Ukraine's economy is in trouble, there is no doubt about it.

Analysis & Commentary: By Edward Hugh, Macroeconomist, Barcelona, Spain

Global Economy Matters, Sun, Oct 12, 2008 & RGE Monitor, New York, NY, Sun, Oct 12, 2008

Exhibition to feature fifty-four Holodomor artworks by Ukrainian artists

Ukrainian National Museum, Chicago, Illinois, Wednesday, October 15, 2008

Andrew E. Kramer, The New York Times, New York, NY, Sat, Oct 17, 2008

MOSCOW — Aid for Ukraine’s staggering economy may be endangered by the country’s continuing political instability. Like Iceland and Hungary, Ukraine is seeking aid from the International Monetary Fund to counter the global financial crisis. But Ukraine, its economy reeling from falling steel prices, is also struggling with political problems.

The infighting threatens an emergency loan from the monetary fund. The fund is seeking assurances from the cabinet that next year’s budget will be balanced, but President Viktor A. Yushchenko issued a decree this month dissolving Parliament and, with it, the cabinet.

That decree, which would lead to elections on Dec. 7, is being contested by the president’s opponents in Parliament. So until the decree’s validity is decided in the courts, it is unclear whether the current cabinet holds power. The prime minister, Yulia V. Tymoshenko, says it does, while the president’s office says it does not.

In the interim, a delegation from the monetary fund has been meeting with representatives of the prime minister and the president. The fund is offering a loan of as much as $15 billion to shore up the country’s finances as foreign investors flee.

Ms. Tymoshenko, who met with the delegation on Friday, expressed support for the loan. But if the president’s order to dissolve Parliament is upheld, she said, the cabinet will lack the authority to negotiate with the fund.

In that case, negotiations will be delayed until a new Parliament is formed after the elections. After previous elections, coalition-building in Ukraine has taken months.

“Alarm bells aren’t ringing yet,” Sergei Teriokhin, a former minister of the economy and member of Parliament in Ms. Tymoshenko’s bloc, said in a telephone interview. But if the contested status of the cabinet is not resolved, he said, the monetary fund will not know whom to meet with. “It is necessary that somebody in the country make guarantees on the budget policy of next year.”

Mr. Yushchenko and Ms. Tymoshenko have alternately collaborated and competed since they rallied crowds together on Independence Square in Kiev during the protests known as the Orange Revolution in 2004.

Most recently, his Our Ukraine bloc was in a coalition with Ms. Tymoshenko’s, an arrangement that gave her the prime minister’s post. But the two split after the Russian invasion of Georgia in August. Mr. Yushchenko accused Ms. Tymoshenko of muting her criticism of the Russian military action to please the Kremlin.

The political turmoil has coincided with a steep economic decline. On Friday, the international agency Fitch Ratings downgraded Ukraine’s sovereign debt rating and issued a negative outlook for the country.

A Ukrainian shipping company, Industrial Carriers, has gone bankrupt. The government has frozen rail tariffs for steel companies, and as foreign investment dries up, speculators are betting on a decline in the national currency.

In response, Ukraine plans to nationalize some commercial banks, which have liquidity problems, a member of Parliament told the monetary fund’s delegation on Friday.

Hungary, which has struggled to cope with the effects of the financial crisis, also received a vote of no confidence on Friday when Fitch cut its rating to negative from stable. Hungary’s large debt, much of it in foreign currencies, has made the country particularly vulnerable to the current external shocks.

The government scaled back its growth estimates for 2009 to just 1.2 percent from 3 percent. Hungary has lined up support from the European Central Bank and the monetary fund in an effort to reassure credit and currency markets. (Nicholas Kulish contributed reporting from Budapest.)

LINK: http://www.nytimes.com/2008/10/18/world/europe/18ukraine.html?_r=1&oref=slogin

Fitch Ratings, London/Moscow, Friday, October 17, 2008

LONDON/MOSCOW - Fitch Ratings has today downgraded Ukraine's Long-term foreign and local currency Issuer Default Ratings (IDRs) to 'B+', from 'BB-' (BB minus). The Outlooks on both IDR remain Negative. The agency has also downgraded the Country Ceiling to 'B+' from 'BB-' (BB minus) . The Short-term foreign currency IDR is affirmed at 'B'.

"The downgrade reflects Fitch's concern that the risk of a financial crisis in Ukraine involving a large depreciation of the currency, further stress in the banking system and significant damage to Ukraine's real economy is significant and rising.

Such a scenario would damage the sovereign's balance sheet. Nevertheless, Fitch believes risks to Ukraine's ability to meet its sovereign obligations remain low in the near term owing to the sovereign's modest refinancing needs," said Andrew Colquhoun, Director in Fitch's Sovereigns Group.

Ukraine has officially requested assistance from the IMF and a Fund team is currently in Kyiv. Fitch would view a sizable and appropriately-designed IMF programme as a positive factor, although the agency awaits precise details before drawing firm conclusions.

However, depositor confidence in the banking system may remain shaky and the economy will face a difficult adjustment even if a programme is arranged, extending Ukraine's exposure to financial instability.

On 13 October, Fitch signalled rising concerns over the health of Ukraine's banking system amid a sharp tightening in liquidity conditions and some deposit withdrawals from the system following the failure of sixth-largest bank Prominvest.

Fitch is unconvinced that the raft of emergency support measures announced by the central bank, including stepped-up liquidity provision and a ban on early redemption of term deposits, will be adequate to shore up depositor confidence and forestall further banking-system stress. New central bank rules restricting loan growth threaten to exacerbate a slowdown in the economy, which could hit banks' asset quality relatively soon.

A relatively high share of FX-denominated lending (51% at end-August) exposes the financial system to risks from enhanced currency volatility. Ukraine's currency, the hryvnia (UAH), fell to 5.6 against the USD by 8 October, down 10% on the month, before climbing back to around 5.2-5.3 on intervention by the central bank.

The UAH is likely to stay under pressure from a widening current account deficit, which Fitch projects at around 7% of GDP in 2008, versus 4.2% in 2007. Falling steel prices will intensify a terms-of-trade shock originating in a likely strong increase in Ukraine's gas import price next year. Strong borrowing by the private sector took Ukraine's gross external debt to USD100bn by end-June 2008, including USD28bn of private-sector short-term debt.

Hard numbers on private-sector external debt maturities for 2009 are not available, but Fitch estimates these could be around USD19bn for longer-term borrowing. With many private-sector borrowers likely to find it hard to refinance their maturing external borrowing, the sovereign may be forced to provide resources from official reserves, which are also needed to shore up confidence in the exchange rate.

Fitch continues to draw comfort from Ukraine's moderate sovereign refinancing needs for 2009 of USD2.5bn, of which USD0.9bn are domestic (mostly in UAH) and USD1.6bn are external (including a USD0.5bn eurobond maturity in May), compared with the latest disclosure for official reserves of USD37.5bn on 9 October.

The country's low general government debt/GDP ratio of 10% for end-2007 is well below the 'BB' median of 34% (and the 'B' median of 33%). However, worsening economic prospects and requirements for official support to the economy could erode Ukraine's fiscal strength in the medium term.

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

By Maryana Drach, Iryna Shtogrin, RFE/RL, Prague, Czech Republic, Ukraine, Thu, Oct 16, 2008

KYIV -- Political uncertainty is nothing new for Ukrainians. But financial uncertainty is something different -- and deeply unwelcome. As the effects of the global financial crisis take hold around the world, money flows have become a source of extreme anxiety in Ukraine. On the streets of the capital, many residents expressed worry about the fate of their savings.

