THE ACTION UKRAINE REPORT - AUR
An International Newsletter, The Latest, Up-To-Date
In-Depth Ukrainian News, Analysis and Commentary

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

UKRAINE AND THE SECOND COLD WAR
The Second Cold War has already begun. If forced to be perfectly frank,
every diplomat, spy or banker from Boston to Baku would acknowledge this.

What awaits a vulnerable and embattled Ukrainian state during The Second
Cold War? The stakes in this conflict are great - either Ukraine will
survive as a nation-state or become a part of what Russian energy mogul
Anatoli Chubais envisions as a "liberal Russian empire." [Article One]

UKRAINE: FREE ELECTIONS, KAMIKAZE PRESIDENT
An "orange coalition" is still the most likely outcome of a Ukrainian
election won by the revolution's opponent, says Taras Kuzio. [Article Four]

THE ACTION UKRAINE REPORT - AUR - Number 682
Mr. E. Morgan Williams, Publisher and Editor
PUBLISHED FROM KYIV, UKRAINE, THURSDAY, MARCH 30, 2006

--------INDEX OF ARTICLES--------
Clicking on the title of any article takes you directly to the article.
Return to the Index by clicking on Return to Index at the end of each article

1. UKRAINE AND THE SECOND COLD WAR
OP-ED: By Roman Kupchinsky
Kyiv Post, Wednesday, Kyiv, Ukraine, Mar 29 2006

2. GAS DEAL ROILS UKRAINE & MAY HAVE CUT LEADER'S VOTE
Even now, nearly three months after the deal was announced, the
ownership and operations of RosUkrEnergo remain murky.
By Steven Lee Myers and Andrew E. Kramer
The New York Times, Thursday, March 30, 2006

3. UKRAINE'S NATIONAL OIL FIRM DEFAULTS ON TAX PAYMENTS
Vladimir Suprun, RIA Novosti, Moscow, Russia, Wed, March 29, 2006

4. UKRAINE: FREE ELECTIONS, KAMIKAZE PRESIDENT
An "orange coalition" is still the most likely outcome of a Ukrainian
election won by the revolution's opponent, says Taras Kuzio.
ANALYSIS & COMMENTARY: By Taras Kuzio
Open Democracy, London, UK, Tuesday, March 28, 2006

5. ADJUSTMENTS TO UKRAINE'S CONSTITUTION REQUIRED
By Evgenia Mussuri, Kyiv Post Staff Writer
Kyiv Post, Kyiv, Ukraine, Thursday, Mar 23 2006

6. EX-PRIME MINISTER OF UKRAINE, YULIA TYMOSHENKO,
VOWS SOFTER APPROACH TO BUSINESS
By Tom Warner in Kiev, Financial Times
London, United, Kingdom, Thursday, March 30 2006

7. UKRAINE INVESTORS WORRY TYMOSHENKO MAY COME BACK
REUTERS, Kiev, Ukraine, Monday, March 27, 2006

8. ECONOMIC ISSUES IN UKRAINE AT THE TIME VOTERS
CHOOSE A NEW PARLIAMENT, GLOBAL INSIGHT PERSPECTIVE
ANALYSIS: By Dr Ralf Wiegert, Economist for Eastern Europe
Global Insight, London, United Kingdom, Friday, March 24, 2006

9. PUTIN SAYS US DELAYING RUSSIA'S WTO MEMBERSHIP
Recent WTO accord between Ukraine and US rubbed salt into the wound,
raising the prospect that Ukraine may join the trade body before Russia.
By Neil Buckley in Moscow and Frances Williams in Geneva
Financial Times, London, UK, Thursday, March 30 2006

10. U.S. MANEUVERS TO ENSURE UKRAINE JOINS WTO BEFORE
RUSSIA ACCORDING TO DUMA FOREIGN AFFAIRS LEADER
Interfax, Moscow, Russia, Wednesday, March 29, 2006

11. TAX SERVICE SAYS MOST UKRAINIAN FUNDS FLOW OUT TO
BRITISH VIRGIN ISLANDS, CYPRUS, ISLE OF MAN OFFSHORE ZONES
Ukrainian News Agency, Kyiv, Ukraine, Wed, March 29, 2006

12. DEMOCRACY FLOURISHES IN KIEV, BUT SMOTHERED IN MINSK
The Economist Global Agenda, The Economist
London, United Kingdom, Tuesday, March 28th 2006

13. A COUNTER-REVOLUTION IN UKRAINE?
Just 16 months ago, the reformers were triumphant. What happened?
VIEWPOINT: By Yuri Zarakhovich
TIME magazine website, NY, NY, Wednesday, Mar. 29, 2006

14. THE ORANGE GLOW
EDITORIAL: Los Angeles Times
Los Angeles, California, Tuesday, March 28, 2006

15. FORMER PRIME MINISTER LAUDS UKRAINE'S 'FIRST
HONEST ELECTIONS HELD IN 15 YEARS OF INDEPENDENCE'
Voice of America (VOA), Washington, D.C., Wed, March 29, 2006

16. PRESSURE MOUNTS ON UKRAINE LEADER TO REUNITE
WITH FORMER ALLY YULIA TYMOSHENKO
Agence France-Presse (AFP), Kiev, Ukraine, Wed, March 29, 2006

17. SOCIALIST PARTY WILL GO INTO OPPOSITION IF OUR
UKRAINE PARTY JOINS YANUKOVYCH AND PARTY OF REGIONS
Ukrayinska Pravda On-line, Kyiv, Ukraine, Thursday, March 30, 2006

18. OUR UKRAINE COUNCIL TO CONSIDER MEMORANDUM ON
FORMATION OF PARLIAMENT COALITION ON FRIDAY, APRIL 7
Ukrainian News Agency, Kyiv, Ukraine, Wed, March 29, 2006

19. NEW GOALS FOR JOHN HERBST
US Ambassador to leave Ukraine for government post
By Mykola Siruk, The Day Weekly Digest in English, #10
Kyiv, Ukraine, Tuesday, March 28, 2006

20. JOINING EURO-ATLANTIC INSTITUTIONS WILL REQUIRE
UKRAINE DRASTICALLY REVAMP ITS INTERAGENCY PROCESS

Atlantic Council of the U.S., Washington, D.C., Thu, Mar 23, 2006

21. WINNERS OF 2005 VLADIMIR HOROWITZ PIANO COMPETITION
IN CONCERT IN WASHINGTON, DC AREA, SUNDAY, APRIL 9
The Washington Group Cultural Fund (TWGCF)
The Action Ukraine Report (AUR) #682, Article 21
Washington, D.C., Thursday, March 30, 2006

22. UKRAINIAN UNIVERSITY STUDENTS SEEK SUMMER
EMPLOYMENT IN THE UNITED STATES
John A. Kun, Vice President/Chief Operating Officer
U.S.-Ukraine Foundation (USUF)
Washington, D.C., Thursday, March 30, 2006
========================================================
1. UKRAINE AND THE SECOND COLD WAR

OP-ED: By Roman Kupchinsky
Kyiv Post, Wednesday, Kyiv, Ukraine, Mar 29 2006

Ignore the broad smiles, firm handshakes, cheerful backslapping and toasts
raised to "everlasting friendship" between well-dressed, smiling Russians,
intense Germans, glib Americans and deceptive Brits.

The Second Cold War has already begun. If forced to be perfectly frank,
every diplomat, spy or banker from Boston to Baku would acknowledge this.

Anyone who reads the press or watches television must have noticed by now
that the most dynamic, aggressive and self-assured force in the world today
is Russia. Daily reports in the media announce that Russian state-controlled
gas giant Gazprom is buying a pipeline network here or a European gas
company there.

Russian President Vladimir Putin is shown pleased with himself in Budapest
as he offers Hungarians "reliable" gas supplies - but only if they buy from
Gazprom.

It's part of his fuel diplomacy strategy, which allows Russia to influence
neighbors and more distant countries through energy supplies.

There is more to Putin's arsenal. Russia is the ultimate salesman, offering
weapons to Algeria, gas and oil to Beijing, and nuclear reactors to Iran. By
supporting ill-fated democracies and separatist movements in Trandniester,
Ossetia and the dictator-ruled Belarus, Russia maintains a strong grip of
influence over neighboring countries.

Meanwhile, Russian television stations present Putin in a positive light,
ensuring him stable support within his own country of 140 million. Western
Europeans watch and worry, wondering whether they are doomed to cold
winters if Russia cuts off their gas supplies.

The leaders of the great Western alliance, in the meantime, assure their
citizens that the war in Iraq is almost won. Have patience, the masses are
told, all we need is for Jeffersonian democracy to ultimately triumph in the
slums of Baghdad.

Then there is Ukraine. With an indecisive chief executive who changes his
views on policy issues all too frequently, the country seems to be not
slipping, but tumbling back to its pre-Orange days. In Washington, London
and Berlin the unpleasant little words that nobody wants to utter aloud are
once again being whispered in the corridors of power - "A failed state."

Is there hope? Can Kyiv resist Putin's "Drang nach Malorossiya" or will it
be trampled under the patent leather shoes worn by Russian oil and gas
executives, as they lead the Russian corporate state to battle? Things look
pretty grim.

Ukraine might not be a failed state, yet, but it is certainly beginning to
look like a failed dream. Recall the slogans shouted on the Maidan in
December 2004: "We Want to Be in Europe!" "Crooks Belong in Prison".

Now that the hype is over, it might be appropriate to remind ourselves that:

1) Europeans, for understandable reasons, are not ready to admit Ukraine
into their club.
2) The shadier elements of Ukraine's elite are still at liberty, living very
comfortably in penthouse suites.

Furthermore, it should be very clear that Ukraine is not only a victim of
its geographic location but of its inability to conceptualize what is in its
own national interests. Apparently, each section of the country cares more
about its own regional interests than the well-being of the nation as a
whole. This will not do.

Then there is the question of the northern neighbor.

Every evil cannot be blamed on the Russians. This moth-eaten explanation
has been offered up by too many Ukrainian leaders as an excuse to cover
up their own inability to govern efficiently and honestly.

Having said this, there is no doubt that many of Ukraine's problems can
still be tied to Russia's imperial drive. Karl Marx, after all, once wrote
that "the guiding star of Russia is world domination." He may have been
right.

What awaits a vulnerable and embattled Ukrainian state during The Second
Cold War? The stakes in this conflict are great - either Ukraine will
survive as a nation-state or become a part of what Russian energy mogul
Anatoli Chubais envisions as a "liberal Russian empire."

Within this empire, Ukrainians would be allowed to keep the blue and yellow
flag, speak Ukrainian, keep their embassies, have an army and control their
own borders. But the real decisions, the hardcore work, would be done for
them in Moscow by hard-eyed Kremlin bosses.

During the First Cold War, Ukraine, by virtue of its membership in the USSR,
was an active participant on the side of Russia and the other "socialist"
republics in the ideological struggle with the West. They lost, and as a
result of this defeat, Ukraine became independent.

Independence became reality not as the result of a powerful national
liberation struggle with masses of oppressed Ukrainian workers and peasants
on the streets with pitchforks and clubs, but through a political deal made
in a forest in Belarus between two high-ranking communist internationalists,
Leonid Kravchuk and Boris Yeltsin.

