------
The main condition of the domestic textile and apparel industry surviving is
reorientation of most local companies toward producing outer garments from
intermediate export products. More than 80% of these outer garments are
produced for exports. This scheme helps attract foreign partners that supply
intermediate products and then re-export outer garments under their own
labels.
For example, a Kyiv-based producer of women’s wear Dana produces coats
and jackets for such world known brands as Marks & Spencer (UK), Berghaus
(the Netherlands), and Danwear (Denmark). Only in Kyiv, there are about 130
foreign companies (mostly from Denmark and Sweden) producing their
branded garments on the basis of Ukrainian capacities.
Government’s latest initiatives can destroy even this successful segment of
the local industry. We can suppose that worsening the situation in the
sector continue till the end of summer when Q2 industry data will be
published. There is no any official forecasts regarding output figures for
the rest of 2005, but two quarters of stagnation can strengthen the
positions of textile lobbyists.
They can unite with ministerial authorities to make government take urgent
measures to save the textile and apparel industry. Otherwise the industry’s
resurrection with the help of foreign capital will come to an end before it
even started. -30- [The Action Ukraine Report Monitoring Service]
===============================================================
8. PM TYMOSHENKO ASKS RADA TO ADOPT 14 BILLS NEEDED FOR
UKRAINE'S ACCESSION TO THE WORLD TRADE ORGANIZATION
( WTO) IN A SINGLE PACKAGE
Many objections raised by members to some of the WTO bills
Ukrainian News Agency, Kyiv, Ukraine, Tue, June 21, 2005
KYIV - Prime Minister Yulia Tymoshenko has addressed the Verkhovna Rada
leaders with a request to vote on 14 bills needed for Ukraine's accession to
the World Trade Organization (WTO) in a single package. She has also asked
to vote on six other bills on housing construction in a single package.
Tymoshenko made the statement at a meeting of a conciliatory council of the
Verkhovna Rada's leadership, heads of committees, factions and groups of
the parliament with the Cabinet of Ministers' heads. She suggested voting on
bills on WTO in a package so that the Verkhovna Rada adopts them before
the beginning of the summer recess.
Tymoshenko also proposed voting in a single package on the bills submitted
by the Cabinet of Ministers as priority ones, particularly those on
amendments to the law of the national budget aimed at reimbursement of UAH
360 million in wage arrears to coalminers, as well as on introduction of the
new procedure of holding tenders for the purchase goods and services for the
state money.
The Communist Party faction spoke flatly against package voting on the WTO
and other bills. Socialist Party leader Oleksandr Moroz did not support
package voting on the bills on WTO as well.
Representatives of the Social-Democratic Party of Ukraine (united) faction
and the Party of Regions Ihor Shurma and Andrii Kliuev said their factions
will take part in voting on these bills only after President Viktor
Yuschenko signs into law the bill providing for a measure of restraint of
the bail on 150 MPs.
Parliamentary deputy Valerii Asadchev on behalf of Ukrainian People's
Party faction at the meeting said that his faction cannot support four bills
on the WTO providing for abolishing and reduction of export duties on
sunflower seed, ferrous and non-ferrous metals, and on the issues of
intellectual property. He added that the faction will agree to vote for the
WTO bills in a package if its remarks on these four bills are taken into
account.
Our Ukraine People's Union faction leader Mykola Martynenko, Yedyna
Ukraina (Unified Ukraine) party faction leader Bohdan Hubskyi and
Democratic Initiatives MP group leader Stepan Havrysh supported the
idea of package voting.
As a result of debating a possibility of package voting on WTO bills,
Verkhovna Rada Chairman Volodymyr Lytvyn suggested looking into the
Verkhovna Rada's readiness to support bills on WTO if voting on several
bills that were put on the Rada's June 21 evening meeting agenda.
The Cabinet of Ministers and heads of the parliament also agreed to prepare
a draft resolution of the parliament on putting for repeat voting of those
bills on WTO, which have already been debated, but failed to pass the
voting. Lytvyn expressed opinion that the issue of package voting on the
WTO bills should be raised only after each bill is debated and passed in
the first reading.
Tymoshenko stressed that the package of bills on the WTO includes
requirements of countries, with which Ukraine is holding talks on accession
to the organization. She noted that if not all 14 bills are passed, this may
negatively influence Ukraine's task to enter the WTO before the end of the
year.
As Ukrainian News reported earlier, at its May 26 meeting the Cabinet of
Ministers approved a package of 22 bills required for Ukraine's accession
to the WTO. -30- [The Action Ukraine Report Monitoring Service]
===============================================================
9. WILL UKRAINE BE READY TO ENTER WTO BY YEAR-END?
By Alla Bakulina, The Ukrainian Times
Kyiv, Ukraine, Thursday, June 23, 2005
KYIV - Ukraine has signed the bilateral protocol of market access for goods
and services with El Salvador within the framework of negotiations on
Ukraine WTO membership. According to the Ukrainian Foreign Ministry,
Kiev continues bilateral talks with another 17 member countries of the World
Trade Organization working party considering Ukraine's WTO membership
terms.