"I went to Privatbank to withdraw money from my active account, which I'm supposed to be able to use any time," says one man. "They told me to go away; they didn't give me anything. I'm still fighting about it. Tomorrow I'm going to go and file a lawsuit." "I have doubts," says another. "This is one of those situations where money is controlling people, rather than people controlling their money."

Others were more sanguine. "I trust the banks. The interest rates haven't gone down and our bank is working normally," says one woman, adding, as an afterthought: "When my deposit comes in December, I can take the money out and put it someplace else."

'STRICT, BUT CORRECT'
Officials at Ukraine's central bank are all too aware of the risks of public jitters. Citing a "psychological factor," the National Bank of Ukraine (NBU) this week decided to impose limits on lending, foreign-currency trade, and early withdrawals of certain deposits.

The decision, taken October 13, came after National Bank depositors -- unnerved by mounting inflation and a weakening currency -- withdrew more than $1.3 billion from their accounts in just under two weeks. It's hoped the steps will prevent a full-scale run on the bank by panicking citizens.

The NBU was also forced to provide a $1 billion stabilization loan to the country's sixth-largest bank, Prominvestbank, which failed after panicked depositors in the eastern region of Donetsk rushed to withdraw their money.

Vyacheslav Yutkin, who serves as chairman of the board of the Ukrainian branch of Russia's Sberbank, says the NBU's measures were appropriate but too slow in coming.

"The methods of the Ukrainian National Bank are strict, but correct. It's an important and necessary preventive measure," Yutkin says. "If the National Bank had reacted two weeks earlier, banks would have had the chance to hold on to at least $1.5 billion in accounts, and the current liquidity crisis wouldn't be so bad. But it took a long time for them to make a decision, and that made the crisis even worse."

PIECES OF THE PUZZLE
Some officials are still offering an upbeat assessment of the economic climate. Economy Minister Bohdan Danylyshyn on October 15 noted Ukraine's 2008 GDP growth stayed steady at 7 percent through September, and still remains strong despite "some decline" in certain sectors.

Other authorities have expressed confidence that Ukraine will escape the worst of the damage brought on by the global financial crisis because the country's still-developing stock exchange is less vulnerable to the vagaries of market fluctuations.

It is difficult to gloss over other indicators, however. Inflation peaked in May at 31 percent -- putting Ukraine higher than any other country except Zimbabwe and Venezuela -- before dropping to a less alarming 16 percent in September. The value of the local currency, the hryvnya, last week sank by 20 percent, forcing the NBU to intervene and sell dollars at an artificially low rate.

With such figures in mind, many economy-watchers acknowledge Ukraine will not be able to avoid the long-term effects of the crisis.

This will be particularly true if a global economic and construction slowdown shrink the global market for commodities like steel, which is Ukraine's top export and responsible for 40 percent of its hard-currency earnings. Many steel mills have already slowed or stopped production because of a drop in worldwide demand.

A global recession would also have a dramatic impact on remittances for Ukraine's large migrant workforce. Ukraine is second only to Russia in remittances in Central and Eastern Europe, sending home nearly $8.5 million a year -- an estimated 8 percent of the country's GDP.

WILD CARD
Then there is the critical factor of the price Ukraine will pay for Russian gas in 2009. Ukraine currently pays just $180 per 1,000 cubic meters. But Russia has repeatedly said it wants former Soviet states to switch to market prices, and has pointedly noted its fees for Western European markets exceeded $500 in October. A sudden hike in Ukraine's gas prices could have a devastating effect on the country's financial reserves -- although not everyone is worried.

"We shouldn't forget that Ukraine has almost $40 billion in reserves; that's more than enough," says Oleksandr Suhonyako, the head of the Association of Ukrainian Banks, a grouping of the country's major commercial banks and credit institutions.

"But the financial crisis isn't going to be over soon, and it just keeps growing every day. I think it's not a matter of a month, but half a year, or even more. In order the meet the problems of the future, we need to start thinking about international loans now."

Prime Minister Yulia Tymoshenko, speaking at a news conference on October 14, avoided answering a question of whether Ukraine was seeking help from the International Monetary Fund (IMF).

Such a move would be interpreted by many as a sign that Ukraine's economy was in deep trouble. Instead, Tymoshenko -- perhaps looking ahead to a presidential bid in 2010 -- stressed that the government was doing "everything possible and impossible" to minimize the impact of the global crisis on Ukraine.

But an NBU official said on October 15 that Ukraine might seek support from an IMF credit program. Hungary, Serbia, and Iceland have already said they will approach the IMF for help gaining access to credit and defending their currencies investors' risk aversion.

Finance Minister Viktor Pynzenyk has begun meeting with members of an IMF expert mission that arrived on October 15, and the two sides "discussed the situation concerning the world financial crises and the challenges facing Ukraine's financial system," Reuters reported.

The statement added that both sides agreed to produce "recommendations for Ukraine vital for the operation of the banking sector and macroeconomic stability for Ukraine, based on the experts' assessment and taking account of the experience of other European countries."

Reuters reported that the IMF's Kyiv office made no comment on the mission, adding that it was expected to remain in Ukraine for at least a week. It cited estimates of the potential IMF largesse to Ukraine at $3 billion-$5 billion.

Speaking to reporters after a cabinet session on October 16, Reuters quoted Tymoshenko as saying that "we have information" that the IMF "is ready to examine special credits from $3 billion-$14 billion to stabilize the financial system," but that it would be contingent on Ukraine calling off early elections announced last week by President Viktor Yushchenko.

NO RAPID REACTION?
Accordingly, it's the government's own internal struggles that may prove one of the greatest liabilities as the country fights against impending economic woes.

Ukraine in December is facing its third set of parliamentary elections in as many years, a result of intractable squabbling between Tymoshenko and Yushchenko. The pair's Orange Revolution partnership in 2004 quickly devolved into an intense political rivalry that has mired Ukraine in a protracted political standoff and may continue until 2010, when the two are expected to face off for president.

Yutkin says Ukraine has grown accustomed to political uncertainty, and that the ongoing political drama will not have a noticeably adverse affect on economic conditions.

"I think politics are having only minimal influence in this situation," he says. "The economic system in Ukraine adapted a long time ago to the conditions of political instability and inflation. Higher prices and political upheaval aren't the main factors causing panic among bank depositors."

The World Bank, however, warned this week that policymakers in Eastern Europe and Central Asia "need to be prepared to respond quickly to the rapidly changing international financial environment." Some worry that Ukraine's constant cycle of elections and political infighting mean little, if any, decision making will be done in the interim.

By Stefan Wagstyl, Financial Times, London, UK, Thursday, October 16 2008

When Lev Partskhaladze, a Ukrainian property developer, was preparing to float his company on the London stock market three years ago, he saw no end to his country’s home and office construction boom. Today, with cranes standing idle over Kiev building sites and property sales evaporating, he admits the global credit crunch is bringing the boom to a halt.

“We are seeing a financial crisis transforming into an economic crisis in the world. It has not fully hit Ukraine yet but it’s close,” says the chairman of XXI Century Investments. With its shares down 97 per cent from their peak, the company is trying to raise cash by offloading projects to other developers.
Mr Partskhaladze is not alone in having to confront the region’s changed realities.

Across central and eastern Europe, the global crisis is biting hard, albeit very unevenly. In Russia, the authorities have set aside nearly $200bn (pounds116bn, euro149bn) for a financial market rescue, Ukraine is in talks with the International Monetary Fund over emergency loans of up to $14bn, Hungary was on Thursday bailed out with a euro5bn ($6.7bn, pounds3.9bn) loan facility from the European Central Bank.

