Search site
Action Ukraine Report
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, Economics,
Sports, Government, and Politics, in Ukraine and Around the World
ACTION UKRAINE REPORT - AUR - Number 929
Mr. Morgan Williams, Publisher and Editor, SigmaBleyzer Emerging
Markets Private Equity Investment Group, www.SigmaBleyzer.com
WASHINGTON, D.C., WEDNESDAY, FEBRUARY 18, 2009
INDEX OF ARTICLES -----------
Clicking on the title of any article takes you directly to the article.
Return to Index by clicking on Return to Index at the end of each article.

1. FUELING EUROPEAN COOPERATION
Consumers of Russian gas must show a united front.
Opinion Europe: By Viktor Yushchenko, President of Ukraine
Wall Street Journal, New York, NY, Tuesday, February 17, 2009
2. ECONOMIC FREEDOM IS STILL THE BEST POLICY
Reformers in Central and Eastern Europe still show the way to growth.
Opinion Europe: By Mart Laar, Prime Minister of Estonia from 1992 to 1994
and from 1999 to 2002. He has advised the Georgian government on economics.
The Wall Street Journal Europe, New York, NY, Friday, February 13, 2009

3. THE POLICY OF REVENGE AND PUNISHMENT
“The EU wrote itself out of the script in the Ukraine-Russian gas conflict”
Interview with James Sherr, British Expert, by Mykola Siruk,
The Day Weekly Digest #5, Kyiv, Ukraine, Tuesday, 17 Feb 2009
Dared to tell the truth about the impact of world financial and economic crisis on Ukraine
By Vitalii Kniazhansky, The Day Weekly Digest #5
Kyiv, Ukraine, Tuesday, February 17, 2009

5. ARSENIY YATSENIUK'S 12 POINT ANTI-CRISIS PLAN
Ex-speaker of Ukrainian Parliament offers his own anti-crisis program
Interview with Arseniy Yatseniuk by Mykola SIRUK, The Day.
The Day Weekly Digest, Tuesday February 10, 2009
Interfax Ukraine, Kyiv, Ukraine, Monday, February 16, 2009

Ukrainian News Agency, Kyiv, Ukraine, Monday, February 15, 2009
By Nicholas Johnston, Bloomberg News, New York, NY, Tue, Feb 17, 2009
Ukrainian News Agency, Kyiv, Ukraine, February 16, 2009
10. AUSTRIA PUSHES FOR EU AID TO STRUGGLING ECONOMIES LIKE UKRAINE
By Chris Giles in London, Financial Times, London, UK, Tue, Feb 17 2009
11. UKRAINE CLOSE TO EMISSIONS DEAL WITH JAPAN - SOURCE
By Risa Maeda, Reuters, Tokyo, Japan, Mon, Feb 16, 2009
Ukrainian News-on-line, Kyiv, Ukraine, Monday, February 9, 2009
13. UKRAINE: OVERCOMING POLITICAL AND ECONOMIC CHALLENGES
Interview with Oleh Shamshur, Ukraine's Ambassador to Washington
By Thomas Cromwell, Managing Editor, Diplomatic Alert
DiplomaticTraffic.com, Washington, D.C. Sat, January 31, 2009

14. PBN SAYS THERE WERE NO INITIAL PUBLIC OFFERINGS (IPOs) BY
COMPANIES IN CIS COUNTRIES DURING FOURTH QUARTER OF 2008
Nothing from Russia, Ukraine or other nations of the Commonwealth of Independent States (CIA)
RIA Oreanda - News from Regions, Moscow, Russia, Thu, Jan 15, 2009
UKRAINIAN SUBDIVISION'S ACTIVITY FROM 6 TO 12 COUNTRIES
Now covers Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan,
Moldova, Mongolia, Tajikistan, Turkmenistan, Ukraine and Uzbekistan
Interfax, Kyiv, Ukraine, Friday, December 19, 2009
16. CARGILL'S NET PROFIT IN UKRAINE SOARS BY 2.7 TIMES IN 2008
Interfax, Kyiv, Ukraine, Tuesday, January 27, 2009
FACILITY FOR NUCLEAR FUEL
Enerhoatom signed a contract with Holtec International (United States) in December
2005 on construction of a centralized facility for storage of spent nuclear fuel
Ukrainian News Agency, Kyiv, Ukraine, Thu, Feb 12, 2009

18. STOCKHOLM ARBITRATION TRIBUNAL REJECTS VANCO
Vanco Prykerchenska Ltd, Kyiv, Ukraine, Wed, 16 February 2009.

20. UKRAINE RATINGS MAY BE CUT BY S&P ON IMF LOAN RISK
By Steven McPherson & Daryna Krasnolutska, Bloomberg, NY, NY, Mon, Feb 16, 2009
By Emma O’Brien, Bloomberg News, New York, NY, Tue Feb 17
22. UKRAINE ON THE BRINK
Financial Times, London, UK, Monday, February 16 2009
23. UKRAINE'S LEADERS BICKER AS ECONOMY BURNS
Not long ago, they were Orange Revolution allies. Now, Tymoshenko and Yushchenko despise each other.
By Fred Weir, Correspondent of The Christian Science Monitor
Boston, MA, Wednesday, February 18, 2009
24. UKRAINE WITHOUT FINANCE MINISTER AS INDUSTRIAL OUTPUT DIVES
By Sabina Zawadzki, Reuters, Kiev, Ukraine, Tue, Feb 17, 2009
25. EU NEIGHBOUR UKRAINE AT RISK OF GOING BUST
By Philippa Runner, Euobserver, Brussels, Belgium, Monday, Jan 16, 2009

26. UKRAINE INDUSTRIAL OUTPUT SHRINKS BY OVER A THIRD YEAR ON YEAR Y/Y
Reuters, Kiev, Ukraine, Tuesday, February 17, 2009
=====================================================
1. FUELING EUROPEAN COOPERATION
Consumers of Russian gas must show a united front.

OPINION EUROPE: By Viktor Yushchenko, President of Ukraine
Wall Street Journal, New York, NY, Tuesday, February 17, 2009

For those of us who lived under the Soviet Union, there is a certain irony about energy supplies. We may have been in a Cold War with the West, but Soviet gas always flowed uninterrupted across the Iron Curtain.

Nowadays, thankfully, the Soviet Union is no more -- and yet Russian gas has become a strategic weapon. Those of us who are net importers cannot help but wonder: Is Moscow saying that gas supplies will be a problem unless it can have its sphere of influence once again?