In pursuance of a government action program Ukraine is expected to enter
the WTO by the year-end. To date, 31 bilateral protocols of access to
markets for goods and services have been signed.
The European Commission asked Ukraine to solve problems of its economic
policy before WTO accession, said deputy minister of economy Andriy
Berezny.
In Brussels a Ukrainian delegation led by him held consultations with a view
to drawing up the report of the working party. This document must be
completed in late September to ensure Ukraine's entry to the WTO by the
year-end.
Specifically, Kiev has to amend legislation, clarifying its positions on the
automobile industry, restrictions on export of metals, farm produce,
intellectual property rights and removal of technical barriers on the way of
trade.
Recently, the government passed 21 out of 24 bills whose approval is
necessary to join the WTO. Prime minister Yulia Timoshenko pointed out
that the documents are maximally taking into account the interests of
national producers. She said the bills provided that most of WTO
requirements for the agro-industrial complex would finally take effect in
5-8 years.
Nikolai Negrich, chairman of the state committee on a technical regulation
and consumer policy, noted that more than 20% of national standards were
brought into conformity with international requirements. In addition, plans
are in hand to revise 16,000 Soviet standards, which are still effective in
Ukraine. -30- [The Action Ukraine Report Monitoring Service]
===============================================================
10. UKRAINE SEEKING DEEPER BILATERAL RELATIONS WITH FRANCE
President Yushchenko goes to France
Ukrainian News Agency, Kyiv, Ukraine, June 21, 2005
KYIV - Ukraine wishes to develop further cooperation with France. The
presidential press service made the statement to Ukrainian News, referring
to an interview President Viktor Yuschenko gave to French journalists prior
to his working visit to France.
Yuschenko noted that Ukraine and France should step up trade and economic
cooperation and have a potential for that. According to the President, the
key goal of his visit is to change the quality of relations with France.
"We consider France as influential European country, whose position on many
issues, including the EU enlargement, is a position of principle. Today our
bilateral relations need further deepening and I am waiting edgily for a
visit to France and a meeting with President of France Jacques Chirac," the
press service quotes Yuschenko as saying.
As Ukrainian News reported earlier, President Viktor Yuschenko will pay a
working visit to Paris, France, on June 22. During his visit Yuschenko is
scheduled to talk to President of France Jacques Chirac about the present
state and prospects of bilateral relations, the ways to step up a political
dialogue, European integration, and international politics.
During his visit, Yuschenko will take part in the unveiling of the Monument
to Anne of Kiev Queen of France in the town of Senlis, lay flowers at the
Monument to Taras Shevchenko in Paris, and meet with the heads of the
Ukrainian community. -30-
===============================================================
11. OWNERS CHANGE REPORTED AT LEADING UKRAINIAN TV CHANNEL
Interfax-Ukraine news agency, Kiev, in Russian, 21 Jun 05
BBC Monitoring Service, UK, in English, Tue, Jun 21, 2005
KIEV - Two of the owners of the Studio One Plus One TV channel have
transferred their shares to another structure, the deputy head of the
National Council for TV and Radio Broadcasting, Ihor Kurus, has said.
"It can be stated that two of the owners of the One Plus One channel have
transferred their shares to another structure," Kurus told Interfax-Ukraine
on 21 June, citing sources close to the channel.
Kurus suggested that shares may be being redistributed to strengthen the
influence of the channel's foreign shareholders. "We know that one of the
owners of the group of companies is Central Europe Media Enterprises
(CME). It may be that they want to legalize their influence," he said.
[Passage omitted: more speculation]
Studio One Plus One's press service told Interfax-Ukraine that only the
company's shareholders can comment on reports of a change in the
ownership of shares and they are out of the country. [Passage omitted:
background]
[On 18 June, the popular tabloid Segodnya reported rumours that
Dnipropetrovsk-based Pryvat Group was in negotiations to buy a 40-per-cent
stake in One Plus One from German-based businessman Boris Fuchsmann
and the channel's honorary president Oleksandr Rodnyanskyy for 100m
dollars.] -30- [The Action Ukraine Report Monitoring Service]
===============================================================
12. TWO OF UKRAINE'S POWERFUL BUSINESSMEN FILE COMPLAINT
AT EUROPEAN COURT OVER TAKING BACK OF STEEL MILL
Paul Ames, AP Worldstream, Kiev, Ukraine, Tue, Jun 21, 2005
KIEV - A consortium owned by two of Ukraine's most powerful businessmen on
Tuesday said they filed a complaint at the European Court of Human Rights
claiming the Ukrainian government violated the law last week by taking back
control of the country's biggest steel mill.