Latvia and Estonia are suffering the region’s first recessions in a decade, while growth in oil-rich Kazakhstan has slowed to a crawl. Even in Poland, where Donald Tusk, the prime minister, insists his country is “an island of stability”, the crisis has raised doubts about Warsaw’s euro entry plans.
Stock markets have plunged accordingly, with Polish shares trading at less than half their peak levels and Ukraine’s down by three-quarters.

Property markets have slowed, even if developers are still trying to hold up prices. After riding high earlier in 2008, some currencies have come under pressure, notably the Hungarian forint. In Ukraine, where the central bank has intervened to support the hryvnia, the credit default swap rate, a risk measure, has soared 1,400 points to 1,900, among the world’s worst.

The financial whipsaw has cut billionaires down to size, not least Oleg Deripaska, the Russian metals oligarch, who has sold valuable stakes to raise cash. Others are grabbing opportunities to buy cheaply: Mikhail Prokhorov, the Russian nickel investor, acquired 50 per cent of Renaissance Capital, a Moscow bank, for $500m – about one-quarter of its value of a year ago.

With the global crisis still raging, despite the calming effects of this week’s support moves in the US and the European Union, it is impossible to predict how events will play themselves out in a region increasingly important to the west as an export market and low-cost production base. But hopes it might escape unscathed have evaporated. Apart from corporate casualties, some countries could run into difficulties funding current account deficits.

Erik Berglof, chief economist of the European Bank for Reconstruction and Development, says: “There is enormous uncertainty right now ... These countries could deal with rising borrowing costs and an economic slowdown coming from the US and western Europe, but a complete shutdown of international borrowing – nobody can withstand that.”

The result of this shock will, as in the west, increase the state’s role in the economy once more – and possibly provoke political conflicts over the share-out of scarce financial resources. As in the west, there could be public anger against those who profited from the boom years, often spectacularly so. Hungary, which first ran into economic trouble two years ago, has already experienced social tensions.

Economic growth is slowing sharply, with the IMF forecasting a decline in real gross domestic product growth for central and south-east Europe from 5 per cent this year to just 3.5 per cent in 2009. For Russia and the former Soviet Union, it predicts around 7 per cent for this year and 5.5 per cent for 2009.

By global standards, with the US and western Europe facing recession, these are respectable numbers. In non-crisis circumstances, a moderate slowdown would even have been welcome in some countries. Until the summer their main danger was overheating, with inflation running as high as 31 per cent in Ukraine. Thanks to bumper harvests, tumbling food costs are helping to curb consumer price rises but inflation is still high in some countries, notably Russia, with 15 per cent.

Also, the region as a whole is less exposed to financial turmoil because companies and households have mostly taken less credit than in the west. Raiffeisen International, the Austrian bank, says bank assets were just 90 per cent of GDP in 2007 in central Europe and 65 per cent in Russia, compared with 250 per cent in the eurozone.

But these generalisations conceal many country risks. As Jan Krzysztof Bielecki, chief executive of Poland’s Bank Pekao, says: “The development of the situation over the last few weeks has shown that there is nothing more mistaken than calling this a single region. The differences between Poland and Kazakhstan are like the difference between heaven and hell.”

A key danger is the region’s dependence on external finance, especially bank credit. According to the Institute of International Finance, total private capital and credit flows into “emerging Europe” (including Turkey) are likely to fall from a record $394bn last year to $322bn in 2008 and $262bn in 2009.

Given that $262bn is still a high figure by historical standards, there is great scope for a much bigger drop. Within this total, bank credit is set to fall particularly fast, from $219bn in 2007 to $155bn in 2008 and just $74bn next year.

While foreign direct investment is forecast to increase modestly to nearly $90bn next year, it cannot compensate for the dramatic decline in bank lending. Nor will portfolio investment save the day: the flows are far too small, peaking last year at just $8.5bn.

The biggest financing needs are in Russia, where the central bank estimates $39bn in debt falls due this year and $116bn in 2009. Little wonder that bankers and oligarchs are queuing for credits the authorities are distributing from their $560bn in foreign exchange reserves. Russia is in no danger of default but banks are under pressure – with fears of a panic increasing this week after Globex, a midsized lender, banned depositors’ withdrawals.

If the crisis persists, even the wealthy Russian state will have to count its roubles. Relative to the size of the national economy, Moscow’s financial rescue package is bigger than the $700bn programme launched by the US. Russia’s budget spending is more than doubling to $586bn in 2010, just as the oil price has roughly halved from its peak. Further declines will put spending under pressure.

But with inflation high, driving up pay and pensions, there is little scope for painless cuts, especially as Russia is committed to huge infrastructure projects, including the Sochi 2014 winter Olympics.

IN UKRAINE ------------
In Ukraine, banks have also borrowed heavily overseas to finance credit growth and are struggling to refinance themselves. At the same time, the current account deficit is widening as prices for steel, Ukraine’s main export, plummet. So Kiev’s external financing needs are growing just as credit is short and foreign direct investment, a big source of finance in recent years, is slowing.

Ukraine’s authorities insist the economy is in good shape. The central bank has maintained order by taking control of one bank and supporting 20 other lenders. But efforts to ease the crisis are hampered by political turmoil, with president Viktor Yushchenko calling early parliamentary elections for December. Yulia Tymoshenko, prime minister, on Thursday confirmed Kiev was turning to the IMF, which she said was considering lending “$3bn-$14bn”.

In central and south-east Europe and the Baltic states, many economists assumed countries would be protected from the global storm because their banks’ finance came not from markets but from the multinational banks that have bought most local lenders. But as Mr Berglof of the EBRD says, with parent banks now under pressure, this assumption may no longer apply. “This strength is turning into a vulnerability,” he warns.

Individual banks deny they have plans to pull out. But they have been raising the costs of foreign exchange denominated loans, which account for around half of corporate and household lending in central Europe. This week, leading Hungarian banks cut such foreign exchange lending, in moves which on Wednesday precipitated the biggest daily drop in the forint in five years.

On Thursday the currency rallied sharply after the authorities announced public support from the ECB – unprecedented for a country outside the eurozone – and liquidity boosting measures. Janos Veres, finance minister, says the IMF stands by to support Hungary but will intervene only in extremis.

Poland, the Czech Republic and Slovakia are in better economic condition than Hungary, having avoided the profligate public spending in which Budapest indulged until running into financial difficulties in 2006. The Czechs, with low local interest rates, are free of foreign exchange loans. But like Hungary, these countries are exposed to another painful shift – an expected steep decline in demand from western Europe. Slovakia, with its heavy dependence on a single industry – cars – is particularly vulnerable.

Except for Hungary, however, bankers are less concerned about central Europe than the Baltic states and south-east Europe, where current account deficits are high. All have relied heavily on a mix of foreign direct investment and credit for financing recent rapid growth. But with economies slowing, bankers wonder which countries can avoid a hard landing – or worse.

Estonia and Latvia, which ran into financial difficulties even before the global crisis, are already in recession. Lithuania is not far behind. But at least Baltic current account deficits are falling, from 18 per cent of GDP on average last year to 8.6 per cent in 2009, according to the IMF.

In south-east Europe, the Fund predicts deficits to stay at 14 per cent next year, including 21.5 per cent for Bulgaria. “Action is needed to rein in rising external and internal imbalances, mindful of more volatile external financing conditions,” the IMF says But whether that action will come in time is a moot point. Analysts at Citigroup rank Romania and Bulgaria alongside the Baltic states, Hungary and Ukraine as countries vulnerable to “a risk to financial stability”.