Suddenly, Ukrainians found themselves in charge of their own country, a
role they were quite unprepared for.

It is possible that had they shed some blood for their freedom, things might
have worked out differently, but that is now only speculation.

Today, as Cold War II heats up, Ukraine is virtually alone, in need of
stronger leadership and without any meaningful friends, except Poland. The
U.S. is preoccupied with terrorism, Iraq, and so on. The Europeans may
look the other way as long as Russian gas keeps flowing.

Ukraine must rely on itself to survive. Whether it really wants to survive
as a sovereign nation is at the heart of the matter.

Some people warn me not to "dramatize the situation." Ukrainians often tend
to say this when they are uncomfortable with the possible end result of a
given problem. It is an escapist phrase; it soothes the intellect and tells
the subconscious that a solution is out there somewhere and all one need do
is to seek it out.

Cold War II, however, is not only dramatic; it is a question of real
survival.

Ukraine's political establishment does not seem to understand this. Maybe
they don't want to face the truth, and believe they can bluff their way out
of doing something preventive, the way that former President Leonid Kuchma
bluffed Washington for years by making promises to reform the economy.

The time has finally arrived for Ukraine to begin behaving as a real state
and not a playground for oligarchs. The victors of this high-stakes
geopolitical game will not spare the losers, and the time may come when
Uncle Sam will throw up his hands in frustration at the shenanigans played
in the Ukrainian capital. -30-
------------------------------------------------------------------------------------------
NOTE: Roman Kupchinsky is the organized crime and terrorism analyst
for RFE/RL Online and the editor of "RFE/RL Organized Crime and
Terrorism Watch." He graduated from Long Island University in Brooklyn
with a degree in political science. He was the president of Prolog Research
and Publishing Corporation in New York prior to joining RFE/RL where
he was director of the Ukrainian Service for 10 years. He lives in Prague,
Czech Republic. Contact: Roman Kupchinsky, KupchinskyR@rferl.org.
AUR EDITOR.
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LINK: http://www.kyivpost.com/opinion/oped/24131/
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[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
========================================================
2. GAS DEAL ROILS UKRAINE AND MAY HAVE CUT LEADER'S VOTE
Even now, nearly three months after the deal was announced, the
ownership and operations of RosUkrEnergo remain murky.

By Steven Lee Myers and Andrew E. Kramer
The New York Times, Thursday, March 30, 2006

KIEV, Ukraine, March 29 - The official residence of the managing director of
a company now set to control Ukraine's supply of natural gas is a one-story,
clapboard house in a tumbledown village bordering a defunct collective farm
outside Moscow. A dirty rug covers the floor, a bare light bulb hangs from
the ceiling and scraps of plywood plug gaps in the wall.

Olga P. Sakharova, 49, lives there with her mother and a German fox terrier
called Lyusa and has never heard of the director, Oleg A. Palchikov, who
operates a business worth $7 billion a year.

"What boss would want to live here?" Ms. Sakharova asked, surprised to learn
that she occupied one of the few known addresses of any of the executives of
the shadowy gas trading company involved in a deal between Ukraine and
Russia that continues to roil politics here in Kiev, nearly 400 miles away.

The company, RosUkrEnergo, became a broker in a deal to resolve a New
Year's confrontation between Russia and Ukraine over the price of natural
gas - a deal that has prompted accusations of corruption and almost certainly
contributed to President Viktor A. Yushchenko's poor showing in
parliamentary elections last Sunday, when his party finished a distant
third.

The mysteries surrounding the company - ranging from the identity of its
owners and the circumstances of its selection, to even the places its
executives live and work - reflect the post-Soviet combustion of politics
and business that still afflicts Ukraine despite the significant progress
that Mr. Yushchenko and his allies have made in making the country a freer,
more democratic society.

Yulia V. Tymoshenko, Mr. Yushchenko's erstwhile ally in the mass protests
that swept him to the presidency in 2004, campaigned fiercely against the
deal, citing it as an example of the corruption and untrustworthiness of the
leadership of Mr. Yushchenko's party, Our Ukraine.

With her party having won significantly more votes than Mr. Yushchenko's,
according to nearly complete results announced Wednesday, she has now
claimed the right to lead the coalition in Parliament representing the
reformist, Western-leaning forces who took part in what came to be known
as the Orange Revolution.

And she has promised that one of her first acts as prime minister, should
she return to the post she held for the first eight months of Mr.
Yushchenko's presidency, would be "by all means" to scuttle the deal and
RosUkrEnergo's part in it.

"These are the standards preached by Kuchmaism," she said of the deal in
an interview on Wednesday, referring to the scandal-tainted presidency of
Ukraine's previous leader, Leonid D. Kuchma.

Ms. Tymoshenko's fierce opposition to the deal echoes her zeal in revisiting
scandalous privatizations that took place during Mr. Kuchma's tenure, and
could complicate efforts to reunite the coalition that swept Mr. Yushchenko
to power.

Already, Mr. Yushchenko and his aides have met with his bitter rival, Viktor
F. Yanukovich, whose party won the largest bloc of votes, 31 percent,
raising speculation that he would seek a parliamentary alliance that would
exclude Ms. Tymoshenko. Mr. Yushchenko's party announced Wednesday
that it would not commit to any coalition until at least April 7.

Reopening the deal could provoke a new conflict with Russia over the supply
of natural gas, only months after the New Year's showdown, which resulted in
a disruption of supplies across Europe, deeply rattling countries that rely
heavily on Russian and Central Asian gas that passes through Ukraine's
pipelines.

"Any agreement that is unstable is one that is undesirable from the point of
view of Europe," said Thane Gustafson, a senior analyst at Cambridge
Energy Research Associates.

The deal's critics say the instability comes from the murky nature of the
arrangement, which granted substantial control over Ukraine's gas market to
a little-known company with links to Russia's state energy monopoly,
Gazprom, and unknown investors.

Even now, nearly three months after the deal was announced, the ownership
and operations of RosUkrEnergo remain murky.

Registered in Zug, Switzerland, it is owned half by Gazprom and half by
Centragas, an umbrella corporation run by Austria's Raiffeisen bank for a
group of investors whom the bank will not identify, despite pressure from
American and European officials.

Officials in Russia and Ukraine have accused one another of having
beneficiaries in the company and have provided contradictory accounts of
who suggested that RosUkrEnergo be included in the first place.

"This is the Ukrainian part and you need to ask them," President Vladimir V.
Putin of Russia told journalists earlier this month. Mr. Yushchenko, by his
own accounting, knows no more. "I have personally turned several times to
the Russian side to receive this information," he said at a news conference
earlier this month. "Unfortunately, as of today, I do not have any
information about the founders of this structure."

Executives of the company, some of whom also work for Gazprom itself,
declined to discuss the matter in detail. Aleksandr I. Medvedev, the
director of Gazprom's export arm, Gazexport, and one of eight members of
he board of RosUkrEnergo, has denied knowing the unknown investors.

Konstantin A. Chuychinko, the head of Gazprom's legal department and a
longtime associate of Mr. Putin, is a co-director of RosUkrEnergo with Mr.
Palchikov. The head of Gazprom's banking subsidiary, Andrei I. Akimov,
also sits on the board.

Little else is known about the company. There is an office of a company
called RosUkrEnergo on Saksagansky Street here in Kiev, but it operates a
series of gas stations, and according to a woman there, has no connection to
the company with its name.

Wolfgang Putschek, a member of RosUkrEnergo's board representing
Centragas, said in a telephone interview that the company had an office in
Moscow, but he referred questions about it to a public relations agency in
London, Merlin PR.

Michael Rummel, a spokesman for the agency, could not provide an address
for any office, and said officials would not comment. At the same time, he
defended the company's role. Only a company like RosUkrEnergo, he said,
could handle the complicated transactions necessary to supply natural gas
from Russia and Turkmenistan to Ukraine and onward to Romania and
Hungary.

The vacuum of information has led to reports, so far unsubstantiated, that
RosUkrEnergo's beneficiaries have links to Mr. Yushchenko's top advisers.
Mr. Yushchenko himself was forced to deny any involvement by his brother,
Petro, who has been involved in the gas-trading business.

Although much remains unclear, there is little doubt the deal has weakened
Mr. Yushchenko politically, tarnishing his reputation as an uncorrupted
reformer. Mychailo Wynnyckyj, a professor of sociology at the University of
Kiev-Mohyla Academy, attributed the electoral failure of Mr. Yushchenko -
and Ms. Tymoshenko's success - to the gas deal.

"Yushchenko came to power on the whole idea of transparency," he said.
"And he was pushing a deal that obviously had some corrupt aspect to it."
------------------------------------------------------------------------------------------------
Steven Lee Myers reported from Kiev for this article, and Andrew
E. Kramer from Moscow.
------------------------------------------------------------------------------------------------
http://www.nytimes.com/2006/03/30/international/europe/30ukraine.html?pagewanted=1&_r=1
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[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
========================================================
3. UKRAINE'S NATIONAL OIL FIRM DEFAULTS ON TAX PAYMENTS

Vladimir Suprun, RIA Novosti, Moscow, Russia, Wed, March 29, 2006

KIEV - The finance minister of Ukraine accused Wednesday the country's
state-run oil and gas company of failing to pay the correct level of taxes
due to the state.

"Naftogaz Ukrainy has failed to pay a considerable amount of taxes,"
Viktor Pynzenyk told a government meeting. "It has paid 42% [of the
amount] compared with January-March 2005."

According to the minister, Naftogaz has also failed to pay $12 million
in value-added tax. "In February-March 2006, Naftogaz did not pay a
kopek of the value-added tax declared by the company," Pynzenyk said.

An investigative commission of the Ukrainian parliament that audited
the books of Naftogaz Ukrainy recently said the company was on the
brink of bankruptcy. -30-
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[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
========================================================
4. UKRAINE: FREE ELECTIONS, KAMIKAZE PRESIDENT
An "orange coalition" is still the most likely outcome of a Ukrainian
election won by the revolution's opponent, says Taras Kuzio.

ANALYSIS & COMMENTARY: By Taras Kuzio
Open Democracy, London, UK, Tuesday, March 28, 2006

Ukraine held its fourth parliamentary elections on 26 March in an atmosphere
totally different to earlier elections. President Viktor Yushchenko can be
credited with ensuring that it has been Ukraine's first free and fair poll
since the country became an independent state in January 1992. The
democratic breakthrough initiated by the orange revolution of November
2004-January 2005 has been consolidated.

This is in stark contrast to neighbouring Belarus, where the elections held
on 19 March confirmed that Alexander Lukashenko's regime is indeed the last
dictatorship in Europe. Russia recognised the Belarusian election results
and the European Union, the Organisation for Security and Cooperation in
Europe (OSCE) and the United States rejected them.

In the case of Ukraine, the opposite happened: Russia called the elections
"unfair" while the EU, OSCE and US described them in glowing and positive
terms.

Voting patterns in the 2006 elections have not dramatically changed from
those in the three rounds of the 2004 elections. Then, and now, the west and
centre was "pro-orange" while the east and south is "pro-blue" (with Viktor
Yanukovych and the Party of Regions the strongest forces).