So long as those countries which rely on Russian gas are divided, we put ourselves in a dependent position. Since 2006, though, alarm bells on the gas issue have been largely ignored. Of course Russia deserves a fair price for the exploitation of its natural resources, but the relationship needs to be rebalanced. The politics need to be taken out of the equation and a more normal commercial relationship established.

Whether Moscow is motivated by political concerns or simply a desire to increase the return on its assets, it is in the interests of all importing countries to coordinate our response. Only by cooperating can we maximize our collective bargaining power and secure our individual national interests.

As significant net importers of energy, Ukraine and the European Union have a clear common interest. Energy security for Ukraine, a major transit country, is also the best guarantee of energy security for our European neighbors. The energy security of the wider European space is therefore indivisible.
A strong response to the challenge we face must have at least three elements: liberalization, diversification and conservation.

By 2030, the International Energy Agency predicts, European gas imports will double because Europe won't be able to supply its own energy needs. Much of the extra supply could come from Russia if the necessary investment is made in new production. But unless action is taken now, importers could be in a very vulnerable position.

Liberalizing its energy industry would be in Russia's own best interests. But it will probably resist appeals to do so until the European Union leads by example: encouraging network operators to invest in interconnectors to build the energy grid and pipeline networks of the future, thereby reducing the risk of one customer being played off against another. Energy independence will come through energy interdependence. We all need international trade in energy to be open, transparent and competitive.

The current economic crisis is causing considerable suffering for both households and businesses. This situation provides an added incentive to solve the problem that arises from all of us, Ukrainians as much as our European friends, being at the mercy of a self-interested monopolist.

Working together, we can secure our mutual interests -- and, in the long term, reduce unnecessary friction with Russia. A single, competitive gas market would help depoliticize the EU-Russia gas relationship, with major foreign-policy benefits for Europe. It would also improve the security of supply for all European gas consumers.

The European Energy Community is the obvious building block for this approach, but its scope needs to extend beyond market liberalization and include more proactive and practical forms of cooperation.

For our part, Ukraine is determined to reform our gas sector to encourage investment, increase efficiency by upgrading the pipeline infrastructure to minimize energy loss in transmission, and create a modern EU-compatible energy sector. The EU can further those aims by helping transit countries like Ukraine to reduce reliance on Russian gas, and hence vulnerability to energy blackmail.

One way to reduce reliance on Russia, and an important part of the policy package for any country planning for the long term, is diversification. In Ukraine's case, for example, our untapped Black Sea gas reserves needed to be quantified and exploited with European cooperation. But putting all of our faith in gas is not the answer: The emphasis should be on cleaner technologies.

All of us in the European neighborhood can learn from each other to increase the proportion of renewable sources in the energy mix. In other words, limiting global warming and improving our energy security can go hand in hand.

Short-term deals between Moscow and any country, including Ukraine, are no substitute for this kind of comprehensive energy security strategy. Some of the measures will take time to implement, and so it is essential that the Transit Protocol of the legally binding Energy Charter Treaty is concluded as soon as possible. Agreement and ratification would reassure investors in the pipeline network that transit would occur, and our European neighbors that gas will be delivered.

Action, not further debate, is needed. The EU in particular has the capacity to change the entire dynamic of energy relations across Eurasia. But first it must unite and lead.

Across Europe, the pace of energy reform needs to be increased. Equally, we all need to be more forthright in reacting to the use of energy as a tool of foreign policy. Ending divisions in the European house is the only way to assure energy security for our citizens and industries for the decades to come.
European solidarity can bring warm homes -- and warmer relations with Russia.

LINK: http://online.wsj.com/article/SB123482691915895085.html
--------------------------------------------------------------------------------
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
===================================================
2. ECONOMIC FREEDOM IS STILL THE BEST POLICY
Reformers in Central and Eastern Europe still show the way to growth.

OPINION EUROPE: By Mart Laar, Prime Minister of Estonia from 1992 to 1994
and from 1999 to 2002. He has advised the Georgian government on economics.
The Wall Street Journal Europe, New York, NY, Friday, February 13, 2009

It is said that the only thing that people learn from history is that people learn nothing from history. Looking at how the world is handling the current economic crisis, this aphorism appears sadly true.
Corbis

World leaders have forgotten how the collapse of Wall Street in 1929 developed into a world-wide depression. It happened not thanks to market failures but as a result of mistakes made by governments which tried to protect their national economies and markets. The market was not allowed to make its corrections. Government interventions only prolonged the crisis.

We may hope that, even as we see several bad signs of neo-interventionist attitude, all the mistakes of the 1930s will not be repeated. But it is clear that the tide has turned again. Capitalism has been declared dead, Marx is honored, and the invisible hand of the market is blamed for all failures. This is not fair.

Actually it is not markets that have failed but governments, which did not fulfill their role of the "visible hand" -- creating and guaranteeing market rules. Weak regulation of the banking sector and extensive lending, encouraged by governments, are examples of this failure.

At the same time, it is clear that the invisible hand still points the way out of crises. It is easy to see when we look at how the postcommunist transition countries are tackling the economic crisis. After the collapse of communism, Central and Eastern Europe and the Baltic countries launched several radical reforms and achieved remarkable economic growth.

Some of these countries have trusted the invisible hand more, others less. As a result, not only have the results of reforms been different, but the impact of economic crises as well.

EUROPE AND RECOVERY
During the 1990s the most radical and successful reforms came from the three Baltic States: Estonia, Latvia and Lithuania. Open markets, economic liberalization, fast privatization, stable currencies, flat tax rates -- all of these became the trademark of the "Baltic Tigers."

Early in the new millennium, the Baltic countries started to enjoy the fruits of their reforms. Economic growth reached 11% to 12% per year. Living standards rose to 60% to 70% of the European average from 15% to 20% in 1992.

Yet times of rapid growth are unfortunately not always times of good decisions. Governments thought they could afford a Western-style welfare state because the economy was doing so well. Conservative financial policy was weakened, lending was encouraged, chances to join the euro zone were missed, and social expenditures rose beyond the economy's ability to bear them.

Combine these mistakes with corruption, weak government and loose control of the banking sector, and the results can be very difficult -- as in Latvia, which had to take out a loan from the IMF. Countries with a more effective visible hand, such as Lithuania and Estonia, are doing much better.

Estonia is cutting nearly 10% percent of its government budget, relying more on the market than on state intervention and hoping to keep its finances under control so that it can join the euro zone by 2011.

The situation is even better in some parts of Central and Eastern Europe. While the European Commission last month projected the euro-zone economy to contract by 1.9% this year, most new member states' economies are forecast to grow.

The most positive developments are in countries that have learned from the Baltic experience and introduced radical economic reforms. They have even learned from the mistakes of the Baltic states -- and not tried to become too rich too fast.