As credit growth decelerates across the region, putting a brake on economies, current account deficits should decline as credit-financed imports fall. So soft landings are certainly well within reach. The difficulty comes in bridging the financing gaps that are bound to emerge in the most hostile financial conditions in 60 years. If there is a crumb of comfort, it is that these ex-communist states have more experience than most of implementing tough economic policies under pressure. [Additional reporting by Jan Cienski in Warsaw, Roman Olearchyk in Kiev and Thomas Escritt in Budapest]

Zerkalo Nedeli, Mirror Weekly, #38 (717), Kyiv, Ukraine, 11 -17 October, 2008

Before discussing future implications of the global financial crisis for Ukraine’s economy, let us consider if it has already affected us. The national economic system is integrated into the world economy closely enough to be involved in the global processes.

The eroded macro-stability of international markets could not but impact internal developments in Ukraine. The global financial crisis of 2007-2008, as any other, has been unfolding in several waves. We have survived the first two without big losses, although not without mistakes.

[1] The first wave rose in 2007, when stock indices of the world’s leading banks and financial institutions went down. Under the circumstances, risk capital looking for stable yet high-profitability markets moved from developed to emerging markets, which continued to show high growth rates and profitability.

According to financial experts, the risk to profitability ratio in those emerging markets was fairly attractive. As a result, stock markets in respective countries grew in 2007, China and Ukraine being leaders of such growth.

The inflow of credits was also substantial: in 2007, Ukrainian economy borrowed USD 24.3 billion in middle- and long-term credits.

[2] The second wave started in early 2008, when the ongoing fall in the world stock markets re-directed cash flows from one class of assets to another, in particular to commodities and energy resources. These assets became more marketable, and commodity prices soared up. In January-July, average metal prices in eight regions of the world rose by 81%; “Brent” oil price rose by 32%.

By the time first favourable forecasts appeared as to the global gross grain harvest in 2008/2009 marketing year, wheat prices (USA, FOB) for 2007/2008 marketing year had grown by 79%, on average.

Ukraine’s economy responded to the above challenges in the following way.

The overall inflationary background intensified. Inflationary spiral, set spinning in 2007, has been in motion in 2008. Political instability affected economy.

Over the first eight months of 2008, industrial manufacturers’ prices grew by 36.5%, especially in such sectors as mining of mineral resources (except for fuel-and-energy ones) by 70.4%; metallurgy and metal works by 68.1%, coke production by 64.3%; and the chemical industry by 55.9%. All of these sectors are oriented towards foreign markets or towards servicing export-oriented production.

The convergence factor (resulting from openness of the Ukrainian economy to global trends, e.g. to the 2008 consumer price rise in most countries of the world) also accelerated inflation processes in the domestic consumer markets.

In September CPI amounted to 101.1% (in January-September it amounted to 116.1%), but it was much less than in 2006 and 2007, when it grew by 2.0% and 2.2%, respectively. So in general, in Q3 Ukraine had the lowest rate of price rise in the last four years – as low as 0.5%. The overall inflation was driven, first and foremost, by rising prices (tariffs) for services.

The role of export-oriented production in the country’s economic growth increased. In early 2008, production growth in export-oriented sectors accelerated, and the financial resources of the national economy were re-distributed, in particular through the banking system, from other sectors into commodities and export-oriented ones.

Thus, in the first seven months of 2008, production growth in metallurgy was 3.5%; in the chemical industry it was 5.2%. It accounted for relatively high growth rates in industry at large –7.3%.

Over the same period, the share of profitable companies in the total number of enterprises increased from 65.1% in January-July 2007 to 66.9% in January-July 2008, and their profits boosted by 71.7% as compared to the corresponding period of 2007. Leaders of profitability growth were coke production and oil refinement (by 5.7 times), the mining industry (by 2.2 times), and chemical and petrochemical industries (by 2.5 times).

Lending also increased, especially in such sectors as agriculture (135.1%), coke production and oil refining (132.5%), machine building (132.1%), chemical and petrochemical industries (130,6%).

In early 2008, the Ukrainian economy remained attractive for foreign investors. The growth of total foreign capital investments in the national economy was 2.7 times as rapid as in the corresponding period of 2007. And again, most essential capital investments went to well-performing sectors: agriculture (149.7%), banking and financial activity (142.1%), coke production and oil refining (123%).

Against a backdrop of positive balance of payments and excessive supply of hard currency, the official exchange rate of hryvnia to the US dollar decreased by 3.96% to reach 4.85 UAH/USD in late August. In January-August, foreign currency reserves augmented by USD 56 billion – to USD 38.1billion.

The second wave of the global financial crises set off ripples in the Ukrainian stock market. The PFTS index lost 43.5% in the first seven months of 2008, primarily due to the withdrawal of some foreign investors (the so-called ‘jobbers”) from Ukrainian, as well as from the global, markets and to political instability in Ukraine.

Almost all companies listed on PFTS suffered a decline in share and securities prices. Under the conditions of free capital flows, the Ukrainian economy demonstrated market-driven tendencies to seeking super-profits, which enhanced its export-oriented and commodity components, especially given intensified commodity drivers in the global markets.

[3] The third wave of the global financial crisis is unfolding before our eyes. It has already caused a series of bankruptcies of the world’s leading financial companies and financial crisis rollover to the real economy sector, drop in demand on global markets and, as a result, plummeting commodity prices and stagnation of leading economies. In August-September, average metal prices in eight regions of the world fell by 18.3%, and oil prices fell by 26.5%.

The Ukrainian economy has not yet felt the consequences of the third wave in full. At this juncture, it is hard to estimate their severity and duration, but some impact has been obvious.

Thus, in August, for the first time since October 2002, industrial production decreased by 0.5% (y-o-y), in particular in metallurgy – by 8.6%, the chemical industry – by 9.1%, and coke production and oil refining – by 4.9%.

In other words, a set of external shocks, coupled with the export-oriented companies’ strategy geared towards searching out niches in foreign markets while underestimating domestic ones, slowed growth, which, in the first eight months of 2008, was as low as 2% in metallurgy and 3.5% in the chemical industry. In general, rates of industrial production growth fell to 6.3% in the first eight months of 2008.

The PFTS index continued to go down, losing another 43% in the last two months. Bad news from mining industries and metallurgy had an adverse impact on the PFTS index, too.

In view of the above, the GPD growth of 7.1% was achieved at the expense of other sectors, chiefly, agriculture, where the harvest was unusually rich.
Devaluation processes became manifest in the currency market, and in September foreign currency reserves reduced by USD 0.6 billion. Negative inflation expectations contributed to the overall turmoil. A negative balance of sale/purchase of cash foreign currency by the population amounted to USD 1,321 million.

The third wave of global financial crisis forced governments in the world’s largest economies to revise their policy vis-à-vis financial markets. In particular, the governments of the USA, the UK, Germany, Russia, the Benelux States and other countries decided to support some of the troubled financial institutions.

Investors expect the government of Ukraine to take similar measures. However, the drivers of mortgage and financial crises in the USA and other developed economies and those forming potential negative tendencies in Ukraine’s economy are different.

In order to find solutions allowing for mitigation of the influence of the global crisis on the Ukrainian economy, we should analyze the most likely channels of this influence.

As matters stand, the channel relating to global stock markets is not the most powerful and painful for Ukraine’s economy. Of course, it puts certain pressure on the currency market as the risk (speculative) capital flows out, but it will hardly affect the development of the real economy sector in Ukraine.

For one thing, the organized stock market is underdeveloped – only 4.66% of all transactions take place on it. For another thing, foreign investors and other sources of funding, including stock market funds, account for as little as 5%-7% of all investments.