There are though, two crucial differences. First, Yanukovych's 44% vote on
26 December 2004 was not repeated in the 2006 election. With 60% of votes
counted at the time of writing, his Party of Regions has only 28.8% (less
than exit polls predictions of 31%).

Second, the turnout across Ukraine is generally far lower in the 2006
elections than in 2004. Traditionally, eastern Ukraine has a lower turnout
than western Ukraine and this remains the case in 2006. The relentlessly
negative election campaign of the Party of Regions also worked against a
high turnout.

The elections were a crushing defeat for the communists, who were last in
the list of political forces managing to pass the 3% minimum-vote threshold
and enter parliament. Their decline from 120 seats in 1998 to twenty in 2006
has been precipitous.

Two of Ukraine's regional clans failed to enter parliament: Ne Tak! (Not
Like This!) headed by the Kyiv (Kiev) clan's Social Democratic United Party,
and Labour Ukraine, the Dnipropetrovsk clan. The camp of former president,
Leonid Kuchma, voted for the Party of Regions.
THE POST-ELECTION DANCE
There was never any doubt that only five or six political forces would be
able to qualify for seats in parliament, even with such a comparatively low
threshold. Of these forces, three would be the "big players" - Party of
Regions, Our Ukraine and the Yulia Tymoshenko Bloc. Any parliamentary
coalition will have to be created from two of these. As Yushchenko is the
honorary chairman of Our Ukraine, his bloc will inevitably be one of the two
coalition partners.

The likely election coalitions are in principle, therefore, twofold: Our
Ukraine plus Tymoshenko, or Our Ukraine plus Party of Regions. Ukraine's
new parliamentary coalition, which will create a government and nominate a
prime minister, will most likely be a revived orange team of Our Ukraine
plus Tymoshenko plus the Socialists (SPU). Tymoshenko has energetically
campaigned for an orange coalition and has warned against the dangers of
any alliance with Yanukovych.

Two factors explain why an orange coalition will happen.

FIRST, an alliance with the Party of Regions would be political suicide for
Yushchenko. It would be seen as a "betrayal" of the orange revolution and
Yushchenko's support would collapse.

Our Ukraine's popularity support slumped after it signed a strategically
futile memorandum with the regions of Ukraine in late September 2005, a
memorandum that Yushchenko himself discarded in January 2006.

Yanukovych is not a reformed leader, and his Party of Regions followed the
communists in sending greetings to Lukashenko on his "victory" (Yushchenko
and Ukraine's foreign ministry shared the western position of refusing to
recognise the official Belarus result).

Yanukovych has never acknowledged his defeat in 2004 and he still believes
he won the election but was then "betrayed" by then-president Leonid Kuchma.
Throughout the 2006 elections, the Party of Regions continued to denounce
the legitimacy of the orange revolution as an "illegal coup" and continued
to denigrate its supporters as "orange rats".

The Party of Regions is in favour of economic reform because it is dominated
by oligarchs and businessmen. Yet, it voted against World Trade Organisation
legislation in 2005. The Party of Regions opposes Nato membership, favours
full membership in the post-Soviet Common (or Single) Economic Space, and
supports the elevation of Russian to a second state language.

SECOND, such an alliance would send the wrong signal to the European
Union and Nato that the orange revolution is in retreat. The EU is already
passive in its attitudes towards Ukraine and an alliance with the Party of
Regions would give sustenance to those inside the EU who do not want
Ukraine inside.

An alliance with a political force hostile to Nato membership would also
lead to a postponement of Nato offering Ukraine a membership action plan
at its Riga summit in November 2006.

Tymoshenko's second place, after quadrupling the number of seats she
won in the 2002 elections, puts her in a powerful position. Our Ukraine, in
contrast has fewer seats than in 2002 and is running a poor third.

Why has Our Ukraine fared badly when its honorary chairman is Ukraine's
president, swept into office by people power? The answer is that
Yushchenko is a "kamikaze" president.

He made countless mistakes in 2005, including sacking the Tymoshenko
government and dividing the orange camp, signing a memorandum with
Yanukovych, mishandled the gas contract with Russia in a non-transparent
manner, and kept prosecutor Svyatoslav Piskun until October, thereby not
following through on instituting charges against high-level officials.

Yushchenko also wasted a year when he inherited Kuchma's extensive
executive powers, failing to use them to stamp his authority on the country.

Yushchenko's "kamikaze" mistakes led to an orange protest vote which
benefited Tymoshenko rather than the party of the youth movement that
played a prominent role in the 2004 events, Pora - Reform and Civic Order.
Our Ukraine proved to be arrogant, vis-à-vis both orange voters and
Yushchenko himself.

Senior orange businessmen accused of corruption in September 2005
refused to back down from standing in Our Ukraine, ignoring Yushchenko's
advice. Meanwhile, political parties in Our Ukraine refused to merge into a
single pro-presidential party.

Yushchenko failed to understand perhaps the most important factor driving
the orange revolution - the widespread feelings of injustice against abuse
of office, corruption and the "bandits" running Ukraine.

Yuri Yekhanurov, the prime minister appointed in September after
Yushchenko sacked his cabinet, totally misunderstood this feeling, as seen
by his invitation to Ukraine's oligarchs to a meeting in October where he
described them as "Ukraine's national bourgeoisie".

The rule of law cannot move ahead in Ukraine without dealing with these
issues from the past - election fraud in 2004, corruption at senior levels,
the identity of those who ordered the Georgii Gongadze murder and the
attempted assassination (by poisoning) of Yushchenko.

Tymoshenko will become prime minister or parliamentary speaker. Much
of what Yushchenko/Our Ukraine have taken credit for economically was
initiated under her government. This time, foreign investors' fears about
property rights will have to be assuaged.

But the free 2006 elections, followed by an orange coalition, will combine
to show the consolidation of Ukraine's democratic progress after the orange
revolution. It is doubtful though that Ukraine's parliament will last its
full term of five years.

The contradictions inherent in the Party of Regions between businessmen and
pro-Russian, ex-communist voters will lead it to implode. Then, Ukraine's
citizens will have to do it all over again. -30-
--------------------------------------------------------------------------------------------------
Taras Kuzio is visiting professor at the Institute for European, Russian and
Eurasian Studies, Elliott School of International Affairs, George Washington
University, Washington, DC. Contact: tkuzio@gwu.edu
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http://www.opendemocracy.net/democracy-ukraine/kamikazee_3398.jsp
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5. ADJUSTMENTS TO UKRAINE'S CONSTITUTION REQUIRED
Bohdan Futey, a judge on the United States Court of Federal Claims
who helped draft Ukraine's first Constitution, says the amendments
adopted in the midst of the Orange Revolution is flawed.

By Evgenia Mussuri, Kyiv Post Staff Writer
Kyiv Post, Kyiv, Ukraine, Thursday, Mar 23 2006

"The constitutional amendments, as adopted, do not yet ... establish a
balanced and functional system of government."
- Venice Commission

Under amendments to Ukraine's constitution, which kicks in after the new
parliament is elected on March 26, lawmakers will be invested with many
powers previously held by the president, such as the right to choose the
prime minister and cabinet ministers.

However, international experts say the country's transition to a
parliamentary republic may not be as clear cut or smooth as the architects
of the amendments planned during the peak of the Orange Revolution.

After the votes have been counted at the end of this month, President Viktor
Yushchenko will lose significant authorities enjoyed by his predecessor,
Leonid Kuchma, who got the reform wagon rolling as he was about to leave
office. Yushchenko was forced to agree to the constitutional amendments in
order solidify his final bid for power in December 2004.

Supporters of the amendments, including parties that supported Yushchenko
for president like the Socialists, have argued that the extensive
presidential powers enjoyed by Ukrainian presidents had to be checked.

However, experts familiar with the issues say the changes are at best
unclear and might introduce even greater tension to relations between the
executive and legislature.
INCOMPLETE
Bohdan Futey, a judge on the United States Court of Federal Claims who
helped draft independent Ukraine's first constitution, described the
country's main law, which is not even 10 years old, as "incomplete."

"Whenever you are trying to do something very hurriedly, under great
pressure and amidst political turmoil, you really do not finish what you
started to do," he said.

The first attempt to change the Ukrainian Constitution was initiated by
Kuchma, soon after he was re-elected as president in November 1999. In a
controversial referendum held in August 2000, Kuchma proposed introducing a
bicameral parliament and reducing the number of lawmakers from 450 to 300.

Kuchma would have also gained the right to dismiss the legislature if
lawmakers failed to create a majority or approve a state budget in a set
time period. Moreover, Kuchma wanted to strip lawmakers of their immunity
from prosecution. But in the end, lawmakers blocked the amendments.

Kuchma again proposed constitutional change in June 2003, the year before
his final term was due to end, calling for local, regional and national
elections to be held simultaneously. The opposition accused him of trying to
prolong his presidency, or stay on in power as prime minister. By April
2004, Yushchenko rallied enough lawmakers to shoot down the legislation.

Then, on Dec. 8 2004, when Yushchenko was about to face Kuchma's
handpicked successor and prime minister at the time, Viktor Yanukovych,
in an unprecedented third tour, the future president was forced to support a
package of constitutional reforms hastily cobbled together on the basis on
early legislation.

According to Judge Futey, it is precisely the conditions under which the
amendments were passed that make them so sketchy and poorly thought out.

The European Commission for Democracy through Law, more commonly
known as the Venice Commission, has also criticized the changes.

"In general, the constitutional amendments, as adopted, do not yet fully
allow the aim of the constitutional reform of establishing a balanced and
functional system of government to be attained," reads a report by the
Venice Commission.

One of the Commission's main concerns is over a restriction introduced,
which no longer allows lawmakers to leave the factions in which they were
elected to parliament. According to the Commission, this provision infringes
on the deputies' right to a free and independent mandate, which they argue
should be explicitly guaranteed in the Constitution.

Some Ukrainian lawmakers had claimed that they were forced to change
factions under duress from former authorities, while others have long been
suspected of doing so for financial incentive.

Judge Futey doesn't have a problem with the restriction, saying that
lawmakers frequently "sold" their votes, switching allegiance from faction
to faction based on personal financial interests rather than political
belief. Now this will no longer be possible.

Also, unlike in previous years, the next parliament will be elected strictly
according to party lists and not half according to single seat
constituencies.

Another concern about the amendments is exactly how lawmakers will go
about forming a majority among themselves. The new rules say they must
do so within 30 days after the new parliament convenes. If they don't, the
president can dissolve the Rada and call new elections. But fine points like
how often such a turn of events could be repeated have not been spelled out.

The Venice Commission noted that Article 90 states that the inability of
parliament to form a coalition or the government will result in its
dissolution and extraordinary elections. However, paragraph 4 of the same
article introduces a one-year ban on the early termination of the re-elected
Parliament.

This lack of clarity lends itself to greater confusion in relations between
Parliament and the president. Futey suggests that this confusion has arisen
because Ukraine is caught in the middle of a transition from a presidential
to parliamentary system.
TOO MUCH POWER
The increased powers of Ukraine's Prosecutor-General as stipulated in the
amendments also raise concerns. Now, the Prosecutor-General has the power
to challenge court decisions. This provision practically puts the Prosecutor
General above both the executive and the judicial branches.