The "best" reformer in Central and Eastern Europe, Slovakia, introduced a flat 19% universal tax rate and launched other reforms, allowing Slovakia to join the euro zone last month. The Commission predicts that Slovakia will have the highest economic growth rate in Europe this year, at 2.7%.
At the same time Hungary, which has been very cautious on reforms, has been hit harder by the crisis than the more radical reformers, and like Latvia is now dependent on the IMF. The same experience is seen in former Soviet republics.
Russia has been slow in its economic reforms and built up an authoritarian state; it was hit especially badly by the economic crisis. Russia's aggression against Georgia last August and gas war with Ukraine this January have made the crisis only worse for the Russian people. The trust of foreign investors is gone, and capital is quickly escaping Russia.

Georgia, on the other hand, has followed a very different policy. It has fought against corruption, is building up stronger democratic institutions and has supported a good business climate, which the World Bank ranks 18th in the world.

Making the visible hand more effective has allowed Georgia to trust the invisible hand of the market. This in turn has helped Georgia -- against all odds -- to overcome the results of Russian aggression surprisingly easily so far.

Like the rest of the world, Georgia was hit by the recession. But the response of its government was not to increase taxes, but to cut them and continue with reforms. Georgia's response to the crisis has, according to the IMF's latest report, been more successful than anybody hoped.

So as we see, freedom still works. Moving the world away from free choice and restoring the power of Big Brother is not the right answer to our current problems.

LINK: http://online.wsj.com/article/SB123447962323279585.html
--------------------------------------------------------------------------------
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
===================================================
3. THE POLICY OF REVENGE AND PUNISHMENT
“The EU wrote itself out of the script in the Ukraine-Russian gas conflict”

Interview with James Sherr, British Expert, by Mykola Siruk
The Day Weekly Digest #5, Kyiv, Ukraine, Tuesday, 17 Feb 2009

Head of the Russia and Eurasia Program at the Royal Institute of International Affairs (Chatham House) in London, consultant to NATO on Ukraine, James SHERR is well known both in Ukraine and in the expert circles worldwide. Hopefully, the Ukrainian parliament, government, and their advisors will pay enough attention to the opinion of the British expert.

[The Day] Mr.Sherr, considering latest event: USA intention to push reset button on relation with Russia, Sarkozy’s and Merkel’s statements in Munich
about need of engagement with Russia, talk about Europeanization of NATO — from one side; and, from the other, the Ukraine-Russian gas conflict and the
creation by Russia Rapid Forces of ODKB (CSTO): does not all this mean that Ukraine will be left in a grey zone?

[James Sherr] “Ukrainians have been asking this question for almost twenty years. There are obvious reasons for asking it now, but the future is still wide open. Yes, the Obama administration wants, as Biden said, to ‘press the reset button’ on relations with Russia and explore important areas of cooperation.

And they are absolutely right. But they have been equally emphatic that they will not accept new spheres of influence in Europe. The Secretary General of
NATO has more then once confirmed the Bucharest formula since the Russo-Georgia conflict took place. The United Kingdom has also done so, as have a number of other allies. Anyone knows that there are allies who take a different view, but this was true even before the Bucharest summit.

In my view, the key factor that will decide Ukraine’s future is Ukraine itself. It will be decided not by what Ukraine wishes, but by what it does or doesn’t do. I see no risk that Ukraine will be abandoned. But there is every risk that it will be sidelined because of the harm it is doing to itself and the imperviousness of its leadership to warnings or help.”

[The Day] But has the creation by Russia of ODKB Rapid Deployment Forces and might the decision to remove the US airbase from Manas influence the aim of Scheffer and Obama to fundamentally strengthen the relationship between Russia and the West?

[James Sherr] “The Russian leadership knows that the Obama administration has begun the process of formulating its policies towards Russia and its
neighbours, particularly Ukraine and Georgia, in concrete terms. Naturally, it wants to influence these discussions.

Moscow knows perfectly well that some are urging the new administration to adopt a neo-Realist approach: to seek a grand bargain with Russia and, in
exchange, shelve plans for future NATO enlargement and tacitly concede Russia’s right to some form of ‘privileged’ interest in Ukraine, Moldova and
South Caucasus. Others in the administration adamantly reject this approach. But on both sides of this argument, people will be influenced by what Ukraine is doing to help itself.

“My suspicion is that the decision about the base in Kyrgistan is a way of influencing this discussion: a way of reminding Washington that in Afghanistan Russia can be helpful or cause trouble. The withdrawal of these basing privileges has been under discussion for years. But the base is still there. The decision to close it — which is not the same as closing it — looks like a ‘bargaining chip’.

Incidentally, the threat to deploy Iskander missiles in Kaliningrad when Bush was in power (which never made the slightest sense in military terms) was similar. It was designed to raise the temperature, to extract a concrete concession merely by making a threat.

Now that Obama is determined to lower the temperature, the threat, in all its emptiness, has been withdrawn, and Russia’s gesture will become a further argument for those who are against deploying US missile defences in Central Europe.

“But the issue of strengthening the military component of ODKB and, in particular, establishing Rapid Deployment Forces has a different strategic purpose. Russia can no longer take for granted its monopsomy, its buyer’s monopoly, of gas from Central Asia.

This is less because there is a real risk that the West will succeed in building pipelines across the Caspian than because of the enormous demands of Chinese and Indian markets and Japan’s as well. And although China is vastly more prudent than Russia, it is even more methodical, and it is clearly expanding its influence in Central Asia.

Moscow knows that the main concern for Central Asian regimes remains internal security. By building up the rapid reaction components of ODKB, Russia is underscoring the role it plays in providing internal security and reminding the local players that it can damage their security if its interests are not taken into account.”

[The Day] Does it mean that all the energy resources of this region would be under Russian control?

[James Sherr] “Who can say? But that’s what Russia wants, and they are finding this more difficult. I suspect that Russia will take all necessary steps to maintain the influence that they have enjoyed so far.”

[The Day] Continuing on the energy topic, do you think that Europe learnt the right lessons from recent gas conflict?

[James Sherr] “It’s too early to say. But the EU’s behaviour in this crisis doesn’t suggest that it learnt the lessons of the last one (in 2006).. At that time the EU supported Ukraine. That support pulled Russia back from the brink. By describing the recent crisis as a ‘commercial dispute’ and a ‘bilateral issue’, the Czech EU presidency did some real harm.

[1] First, they either misunderstood or chose to misunderstand its character. However such disputes begin, the notion that the parties can disentangle economics, politics and geopolitics is fanciful.
[2] Second, by taking this line, the EU for several critical days wrote itself out of the script.
[3] Third, this gave a green light to Moscow to do its worst, and that is exactly what happened.