Jock Mendoza-Wilson, a spokesman for the Investment Metallurgical Union
said it had been denied a fair hearing in Ukrainian courts. The group said
Ukrainian authorities had breached its rights to property, free expression
and free association.
The Kryvorizhstal mill was returned to state control last week after courts
overturned its sale to the consortium owned by Viktor Pinchuk, son-in-law of
former President Leonid Kuchma, and another tycoon Rinat Akhmetov.
Mendoza-Wilson said the pro-Western government of new President Viktor
Yushchenko had acted against IMU because its owners had backed his
opponent Viktor Yanukovych, in December's presidential elections. "We
have been victimized because we supported the wrong political candidate,"
he told a news conference.
Yanukovych was prime minister in June, 2004, when Kryvorizhstal was sold
to IMU for US$800 million (Euro 665 million). Critics said the steel plant
was sold for a rock-bottom price after other interested buyers were
excluded from the tender.
Yushchenko called the sale a theft and pledged to undo it. The State
Property Fund said it had regained control of a 93 percent state in the mill
on Friday and the government has promised to offer it up for sale again
before the end of the year.
IMU first filed a complaint in March at the European court in Strasbourg,
France, after a Ukrainian court ruled to halt the sale. Lawyer Mark
MacDougall said they had decided to refile after gathering more evidence
to back the claim. -30-
===============================================================
13. LEGISLATIVE ASPECTS OF THE DEVELOPMENT OF
BIOENERGETICS IN UKRAINE
By Tatyana Zheleznaya and Georgy Geletukha
Ukrainian Times, Kyiv, Ukraine, Thu, June 23, 2005
KYIV - Increasingly, bioenergetics occupies a strong position in the global
energy market as more and more countries are involved in production of
energy from biomass. Finland, Austria, Denmark, the Netherlands, Germany
and other European countries have been developing and improving bioenergy
technologies over the course of 20-30 years, while in Ukraine bioenergetics
attracted attention only in the middle 1990s. At that time the first steps
in its development were taken, and the first relevant programs and
legislative documents appeared.
In 1996 the Supreme Rada, Ukraine's parliament, approved a national energy
program for the period ending in 2010. According to the program, alternative
and renewable energy shall satisfy 10% of the energy needs of the national
economy. In 2000 the topicality of this item of the program was confirmed by
recommendations of parliamentary hearings about the energy policy of
Ukraine.
In 1997 the State Committee for Energy Conservation and the National
Academy of Sciences elaborated a program for state support of development
of alternative and renewable energy and small hydraulic and heat power
engineering as a constituent part of the national energy program. It is
planned to implement the program in three stages.
The organization of production of equipment for the use of alternative and
renewable energy and its introduction in Ukrainian regions is scheduled at
the second stage. Fuel ethanol, bio-diesel fuel, biogas and producer gas,
which can be produced from biomass, are considered in the chapter
"Alternative Fuel".
In accordance with the law on alternative kinds of liquid and gaseous fuel,
projects of the use of biogas, producer gas and liquid fuel from biomass
canbe backed. However, financial mechanisms are not available yet.
Unfortunately, there are no laws stimulating the use of solid biomass for
fuel (wood, straw, municipal solid wastes). A program for the energy
strategy of Ukraine for the period ending in 2030, which contains a chapter
on biomass is in the pipeline now.
In February 2003 the Supreme Rada passed a law on alternative energy. The
document establishes legal, economic, ecological and organizational basics
of the utilization of renewables in Ukraine as well as promotes their wider
use in the energy park. The Cabinet of Ministers and authorized central
executive body were entrusted with the state regulation of alternative
energy.
Measures for the wider use of renewables will be financed at the expense
of wholesale rates of electric and heat power, national and local budget
allocations, and other sources of financing, which are not prohibited by
Ukrainian legislation.
A presidential decree on measures to develop production of fuel from
biological raw materials reads to the effect that development of production
of fuel from biological raw materials and its wider use are priority lines
of activity of the Cabinet of Ministers, central and local executive bodies.
In February 2004 the Supreme Rada ratified the United Nations Kyoto treaty
on climate change that gives Ukraine an opportunity to participate in joint
projects and sell quotas of emissions of greenhouse gases to European
countries. By the same token, projects of introducing systems of the
collection of landfill gas have great capabilities.