The prosecutor can now also oversee the observance of constitutional, human
and civil rights and freedoms, which overlaps with the obligations of the
Ombudsman. Rather than clearly delineating responsibilities, this provision
appears to undermine separation of powers, Futey said.

The additional powers of the Prosecutor General have also been criticized by
the Venice Commission. "In this respect, the Commission cannot but recall
once again that such an extension of the power of the Prosecutor General
goes against European standards in this field as well as against the
Ukrainian commitments made when acceding to the Council of Europe."

"All of that, in my view was adopted illegally, because it was not adopted
in conformity with the Constitution," Futey said.

According to the U.S. judge, the previous Constitution was pretty good as
it was, even though it needed some refinement in order to meet European
standards.

"So you have a system that is somehow approved in my view illegally, and
only time can tell how it is going to work," he added.

Vadim Karasyov, a political analyst running for parliament on the opposition
Viche Party's list, said that overall the new amendments to the Constitution
make Ukraine's political system more polycentric. But he agreed that some
provisions still need to be clarified and addressed.
AFTER THE ELECTION
As Ukraine's various blocs now brace to compete for a place in the newly
empowered parliament, President Yushchenko has long hinted that he may try
to change the country' main law once again.

Yushchenko would have attempted before the March 26 poll but was prevented
from doing so by parliament, which is holding up the swearing in of new
Supreme Court justices. It is the Constitutional Court which could decide
whether the amendments had been introduced legally in the first place.

The president could also try to hold a referendum or attempt to get 300
lawmakers to change the constitution again; however, these would be more
difficult.

After the Verkhovna Rada flexed its new muscles in early January by ousting
Prime Minister Yuriy Yekhanurov's government, Yushchenko has seemed more
resolved to reverse the events of December 2004. The president's Our Ukraine
party has said it plans to introduce legislation on holding a referendum
after the March 26 elections.

Futey said that if a pro-presidential coalition emerges with at least 300
votes after the election, Yushchenko has a good chance of reversing the
amendments. -30-
------------------------------------------------------------------------------------------------
NOTE: Article republished by the AUR with the permission of Judge
Bohdan Futey and Evgenia Mussuri. http://www.kyivpost.com/nation/24086/
------------------------------------------------------------------------------------------------
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
========================================================
6. EX-PRIME MINISTER OF UKRAINE, YULIA TYMOSHENKO,
VOWS SOFTER APPROACH TO BUSINESS

By Tom Warner in Kiev, Financial Times
London, United, Kingdom, Thursday, March 30 2006

Yulia Tymoshenko, former Ukrainian prime minister, promised a
business-friendly agenda yesterday if she succeeded in forming a ruling
coalition, following her bloc's strong second-place showing in Sunday's
parliamentary elections.

Ms Tymoshenko said she would radically lower corporate tax rates to
encourage investment. "A few points won't make a difference. Only a radical
lowering of tax rates will bring business out of the shadows," she said.

She also sought to dispel anxiety among investors that she might again
challenge the legality of privatisations by the pro-Moscow administration
before the 2004 Orange revolution brought President Viktor Yushchenko to
power.

Investors were dismayed last year when Ms Tymoshenko, who served as Mr
Yushchenko's prime minister until she was sacked in September, pursued
populist economic policies including attempts to reallocate privatised
assets and attacks on business oligarchs.

Ms Tymoshenko's latest promises will not in themselves assuage business
people's concerns. There is considerable worry in Kiev about how she can
reconcile her business-friendly remarks with campaign promises to boost
social spending and attacks on big business.

Ms Tymoshenko said the government should not try to reverse privatisations.
"My name was absolutely artificially connected with reprivatisation in order
to discredit me," she said.

"The main task to bring foreign investment is to make all business equal
before the law and no business more equal [than others]."

Ms Tymoshenko was speaking as the last votes were counted in an election
in which her bloc emerged as the largest of the three pro-west "Orange"
parties, ahead of Mr Yushchenko's Our Ukraine and the much smaller
Socialist grouping.

Together, the three parties will take about 54 per cent of parliament's
seats, ahead of Viktor Yanukovich, the former pro-Russia prime minister,
whose Regions party will have about 41 per cent.

Mr Yushchenko, who has hinted he could try to block Ms Tymoshenko's
return, has little room to manoeuvre and is playing for time. His statement that
he wanted simultaneous talks with Ms Tymoshenko and Mr Yanukovich drew
fire yesterday from the Socialists and from Our Ukraine leaders.

Alexander Valchyshen, head of research at ING Bank's branch in Ukraine, said
Kiev's financial community was heatedly debating the pros and cons of Ms
Tymoshenko's likely return.

He said the pros included her success in fighting tax evasion and closing
loopholes, while the cons included the uncertainty that was created by the
challenges to past privatisations, sudden changes to tax rules she pushed
through at the beginning of her term and the overall higher tax pressure.

"The widespread view of economists is that her policies decreased business
confidence and slowed investment," Mr Valchyshen said. -30-
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7. UKRAINE INVESTORS WORRY TYMOSHENKO MAY COME BACK

REUTERS, Kiev, Ukraine, Monday, March 27, 2006

KIEV - The strong showing in Ukraine's election by former Premier Yulia
Tymoshenko rang alarm bells on Monday with investors who remember
all too well the economic populism of her brief term in office last year.

Tymoshenko's bloc stunned pundits by taking a strong second place in
Sunday's vote, relegating the Our Ukraine party loyal to President Viktor
Yushchenko to a poor third and putting her in pole position to lead an
"Orange" coalition. "The poll results are arguably the worst case for the
market," said Tim Ash, an emerging markets economist at Bear Stearns in
London.

Tymoshenko and Yushchenko, allies in the popular "Orange Revolution"
of late 2004, quickly fell out and Tymoshenko lost her job as premier last
September.

"Even if Tymoshenko can re-form the Orange Coalition, it will leave the
investment community shaken and uncertain for some time," said Matthew
Vogel, head of emerging markets research at Barclays Capital.

During Tymoshenko's nearly eight months in the job she committed what
markets saw as a series of policy blunders, imposing price freezes on meat
and petrol which caused supply shortages.
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========================================================
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========================================================
8. ECONOMIC ISSUES IN UKRAINE AT THE TIME VOTERS
CHOOSE A NEW PARLIAMENT, GLOBAL INSIGHT PERSPECTIVE

ANALYSIS: By Dr Ralf Wiegert, Economist for Eastern Europe
Global Insight, London, United Kingdom, Friday, March 24, 2006

What are the economic issues in Ukraine as the voters head to the polls
for Sunday's Parliamentary Elections ?

[1] Ukraine Trade Relations: Ukraine won a significant trade concession
from the United States yesterday (23 March) as President George W. Bush
approved a bill granting the Ukraine permanent normal trade relations
(PNTR).

The move is a significant boon for Ukrainian exporters, who until now have
been operating under the punitive trade restrictions of the Jackson-Vanik
amendment to the 1974 Trade Act.

The amendment, under which Russia and several other states continue to
operate, ensures higher import tariffs on goods exports entering the U.S.
market from countries considered to be antagonistic towards U.S. interests.
Essentially a Cold-War relic, the amendment was originally passed in order
to punish the USSR for blocking the emigration of its citizens.

Significance: Granting the Ukraine PNTR gives products from Ukraine
low-tariff access to US markets as other trading nations external to the
North American Free Trade Agreement (NAFTA). It will also be considered
a pre-cursor to the United States and Ukraine agreeing a bilateral treaty on
the latter's application for membership of the World Trade Organization.

[2] Currency Rates: The National Bank of Ukraine (NBU) continued to sell
U.S. dollars on the official foreign exchange market in Kiev this week,
following rising dollar demand ahead of the crucial parliamentary elections
on 26 March. The NBU exchanged hryvnia against U.S. dollars at a rate of
5.06 hryvnia/dollar, the upper ceiling of a target range that was announced
in August 2005 around the official (and de facto fixed) rate of 5.05; however,
the dollar even bought 5.10 hryvnia and more on the cash market.

The NBU usually keeps a very tight grip on the U.S. dollar rate of the
hryvnia, and has effectively imposed an almost-fixed rate since April 2005,
when it allowed the hryvnia to appreciate around 3.0% in a single trading
day. Pressure on the hryvnia was mounting following the controversial gas
price deal with Russia's Gazprom in January, and rising political tensions
ahead of the parliamentary elections.

A still-weakening trade balance, with exports being dampened further by the
imposition of a Russian import ban for Ukrainian dairy products in January,
has also increased dollar demand. The NBU's foreign reserves, amounting to
some US$18 billion at the end of February, have been more than sufficient so
far to defend the official hryvnia rate, as the monthly transaction volume
on the interbank foreign exchange market levelled at close to US$6 billion
in February, while NBU interventions netted US$179 million at the same time,
following US$938 million in January. However, Reuters reported that, as of
20 March, the NBU has sold dollars worth some US$1.5 billion in 2006 so far.

Significance: The NBU routinely defended the hryvnia/dollar-rate against
appreciation in 2005, and there is little doubt that it will do so against
modest depreciation tendencies as well. Following the Gazprom deal, however,
we had slightly downgraded our forecast profile for the hryvnia rate, and
now expect the rate of 5.05 hryvnia/U.S. dollar will hold until the end of
the year at least.

It should be noted, however, that the impressive merchandise trade balance
surplus that was prevalent in late 2004 has already collapsed and slipped
into deficit in 2005, a fact that weighs strongly against the hryvnia at
present. On the other hand, though, surpluses in the services and transfers
balances as well as high foreign direct investment inflows in 2005 enabled
to Central Bank to almost double the volume of foreign exchange reserves.

Nevertheless, if exports fail to recover - at least gradually - over the
course of the year, we would be forced to fundamentally alter our hryvnia
outlook for the short to medium term, with a modest depreciation becoming
almost inevitable.

[3] Energy Strategy to 2030 Approved
On March 16th the government approved a new energy strategy to 2030,
which plans for growth of power generations, and integration into European
power structures. Three priorities have been set: -

to move towards energy-saving technology,
to lower fuel import dependence
to ensure reliability of supply to consumers.

Natural gas usage is to be cut from 76 billion cubic metres per year to 50
billion cubic metres, and annual gas production is to be tripled to 30
billion cubic metres by 2030. It hopes to increase electricity generation
through increased output from nuclear and thermal power plants that use
domestically sourced raw materials - uranium and coal.

Significance: Economy Minister Arseniy Yatsenyuk noted that the strategy
would have to be worked on with the European Commission, and factor in the
European Union (EU) energy strategy, which has been under fierce debate in
recent months. He also acknowledged the need to account for Russian energy
strategy, with relations strained after a gas supply row in recent months.
As such the strategy needs to be fleshed out, with its main focus on
reducing import dependence and increasing Ukraine's own energy security.