The terms of reference swiftly spread from prices and contracts to wider strategic aims: the discreditation of Ukraine as a transit country and the removal of Ukraine’s gas transit system from Ukrainian hands. Of course nobody in Russia would be so clumsy as to try to assume direct control of this system, and no one there has the financial means to run it.

But what has now become feasible is a European consortium on Russia’s terms and with Russia’s participation. Such an arrangement could make it impossible for Ukraine to do in future what it so successfully did in January: reverse the flow of the pipeline to supply its own gas to its own customers – in other words, decouple the system from Russia’s. God is in the details!

There is a world of difference between joint management of the pipeline by Gazprom and its favoured partners in Europe and the Europeanisation of
Ukraine’s gas transit system on a basis that brings Ukraine closer to Europe. Equally, there is a world of difference between opening the energy sector to assistance — and Ukraine’s energy resources to exploitation — by Western governments and investors and ‘privatization’ by ‘insiders’ and shadow structures.

The latter would only be a continuation of the malign status quo, which benefits small numbers of people at the expense of the country. The fruit of this malign status quo is a grotesquely opaque, wasteful and unaffordable energy system and extreme dependency on outside resources and failure to develop Ukraine’s resources.

“Ukraine has not helped itself in the latest crisis. Russia communicated its position with energy, self-confidence — and with guile, because its narrative made use of the truth in order to conceal it. Ukraine’s communicated the truth belatedly and by whispers.

So as in the Georgian conflict, the Russians knew what they wanted, they knew how to get it, and the other key parties, Ukraine and the EU, found
themselves way beyond the curve. But Russia also nearly wrecked its own game when it cut the supply of gas to Europe on 6 January.

Just as over Georgia, at a key point in the crisis, emotions took over, and a careful, calculated policy became an exercise in vengefulness and punishment. So by the end, the Russians not only damaged Ukraine’s reputation but their own. Yet why should Moscow care so long as Europe is frightened enough to do what it wants?”

[The Day] Does this mean that Europe lacks strong leadership and the problem remains, as Kissinger said, that there is no one in Europe to call?

[James Sherr] “Where energy policy is concerned, there is still no ‘Europe’. There are EU policy documents and national policies. Some national
governments believe there is no problem caused by partnership with Russia that will not be cured by deeper partnership with Russia.

But the more serious issue is the absence of people who are prepared to engage with the political dimension of the energy problems we face. And this is even true of some in the ‘new Europe’, i.e., the latest members of the EU.

Some of their officials have become so assimilated into the ‘old Europe’ and so intent on assimilation that they have shut the door to their history behind them. The ‘European process’ has created a whole new generation of technocratic officials and administrators who no longer care about anything but economics and business. Many of them have forgotten or wish to forget what relationships east of the Prut are like.

And many have also adopted the Maginot line psychology: the belief that ‘Europe’ can insulate itself from non-member states that still suffer from the legacies and burdens which they like to believe they have overcome. Any ordinary intelligent person would see the futility of separating the Russia-Ukraine-Europe energy relationship from the Russia-Ukraine relationship. But this, as a matter of principle, is what many inside the EU tried to do.”

[The Day] Many in Ukraine believe they have a role to play in the European security and defense structure. This point of view was expressed by
Timoshenko in her speech in Munich. Mr. Sherr in your opinion does it make sense for Ukrainian to believe in a structure which does not yet exist?

[James Sherr] “It does exist. Look at the role that EU forces now play in Macedonia and Bosnia. Of course, it has a long way to go. Of course, it has not replaced NATO, but that is not its intention.

“The Prime Minister’s comments at Munich were praiseworthy, but they were also far from reality. The reality is that Ukraine’s image and reputation are damaged across Europe. Deeply. Many European governments and millions of ordinary people blame Ukraine for the fact that homes went unheated in
winter. They don’t blame Ukraine for poor communication, but for incompetence, chicanery and stealing gas.

Their perceptions might be wrong, even fundamentally wrong, but they are a political fact. Ukraine’s most urgent task must be to restore its own credibility: credibility as a partner that can be entrusted with supplying Europe with 40 per cent of the gas that it consumes.

“Ukraine won’t do this until it starts to put its own house in order:
[1] first by preventing political divisions from wrecking the country’s national interests and international relationships;
[2] second, by modernising the energy sector and confronting the interests of those who obstruct its modernisation;
[3] third, by being absolutely honest and professional in explaining the problems it has to face.; and
[4] fourth, by creating the conditions that give others an incentive to help.

The energy crisis provided the clearest possible demonstration that the country’s political and administrative structures do not work properly. Bureaucracies are sclerotic. Information is kept from people who need it.

Responsibility is evaded, initiative is punished. You need to be a detective to know what is decided and by whom. A modern country cannot be run this
way. Whatever its deficiencies, the EU is a modern place. If Ukraine wishes to join it or simply be respected by it, it has to change.”

[The Day] “So this lack also concerns professionalism about European security and defense structure and policy?

[James Sherr] “Participation in Europe’s security and defence will not substitute for internal change. Good policy simply cannot be implemented by bad institutions. In the absence of effective institutions, policies are no more than words and phrases. The EU will respond with words and phrases. So will NATO. If Ukraine wants Barrosso or Scheffer to do something rather than just say something, then Ukraine has to do something. And there is no more time to waste.”

LINK: http://www.day.kiev.ua/264643/
--------------------------------------------------------------------------------
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
===================================================
4. A PROFESSIONAL LEAVES UKRAINIAN GOVERNMENT: VIKTOR PYNZENYK
Dared to tell the truth about the impact of world financial and economic crisis on Ukraine

By Vitalii Kniazhansky, The Day Weekly Digest #5
Kyiv, Ukraine, Tuesday, February 17, 2009

On Feb. 13, 2009, the Verkhovna Rada received the letter of resignation from the Minister of Finance Viktor Pynzenyk. This move was predictable after the sensational memo (immediately called a ‘secret letter’) he wrote to the prime minister and the government was given wide publicity in late January.
In this letter he dared tell the truth about the impact of the world financial and economic crisis on Ukraine’s economy and the consequences Ukraine will have to face because of the government’s success in railroading an essentially unrealistic budget through parliament.

After this Pynzenyk remained silent. He did not meet with the press, and it is not even known whether he was permitted to participate in the negotiations with the IMF mission, which has recently finished its work in Ukraine. Was this the reason why the sides “failed to reach constructive dialogue,” as President Viktor Yushchenko noted?