In addition, one of the measures that can be proposed to the government of
Ukraine is to organize mechanisms for subsidizing the purchase of modern
bioenergy equipment or the conversion of existent boilers to bio-fuel. State
timber mills, woodworking industry enterprises and agricultural firms, among
others, should be granted state subsidies or loans on easy terms to buy
biogas plants, wood fired and straw fired boilers or to replace boilers
operating by fossil fuel with the up-to-date equipment. -30-
===============================================================
14. CONSOLIDATION OF UKRAINIAN ARMS INDUSTRY HAS BEGUN
Centre for Army, Conversion and Disarmament Studies
Defense-Express web site, Kiev, in Russian 9 Jun 05
BBC Monitoring Service, UK, in English, Tue, Jun 21, 2005
A start has been made on consolidating the Ukrainian arms industry and
putting it under the control of the state-owned company Ukrspetseksport,
according to an unattributed article by "experts" at the Centre for Army,
Conversion and Disarmament Studies. While considering various issues
involved in this process and looking at the solutions found in other
countries, the authors identified the main problem for Ukraine as being the
need to define the actual role of Ukrspetseksport.
At present, it produces goods of its own and acts as an agent for other
companies, thereby generating a clash of interests from which Ukraine
generally loses. If this situation persists, then policy decisions on what
is exported to whom must be taken away from Ukrspetseksport, the experts
argued. Alternatively, the company should cease trading in competition with
the others and become a policy maker, coordinator and organizer of banking
and insurance, they said.
The following is the text of the article, posted on the Ukrainian web site
Defense Express on 9 June under the title "The modification of the
military-technical cooperation system has begun"; subheadings have been
inserted editorially:
The objectives set by the Ukrainian president regarding the improvement of
special [i.e. arms] exports have begun to be achieved. The first steps in
personnel decisions have been taken. The arrival of new people to head the
state company Ukrspetseksport [Ukrainian special exports] (including new
deputy directors-general), the replacement of the director of its
subsidiary, Ukrinmash [Ukrainian foreign machinery] and his first deputy,
and also the appearance of a new deputy director at Ukroboronservice
[Ukrainian defence service] are all links in a single staffing chain.
They are people from an integrated system who represent the precise,
unified ideology of military-technical cooperation. The staffing decisions
themselves indicate, above all, that the process of concentrating ALL
Ukrainian arms exports in the same hands has started. Some experts think
that the next step should be the appearance of a Ukrainian Rosoboronexport
[Russian defence exports - the Russian company that oversees all Russian
arms exports].
Ukrainian arms companies often fight one another -------
The idea is not new, though. Analysts say that what the country will see
realized in this way is something midway between [former Ukrspetseksport
director] Valeriy Malev's dream of creating a state corporation from
Ukrspetseksport (with the appearance of production capacity inside it in the
form of "dowry" companies) and the stricter idea of a centralized executive
system of the Russian type.
In this connection, experts at the Centre for Army, Conversion and
Disarmament Studies propose to set out the various options for change in
Ukraine's military-technical cooperation with foreign states and their
consequences for the country.
Ukraine certainly needs a new ideology for the arms business. The activities
of any state in the international arms market, apart from the existence of a
hi-tech base, are linked to one key policy question. And that is: the arms
trade is either a business that provides foreign currency earnings, or it is
a particular way of realizing that state's interests on the world scene.
There are many examples to prove that, for the top 10 exporting states, the
arms business, or military-technical cooperation, still remains a vital
instrument of geopolitics and regional influence. For Ukraine, which also
features on that short list, being active in this field is still just trade.
The special exporters have been, and still are, the direct exponents of
military-technical cooperation. Today five state companies operate under
the auspices of Ukrspetseksport.
Apart from them, about 10 other companies in the country have been
accorded the right to trade. Ukrspetseksport itself, thought up in 1996 as
the coordinator of military-technical cooperation, has been gradually
transformed into one of its exponents. In a number of cases, though, it has
been in competition with its own subsidiaries, which has led, on more than
one occasion, to losses, the cancellation of the results of tenders and even
open confrontation between Ukrainian special exporters.
Problems of "Europeanization" of foreign policy and arms industry --------
Clarification of Kiev's foreign policy and the strategic reliance on NATO
will themselves make forced modifications to the field of military-technical
cooperation. First, Brussels has already stated unambiguously that Ukraine
must adopt the rules circulated in the EU on that field. So Ukraine will
have to sign up to the so-called EU Code that spells out policy in the arms
field. Ukraine has previously given way to pressure from Europe (e.g. by
ending military-technical cooperation with Macedonia), but the common
European decisions may be very painful for the Ukrainian arms trade. The
country will be hard hit by any surrender of military-technical cooperation
with China, since exports to it of military and dual-purpose goods,
technology and services are worth between 70m and 100m dollars.
Ukraine's comprehensive movement towards the West would seem to imply
the adoption of Western approaches to the organization of military-technical
cooperation. This organization presupposes putting developers and producers
into the largest possible entities that are able to ensure the development
and production of output and its servicing and upgrading - plus the
implementation of marketing strategies. This also implies the comprehensive
hyping of one's own brand.