[4] Ukraine's Current-Account Surplus Collapsed in 2005

With the commodities boom terminating precipitously and imports being
boosted by vibrant consumption, Ukraine's current-account surplus collapsed
in 2005.
Global Insight Perspective
Significance -- The reduction of the current-account surplus was driven by a
staggering slowdown in export growth, which was largely the result of more
adverse world-market conditions for a couple of key Ukrainian export
products - first of all, steel and other metals, which materialised in 2005
after the commodities boom that prevailed in 2003-04 lost momentum.

Implications -- It was not a big surprise that exports slowed markedly in
2005, dragging the current account down.

Nevertheless, the speed and timing of changing patterns in Ukraine's
external accounts was particularly bad for the new administration. External
stability should remain unaffected, however, the stark changes in trade
patterns notwithstanding.

Outlook -- The deteriorating trend of external balances is projected to
prevail into the medium term, and Ukraine's current account should even
post a small deficit in 2006. The current dollar-based exchange rate level
(5.05 hryvnia/U.S. dollar) is assumed to remain in place until the end of the
year at least.

The Ukrainian economy posted a current-account surplus of US$2.5 billion in
2005, according to the National Bank of Ukraine (NBU). While equalling 3.1%
of GDP, this compares to a surplus of US$6.8 billion, or 10.5% of GDP, in
2004. The root cause for the sharp reduction is located in merchandise
trade, which recorded a remarkable surplus of US$3.7 billion in 2004, but
swung into deficit in 2005, posting a US$1.1 billion shortfall. It was the
highest negative gap since 1998, in fact.

The marked slowdown of export growth, which is behind the sharp trade
balance deterioration, is largely the result of more adverse world-market
conditions for a couple of key Ukrainian export products - first of all,
steel and other metals, which materialised in 2005 after the commodities
boom that prevailed in 2003-04 lost significant momentum. Following a 40.8%
surge in 2004, merchandise exports thus grew a meagre 4.8% in 2005.

Imports by contrast, have been spurred by domestic consumption spending,
being boosted by rising social transfers and wage hikes. Indeed, a shift in
the fiscal budget, which resulted in a strong increase of consumption-
related spending against public investment expenditures, had a noticeable
impact on households' real disposable incomes, which grew by 20.1% in
2005.

Merchandise trade had reported a surplus of US$1.0 billion still in the
first quarter, but second-quarter results slipped into deficit (US$236
billion) and deteriorated further thereafter. However, the deficit in the
fourth quarter, which amounted to US$0.8 billion, was lower again
compared to the third quarter (US$1.1 billion).

The modest improvement of merchandise trade in the final quarter
notwithstanding, the current account has stayed on the downward path
even in the final quarter, accounting for a tiny shortfall of US$96 million,
the first quarterly deficit in almost six years.

It should be noted, though, that a deficit of US$203 million was reported
earlier for the third quarter, but this has been revised to a US$404 million
surplus, apparently thanks to a revision on the accounting methodology of
travel services (mostly tourism) in the balance of payments.

Indeed, initial third-quarter results indicated US$463 million revenues
here, but the most recent release noted that revenues amounted to US$1,521
million. Services outflows in this category have been revised as well, but
changes were less significant.

As a result, the services balance, which was particularly favourable in the
third quarter with a surplus of US$1,035 million (this compares to surpluses
of around US$200-400 million for the other quarters of the year), cushioned
the impact of the trade balance deterioration. The revision, moreover, was also
the major reason why the current-account balance recorded an unexpectedly
high surplus. Our latest forecast estimated a deficit of 2.4% of GDP in
2005.

Current transfers, including remittances from abroad, have an important
mitigating role for Ukraine's current account, hitting US$2.8 billion in
2005. Net income, meanwhile, slipped further into deficit, recording a gap
of almost US$1 billion after US$0.6 billion in 2004, reflecting on the
rising share of foreign direct investment in the country.

Regarding financial accounts, FDI inflows in the first half of 2005 were
sluggish initially, as the new government's intentions and policy measures
irritated investors - domestic and foreign alike. The meagre FDI results got
a first significant boost as Austria's Raiffeisenbank International
purchased Aval Bank from private investors for US$1.03 billion.

But this deal was dwarfed by the record sale in the repeat auction of the
93% stake in the Ukrainian steel mill Kryvorizhstal. International giant
Mittal Steel succeeded in the televised auction on 24 October, paying
down US$4.8 billion, the largest foreign investment ever. FDI inflows have
been boosted more than fourfold in 2005, amounting to US$7.8 billion.
OUTLOOK AND IMPLICATIONS
For a cautious observer, it was always clear that the commodities price boom
that took the current-account surplus to unprecedented heights in 2004 and
ignited record-high GDP growth that year would end sooner or later; and
given the very high base level, it was not a big surprise that exports
slowed markedly in 2005.

Nevertheless, the speed and timing of changing patterns in Ukraine's
external accounts was particularly bad for the new administration under
President Viktor Yushchenko which took over the presidential palace in
January that year, and it is no coincidence that GDP growth slowed to
just 2.6% in 2005, after 12.1% in 2004, having the key importance of
commodities exports, in particular steel, in mind.

The deteriorating trend of external balances is projected to prevail into
the medium term, although the current consumption boom should slow
somewhat.

But as fixed investment will hopefully recover over the course of 2006,
import growth will remain fairly buoyant and outpace exports growth still.
That said, Ukraine's current account should remain close to balance, and
eventually post a small deficit in 2006.

Changing patterns in external balances brought both relief and new
challenges to the NBU's exchange-rate strategy, which held up a quasi-peg
against the U.S. dollar during 2005, including a moderate realignment in
April.

The dollar rate, which has been allowed to oscillate in a corridor
between 4.99 and 5.06 hryvnia since September (with 5.05 hryvnia/dollar as
the officially quasi-fixed dollar rate), was under constant pressure from
markets to appreciate, as excess supply of foreign exchange was abundant
during the export boom in 2004 and early 2005, but the situation of external
balances has now changed fundamentally.

Nevertheless, export revenues plus other foreign-exchange revenues
(including direct investment inflows) are still sufficient for the NBU to
maintain the current peg for a while, and the hryvnia might even become a
candidate for appreciation against the U.S. dollar again - a move we
continue to predict in the medium term, provided that growth momentum
accelerates again and investment stabilises. However, we think that the
current dollar-based exchange rate level will remain in place until the end
of the year at least. -30-
------------------------------------------------------------------------------------------------
Global Insight's Economist for Eastern Europe, Dr Ralf Wiegert.
Tel: 49-69-20973-320.
-----------------------------------------------------------------------------------------------
AUR thanks Gavin Knight, Head of Communications - International
Global Insight, Inc, London, UK, Tel: 44 (0) 207 452 5183,
Mob: 44 (0) 7960 225 742; gavin.knight@globalinsight.com,
www.globalinsight.com for sending us their latest economic analysis
for Ukraine. AUR EDITOR
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========================================================
9. PUTIN SAYS US DELAYING RUSSIA'S WTO MEMBERSHIP
Recent WTO accord between Ukraine and US rubbed salt into the wound,
raising the prospect that Ukraine may join the trade body before Russia.

By Neil Buckley in Moscow and Frances Williams in Geneva
Financial Times, London, UK, Thursday, March 30 2006

Russian president Vladimir Putin on Wednesday accused the US of
"artificially" holding back progress in talks on Russia's accession to the
World Trade Organisation, adding to a chill in relations between the two
countries.

Mr Putin made his comments during an annual meeting with Russian
business leaders, otherwise largely devoted to domestic policy.

"Unfortunately we have received a list of questions from our American
colleagues that require additional agreements that we thought had been
settled long ago," the Russian president said, without specifying what areas
the US demands covered. "The negotiation process is being artificially set
back."

He added that Russia was still interested in WTO membership but "only on
economically beneficial conditions".

The US rejected Mr Putin's claim. Robert Portman, US trade representative,
said: "The remaining issues with Russia's accession...are not new problems
and they are not dissimilar to those issues addressed by others who have
acceded to the WTO."

President George W. Bush on Wednesday acknowledged pressure not to
attend the G8 summit in Russia later this year, but said that would be a mistake.
"I need to be in a position where I can sit down with him [Mr Putin] and be
very frank about our concerns.?I haven't given up on Russia. I still think
Russia understands that it's in her interest to be west, to work with the
west, and to act in concert with the west."

Moscow had hoped to wrap up its 13-year-old talks on joining the WTO by
the end of last year, then, after that deadline was missed, at least before it
hosted the summit of the G8 summit in St Petersburg in July.

But Alexander Shokhin, head of the Russian Union of Entrepreneurs and
Industrialists, a lobby group, said after the meeting with Mr Putin that the
July deadline looked doubtful. He said Mr Putin's comments were "news both
for members of the government and for business".

Russia has become impatient over the past year or so as targets for WTO
entry have slipped. Moscow now says it is aiming for the end of 2006 - but
even this is threatened, not only by failure to wrap up bilateral market
access talks with the US but by sluggish progress in multilateral
negotiations dealing with Russia's compliance with WTO rules.

Agreement with Washington has been held up over US demands for Moscow
to allow foreign banks to open direct branches, not just Russian subsidiary
companies as now. Russia says its financial sector could not withstand the
competition and that it has security concerns about foreign banks opening
branches. The US has also said Russia must clamp down on video and
software piracy and cut import duties on aircraft.

The recent WTO accord between Ukraine and the US has rubbed salt into
the wound, raising the prospect that Ukraine may join the trade body before
Russia.

Russia is the biggest economy not yet to be a member of the 149-nation
WTO, but has struck all necessary bilateral deals with other members apart
from the US, Australia and Colombia. -30-
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========================================================
10. U.S. MANEUVERS TO ENSURE UKRAINE JOINS WTO BEFORE
RUSSIA ACCORDING TO DUMA FOREIGN AFFAIRS LEADER

Interfax, Moscow, Russia, Wednesday, March 29, 2006

MOSCOW - State Duma Foreign Affairs Committee Chairman
Konstantin Kosachyov suspects Washington is artificially dragging
out Russian accession to the WTO in order to ensure that Ukraine
enters first.

"The United States has been enticing us to join, we were promised
that the negotiations would be finished by the end of the year, there
were certain allusions at the Group of Eight summit. However,
nothing is happening because [Washington] has decided to prevent
Russia from entering before Ukraine does," he said on the Mayak
radio station on Wednesday.

"U.S.-Ukrainian negotiations have finished. Ukraine need only
finalize the technical details of its entry. Then it can join the
group of countries negotiating with Russia and begin dictating their
terms to us," he said.

"We have an impression that the U.S. is playing a 'double game,'
artificially dragging out Russia's accession, setting forth new
conditions as far as issues already coordinated are concerned,
waiting for the moment when it may step aside and leave this dirty
work, to set forth new terms, to be done by Ukrainian negotiators,"
Kosachyov said. -30-
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11. TAX SERVICE SAYS MOST UKRAINIAN FUNDS FLOW OUT TO
BRITISH VIRGIN ISLANDS, CYPRUS, ISLE OF MAN OFFSHORE ZONES

Ukrainian News Agency, Kyiv, Ukraine, Wed, March 29, 2006

KYIV - The State Tax Administration believes that the British Virgin Islands,
Cyprus, and the Isle of Man are the offshore zones, through which the most
of Ukraine's funds flow out. State Tax Administration Chairman Oleksandr
Kireev made the statement to the press.