Meanwhile, Yulia Tymoshenko, who received carte blanche for her further work after the no-confidence vote failed in parliament, decided to change the composition of the Cabinet of Ministers. Strange as it may sound, but Pynzenyk was not mentioned among those ministers who were to leave. Most likely, the prime minister needed him as a precious cover for her ideas and initiatives.
One of The Day’s experts who has known Pynzenyk for a long while said, for good reason, that he was the sole professional in the government. Until he remained in the government, his name would secure one loan after another. His resignation is a huge loss for the government.

In an explanation of his voluntary resignation published on the Ministry of Finance’s website, Pynzenyk said: “This is not my first time in the government. I have always stood for a professional position. I have always been guided by the principles of having a well-balanced budget, minimal deficit, limited debts, financing the deficit from sources other than currency issue, etc.”
He further added: “In the current conditions the professional position of the minister of finance has become hostage of politics. The minister of finance is not able to change this situation. Nor can he abandon his professional approach.”

I think that the minister has revealed a lot, but not everything. Apparently, he accepted the outcome of the IMF mission’s work in Ukraine as his personal professional defeat, although it appears that he has done everything he could in order to break through the government’s iron-hard, populist stand on the budget.

Tymoshenko promptly commented that it is the “weak” who drop out and not everyone can shoulder the burden. A replacement will be found and the unity of the coalition will remain intact. Is this really so simple?
--------------------------------------------------------------------------------
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
==============================================================
U.S.-Ukraine Business Council (USUBC): http://www.usubc.org
Promoting U.S.-Ukraine business relations & investment since 1995.
==============================================================
5. ARSENIY YATSENIUK'S 12 POINT ANTI-CRISIS PLAN
Ex-speaker of Ukrainian Parliament offers his own anti-crisis program

Interview with Arseniy Yatseniuk by Mykola SIRUK, The Day.
The Day Weekly Digest, Tuesday February 10, 2009

True, society is fed up with politics, but when a politician is expressing fresh ideas, she arouses interest.

[The Day] Mr. Yatseniuk, you took part in this year’s economic forum in Davos. Did you see that world leaders are prepared to ride out the crisis together or will every country have to do this on its own?

[Yatseniuk] “My feeling is that the world political elite is aware of the necessity to join forces to ride out the crisis together. Still, no unique worldwide recipe has been devised so far — either in Davos or at the international summit New World, New Capitalism held in early January in Paris.
Everybody is declaring the necessity of combating protectionism but is in fact taking protectionist measures. Everybody says the International Monetary Fund may play an important role as the world’s unique central bank, but in fact this remains just words.

“Nobody wants to have a supranational body that would run the financial system. Everybody is saying we must unite, particularly within the UN framework, but nobody is uniting. So my impression is that everybody will be riding this crisis on their own. A lot of questions have been raised about the crisis of capitalism. I beg to differ. No capitalism has been built. Do we have capitalism in Europe? What Europe has is classical socialism.”

[The Day] What does the US have then?

[Yatseniuk] “There is more capitalism in the US, naturally. But Europe is classical socialism. So what was the difference between America, Europe, and China — a country, which is showing, together with India, positive results today? Both Europe and the US spent more than they earned. Meanwhile, China and India spent less than they earned. This is why the latter have a much larger cushion of competitiveness. Naturally, these countries still have an underdeveloped society as well as social and economic problems.”

[The Day] Mr. Yatseniuk, you noted during the Davos debates that the world economic crisis had become a total crisis for our country. This, naturally, demands new efforts from our politicians. What kind of people should go into politics to be able to really pull this country out of the crisis or at least choose the right way out?

[Yatseniuk] “This is the most difficult question for any responsible individual who has come to power. The first question is, What do we do?. The second is, Who do we do it with? I emphasize that this is for a responsible person. But for the current powers that be it does not matter what to do and with whom — they only wish to remain where they are.
12-POINT ANTI-CRISIS PLAN
“Speaking seriously, I have already drawn up a 12-point anti-crisis plan. The first five points are about the banking system and call for transferring problem assets to a single state bank furnished with maximum liquidity. What has remained of the banking system should be immediately placed under control to avert a domino effect.
Moreover, the banking system should receive liquidity from the central bank in order to exclude the possibility of speculations on the domestic stock market and of the illegal outflow of capital abroad.
Besides, one should impose control — temporarily, during the crisis — on the banks’ credit portfolios so that target-oriented credit programs may be linked to the amount of liquidity made available by the central bank, which will refinance the infrastructure projects that can make it possible to ride out the crisis.
First of all, it is necessary to additionally fund the farming sector this year to forestall social protests. The same applies to construction and automobile-making. In my opinion, we should now draw up and carry out credit programs to stimulate purchase of cars produced in Ukraine, housing, and other domestically produced goods.

“We should urgently impose new rules on the insurance market in order to prevent intentional losses, as well as revise the budget and throw out the stupidities that the MPs managed to railroad.

“Ukraine should urgently begin negotiations with the Federal Reserve, which could, in theory, provide direct or indirect financial aid. Naturally, under no circumstances should Ukraine allow a sovereign default. There should be no difference in gas prices for different sectors.
The entire domestic gas output should be placed under control and put up for auction. We should reduce gas consumption as much as possible and keep intermediaries, including the Russian Gazprom’s subsidiary, away from the market.

“This country faces increased unemployment and the return of at least one million job-seekers from abroad. These people have some money, so I would offer them real training and have their earnings channeled into small and medium-sized businesses. And I would advise having the unemployed involved in ‘Roosevelt-style’ public works.

“I also suggest making a model of the domestic governmental loan and, in general, a wider use of debt instruments inside the country. We should not finance social expenditures by printing money. This would be a catastrophe. We must not withdraw money from the economy and the budget and then spend them again for social needs. We must let the economy work.”

[The Day] And who could do this?

[Yatseniuk] “I do not rule out that a certain government could do this. I will not use the word ‘stopgap’ because there is no such thing as stopgap governments. I mean a government that will come to power before the presidential campaign and will stay on after the inauguration. A new president does not automatically mean a new cabinet: the latter changes only when the coalition breaks up or when there are grounds for an early parliamentary election.
This would be a cabinet that would, firstly, announce that it will not take part in the presidential campaign and, secondly, put forward an anti-crisis plan signed by all the faction leaders who have voted for this plan. This government ought to assume all responsibility and say: look, we are doing unpopular things and are not playing politics.