Trading then becomes an integral part of the corporation's or holding
company's operations, as well as full responsibility for errors. In this
sense, the building up of the system of military-technical cooperation is
inseparably linked with the choice of a development formula for the
defence industry.
It is, therefore, quite natural that trade intermediaries are no longer
needed by such established bodies as, for example, the non-state Israeli
Elbit Systems or the German Rheinmetall DeTec. A similar policy has been
selected by many countries, and not only in Europe. But it is worth making
the reservation that, even though the Elbit Systems brand is known
worldwide, arms export matters are under the control of SIBAT [the Foreign
Defence Assistance and Defence Export Organization], a special state
section of the Defence Ministry. There is the same situation in the USA,
the state with the world's largest share of private arms production. In
other words, arms trade issues are, in all cases, under state control.
This way of building up the defence industry is practical and necessary,
although very difficult at the moment - mainly because putting designers and
industry into the same bodies is only possible in the aircraft industry and
the missile and space sector. Notionally, it could be applied to the
armoured vehicle industry as well, but the lack of a stable, regular market
is unlikely to enable the problem of the sector to be resolved without
painful restructuring decisions. Finally, even the creation of such
integrated organizations does not guarantee that markets will be rapidly
won, if only because the niches are not empty: they are occupied by the
same sort of powerful bodies as Ukraine wants to create.
There is no doubt that the amalgamation of all aircraft developers and
manufacturers under the Antonov brand, which was decided at the end of
May, should, ideally, give fresh impetus to the development of the
aircraft-building business within the country. This will depend, though, on
the correct structuring of management and also on a suitable pace of
flotation and change in the integrated body's form of ownership.
As for the components trade, retaining one's own brand is difficult even for
factories that make a unique product. Who knows what Mykolayiv's
Zorya-Mashproyekt gas turbine research and production complex does for the
Russian Zubr [Bison] small landing craft for Greece? Who knows that an
engine made in Zaporizhzhya is fitted to the Russian Chernaya Akula [Black
Shark] helicopter (the Ka-50-2)? Moreover, independent trading by such
companies quite often clashes with state interests. Although [ex-President]
Leonid Kuchma once signed a decree instructing special exporters to liaise
over pricing with the state-owned Ukrspetseksport, this certainly does not
always happen.
Transitional phase: central monopoly + independent operation --------
It would seem to be a good idea for Ukraine today to head in the direction
of a state monopoly on the defence industry core, coupled with a removal of
total trusteeship from companies that have the best development prospects in
market conditions. At the transitional stage, such bodies can both exercise
their right to trade independently and fulfil orders won in foreign markets
by state intermediaries. This practice, incidentally, has already been
approved in the aviation and armour sections of the market.
For example, Kiev's Aviant aircraft factory, which is entitled to trade
independently, concluded a contract to supply An-32 planes to Libya through
Ukrspetseksport. The Kharkiv aircraft plant was able to exercise its right
to engage in foreign economic activities by concluding a contract to supply
aircraft to Sudan. A contract to supply Pakistan with tank engines was
concluded by Prohres [based in Zaporizhzhya] in exactly the same way, while
a contract to supply 190 turrets for Jordanian armoured personnel carriers
at the beginning of this year was signed by the Malyshev works
independently.
This is a transitional model that would provide for the strengthening of
centralized state direction of the arms business through the concentration
of some of the financial, industrial and other resources in the same hands.
First and foremost, these are the resources of the state intermediary
companies and the resources of the state companies that maintain the combat
readiness and modernize the military hardware of the Ukrainian armed forces
and which are to be transferred for management, and, finally, they are the
companies whose monopoly right to produce military hardware must not be
handed over by the state under any circumstances (e.g. the production of key
elements of munitions, missiles and so on).
These are the approaches that have been put into effect in states that have
begun to transform the military-technical cooperation systems in the past
decade. South Africa has managed to achieve the most striking results by
setting up the state company Denel specially to organize arms exports. Today
South African industry is doing its utmost to cooperate with European firms,
taking a full part in co-production - in the production of high-precision
munitions and missiles, for example.
In 2002, a similar company, BUMAR Sp., was created in Poland. It has already
become skilled in the arms trade, entering the Southeast Asian market with
Western technologies integrated into post-Soviet equipment. Incidentally,
just such guidelines have also been adopted by Russia, which is actively
transferring companies to management by the federal state unitary enterprise
Rosoboronexport.
Concentration means cohesion --------
The principle idea behind concentration has long been known and clear:
concentrating resources in the same hands saves money on marketing,
advertising and the organization of services. But the most important thing
is the appearance of a single innovation policy, [the lack of] which is the
Achilles heel of the post-Soviet world nearly a decade and a half after the
absence of the [Communist] Party's valuable instructions. The areas for
what little investment there is are still determined not by the market, but
by the ambition of individual officials.