There are other channels of influence, more deeply-felt by the Ukrainian economy.

[1] The first channel is foreign trade. Widespread financial problems have already undermined demand in the international markets. Recession in the world’s leading economies will be accompanied by the decreasing investment demand and poorer dynamics of construction. This, in turn, will continue to drive down prices for metallurgy and machine building products.

Since the Ukrainian economy is highly dependent on exports making up more than 47% of the country’s GDP, the above trends in the global markets will be harmful for the development of export-oriented sectors, with subsequent repercussions on industries relying on exports directly and indirectly.

[2] The second channel is the banking system. The penetration of foreign capital into Ukraine’s financial institutions is considerable. The financial sector is one of the national leaders in attracting foreign direct investments (19% of total accumulated foreign capital).

The share of foreign capital in the banking sector amounts to 37.2% of total capital, which exceeds the threshold of economic security established at 30%; in the insurance sector it approaches the threshold value, currently constituting 28.1%.

Given the large share of transnational financial corporations on the Ukrainian banking sector, the global financial crisis could have an indirect adverse impact if mother companies suffer great losses or have liquidity problems.

In this context, it is noteworthy that investments and development of Ukrainian manufacturing companies hinge more on lending than on the stock market: 16% of investments in fixed assets are funded from loans. The most credit-dependent sectors are agriculture, construction, processing industries, including the chemical and petrochemical industry, the food industry, coke production and oil refining.

[3] The third channel of influence is debt. In June 2008, gross foreign debt made up 59.9% of GDP at USD 100.06 billion. Almost 85% of this debt was that of the private sector. According to IMF data, the maximum limit of foreign debt for low and middle income countries is set at 49.7% of GDP; once this limit is exceeded, the probability of financial crisis increases to 70%.

Deteriorating liquidity in global financial markets could slow up lending to the Ukrainian economy. As a result, Ukrainian borrowers will have difficulty refinancing their credit liabilities in external markets.

Furthermore, the share of short-term capital in foreign debt is large (28.2% as of late June 2008). Over the first six months of 2008, the ratio of short-term foreign debt coverage with reserves fell by 15% to 1.258. This capital, in the event of its sudden outflow could contribute to destabilization of the national currency exchange rate.

The current conditions of the national economy development differ a great deal from those of 1998 when Ukraine was also hit by a profound global financial crisis. Now the national economic system is less resistant to financial shocks. Whereas in 1997-1998 corporate debt was small and the corporate sector did not rely so heavily on foreign funding, today the national financial system is more dependent on external cash flows.

If worst comes to worst, and all of the above channels start working at once and in their full capacity, the global financial crisis will have grave consequences for Ukraine:

[1] the deficit of foreign trade balance will increase sharply to go beyond 10% of GDP, which is critical for emerging economies;
[2] the positive balance of account of capital transactions and financial transactions will dwindle;
[3] the positive balance of payments, maintained over the last few years, will turn into a negative one.

In order to prevent dramatic devaluation, the National Bank of Ukraine will have to sell hard currency from its reserves. And yet, it will be a difficult task to achieve. Under the circumstances, GDP growth could slow down to 2.5%- 3%, CPI will go beyond 20%.

It is not about mere situation modeling, other things being equal. Nor is it about analyzing scenarios based on the “what if” principle. Since the 1998 crisis, the national economy has become much more integrated into international financial markets; its structure and development characteristics have changed significantly.

Today economic growth is determined by domestic potential, rather than external factors. Households’ consumer demand is growing rapidly, together with investments in renovation of fixed assets and introduction of modern technologies. Ukraine has become an international market player.

In light of the escalating global financial crisis, the government and National Bank have taken a number of measures allowing for the reduction of the risk of its profound destructive influence. They include a package of anti-inflation initiatives, steps to enhance banking sector stability and to minimize the impact of the global financial crisis on Ukraine’s economy.

In early 2008, the National Bank passed a resolution toughening requirements to calculating the banks’ regulatory capital adequacy (long-term asset transactions with time of floatation exceeding the time of funding should be additionally risk adjusted at 50% rate and so on), which enabled banks to adjust and improve their position.

In addition, Ukraine has an “insurance police” of sorts in the form of Euro- 2012. If the planned scope of work is fulfilled, the country will get a guaranteed inflow of foreign direct investments, mid-term and long-term loans, because investors worldwide view such events as image-building, promotional projects with low financial risks.

As a popular saying goes, hope for the best and prepare for the worst. The current challenges and threats require that public authorities and the private sector address them effectively and take additional preventive measures.

What can the government do?

Given the risks of reduction in export-oriented production due to weakening global demand and problems with payments under export transactions, the government should work to stimulate domestic demand for the group of export goods and, thus, enhance the role of domestic production. It can start with launching new infrastructure and residential construction projects funded from the state budget.

The government should prevent a sharp decline in grain prices by urging the Agrarian Fund to purchase grain of this year’s harvest. It will provide agricultural producers with sufficient resources to prepare and carry out the sowing campaign. It will also support, directly and indirectly, the development of metallurgy, coke production, the mining industry, oil refining, the chemical industry, the food processing industry, trade and transport.

In order to manage the financial instability risk, it is strongly advisable to revise the draft 2009 budget so as to increase capital expenditures, including in construction, without increasing the budget deficit. It is also important to set up a Stabilization Fund that will cover all governmental guarantees, which will gain more confidence in the governmental commitment to pursue a well-balanced and sound budget policy.

In times of financial crisis, the government’s strategy is to encourage investments into the real sector of the economy. To this end, alongside accelerating the implementation of projects related to Euro-2012, we should unblock privatization processes.

The government cannot do that alone, we need support from the Verkhovna Rada to get the State Privatization Programme adopted. Parliament should also pass a package of laws drafted by the government and geared towards boosting Ukraine’s investment attractiveness.

What can NBU do?

In order to prevent a banking crisis, NBU should establish principles of refinancing commercial banks that have short-term liquidity problems for the period of financial crisis. A currency crisis can be averted with a series of measures precluding the exchange rate destabilization by speculators. NBU should continue to pursue the policy of increasing the rate volatility in order to reduce risks to the balance of payments.

What can businesses and investors do?

Given the limited financial resources inside the country and shrinking access to foreign loans, businesses face a difficult choice: either to suspend production and lose markets, maintaining high prices in expectation of better times, or to reduce prices trying to restore demand and keep consumers.

The latter option is for those manufacturers who care about their future, expansion and economy of scale; the former is for profiteers who make large money quickly and drop the production.

The government can undertake to hold consultations aiming to sign memoranda with investors and large businesses on reducing prices for goods and services.

Only the concerted efforts of the government and National Bank, supported by Parliament and the business community will enable the Ukrainian economy to pass the maturity test in times of global financial crisis.

LINK: http://www.mw.ua:80/1000/1550/64350/

EDITORIAL: International Herald Tribune, Paris, France, Tuesday, October 14, 2008

Once again, the president of Ukraine, Viktor Yushchenko, has called for a parliamentary election - the third in as many years - in an attempt to resolve his never-ending political struggle with his two main rivals, Yulia Tymoshenko and Viktor Yanukovich, the current and former prime ministers.

We sympathize with Yushchenko and his vision of anchoring Ukraine economically and politically in the West. And if new elections help clear up the political mess in Ukraine, well and good. The main thing is to make sure these are elections by and for Ukraine, without meddling from Russia, or the West.

Yushchenko and Tymoshenko were favorites of the West in the 2004 "Orange Revolution." Thousands of Ukrainians went into the streets to overturn the rigged election of Yanukovich, backed blatantly by Russia, as president. But the "Orange" allies soon fell out. Yanukovich was soon back in the Parliament and, for a spell, Yushchenko's prime minister.