“Are there people like this? I think so. What is more, they are from the caste of both young and old officials who are prepared to sacrifice their prestige, for the majority of society will never support this kind of things. Society can only support this some time later, when it sees that there is no other way out. And this could work. But I will say this now: I see no possibility. I am idealizing the picture.
In realty, let Tymoshenko work together with her cabinet and her [parliamentary] majority. They have a majority together with the Communists, so let them work and rotate ministers. Let us stop bugging them, for it will be the same story as with the parliament, when the speaker was fired and a new one was elected just on the spur of the moment. When Lavrynovych was putting the matter to a vote, everybody knew there would be no votes.” (Laughs)

[The Day] But the government has no anti-crisis program...

[Yatseniuk] “That is right. There are only some disparate chunks of lobbyism and hopes that if we bail out a certain industry, this will save entire Ukraine. This is absurd. Take car-making, for instance: it is the postponement of death, not a revival.”

[The Day] We are always criticized for a lack of unity among the political elites and the leadership. What can force the leading politicians and political parties to rally together and try to solve the most important problems in this country?

[Yatseniuk] “This is not realistic. Politicians cannot rally together. There should be a strong opposition and a strong coalition. This is a real thing. And all these alliances are nothing but an attempt to divide the pie called state. They identify the state with this kind of a pie with 46 million — pardon the expression — boors and vassals. And what they call unity is nothing but re-division of the spheres of influen­ce. I do not believe in this.
Let everybody do his own business: the opposition will criticize the government and force it to work, while the coalition will bear the responsibility. The only question is rules and procedures. We lack some maturity in these matters. Matu­ri­ty will come in due time. This is why I believe in strong politicians, not in alliances. I want to have a strong opposition, a strong coalition, and strong leaders at the head of these institutions.”

[The Day] You must have heard the well-known philanthropist George Soros say about Ukraine: it is a valuable endangered species, so it is important that Europe help Ukraine and fund programs. Can Europe be really expected to do so in the current situation?

[Yatseniuk] “Europe is now beset with so many problems... In my view, Europe will overcome the crisis later than America will. The US is a mo­re rigid centralized system. It is a classical presidential federal republic that has mo­re clear-cut centers of influence. As for Europe, I can recall the words of Henry Kis­singer: ‘We are prepared to work with Europe. But whom do I call if I want to call Europe?’
The EU is in the same situation. The Lisbon Tre­aty has not been ratified, there is no cohesion and integrity among 27 countries, and socialism and populism are also holding sway the­re. I do not think Europe is now prepared to help Ukraine in any way. Much to our regret, the gas crisis made everybody show their true colors. My feeling is that everybody will be forcing their way up on their own.”

[The Day] Incidentally, well before speaking in Davos, German Chancellor Angela Merkel called upon the European Union to back the Nord Stream alternative project. Does this mean she is siding with Russia, which is interested in this project?

[Yatseniuk] “This is a very old story with extremely deep roots. These roots are linked with large-scale lobbyism of energy companies in the European political life. This is the reason why Europe does not yet have a single energy policy. Nobody wants to have one. Everybody wants to have their own islet of energy. This is no surprise for me. This is Germany’s business. But, at the same time, Germany does not understand one simple thing: the number of gas pipelines does not affect the volume of gas and the number of the supplying countries. One can build a hundred pipelines, but they will all begin in Russia in any case.”

[The Day] As is known, Ukraine has sullied its reputation during the gas crisis...

[Yatseniuk] “We were greatly assisted in this.”

[The Day] How can we restore it? Besides, we should not forget that the Gongadze case is still ‘hanging’ in the PACE.

[Yatseniuk] “The world respects only strong politicians and strong states. The world only res­pects a strong position and a position as such. This is what I can advise. I can give you examples from my own life. If you are taking a stand, you will be respected because it is your own stand, no matter what kind of stand it is.
The same applies to states. This should be done in every concrete case. You cannot take only the gas issue out of the context and say, for instance, that we will restore our reputation thanks to a new gas deal. No. These problems are so closely interconnected that we should resolve them on a comprehensive basis instead of picking out individual elements.”

[The Day] Who will be able to do this?

[Yatseniuk] “I’ll tell you this: I am either stupid or overoptimistic. One thing or the other (Laughs). I do not believe that such a big country will go belly up. This must not happen, for we have been fighting for something else. The country still has people and energy resources that we should pile up. In the conditions of a danger, we must marshal it, although it is being snatched away from all sides.”

[The Day] I cannot help raising the Russia question. Has the animosity in Russian-Ukrainian relations gone too far? Russia has been spewing inadmissible rhetoric in the last while. Recent talks on the border problem showed no progress.

[Yatseniuk] “Do you remember our discussion 18 months ago about what we need in order to develop normal relations between Ukraine and Russia?”

[The Day] Yes, you said we need mutual respect and mutual trust.

[Yatseniuk] “We will not do without Russia. Nor will Russia do without us. The two countries depend very much on each other. But I would not like at all to see Russians, our brothers and friends, resolving their domestic problems by creating an external enemy. We’ve gone through this before. This was in the Soviet era. We are not Russia’s enemies. There is not a single Ukrainian who would be an enemy of the Russian people. The opposite is a lie, a gimmick, a fable.
But neither is there a Ukrainian who is ready to be a vassal of Russia. We are prepared to be friends, to hug and kiss, to have mutually advantageous relations and conduct all kinds of dialogues, including difficult ones. But we are not prepared to kowtow. With all my respect and love for the Russian Federation, we won’t do this.

Incidentally, no matter what someone may say, we are not prepared to kowtow to and are not an affiliate of Washington. Nor are we ‘ammunition bearers’ for Brussels. I am putting all these things next to each other at the same level. I am not against Russians, Americans, or Europeans. I am just for Ukrainians.”

[The Day] But Russia keeps on accusing Ukraine of allegedly illegal arms supplies to Georgia. How can we put an end to this? Why is nobody saying that Russia armed South Ossetia and Abkhazia?

[Yatseniuk] “Who is the world’s biggest arms supplier? Russia. We are not responsible for the way these weapons are used. Likewise, Russia and other supplier countries are not responsible for this. This is up to Russia as a permanent member of the UN Security Council, which, incidentally, voted for Georgia’s territorial integrity twice.

I favor tightening control over arms trade. On the other hand, a serious war is going on in this field for sales markets. So this wave of discrediting is aimed at pushing Ukraine more and more down the list of arms sellers. While we have been one of the top five arms sellers before, today we are among the top ten and tomorrow we will be among the top twenty.
We are supplying weapons for security, not for aggression. I do not support the pattern of actions used by the Georgian leadership during the conflict. But these are the actions of the Georgian, not Ukrainian, leadership.”
[The Day] Speaking of Europe again, do you think Brussels is taking too pragmatic an attitude to Russia as the main supplier of energy resources and is saying nothing to that country about values?