"We started blocking interior schemes, which raised the wish to skip control
by means of going to offshore zones. I have information about most used
zones: the British Virgin Islands with 51.6% of payments, Cyprus with
17.2%, and the Isle of Man with 9.7%," he said.

Among other such offshore zones Kireev named Saint Kitts and Nevis
(7.3% of payments), Belize (4%), Seychelles (3%), Panama (1.8%), and
Bahama Islands (1.8%).

"I think these names are little known to you and me... Somebody probably
likes to rest on these islands, hence transfers money there," he said.
Kireev spoke out in favor of introduction of finance monitoring of offshore
transactions.

As Ukrainian News reported earlier, at a meeting of the Cabinet of Ministers
on March 29, acting Finance Minister Viktor Pynzenyk reported reduction
of receipts to the national budget in March and intensification of shadow
transactions.

According to the Finance Ministry, 12 regions in March reduced the level of
budget receipts compared with last year. Pynzenyk especially pointed out
reduction of taxes in Donetsk region, which, as he put it, worsened this
indicator three times, including by profit tax six times compared with last
year.

The 2006 national budget envisages general fund receipts of UAH
96,564.400 million and costs of UAH 108,245.200 million (including
receipts of the general fund in January-February of UAH 12,172.600
million and outlays of UAH 11,092.7 million). -30-
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12. DEMOCRACY FLOURISHES IN KIEV, BUT SMOTHERED IN MINSK
The party of Viktor Yushchenko, Ukraine's president and the hero of 2004's
"Orange Revolution", has suffered a heavy defeat in parliamentary elections.
It will only remain in office if it forms a coalition with old allies. But while
democracy is flourishing in Ukraine, it is still being brutally stifled in Belarus.

The Economist Global Agenda, The Economist
London, United Kingdom, Tuesday, March 28th 2006

THE heavy defeat of Viktor Yushchenko's ruling Our Ukraine party in
parliamentary elections on Sunday March 26th has cast into doubt the
leadership of his "Orange Revolution". A year ago, westward-leaning Mr
Yushchenko was a hero, swept to power by repeated demonstrations following
claims that supporters of his rival, the pro-Russian Viktor Yanukovich, had
rigged a presidential election late in 2004. Today the hero has nothing to
celebrate.

By Tuesday afternoon, with some 80% of ballots counted, Our Ukraine had
garnered a mere 15.1% of the vote, as the population grumbled about an
economic slowdown, party splits and allegations of corruption. Instead Mr
Yanukovich-previously a villain in the eyes of those on the streets-picked
up support.

His Regions Party won the largest share, more than 30% of all ballots cast.
Supporters of the party, who adopted the colour blue, have been celebrating
noisily. Orange clothing is now out of fashion.

Few close observers of Ukraine are surprised that the party of the
president-who is elected directly and will remain in office-failed to win
this election. Mr Yushchenko's stock has been falling for many months, but
dipped particularly sharply after September 8th when he sacked his
revolutionary ally, Yulia Timoshenko, as prime minister, along with her
cabinet. She had been a volatile populist in office, but accusations that
she abused her position and misused government funds soured the political
atmosphere in Kiev.

Mr Yushchenko made a powerful enemy and voters were disenchanted. Several
others in government-all one-time allies of the president-were also accused
of corruption amid claims that many reformists were in the pockets of
powerful businessmen. The mud-slinging did nothing to reassure voters that
the orange clan would improve the lives of ordinary people.

Moreover, many voters were left unimpressed by the souring of relations
with Russia. Most notable was a stand-off at the beginning of the year, in
midwinter, when supplies of cheap gas piped to Ukraine (and then on to
western Europe) were reduced in a heavy-handed Russian effort to reassert
influence over its neighbour.

Although a compromise was eventually agreed, whereby Ukraine paid more
for its gas and other countries agreed to provide additional supplies, it was a
chilling reminder that bad relations with Moscow might prove costly for
Ukraine.

The president also seemed to mishandle the crisis, keeping details of the
new deal with Russia secret, though they were eventually divulged by Mrs
Timoshenko. In response to the crisis, parliament voted in January to bring
down the government. Those living closest to the Russian border delivered
the most comprehensive backing for Mr Yanukovich in Sunday's poll.

The performance of photogenic Mrs Timoshenko's party (named after
herself) was perhaps most striking, as it claimed second place with an
estimated 22.4% of the vote. By pushing the president's party into third
place, she can now lay claim to joint leadership of the Orange Revolution.

She is also likely to return to the prime minister's office as the head of a
reformist coalition composed, broadly, of the same politicians who surged
to office roughly a year ago.

On Sunday evening she said an agreement for a coalition was "practically
ready", though there was still no deal by Tuesday. A pact between the two
orange parties would keep the pro-Russian Regions Party out of power, and
allow reformers to continue pushing for closer ties with western Europe.

None of this suggests democracy in Ukraine is under threat-quite the
reverse. Sunday's election saw 45 parties contesting seats in parliament,
with rival camps emerging from different parts of the country. Candidates
also competed for simultaneous elections at regional, district and mayoral
levels, with ballot papers offering a bewildering array of choices to the
voters.

International observers said campaigning and voting were free and fair, and
"a clear break with the past". The Organisation for Security and
Co-operation in Europe sent 900 observers to monitor polling stations and
concluded that the election had been managed well.
MISERY IN MINSK
Sadly that is in direct contrast to next-door Belarus, where pro-democracy
campaigners and foreign observers say an election that returned President
Alyaksandr Lukashenka to power earlier this month with 83% of the vote was
unfair.

Though protests were tolerated for most of last week, a rally in Minsk, the
capital, was broken up on Saturday by truncheon-wielding police. They used
force of "bestial savagery", according to an opposition leader, Alyaksandr
Milinkevic; many protesters were detained.

Both the European Union and the United States decided late last week to
impose targeted sanctions against Belarus's political leaders in response to
the dubious election. Now those leaders have accused the West of stirring up
"hysteria" while trying to "destabilise" the country.

As the numbers daring to protest in Belarus dwindle, and factions emerge in
the pro-democracy movement, it seems likely that Mr Lukashenka will hold on
to power. On Tuesday his inauguration, originally scheduled for Friday, was
delayed without explanation.

But this may simply be a way of ensuring that there is time for all protests
to be snuffed out before the ceremony takes place. Also on Tuesday, Mr
Lukashenka sounded a defiant note, telling ministers: "All political battles
are over...We have put the country back in order, just as it used to be
before."

The president's re-election also counts as a victory for Russia, where the
government of Vladimir Putin sees the Belarusian strongman as an ally in the
face of encroaching western influence in central and eastern Europe.

The victory for Mr Yanukovich's party in Ukraine, too, will be welcomed in
Moscow as another example of its renewed influence on neighbours that serve
as a buffer zone between Russia and the eastern edge of the European Union.
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13. A COUNTER-REVOLUTION IN UKRAINE?
Just 16 months ago, the reformers were triumphant. What happened?

VIEWPOINT: By Yuri Zarakhovich
TIME magazine website, NY, NY, Wednesday, Mar. 29, 2006

As Belarus's President Alexander Lukashenko continues his brutal crackdown
against protesters opposed to his internationally condemned fraudulent
election victory, Europe's last dictator seems to some observers to be
running scared; he only showed his face to his countrymen on Tuesday, and
has already postponed his previously planned inauguration this coming
Friday.

But if Lukashenko is indeed feeling increasingly painted into a corner,
perhaps he can take comfort from recent elections in nearby Ukraine, where
at least one-third of the electorate retain strong support for the same
post-Soviet Moscow-favored autocratic leader the voters rejected just 16
months ago.

Who knows - maybe Lukashenko will even one day find himself being voted
into power in a legitimate election again, the way he did back in his first
race in 1994. After all, a good portion of people will always prefer guaranteed
rations and order to the messiness and uncertainty of freedom.

That in many respects explains the amazing tenacity and comeback of former
Ukrainian Prime Minister Viktor Yanukovych, who lost the Presidency in
December of 2004 to reformer Viktor Yushchenko after the people revolted
against a clearly fraudulent initial election in a non-violent surge of
people power.

In this past weekend's parliamentary elections, Yanukovych's Party of the
Regions (PR) led with over 31% of the votes, while Yushchenko's Our
Ukraine (OU) party had a humiliating third place finish.

Yanukovych's impressive showing may have been a surprise to Westerners
who thought his time and eastward-looking agenda had come and gone, but it
wasn't to him. Over the past year and a half, he has remade himself, hiring
Western spin doctors rather than wasting funds on hapless Russian advisers.

He became available to the media, and toned down his allegiance to Moscow,
while still emphasizing the need to move to Europe "together with Russia."
He also promised to ease the burden of high gas prices by re-entering the
United Economic Space with Russia.

During those same 16 months since the victory of the so-called Orange
Revolution, the new regime of President Yuschenko and his prime minister,
the flamboyant Yuliya Tymoshenko, has delivered on many of its promises,
but also been plagued by infighting and mutual accusations of corruption.

On the one hand, business enjoyed the lifting of its tax burden and much red
tape, ordinary folks got better wages and pensions, and the freedom of
speech and the upheld rule of law made free elections feasible. But at the
same time, those achievements have been undercut by periodic shortages of
fuel and food and soaring inflation.

Even more harmful were allegations - never dealt with by the President in
any convincing way - that his son Andriy paid for his notoriously high
life-style of posh cars, penthouse apartments and expensive parties with
revenues from Orange revolution symbols, patented in his name as
trademarks and sold at the market like hot pies.

Yushchenko only added insult to injury last summer, when he lashed out
at the journalist Serhiy Leshchenko, 25, who wrote an expose of the
presidential son. "The most amazing thing is that Yushchenko himself
co-authored my story - and failed to realize this," Leshchenko told me at
the time. "It was only due to his Orange revolution that now a journalist
can write such stories in Ukraine - and stay alive."

The worst blow came last September, when Yushchenko and Tymoshenko
traded accusations of betrayal of the Orange revolution. The entire Orange
administration imploded within a couple of days: Yushchenko fired
Tymoshenko, and then fired his lieutenants who were most involved in the
war of words with her.

With the Orange coalition in tatters, the rifts are now being played out at
the ballot box, where Tymoshenko's eponymous party came in second behind
Yanukovych. The new parliament turns out to be as split as society is -
which, among many other things, is a proof of an honest and fair election.

Since no single party, including the big winner Yanukovych, has the
majority, a coalition government, with all the accompanying horse trading
and compromises, will likely be formed.

It's also proof of how messy democracy can be. In Belarus, just several days
before President Alexander Lukashenko ordered his storm troopers to meet
the flowers and colored balloons of a peaceful people's march with clubs,
tear gas and stun grenades, I happened to overhear a Western observer.

The gentleman, apparently Italian, was admiring the impeccable organization
of Lukashenko's election: all so orderly, just like in Switzerland, he
enthused.