In all that time, the three rivals have dismally failed to find a way to share power, seriously hampering Ukraine's development. Part of the problem is the division of Ukraine itself, with Yushenko supported in the European-looking west of the country, Yanukovich in the Russia-leaning east, and Tymoshenko moving back and forth.

The divisions are not going away anytime soon. And they will not be helped by any new meddling from Russia or the United States. After the nasty war in northern Georgia in August, both East and West should have no illusion about the danger of a conflict in the far larger and far better-armed Ukraine. The only way to avoid that, and to move toward political stability, is to leave the Ukrainians to sort out their own identities and prospects.

We still believe that Ukraine's future is with the West. But we don't believe that its Westward journey will be helped by pressures to join NATO so long as a sizeable portion of Ukrainians are against it.

At the same time, all three major political contenders have already declared their support for joining the European Union, which at this stage seems to be the best and most promising route for Ukraine.

Supporting the Ukrainians in this endeavor while staying out of their internal politics seems like the best support the EU and the U.S. could show for this young country.

LINK: http://www.iht.com/articles/2008/10/14/opinion/edukraine.php

SoftServe, Inc. helps global organizations enhance their customer's competitive capabilities by providing the technology and processes that achieve strategic results. With over one thousand professionals on staff, SoftServe provides vendors with a wide range of software development, quality assurance, software maintenance and related services.

Ukrainian National Museum, Chicago, Illinois, Wednesday, October 15, 2008

CHICAGO - “Our Daily Bread”, an exhibition of artworks commemorating the Ukrainian Holodomor-Genocide, opens Friday, October 24th at the Ukrainian National Museum, 2249 West Superior, in Chicago.

“Our Daily Bread” officially opens at 6:30 PM with a program that features a short video by Ukrainian singer Oksana Bilozir and an opening statement by the granddaughter of a Holodomor survivor, Ms. Oryna Hrushetsky-Schiffman.

In 1932 and 1933, between seven and 10 million Ukrainians were deliberately starved to death during the “Holodomor” - or death by starvation. This genocide was masterminded by Joseph Stalin and his inner circle, and was carried out by Soviets who confiscated every last bit of food from Ukrainian peasants who were resistant to collective farming - and who represented the backbone of the Ukrainian people.

This year, 2008, marks the 75th anniversary of the Holodomor, and the government of Ukraine as well as Ukrainians around the world have been organizing events in an effort to expose and publicize this crime against humanity while there are still survivors young enough to recall its horrors.

EXHIBITION FEATURES 54 HOLODOMOR ARTWORKS
In Chicago, the latest event commemorating the Holodomor is an exhibition at the Ukrainian National Museum opening Friday, October 24th. “Our Daily Bread” features 54 artworks that are part of the “Holodomor: Through The Eyes of Ukrainian Artists” collection.

The founder and trustee of the unusual collection, U.S. businessman Morgan Williams, gathered the over 350 original Holodomor artworks in the collection during the last 11 years in Ukraine. Williams is director, government affairs, Washington, D.C., for the SigmaBleyzer private equity investment group and serves as president of the U.S.-Ukraine Business Council (USUBC).

Most of the artworks were created after 1988, when Ukrainians were finally free to evoke the suffering and horrors of the Holodomor in the last days of the USSR, right before Ukraine declared independence in 1991. Before 1988 no one was allowed to talk about this tragedy let alone express themselves through artwork or writings. Many Ukrainian artists may very well have only learned of the Holodomor at that time, after decades of extreme Soviet suppression of the atrocities.

The government of Ukraine has officially declared the Holodomor a genocide against the Ukrainian people and is asking the United Nations to do so as well. Just this past September, the United States House of Representatives passed a Resolution condemning the Holodomor and the former Soviet government’s deliberate confiscation of grain harvests, which resulted in the starvation of millions of Ukrainian men, women, and children.

It was a devastating chapter of Stalin’s reign of terror that wiped out one quarter of the peasantry - and later included the intelligentsia and other leaders of Ukrainian society who were shot and exiled by the hundreds of thousands in an attempt to destroy the Ukrainian nation. And it was carried out at a time when Ukraine, then officially the Ukrainian SSR, had one of the richest farmlands in the world - “the breadbasket of Europe.”

The exhibition will also include a room depicting what life was like in Ukraine prior to enforced collectivization—as well as an evocative walk-through installation depicting the horrors of the Holodomor.

The "Our Daily Bread" Holodomor exhibition is on view through Sunday, November 30, 2008. The Museum hours are Thursday to Sunday from 11:00 a.m. to 4:00 pm. The Ukrainian National Museum is located at 2249 West Superior Street in the Ukrainian Village neighborhood. Call 312-421-8020 or visit the Museum's website, www.ukrainiannationalmuseum.org for more information.
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Raphael Lemkin’s perception of the Ukrainian genocide is a solid recommendation to

the UN Assembly to finally recognize the Ukrainian tragedy for what it was - 'a case

of genocide, the destruction of a nation.

By Roman Serbyn, historian, professor, scholar, Montreal, Canada

Action Ukraine Report (AUR) #912, Kyiv, Ukraine, Saturday, October 18, 2008

MONTREAL - I have reproduced below, excerpts from "Soviet Genocide in the Ukraine", the last chapter of a monumental History of Genocide, written in the 1950's by the Jewish-Polish scholar Raphael Lemkin.

Unfortunately, the monograph has not yet been published and the chapter on Ukraine is known only to a few Lemkin scholars. The whole chapter (12 double-spaced pages) on Ukraine will soon be published in the original English language in the USA and eventually in other languages, in other countries.

Lemkin’s text deserves special attention by the Ukrainian community as it commemorates the 75th anniversary of the tragic events.

Lemkin speaks of:

a) the decimation of the Ukrainian national elites,

b) destruction of the Orthodox Church,

c) the starvation of the Ukrainian farming population, and

d) its replacement with non-Ukrainian population from the RSFSR as integral components of the same genocidal process.

The only dimension that is missing in Lemkin’s excellent analysis is the destruction of the 8,000,000 ethnic Ukrainians living on the eve of the genocide in the Russian Republic (RSFSR).

As Ukraine and the Ukrainian diaspora commemorates, in the coming months of October and November the 75th anniversary of the Genocide against the Ukrainians, it should be inspired by the all-encompassing approach to the analysis of the great Ukrainian catastrophe by the father of the concept of genocide and the man who did most to have it enshrined in the UN Convention of 1948.

Lemkin’s perception of the Ukrainian genocide is a solid recommendation to the UN Assembly to finally recognize the Ukrainian tragedy for what it was — “a case of genocide, the destruction of a nation.”

Roman Serbyn

--------------------------------------------------
RAFAEL LEMKIN

SOVIET GENOCIDE IN UKRAINE (excerpts)
[…]
What I want to speak about is perhaps the classic example of Soviet genocide, its longest and broadest experiment in Russification – the destruction of the Ukrainian nation. […]

[…] As long as Ukraine retains its national unity, as long as its people continue to think of themselves as Ukrainians and to seek independence, so long Ukraine poses a serious threat to the very heart of Sovietism. It is no wonder that the Communist leaders have attached the greatest importance to the Russification of this independent[-minded] member of their “Union of Republics,” have determined to remake it to fit their pattern of one Russian nation. For the Ukrainian is not and has never been, a Russian. His culture, his temperament, his language, his religion – all are different. […]

Ukraine is highly susceptible to racial murder by select parts and so the Communist tactics there have not followed the pattern taken by the German attacks against the Jews. The nation is too populous to be exterminated completely with any efficiency. However, its leadership, religious, intellectual, political, its select and determining parts, are quite small and therefore easily eliminated, and so it is upon these groups particularly that the full force of the Soviet axe has fallen, with its familiar tools of mass murder, deportation and forced labor, exile and starvation.