[Yatseniuk] “It is true, indeed, and it has been so for a long time. Europe does not want too many difficulties with Russians. It is absolutely clear now. God forbid Europe should opt for the same relations with Russia as the West once had with the Soviet Union: give us gas and oil, and we will fence ourselves off — do what you please at your own territory. This was the pattern of relations. Only Americans would spotlight values.”

[The Day] But Europe is calling upon us to instill European values. Does it not look like a policy of double standards on the part of the EU? And what if Ukraine joins the EU but the latter will no longer cherish or will even lose its own values?

[Yatseniuk] “Values cannot be lost. It is politicians who may lose values. Meanwhile, values live eternally and are picked up by various societies. But some politicians turn values into a deal of sorts.”

[The Day] Mr. Yatseniuk, can we say that Ukraine has only two ways to choose from: European and Russian capitalism? And what about a third one, i.e., American capitalism? All the more so that things are cheaper in the US than in Europe...

[Yatseniuk] “The two countries are entirely different. So I would not compare us with Americans. We must say frankly that we are very far from them. It still seems to me that the world balance is only possible owing to the United States, Europe, China, and Russia. And the current global disaster – economic crisis – is going to change the players’ influence, not their number.

If someone thinks that he will become stronger in this global disaster, he is badly mistaken. Everyone can only become weaker. This will naturally affect the geopolitical aspect. Ukraine is not a country that needs a king or a queen. I do not believe in this. Even if we elect a king whom everybody will love and who will have a 100-percent rating of trust, exactly six months later 100 percent of the people will favor quartering him. This is the specifics of our nation.
This means there should be a balance of power in the state, as is the case in the outside world. Nobody has the right to monopolize power, truth, and justice. No one should be holier than the Pope. I think these are banal and easy-to-see things about how a society should live.”

[The Day] Let us discuss the party life now. You reportedly wish to establish a party. If the Internet is anything to go by, you have already come under the first attacks?

[Yatseniuk] “Yes, I have.”

[The Day] Rumor has it that Firtash will be your sponsor.

[Yatseniuk] “As you know, everybody can write what he pleases. There are two main political forces that oppose me. Two key headquarters have hired spin masters and are fighting me. There also are two smaller headquarters that represent two lesser political forces. The situation is that I have no allies today. And thank God. I am not seeking allies among politicians. I am seeking allies among the grassroots because I do not trust the current political system and the people who represent it. That’s because I know this system from inside.”

[The Day] Mr. Yatseniuk, can you say which of the oligarchs is going to back you?

[Yatseniuk] “I don’t want to be backed. I will say for all to hear: if some of the oligarchs choose to support me, I will, firstly, gather them all and invite the press. Let them say that they are giving money, why they are doing so, and on what conditions.
Ms. Tymoshenko need not worry: I will write to 100 top Ukrainian oligarchs and invite them to come. Let them say what they are going to support. I will not be hiding. I never cash in on politics.
I will need money to conduct a public campaign and to struggle with them. The money I will get is not for business, for I am not a businessman. It is they who want to go into politics for the sake of business. I will show all this in public.”

[The Day] It is clear that there can be no politics without money — if only the money was legal...

[Yatseniuk] “Oh! Firstly, I am going to move a draft law. Secondly, I will do this even without a law, as I’ve already said: I will appeal to all, to small and medium businesses, and to oligarchs. I will make public the lists of and information on all the people who will contribute financially. Let the people see. This will, incidentally, be an indicator of whether or not they are supporting me. And let the others do the same.

We should not opt for forming an oligarchic pool. In that case you will be a plaything and will run up debts that you will never pay off. This must not be done. I will never play this game. If I wanted this, I would still be the parliament speaker, a ‘top boy.’ I would be sitting there, putting on airs and saying ‘wise’ things.”

[The Day] Incidentally, has the crisis begun yet to affect the economy’s transparency?

[Yatseniuk] “The economy is going to be grayer now. A crisis always makes an economy less transparent, not the other way round. We can already see barter, which immediately influences the index of opaqueness. So we will again have to try to ‘clarify’ the Ukrainian economy.”

[The Day] Why are we still failing to bring our economy out of the shadow?

[Yatseniuk] “It is a very complicated problem which requires an integrated approach to the culture of business and taxation and the system of supervision and control. These things are interconnected.”

[The Day] In what way is the gas war going to affect the political rivalry of parties and the future of our major political forces and their leaders?

[Yatseniuk] “I think the opposition showed a very strange behavior in this gas war. If the current opposition were in power and brought over this kind of a gas contract, the current government, which would be the opposition, would throw it out with pitchforks. Pitchforks! I know what I am saying. So it is a dark story. I don’t want to delve into it. Let it be done by those who are supposed to do it. We must think now what to do next.

I do not rule out that, after a certain period of time, we and Russians will be able to agree, without too much political screaming, to revise the very formula. For the formula is such that, under certain circumstances, the gas price can jump to 0 per 1,000 cubic meters.
We have no right to consume twice as much gas as Poles do. We should not be Europe’s largest buyer of gas and have the lowest per capita GDP. Besides, I have moved a bill on gas monopoly. Let Naftohaz be a monopolist until there is a design to liberalize the electric-power and gas markets.”

[The Day] Speaking again of your dispute with the BYuT, are you really going to run for president?

[Yatseniuk] “I am so far forbidden to run for president. The Constitution says one must be 35 years old. I am still 34. I will turn 35 in May, so ask me then.” (Laughs)

[The Day] All right, I will surely do so. Then tell me please what Ukrainians should do to live to see the presidential elections.

[Yatseniuk] “It will be difficult to live until then. The number one task now is to survive. I am saying this honestly. What we are supposed to do is not grow, reap profits, or launch some outlandish projects. Survival is the word!”

[The Day] How can one survive when factories are being closed and the budget is being revised?

[Yatseniuk] “One must carry out at least half of my anti-crisis plan. Then we will surely survive. This is not the first or the last crisis.”

LINK: http://www.day.kiev.ua/264238/
--------------------------------------------------------------------------------
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
===================================================
6. EBRD READY TO INVEST AROUND EUR 1 BILLION IN
UKRAINE IN 2009, SAYS BANK PRESIDENT MIROW

Interfax Ukraine, Kyiv, Ukraine, Monday, February 16, 2009

KYIV - The European Bank for Reconstruction and Development (EBRD) is ready to invest around EUR 1 billion in Ukraine in 2009, and hopes that systematic steps will be taken to bring the country out of the economic crisis. EBRD President Thomas Mirow said this at a meeting with Verkhovna Rada Chairman Volodymyr Lytvyn in Kyiv on Monday, according to the press service of the Ukrainian parliament.