The creation of a centralized innovation fund (or several funds) under the
government and major structural associations of the defence industry could
noticeably improve the situation as regards investment in promising arms
developments. Decisions on specific investment areas could be taken by
government commissions or mixed working groups in cases where the state
does not fully own a company.
Undoubtedly, the ideal way of determining investment contributions is
through a decision by the directors' council of corporations or the
management of concerns, but, at the stage in which they are being formed,
the state could well become a participant in the process by administratively
joining management councils and implementing resource contributions.
At present, the centralization route is certainly more suitable for Ukraine,
and not only because the Ukrspetseksport brand is better known in the arms
market than the brands of most of the developers and producers of the
hardware. One of the defining elements is the fact that the overwhelming
majority of defence companies are state-owned, and these companies are so
small in comparison with the long-established corporations and concerns of
the Western type that, in their existing form, they stand no chance of being
noticed on the world arms market.
Role of Ukrspetsexport: a "playing trainer"?
For Ukraine, the role of Ukrspetseksport itself will remain the key issue
anyway. The conductor must not play any of the musical instruments, as no
music will come of this, say some specialists in the Ukrainian arms
business, who favour reducing the lead company's role to distributing
markets and approving prices. If there is a rigid delimitation of functions
regarding the taking of political decisions and putting them into effect, a
state company will be able to operate by itself and "cultivate" its own
subsidiaries, say others. Either way, there is mainly theory here. In
practice, subjective factors have invariably dominated the Ukrainian arms
business over the past few years.
The authors' view is as follows: if the state-owned Ukrspetseksport is given
additional powers to take policy decisions, manage companies and organize
the banking and insurance pools that are allowed for sensitive exports, then
it must shed the right to trade independently. But, if Ukrspetseksport
remains a "playing trainer", all policy decisions must go either to the
committee for military and technical cooperation and export control policy
under the Ukrainian president or to a similar body under the government.
This item will be published in full in Arms Exports and the Defence Complex
of Ukraine, No 6, 2005. -30-
===============================================================
15. "THE ENTIRE COUNTRY SHOULD BE A FREE ECONOMIC ZONE"
Interview with Leszek Balcerowicz
Polish economist and Head, National Bank of Poland
By Vasyliy Zaria, Zerkalo Nedeli, Mirror-Weekly,
International Social Political Weekly
No. 23, (551), Kyiv, Ukraine, Sat 18-24, June 2005
Acclaimed Polish economist Leszek Balcerowicz rarely gives interviews to
the Ukrainian press, although his viewpoint would be extremely interesting
for us, particularly after the first one hundred days in office of the new
government.
The economics minister vaguely resembles a surgeon. For all his outward
charm, Baltserovic is a categorical and uncompromising person. Perhaps in
the first years of Poland's radical reform, after which the opinions of
Polish society split, the father of Polish "shock" therapy and its economic
"miracle" was as much hated as he was loved.
During our interview, Mr. Balcerowicz firmly refused to comment on the
situation in Ukraine. Obviously his reputation as a reputed economist
prevented him from making an unqualified assessment without knowing the
situation in Ukraine in all its details. He said, "If you are going to ask
me questions about Ukraine, I'm not going to answer them."
Finally, we agreed that we would discuss the lessons of economic reform in
post-Soviet states.
ZN: Could you please compare the condition of Poland at the beginning of
the 1999 reforms to that of Ukraine in 2005.
LB: In my view, your country is currently in better shape than Poland in
1999. Generally speaking, the Ukrainian economy cannot be called a
typically post-Soviet one. The level of its development is higher, which is
why it has a better chance for a breakthrough.
I follow developments closely in Ukraine. The Orange Revolution is a truly
historic event . One day I will come to your country, which I have visited
before.
I hope that your government will use the opportunity to speed up reforms
essential for fast and sustainable economic development. It is an
essential foundation for the future success of Ukraine.
You will not improve people's standards of living, or strengthen the
geopolitical position of the state, without economic growth. It is also
essential for external policy. An economically successful state has much
more influence in the international arena.
Poland had two major problems in 1999: high (almost hyper-) inflation, and
an imperfect economic system. These required radical change, removal of
any restrictions, restructuring and actual stabilization. These approaches
are well-known also in Ukraine.
In a way, there was a peaceful revolution in Poland too. These were the
elections that defeated the monopoly of the Communist party and showed
the way to democracy. The 1999 revolution by itself did not ensure economic
growth.
But due to it, Polish reformers were able to carry out radical reforms. This
suggests an analogy with the Orange Revolution, which was enthusiastically
welcomed in Poland.
ZN: What, in your view, are the most important lessons for economies in
transition?