The attack has manifested a systematic pattern, with the whole process repeated again and again to meet fresh outburst of national spirit. The first blow is aimed at the intelligentsia, the national brain, so as to paralyze the rest of the body. […]

Going along with this attack on the intelligentsia was an offensive against the churches, priests and hierarchy, the “soul” of Ukraine. Between 1926 and 1932, the Ukrainian Orthodox Autocephalous Church, its Metropolitan (Lypkivsky) and 10,000 clergy were liquidated. […]
[…]
The third prong of the Soviet plan was aimed at the farmers, the large mass of independent peasants who are the repository of the tradition, folk lore and music, the national language and literature, the national spirit, of Ukraine. The weapon used against this body is perhaps the most terrible of all – starvation. Between 1932 and 1933, 5,000,000 Ukrainians starved to death, an inhumanity which the 73rd Congress decried on May 28, 1934. There has been an attempt to dismiss this highpoint of Soviet cruelty as an economic policy connected with the collectivization of the wheatlands, and the elimination of the kulaks, the independent farmers was therefore necessary.

The fact is, however, that large-scale farmers in Ukraine were few and far-between. As a Soviet writer Kossior [error: Kosior was party boss of Ukraine – R.S.] declared in Izvestiia on December 2, 1933, “Ukrainian nationalism is our chief danger,” and it was to eliminate that nationalism, to establish the horrifying uniformity of the Soviet state that the Ukrainian peasantry was sacrificed. The method used in this part of the plan was not at all restricted to any particular group. All suffered – men, women, children.

The crop that year was ample to feed the people and livestock of Ukraine, though it had fallen off somewhat from the previous year, a decrease probably due in large measure to the struggle over collectivization. But a famine was necessary for the Soviet[s] and so they got one to order, by plan, through an unusually high grain allotment to the state as taxes.

To add to this, thousands of acres of wheat were never harvested, were left to rot in the fields. The rest was sent to government granaries to be stored there until the authorities had decided how to allocate it. Much of this crop, so vital to the lives of the Ukrainian people, ended up as exports for the creation of credits abroad.

In the face of famine on the farms, thousands abandoned the rural areas and moved into the towns to beg [for] food. Caught there and sent back to the country, they abandoned their children in the hope that they at least might survive. In this way, 18,000 children were abandoned in Kharkiv alone. Villages of a thousand had a surviving population of a hundred; in others, half the populace was gone, and deaths in these towns ranged from 20 to 30 per day. Cannibalism became commonplace.
[…]
The fourth step in the process consisted in the fragmentation of the Ukrainian people at once by the addition to the Ukraine of foreign peoples and by the dispersion of the Ukrainians throughout Eastern Europe. In this way, ethnic unity would be destroyed and nationalities mixed. […]

These have been the chief steps in the systematic destruction of the Ukrainian nation. Notably, there have been no attempts at complete annihilation, such as was the method of the German attack on the Jews. And yet, if the Soviet program succeeds completely, if the intelligentsia, the priests and the peasants can be eliminated, Ukraine will be as dead as if every Ukrainian were killed, for it will have lost that part of it which has kept and developed its culture, its beliefs, its common ideas, which have guided it and given it a soul, which, in short, made it a nation rather than a mass of people.

The mass, indiscriminate murders have not, however, been lacking – they have simply not been integral parts of the plan, but only chance variations. Thousands have been executed, untold thousands have disappeared into the certain death of Siberian labor camps.
[…]

[…] This is not simply a case of mass murder. It is a case of genocide, of destruction, not of individuals only, but of a culture and a nation. […] Soviet national unity is being created, not by any union of ideas and of cultures, but by the complete destruction of all cultures and of all ideas save one – the Soviet.

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Ukrainian National Information Service (UNIS), Washington, D.C. Friday, Oct 3, 2008

WASHINGTON, D.C.- On Thursday, October 2, 2008, the National Capital Planning Commission (NCPC) approved and awarded a parcel of federally owned land to the Ukrainian Government as the site for the Memorial to Victims of the Ukrainian Genocide of 1932-33. Public Law 109-340 authorized the memorial, as signed by President Bush on October 13, 2006.

The Ukrainian Famine-Genocide bill (HR562) was sponsored by Rep. Sander Levin (D-MI), co-chair of the Congressional Ukrainian Caucus, which

passed unanimously in the House of Representatives and Senate in 2005, 2006 respectively.

The adopted site is an approximately 3100 square foot triangular site located at the intersection of North Capital Street, Massachusetts Avenue, and F Street in NW Washington, DC. Office, government, institutional, and residential buildings characterize the general area surrounding the site.

The Postal Museum is across the street, and it is five blocks north of the U.S. Capitol. This open and visible site is situated in a busy and highly trafficked area that serves as a transition point between east and west Washington, DC.

The site is important as the first reservation west of Union Station, and is a significant entrance point from Union Station to NW DC through Massachusetts
Avenue, which is known for its international character.

Speaking about the accomplishment of the site selection, Alan Harwood a Principal with EDAW, Inc., the planning and design firm that is leading the
project team, "the Ukrainian memorial will be located on a wonderful and prominent site in the Nation's Capital. It will be highly visible to many residents, employees, and visitors.”

Although the proposed memorial has not yet been designed, based on preliminary discussions, the Ukrainian Government has stated that it anticipates that the commemoration of this event will consist of a contemplative space with a memorial element appropriate for a landscaped setting. The proposed
memorial is anticipated to “include typical features such as an abstract or allegorical element in a landscaped setting.”

Initiated under the auspices of the Ukrainian Congress Committee of America in cooperation with Rep. Levin’s office, the process has been widely
supported by the Ukrainian American community. The National Committee to Commemorate the 75th Anniversary of the Ukrainian Genocide of 1932-1933 has taken upon itself financing of the Environmental Assessment for the project.

Its chairman, Michael Sawkiw, Jr., thanked the community for their continued financial support: “Without the support of Ukrainian Americans, our dream of having a memorial in Washington, DC would not have come to fruition yesterday during the site selection hearing.”

The Ukrainian Government is confident that it can create a successful and functional public space that befits the site’s prominence in the National Capital,
embracing the site’s natural openness, and seamlessly integrating the memorial into the surrounding environment.

Professor of Political Science at Rutgers University-Newark
The Atlantic Council, New York, NY, Thursday, October 2, 2008

If Europe ever dies, Germany will have killed it.

The community of values that Europe is supposed to be-one that claims to embody democracy and human rights and always gives preference to soft
power over hard-can survive only as long as its largest state shares those values.

Russia is the test that Germany failed. As Vladimir Putin steered his country in an unabashedly authoritarian and neo-imperialist direction, Germany showered him with praise.

When Chancellor Gerhard Schröder called Putin a "true democrat" at the height of Ukraine's Orange Revolution in late 2004, he effectively declared democratic Ukraine's Western aspirations incompatible with Germany's relations with an authoritarian Russia and thereby repudiated democracy.

Last spring's German declaration of solidarity with Putin's opposition to Ukraine's and Georgia's possible NATO membership also revealed the triumph
of hard-nosed geopolitics over democratic values and soft power.