Well, yes, order is admirable - didn't the trains run on time under
Mussolini, which doesn't always happen in Italy under democracy? That's
the eternal problem: democracy is messy, dictatorship is orderly and
solemn - not unlike a cemetery. -30-
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14. THE ORANGE GLOW

EDITORIAL: Los Angeles Times
Los Angeles, California, Tuesday, March 28, 2006

JUST 16 MONTHS AGO, UKRAINE, one of Europe's largest countries,
stood more or less where basket-case Belarus found itself last week - with
a thuggish president declared the victor in an election most every outside
observer not named Vladimir V. Putin considered unfree and unfair, while
thousands of demonstrators braved the cold, night after night, to demand
a new vote.

With four NATO member states on its border and a nuclear arsenal only
recently disbanded (at least in theory), this was no insignificant standoff,
either for the world or for Ukraine's 47 million citizens.

But unlike Belarusian President Alexander Lukashenko this week, Ukraine's
leader at the time, Leonid D. Kuchma, grudgingly tolerated a new election -
and allowed the protesters to assemble in the streets without being clubbed
viciously by the regime's cops.

Opposition leaders won the rerun vote, and though they quickly began
squabbling among themselves, the Orange Revolution they set in motion in
November 2004 reached its official fruition last weekend, ironically enough
with the numerical parliamentary victory for Kuchma's handpicked successor,
Viktor Yanukovich.

How does that work? Simple. A free and fair election is free and fair,
regardless of who wins. And, fortunately enough, Yanukovich's Party of
Regions doesn't seem to have enough votes to form a working government,
meaning that the two splintered Orange Revolution parties - both at least
nominally inclined toward Western-oriented liberalism - probably will form a
coalition government.

It's no wonder that President Viktor Yushchenko, whose party finished a
distant and disappointing third in the polling, nevertheless declared: "I'm
in a great mood. I'm sure that democratic elections in Ukraine are a victory
in themselves."

Ukraine's firm step in the right direction is proof that even countries for
which few had high hopes a decade ago are capable of demanding, and
achieving, democratic self-governance. This is a backdrop of optimism to the
otherwise depressing scene last weekend of Lukashenko's brutal crackdown
on peaceful demonstrators in Minsk, the Belarusian capital.

Police indiscriminately clubbed students, women and pensioners, locking up
hundreds, including the former Polish ambassador to Belarus, at least one
opposition leader, several international aid workers and some foreign
journalists.

The good news is that the virus of democracy, especially in post-communist
Europe, has a proven track record of spreading and solidifying.

It says something powerful that the Western country taking the lead role in
pressuring Lukashenko is Poland - and that the beleaguered protesters are
consciously drawing on a tradition that runs from Solidarity to
Czechoslovakia's Charter 77 to the various "color" revolutions belatedly
percolating along Russia's borders.

The protesters' bravery deserves our applause and support, and the 10
million other residents of Belarus deserve the same opportunities finally
being embraced in neighboring Ukraine. -30-
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15. FORMER PRIME MINISTER LAUDS UKRAINE'S 'FIRST
HONEST ELECTIONS HELD IN 15 YEARS OF INDEPENDENCE'

Voice of America (VOA), Washington, D.C., Wed, March 29, 2006

WASHINGTON, D.C. - Former Ukrainian Prime Minister Yulia
Tymoshenko told the Voice of America's daily live Russian radio call-in
show today that Sunday's parliamentary elections were significant because
they represented the "first honest elections held in 15 years of (Ukrainian)
independence."

The opposition party of Viktor Yanukovych and his allies won the most seats
on Sunday, claiming almost one-third, followed by Tymoshenko's party, with
President Viktor Yushchenko's party finishing third in the voting. While
the leaders of Ukraine's Orange Revolution claimed more votes overall, no
single party has enough seats to form a new government on its own.

Tymoshenko, who served as prime minister until being dismissed by President
Yushchenko last year, said the elections were a sign that people have become
"energized by politics since the Orange Revolution." She added, "The people
have chosen and that choice was for the ideas of the Orange Revolution."
The former prime minister also expressed her hope that Ukraine becomes an
example for all former Soviet countries that wish to become democratic
societies.

In addition to its daily call-in show, VOA Russian broadcasts a daily
30-minute television program Obektiv (Focus); a daily, one-hour radio news
program Sobitiya i Razmyshleniya (Events and Opinions); and a weekly
30-minute TV show, Okno v Mir (Window on the World). Programs are also
available on the Internet at www.voanews.com/Russian.

The Voice of America, which first went on the air in 1942, is a multimedia
international broadcasting service funded by the U.S. government through the
Broadcasting Board of Governors. VOA broadcasts more than 1,000 hours of
news, information, educational, and cultural programming every week to an
estimated worldwide audience of more than 100 million people. Programs are
produced in 44 languages. For more information, please contact Public
Affairs at (202) 203-4959, or publicaffairs@voa.gov.
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16. PRESSURE MOUNTS ON UKRAINE LEADER TO REUNITE
WITH FORMER ALLY YULIA TYMOSHENKO

Agence France-Presse (AFP), Kiev, Ukraine, Wed, March 29, 2006

KIEV - Pressure mounted Wednesday on President Viktor Yushchenko
to reunite with a former ally in order to continue Ukraine's pro-Western
course after the Russia-friendly opposition won a parliamentary election.

After finishing a humiliating third place in the weekend vote, Yushchenko
must now choose between Moscow-friendly Viktor Yanukovych or estranged
"orange revolution" ally Yulia Tymoshenko in forming a new cabinet.

He is under pressure from supporters at home and abroad to mend ties with
Tymoshenko, whom he fired as prime minister last year, to continue driving
the ex-Soviet nation toward closer ties with the West.

"We would like to see a Ukraine that's pursuing reform," a senior Western
diplomat said in Kiev Wednesday. "We think that the outcome which would
pursue reform most reliably across the board would be the team that won the
presidential elections in 2004."

Tymoshenko helped the Ukrainian president lead the "orange revolution"
protests that kept the Russian-backed Yanukovych out of office after a
fraudulent presidential ballot and catapulted reformist Yushchenko to power.

Russia and the West, which wrangled over the 2004 contest, are intently
watching the negotiations over the next cabinet in Ukraine as they fight to
influence the direction of the strategic country.

So is the "orange revolution" electorate, which backed the
Yushchenko-Tymoshenko duo during the 2004 protests but split after their
acrimonious breakup last September.

"Are we Going to Tie the Knot or What?" read a headline in one Kiev daily.
Another said that Tymoshenko and Yushchenko supporters were unlikely to
forgive a union with Yanukovych, who to them is the embodiment of the
corrupt, entrenched regime ousted during the "orange revolution" protests.

But the Ukrainian leader does not trust and disagrees on policy with
Tymoshenko and has so far refused to give her the nod.

On Tuesday, he met for more than an hour with each of his two rivals.
"Today's goal is... to hold preliminary consultations around those
fundamental, national values that can form a coalition," he said prior to
the meetings.

Tymoshenko, who has demanded a return to the premiership under any
union, has piled on the pressure on Yushchenko to reunite again.

"The president has to choose: either me, or Viktor Yanukovych, as prime
minister. In the latter case, he would be sealing his own political
suicide," she told Italy's La Repubblica paper.

Meanwhile election officials continued to count ballots from Sunday's
election. With ballots tallied from nearly 95 percent of polling stations,
Yanukovych's Regions Party in top place with 31.52 percent;
Tymoshenko's bloc in second with 22.40 percent, and Yushchenko's
Our Ukraine with 14.34 percent.

The Socialists and the Communists, who are also expected to make it into
the chamber, had 5.84 percent and 3.64 percent, respectively.
Comprehensive poll results are expected later Wednesday, officials said.
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17. SOCIALIST PARTY WILL GO INTO OPPOSITION IF OUR
UKRAINE PARTY JOINS YANUKOVYCH AND PARTY OF REGIONS

Ukrayinska Pravda On-line, Kyiv, Ukraine, Thursday, March 30, 2006

KYIV - Yosyp Vinsky, a leading figure in the Socialist Party of Ukraine
(SPU), says his party will go into opposition if the Our Ukraine Bloc
enters a coalition with the Party of the Regions.

"If Our Ukraine wants to be with Regions, then this is not the socialists'
problem, but Our Ukraine's. If they are with Regions, then we will be in the
opposition," Vinsky said in an interview with the BBC.

"At the Socialist Party political council, all possibilities of forming a
bloc with Regions were rejected. All possibilities. We did not even look
into this option. The first option is a coalition with the Tymoshenko Bloc,
Our Ukraine, and the SPU. The second option is opposition. The third
option is a dismissal of parliament. We did not look into any other options,"
he added.

According to him, forming a coalition with Yanukovych is impossible,
because "Regions are Kuchma 3, this is a prime minister of Kuchma, this
is a person Kuchma designated as his successor."

"There will not be any 'orange' coalition. This is a position of principle
for our party, I think we should stop these talks. The coalition will be
blue and yellow. Because the orange Our Ukraine, the white and red Yulia
Tymoshenko Bloc, and the ruby Socialists will form it," Vinsky said.

At the same time he stated that "no conversations about a concrete
distribution of positions have taken place."

"The memorandum only contains general mechanisms for holding power,
and a general outline of our mutual work... No specific names were discussed -
even for prime minister - during the preparation of this document. Though it
is true that he who gets the most votes has the right to choose," said the
SPU member.

"According to the scheme contained in the memorandum, there is the
possibility of choosing cabinet posts in turn... No concrete matters of
personnel were discussed. These will be discussed after the signing of a
formal memorandum on forming a coalition, as is required in the
Constitution and parliamentary procedures," he added.

Earlier BYuT leader Yulia Tymoshenko voiced the possibility of entering
the opposition if Our Ukraine formed a coalition with the Party of the
Regions. -30-
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18. OUR UKRAINE COUNCIL TO CONSIDER MEMORANDUM ON
FORMATION OF PARLIAMENT COALITION ON FRIDAY, APRIL 7

Ukrainian News Agency, Kyiv, Ukraine, Wed, March 29, 2006

KYIV - The council of the Our Ukraine People's Union party (OUPU) will
consider the memorandum on formation of a parliamentary coalition on April
7. The press service of the party announced this in a statement, a text of which
Ukrainian News obtained. The presidium of the party made this decision on
March 28.

"We have never made an important decision behind the back," the statement
said. The political council of the party decided on March 28 to sign the
memorandum on formation of the parliamentary coalition after announcement
of the official results of the March 26 elections and that the decision on
formation of the coalition should be made by all the leadership organs of
the founding parties of the Our Ukraine bloc.

The presidium attributed the decision to make table the issue of formation
of the coalition to the OUPU council to the fact that regions are
represented in the presidium.

Moreover, the presidium said that the power to make political decisions
reverted from the presidium and election headquarters to the party's council
when the election campaign ended on March 26.

"Since the elections ended on March 26 and the powers have returned to the
competence of the council accordingly, the signing of the memorandum on
formation of the coalition cannot take place without consideration of the
issue at a meeting of the council of Our Ukraine," the statement said.