LB: To begin with, [FIRST] former socialist countries which were much alike
two years ago have gradually become different. We can see this difference,
say, in the speed of economic growth. Thus, in Poland GDP grew by more
than 40 per cent as compared to 1989. In Ukraine, the GDP officially
declined during this period.
SECOND, direct foreign investment significantly differs. In Central European
countries, foreign investment made up more than $1,000 USD per capita
during the period between 1989 and 2003 (and $3,800 in the Czech Republic).
Most countries in the former Soviet Union managed to attract much less
investment. Now in Ukraine direct foreign investment makes up $190 per
capita. The per capita ratio of foreign investment in Poland and Ukraine is
one to ten.
THIRD, the difference lies not only in macroeconomic indices. Average life
expectancy has significantly decreased in Russia, but it grew in Poland, the
Czech Republic and the Baltic states. We tried to understand why this is so,
and carried out a number of studies. As we discovered, countries with a
market-oriented economy that pursued economic reforms more actively have
achieved better results.
ZN: Which measures exactly?
LB: FIRST, these are measures aimed at reducing and curbing inflation.
SECOND, liberalization, which enables the creation of a transparent legal
environment for business. This ensures that government will adhere to the
law and not be corrupt. THIRD, property rights have been reinforced.
FOURTH, the stability of public finances is critical for preventing
excessive budget expenses and high taxes.
Research has shown that the economy develops more actively if it moves
towards a stable and competitive market. The government is able to improve
the situation of its citizens more quickly.
However, one should not cherish any illusions; reforms have never been
welcomed as manna from heaven. They are not always popular. One has to
fight to carry them through in a peaceful way. In my view, the atmosphere
and the spirit of the Orange Revolution must be used to speed up reforms.
ZN: The new Ukrainian government has presented more than eighteen social
programs. As a result many people wonder whether the 2005 budget will meet
its targets. How do you deal with social issues in Poland?
LB: The general lesson is that social payments must be under strict control.
This is the only way to avoid a budget deficit. For example, the Baltic
States and Slovakia carried out radical reforms by means of decreasing taxes
and social expenses. Due to high unemployment, Poland had to consider
seriously cutting off expenses and decreasing taxes.
There were many social programs in Poland; and unemployment was
addressed by means of high taxes. Thus, social expenses proved to have
both positive and negative aspects.
ZN: Recent attempts to reinforce the hryvnia caused an ambiguous reaction
in Ukraine. Could you share your experience of exchange rate policy?
LB: Naturally, the stability of the national currency begins with the choice
of monetary policy. One can choose, say, a fixed exchange rate, as the
Baltic States did (their currencies were pegged to the Euro -author). Or one
can do as Poland did: we set a goal of reaching a certain level of inflation
(that is, we targeted inflation).
This involves using all the available tools of monetary policy to bring
inflation to a certain target level. Certainly the independence of the
National Bank of Poland has become one of the major achievements of
Polish reforms.
In the modern world it would be extremely difficult to achieve a low level
of inflation without it. The Central Bank must be able to resist political
pressure and be highly professional.
ZN: The issue of the re-assessment of a significant number of privatized
enterprises is currently high on the agenda in Ukraine. The government
prefers not to use the irritating term "re-privatization". In Poland there
were probably those dissatisfied with the course of privatization?
LB: Indeed, there is always heated discussion of privatization issues in
society. And there are always politicians who criticize its course. But the
larger the scale of legal privatization in the country, the better is it for
its GDP.
Poland managed to privatize the bigger part of its economy, which
turned out to be the chief component of its economic "miracle".
We manage to attract many foreign investors, in particular to the banking
sector. Most likely the privatization of banks would not have been possible
at all without foreign investors, because there was not enough serious local
capital.
The same can be said about the Czech Republic, Slovakia, and the Baltic
States: privatization was, probably, one of the major reforms. In addition
to financial resources, foreigners brought their know-how, knowledge and
experience. If a country rejects foreign capital, it deprives itself of one
of the factors of economic growth.
ZN: Liquidation of free economic zones in Ukraine has caused many debates.
What is your attitude to the abolishment of privileges for certain business
categories?
LB: It was an unavoidable move. One of the main conditions of EU accession
is the reduction in the number of tax privileges and a ban on free economic
zones. Poland had to do this. I believe that the entire country should be a
free economic zone.
As matter of fact, all economically successful states have moved along this
path. This ensures an attractive environment for business, effective
management and an uncorrupt judicial system.
Some people in Poland protested the abolishment of privileges, but in
general the Poles understood that this was necessary for EU accession. It
is better to work for the creation of acceptable business conditions for
everyone rather than struggle to create many small free economic zones.
ZN: Ukraine is currently at the threshold of WTO accession. What effect did
the joining of this organization have on the Polish economy?