Chancellor Angela Merkel's endorsement of the logic of Putin's opposition-that foreign-policy decisions made by Ukraine's democratically elected political elites are undemocratic while only those endorsed in popular opinion polls by its population are democratic-was a direct repudiation of Ukraine's democratic institutions and a backhand endorsement of Putin's dismantling of democracy in Russia.

Her September 10th designation of Russia's invasion of Georgia as a mere "controversy" that should not overshadow Germany's "shared interests" with Russia went even further than Schröder in sacrificing non-Russian democracy to Russian dictatorship.

Germany's indifference to democratic values is a puzzle. After all, Germany should know better.

It devastated Ukraine, Belarus, and Poland in two world wars; it perpetrated the Holocaust along with a variety of other genocides against Roma and Slavs in Eastern Europe; and it was responsible for the deaths of almost 2 million Ukrainians in World War I and 8 million in World War II. (As Erich Koch, Hitler's ruthless Reichskommissar of Ukraine, said, "I will pump every last thing out of this country. I did not come here to spread bliss.)

One would have expected Germany to be especially sensitive to the democratic aspirations and security concerns of the peoples it came closest to annihilating. Instead, Germany has consistently preferred authoritarian Russia to its democratic non-Russian neighbors.

Gas goes some way in explaining Berlin's preferential option for the Kremlin, but not quite. After all, the Eastern Europeans most critical of Russia-such as Poland and the Baltic states-are far more dependent on Russian gas than Germany.

Lucrative pipeline deals and other commercial ties also don't do the trick: economic logic should dictate a closer alliance with the United States, Germany's largest trading partner, but instead German policy makers are frequently more anti-American in their rhetoric and policy than anti-Russian.

A closer look at history may help explain Germany's anomalous behavior. In 1922, Weimar Germany signed the Treaty of Rapallo with Soviet Russia,thereby paving the way for extensive economic and military cooperation that isolated, and helped destabilize, the fledgling states of
East Central Europe. In 1938, the Molotov-Ribbentrop Pact led to the division of Poland by Hitler and Stalin.

Throughout the 1970s and 1980s, Germany willingly accepted Soviet hegemony in the satellite states (and even snubbed the Solidarity movement), in exchange for rapprochement with East Germany. The Schröder-Putin pipeline deal of late 2005 and Merkel's endorsement of the logic of Putin's opposition to Ukraine's and Georgia's integration into Euro-Atlantic structures continue this pattern.

In all five instances, radically different German regimes consistently pursued the same foreign policy goal. Whether unstable and democratic as in 1922, powerful and totalitarian as in 1938, stable and democratic as during the Cold War, or powerful and democratic as today-German elites, whether Christian Democrats, Social Democrats, or Nazis, forged alliances with an authoritarian Russia at the expense of their democratic neighbors in Eastern Europe.

This overarching vision of Germany's interests is unabashedly geopolitical, pointing to a possible reassertion in today's Germany of the Realpolitik political culture that dominated German foreign policy after unification in 1871 and that produced the disasters of the two world wars.

It's hard to see how Europe-whether as an ethical community or as the European Union-can survive Germany's return to great-power thinking and politics. A truly democratic club of countries cannot unconditionally prefer authoritarianism to democracy in all its dealings with its eastern neighbors.

A truly functioning EU-whether as a club of equals or as a super-state-cannot exist if its largest member is committed to its own interests above all others. (It was Schröder, after all, who in the run-up to the Iraq War declared that he would ignore a UN resolution to support the U.S. invasion.)

Since the problem is political culture, any effective solution must focus on it as well. The Holocaust points the way to just how German elites might be swayed to think differently about politics. The shame of six million dead Jews has kept Germany honest in its dealings with Israel.

The shame of the millions of Poles, Ukrainians, and Belarusians who were killed in two world wars may be the only way to remind Berlin that it cannot just ignore the values and interests of the countries that lie east of Germany and west of Russia in its ruthless pursuit of self-interest.

And the ethical community that is supposed to be Europe could only benefit from a recognition that human rights also exist outside the European
Union's current borders.

LINK: http://www.acus.org/new_atlanticist/can-europe-survive-germany

Window on Eurasia, by Paul Goble, Vienna, Friday, October 3, 2008

VIENNA - The cult of Stalin that has emerged in the Russian Federation over the last decade is more dangerous than its Soviet-era predecessor not only because it celebrates his crimes rather than ignoring them but also because it is finding an increasingly enthusiastic and almost completely uncritical audience among the young.

Christians have a special responsibility to counter this trend by promoting the restoration of historical memory among Russians, according to speakers at a Moscow conference on "Spiritual Resistance in the Church and in Society" organized by the Community of Orthodox Brotherhoods (www.blagovest-info.ru/index.php?ss=2&s=3&id=23080).

The organizers asked participants to address three basic questions: Why after the opening of archives in the early 1990s did Russians not develop immunity" to the evil of Stalinism? "Why did our people turn out not prepared to do what, for example, Germans were able to do? And how can those who experienced Stalin's rule find "a common language" with the young?

Irina Karatsuba, a historian at Moscow State University, told the meeting this week that Russia had lost 137 million lives during the 20th century from wars, revolutions and so on. Of that number, she continued, "the repressed formed a not insignificant fraction." But today, all too few people are focusing on that.

Instead, she said, "surprising things are taking place in our time concerning recollections about this period of our history." Indeed, she insisted, "now we are moving backwards in comparison even with how Khrushchev understood repressions." In his time, Soviet textbooks "hid" what had happened. But now Stalin's terror is presented as not only necessary but useful.

"In certain new textbooks," she continued, the Soviet dictator's actions "are presented as 'an effective instrument without which industrialization and collectivization would have been impossible and without which the country would not have won the war and preserved its sovereignty – and [for the Kremlin and many ordinary Russians] sovereignty is 'our all.'"

According to Karatsuba, the reason this has happened is that in the 1990s, "the root of [this] evil was not pulled out, the people did not repent, and there was not a Nurnberg Process against communism." But she expressed the hope that "now it is still not too late" to do so and to ensure that Russians will be able "to distinguish good from evil."

A second speaker, educator Yevgeny Knorre argued that "the waves of the revival of love for Stalin at the end of the 1960s and the first half of the 1970s and now in the 2000s … are connected with periods of 'the crushing of hopes' and stagnation" – Brezhnev's "zastoy" in the first case and Vladimir Putin's "stabilization" in the second.

In such times, which often are characterized by spiritual emptiness, people are looking for a father figure who can take care of them and lead them out of their difficulties, Knorre said. And he suggested that the Russian Orthodox Church must take a more active role in countering this emptiness much as the Catholic Church has done in Italy.

Oleg Ushakov, a lawyer who spoke third, agreed but suggested that many people in the Orthodox Church are themselves attracted to the idea of a little father tsar and remain attached to "a terrible monarchical ideal" which itself "is also connected with a loss of historical memory and spiritual understanding."

A fourth speaker, identified by Blagovest-Info.ru only as "an elderly artist from Yekaterinburg whose family was "subjected to repressions," said she is shocked by the "nostalgia" for Stalin among his victims, but she added that she is even more "horrified" by school texts that seek to "justify" what Stalin did.

And a fifth speaker, Aleksandr Arkhangelsky, identified only as "not the television announcer," said that these textbooks which argue that Stalin did the right thing are especially dangerous because in Russia today "there are already many young people who are ready to become active bearers of evil."

"If the Church does not interfere," he continued, "then the government will again make use of its ideological and repressive machine," an action that could mean that many of the horrors of the 20th century in the Soviet Union will be repeated in the 21st century in the Russian Federation.

15. OPENING OF SECURITY SERVICE (SBU) INFORMATION CENTER IN KYIV

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