As Ukrainian News earlier reported, the political councils of the OUPU and
the Socialist Party have approved the memorandum on formation of a
coalition. -30-
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19. NEW GOALS FOR JOHN HERBST
US Ambassador to leave Ukraine for government post

By Mykola Siruk, The Day Weekly Digest in English, #10
Kyiv, Ukraine, Tuesday, March 28, 2006

In late spring US Ambassador John Herbst will leave Ukraine to head the
Office of the Coordinator for Reconstruction and Stabilization at the US
Department of State. US State Secretary Condoleezza Rice recently
approved a corresponding decision.

Herbst will replace Carlos Pascual, who also served as US ambassador
to Ukraine and was the first to head the Office of the Coordinator for
Reconstruction and Stabilization two years ago.

There is nothing unusual about the fact that Herbst is ending his
ambassadorial stint in Kyiv: he has served in Ukraine for nearly three years
as envisioned by US diplomatic practice. The name of the new ambassador is
secret. Although The Day's sources claim that a candidate for the vacancy
has been already selected, he must first finalize all the necessary
formalities before traveling to Kyiv.

According to some sources, the new ambassador will be a career diplomat,
who is familiar with the problems of the post-Soviet space. According to
American regulations, the ambassador's name cannot be disclosed until his
appointment is final. This way the US government safeguards its prospective
ambassadors from coming under the influence of lobby groups.

The US has a complex mechanism for appointing ambassadors. First, a
candidate for the ambassador's post is selected by the State Department, a
structure that is functionally similar to Ukraine's Ministry of Foreign
Affairs. Then a decision is approved by the president and the National
Security Council. At the same time, the FBI closely examines the future
ambassador's biography to make sure it contains no "black spots."

Then the candidate addresses a session of the US Senate Committee on
Foreign Relations. Only then does the president sign an order to appoint the
ambassador. Clearly, such procedures take longer than a week. Judging by
this timeframe, it is clear that the name of the new ambassador is already
known, but only to a limited number of people.

Ukraine will remember John Herbst. The ambassador, who arrived in Kyiv
in the fall of 2003, will probably never forget the Ukrainian chapter of his
career either. During his first news conference the diplomat stressed: "My
main goal is to improve our bilateral relations in all aspects."

There is no denying that he has accomplished his goals. On Herbst's watch in
Kyiv the Orange Revolution took place, President Yushchenko visited
Washington, the Jackson-Vanik Amendment was revoked, and our country was
granted market economy status. The ambassador has every right to be pleased
with his accomplishments. In a recent statement he said that the March 26
elections are the fairest elections in Ukraine's history.

It has not been ruled out that Ukrainian government representatives will
continue to maintain contacts with Herbst, but in a different sphere, namely
during the process of rebuilding Iraq or Afghanistan. After all, the purpose
of the Office of the Coordinator for Reconstruction and Stabilization is to
help countries through post-conflict periods of reconstruction.

COMMENTARY: Yuriy Shcherbak, former Ukrainian ambassador to the US:
"I have a high regard for the work of Ambassador John Herbst, who was
destined to serve during a dramatic period of Ukrainian history. Each of his
predecessors faced challenges that he had to overcome. But one of the
greatest challenges was probably the period of the Ukrainian presidential
elections in 2004 and the Orange Revolution.

I think that Ambassador Herbst responded to them in an adequate fashion.
Many people are aware of his efforts to prevent bloodshed during the Orange
Revolution. Accusations that he interfered in our internal affairs are
unacceptable. Ukraine itself proclaimed a democratic path of development. In
fact, the ambassador urged the Ukrainian leadership not to stray from this
path.

It is very good that Ukraine was not abandoned to its own devices, but
instead was kept safe from the influence of certain forces and states that
wanted to play out their own scenario and install their 'own' people. John
Herbst is an active ambassador. He is not reserved, as is often the case
with other diplomats.

Nearly every day he met with different social groups: members of the
opposition, pro-government structures, and public figures. Herbst deserves
high praise. I think that the Ukrainian government should thank him warmly."
INFORMATION OF THE DAY
John Edward HERBST is a career diplomat in the US Department of State.
He arrived in Kyiv on Sept. 13, 2003, in the capacity of US Ambassador to
Ukraine. Before that he served as US Ambassador to Uzbekistan.

His record of service includes a stint as general consul in Jerusalem,
advisor at the US Embassy in Tel-Aviv, and the US embassies in Moscow
and Saudi Arabia. He joined the diplomatic service in 1979. -30-
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LINK: http://www.day.kiev.ua/159809/
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20. JOINING EURO-ATLANTIC INSTITUTIONS WILL REQUIRE
UKRAINE DRASTICALLY REVAMP ITS INTERAGENCY PROCESS

Atlantic Council of the U.S., Washington, D.C., Thu, Mar 23, 2006

WASHINGTON, DC - Without drastically improving its interagency
process, the Ukrainian government will find Euro-Atlantic integration
a slow and painful process, argues a new report issued by the
Atlantic Council of the United States.

"In Ukraine's Euro-Atlantic Ambitions: Building an Effective Policy
Coordination Process," the authors argue that the Ukrainian government
needs to address a number of weaknesses in the current interagency
system or it will likely face significant setbacks in its bid to join NATO
and the EU.

These weaknesses include an overlap of responsibility for Euro-Atlantic
integration policies, too much coordination authority for the Foreign
Ministry (which is also an implementing agency), an unclear role for the
National Security and Defense Council, and the problem of a "top-down"
government culture.

These problems are likely to be exacerbated by recent constitutional
changes which will give more authority to Ukraine's prime minister vis-à-vis
the President. In addition, Ukraine could soon have a co-habitation
government, depending on the outcome of the March 26 parliamentary
elections.

"The constitutional changes and a possible co-habitation government, where
the President supports Euro-Atlantic integration and the Prime Minister does
not, add another layer of complexity and increase the need for reforming
Ukraine's interagency system," said Steven Pifer, former U.S. Ambassador
to Ukraine and co-author of the paper.

"Ukraine's integration into NATO is in serious trouble if the Alliance cannot
recognize a common vision of Euro-Atlantic integration among the Ukrainian
government," added Jeffrey Simon, a defense reform expert at the National
Defense University and co-author of the paper.

The report is based on the findings of an Atlantic Council delegation of
U.S. foreign policy analysts who met with key members of the Ukrainian
government in Kyiv as part of the non-governmental U.S.-Ukraine Policy
Dialogue which is managed by the U.S.-Ukraine Foundation. Along with
Steven Pifer, they include F. Stephen Larrabee of RAND, Jeffrey Simon
of the National Defense University, and Jan Neutze of the Atlantic Council.

This report is part of the Atlantic Council's ongoing project on Ukraine -
more information can be found at www.acus.org. Founded in 1961, the
Atlantic Council of the United States is a non-profit public policy center
dedicated to promoting constructive U.S. leadership in international affairs
based on the central role of the Atlantic community.

Copies of the report are available on-line in English and Ukrainian at
http://www.acus.org/docs/0602-Ukraine_Euro_Atlantic_Ambitions.pdf
or by contacting Jan Neutze, Assistant Director of the Program on
Transatlantic Relations, at 202-778-4990 or jneutze@acus.org.
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21. WINNERS OF 2005 VLADIMIR HOROWITZ PIANO COMPETITION
IN CONCERT IN WASHINGTON, DC AREA, SUNDAY, APRIL 9

The Washington Group Cultural Fund (TWGCF)
The Action Ukraine Report (AUR) #682, Article 21
Washington, D.C., Thursday, March 30, 2006

WHAT: Three laureates of the 2005 International Competition for Young
Pianists in memory of Vladimir Horowitz, including winners from Ukraine
(Antoniy Barysheskiy), Russia (Alexey Kurbatov), and Japan (Ryoma
Takagi) will perform in a joint concert.

They will perform works by J.S. Bach, Chopin, Liszt, Lysenko,
Rachmaninov, Stravinskiy, Skrjabin and Sousa. This concert is
sponsored by TWGCF in cooperation with the Embassy of Ukraine.

WHEN: Sunday, April 9, 2006, 3:00 p.m.
WHERE: The Lyceum Theater, 201 South Washington Street
Alexandria, Virginia 22314
COST: Suggested donation of $20 per person. Students free.
FOR MORE INFORMATION: Please call: Marta Zielyk at
202-244-8836 or Laryssa Courtney at 202-363-3964.
The Lyceum Theater can be reached at (703) 838-4994
http://www.thewashingtongroup.org; http://www.horowitzv.org
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22. UKRAINIAN UNIVERSITY STUDENTS SEEK SUMMER
EMPLOYMENT IN THE UNITED STATES

John A. Kun, Vice President/Chief Operating Officer
U.S.-Ukraine Foundation (USUF)
Washington, D.C., Thursday, March 30, 2006

WASHINGTON - If you are an employer here in the United States, you
have an outstanding opportunity to meet your Summer 2006 staffing needs
by hiring highly motivated university students from Ukraine!

Through a new program being implemented by the U.S.-Ukraine Foundation,
a 501(c)(3) non-profit organization dedicated to building peace and prosperity
through shared democratic values, employers and sponsoring organizations
are being matched in their summer hiring needs with available, qualified
students by the Foundation. There is no cost to employers in allowing the
U.S.-Ukraine Foundation help in this recruitment!

The Foundation currently has an application with the U.S. Department of
State in order to receive the designation of an official sponsor of Summer
Work/Travel exchange programs. The Foundation hopes to become a
sponsor and to work directly with employers and students.

However, if the designation is not received on-time for this summer, the
Foundation will continue in its present course of matching the hiring needs
of employers with designated sponsors.

Ukrainian university students, who are eager to work and experience life in
the U.S., are seeking short-term (up to 4 months), entry-level, seasonal
positions with employers under the U.S. Department of State's Summer
Work and Travel USA Program 2006. The students qualify to work and
travel in the U.S. under a J-1 visa through a sponsoring organization.

Employers benefit in these ways:
· They meet seasonal hiring requirements.
· As students are allowed to work for 4 months during the period
of May 1 through mid-October; employers will still have Ukrainian
student workers when American students head back to school.
· Students will be interviewed and tested for English proficiency.
· Students will be prescreened and interviewed to meet employer
expectations.
· Students will have pre-paid health insurance; employers will not
have this cost.
· Students are not required to contribute to Social Security or
Medicare; employers are therefore not required to contribute the
employer portion.
· Students will be working at the same wage level as other summer
students.
· Employers will find the students highly dedicated to their Summer
Program.

An employer's summer hiring needs may include a whole host of entry-
level positions, whether they be retail shop workers, cashiers, amusement
ride attendants, or short order cooks. Whatever your needs are, the U.S.-
Ukraine Foundation is ready to be of assistance to you.

If you would like to learn more about hiring university students from
Ukraine for this summer, please contact the U.S.-Ukraine Foundation
through Mr. Bogdan Kovalchuk at 202-223-2228 or
bkovalchuk@usukraine.org. -30-
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John A. Kun, Vice President/Chief Operating Officer, U.S.-Ukraine
Foundation 1701 K Street NW - Suite 903, Washington, DC 20006
Tel: 202-223-2228 Fax: 202-223-1224; E-mail: jkun@usukraine.org
Web: http://www.usukraine.org
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