LB: As a rule, fulfilling the WTO requirements has a favorable effect on the
economic growth of a country. Most of them are aimed at liberalizing the
economy. Joining the WTO will become an indicator of reforms in the state.
Market reforms are always good for society.
If we remember prices in this connection, they should always be free. Fixed
prices are an exception. Liberalization is an essential part of any free
market. -30- [The Action Ukraine Report Monitoring Service]
--------------------------------------------------------- -------------------------------------------------
Leszek Balcerowicz, 58, professor, the father of Polish "shock" therapy, has
been a Solidarity party member since the 1980s. He was Vice Prime Minister
and Minister of Finance in the first non-communist Cabinet of Tadeusz
Mazowiecki. After resigning from the government he taught in higher
educational institutions and was the author of several monographs about the
experience of Polish radical reforms. From 2001 until the present,
Balcerowicz has headed the National Bank of Poland.
---------------------------------------------------------------------------------------------------------
LINK: http://www.mirror-weekly.com
==============================================================
16. ONE SHOULD NOT EXPECT INVESTMENTS IN UKRAINIAN IT BRANCH
UNIAN, Kyiv, Ukraine, Tue, June 21, 2005
KYIV - So far one should not expect for investments into the Information-
communication technologies in Ukraine until the problems with intellectual
property are not solved. Andriy kolodiuk, president of "Informational
Society of Ukraine" Fund and member of "Informational Ukraine" party,
has disclosed this to UNIAN.
According to him, during the "mini-Davos" in Kyiv, foreign investors clearly
indicated that Ukraine should not expect for investments into IT until the
"issue of the intellectual property is not regulated in Ukraine".
At the same time, A.Kolodiuk has noted that foreign investors confirmed
that Ukraine, with its 50% annual growth of the IT branch, considering its
geographic position, has today a unique opportunity to become a
competitor of India. -30- (http://www.unian.net/eng)
============================================================--
17. UKRAINE NOT PLANNING TO PRIVATIZE UKRTELCOM IN 2005
UNIAN, Kyiv, Ukraine, Tue, June 21, 2005
KYIV - Ukraine is not planning to privatize of Ukrtelecom in 2005, senior
deputy Prime Minister Anatoly Kinakh has announced in the sidelines of
an investment forum "Ukraine-Russia 2005", RBC reports.
According to Kinach, to enhance Ukrtelecom's liquidity the government
wants to provide it with a license for providing mobile communications
services. He emphasized that Ukrtelecom's activities should become
more transparent for investors.
The Ukrainian government is now considering the list of strategically
important companies, which are to be privatized in the near future.
Ukrtelecom is on the list. -30- (http://www.unian.net/eng)
===============================================================
18. DPM KINAKH HOPES GOVERNMENT WILL NOT USE ADMINISTRATIVE
MEASURES TO MANAGE THE ECONOMY AGAIN
UNIAN, Kyiv, Ukraine, Tuesday, June 21, 2005
KYIV - Top Deputy Prime Minister of Ukraine Anatoliy Kinakh hopes that
the government will not use any administrative gears of managing the
economy any more.
According to an UNIAN correspondent, A.Kinakh has claimed this today
at the first investment forum "Ukraine-Russia 2005".
"I hope we will never allow any recurrences, when difficult problems of the
economy were solved by the state by means of an administrative influence,
a strict regulation of prices or, which is even worse - by means of looking
for enemies", said A.Kinakh. -30- (http://www.unian.net/eng)
===============================================================
19. INVESTORS CARE MORE ABOUT CLEAR STRATEGY OF REFORMS
IN UKRAINE AND GOVT INTEGRITY OF POSITIONS– WORLD BANK EXPERT
Should be one voice that can be predictable for investors
Ukraine needs to move faster to implement reforms
Interfax-Ukraine, Kyiv, Ukraine, Tue, June 21, 2005
KYIV - Foreign investors say the reform strategy in Ukraine should be more
clearly cut as well as the integral position of the government, director of
global governance at the World Bank Institute Daniel Kaufman says.
He told the 5th TV channel following the round table within the World
Business Forum in Kyiv that during the forum investors mentioned the need
to depart from "polyphony" in the government. He said there should be one
voice that can be predictable for investors, there should integrity of
positions in the government," the expert said.
It is necessary to have a single, clear, understandable and transparent
strategy of reforms that everyone in Ukraine and beyond its bounds should
know about, he said and reminded that in other countries it is called "score
sheet" with timescale of milestones, so that investors could evaluate the
progress of reforms according to their results.
According to him, Ukraine should move to market faster in both domestic
and foreign directions, including the WTO, the interference into the market
should be minimized. He especially pointed the need to advance
anticorruption measures, institutionalize them. -30-
===============================================================
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