He said the bank had invested EUR 900 million in Ukraine last year and added that "long-lasting relations between Ukraine and the European Bank for Reconstruction and Development show that Ukraine can count on the EBRD's support."

Mirow said the assistance would involve the stabilization of the banking sector and investment in the modernization of the energy sphere. "Also, we'd like to help Ukraine's small and medium businesses live through these hard times," he said.

He said that amid the current economic situation, it is important not only to take right decisions and take respective steps, but also do this at the right time.
Lytvyn, in turn, stressed the "need to unite efforts inside the country and outside, with foreign partners."

He also described Ukraine's economic situation as "stable in its difficulty." He said that in order to improve the situation, it is very important to stabilize the banking system, regain confidence in banks, and coordinate the efforts of the president and the government in refinancing banks.

"First and foremost, assistance is required for reliable banks and also those of them that finance the economy's real sector," Lytvyn said. He also stressed the importance to amend the state budget. He said that the president and the government should submit an agreed draft of amendments to the budget, whereas the parliament should consider it with local government officials.
--------------------------------------------------------------------------------
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
===================================================
7. RADA DEPUTY YATSENIUK DOUBTS FINANCIAL SITUATION WILL
IMPROVE IN UKRAINE AFTER APPOINTING NEW MINISTER OF FINANCE
Ukrainian News Agency, Kyiv, Ukraine, Monday, February 15, 2009
KYIV - Arsenii Yatseniuk, a Verkhovna Rada deputy, a member of the Our Ukraine - People's Self-Defense Bloc faction, former Verkhovna Rada Speaker, does not believe that after appointing a new minister of finance the situation in this country will improve. This is stated in a press release circulated by the press-service of the Front Zmin public movement led by Yatseniuk.

"The minister of finance is one among the other government members. There is the government, the prime minister who bear responsibility for pursuing economic policy in this country. Therefore, if a minister of finance has different more pragmatic viewpoint, the government ministers are not guaranteed to share the same view," Yatseniuk said.

Yatseniuk thinks Finance Minister Viktor Pynzenyk's decision to resign confirms his assessment of the economic situation in Ukraine as critical. "Viktor Pynzenyk's resignation is a good evidence for his writing the letter on critical economic developments in Ukraine, and the minister's attitude to the budget policy for 2009," Arsenii Yatseniuk said.

The appointment of a new minister of finance will not affect adherence to the state budget-2009, Yatseniuk noted. The newly appointed minister of finance should realize that he/she does not have political future because he/she has to make and execute unpopular decisions, Yatseniuk pointed out.

"If one wants to become a minister of finance, they should frankly tell themselves: "I am here to carry out reforms and I am asking the government to back me; I will not claim for bright political future; the results I will achieve will be seen at least in a year or two. Hence, I am not sure whether anyone is prepared for this today," the former Verkhovna Rada Speaker said.

Yatseniuk expects the situation in Ukraine to get better provided the Cabinet of Ministers does not hesitate to take unpopular steps.

As Ukrainian News reported, Oleksandr Omelchenko, a Verkhovna Rada deputy the Our Ukraine - People's Self-Defense Bloc faction, suggests the Parliament should oust Finance Minister Viktor Pynzenyk.

Finance Minister Viktor Pynzenyk submitted the resignation statement on February 12 saying his professional stance had become a policy hostage.
Tymoshenko explains Pynzenyk's resignation by his inability to meet the global financial crisis challenges.
--------------------------------------------------------------------------------
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
============================================================
NOTE: Send in a letter-to-the-editor today. Let us hear from you.
============================================================
8. OBAMA'S TIES TO SENATOR LUGAR GIVE REPUBLICAN
SUPPORT ON U.S. FOREIGN POLICY

By Nicholas Johnston, Bloomberg News, New York, NY, Tue, Feb 17, 2009
WASHINGTON - In his early days as a member of the Senate Foreign Relations Committee, Barack Obama would dutifully sit through hours-long hearings while more senior members left, an act of deference to the chairman, Senator Richard Lugar, a Republican from Indiana.

“Frequently, Barack Obama and I were the only two people left at the table,” Lugar said in an interview. “On several occasions I made a point just for the record that I appreciated his diligence and patience.”

At a time when bipartisanship has all but broken down in Washington, the young Democratic president and the 76-year-old Republican wise man are quietly working to restore the notion that politics must end at the water’s edge.

The two have spoken on the phone four times since Election Day, a contrast to the limited communication that Lugar had with President George W. Bush over eight years. The Bush-Lugar talks were “certainly not as frequent and as consistent as the contacts between Lugar and Obama,” said Lugar’s spokesman, Andy Fisher.

Lugar sought out Obama, 47, for a spot on the committee shortly after the Illinois Democrat won his seat in 2004, the start of a relationship that included traveling overseas together and that now positions Lugar as an informal senior adviser to the president.

NUCLEAR WEAPONS
The relationship also has given Lugar a powerful new ally in his decades-long quest to control the spread of nuclear weapons. “One of my goals is to prevent nuclear proliferation,” Obama said at his first White House press conference Feb. 9. “I think that it’s important for the United States, in concert with Russia, to lead the way on this.”
Lugar is in an unusually influential position because of his decades of work with many members of the new administration’s diplomatic team. Retired General Jim Jones, Obama’s national security adviser, first met Lugar 30 years ago when he served as the Marine Corps’ congressional liaison.
William Burns, the highest- ranking Foreign Service officer at the State Department, worked with Lugar on his regular trips to Russia, where Burns was ambassador.

And, up until this year, the highest ranking Democrat on the Foreign Relations Committee was Vice President Joe Biden; the two traded off the chairmanship over the past seven years, according to which party had a Senate majority.

‘UNIQUE' TEAM
“The team that’s been assembled now is maybe unique because of the length of our common service and the various good relationships I’ve had with them,” Lugar said Feb. 10, the day before he had a one-on-one breakfast with Secretary of State Hillary Clinton. “I appreciate that there’s been a reaching out on the part of members of the administration.”

A 31-year Senate veteran, Lugar has become a leading Washington voice on stopping the spread of weapons of mass destruction. In addition, he has called for increased aid to Pakistan and more diplomatic contact with Iran to help stabilize Afghanistan.

“Foreign affairs is his issue,” said Leslie Lenkowsky, a professor at the School of Public and Environmental Affairs at Indiana University in Bloomington. “He is essentially going to be ending his career as a respected statesman.”

Tim Roemer, a former Indiana Democratic congressman who is now president of the Washington-based Center for National Policy, said nonproliferation would be an “extremely high priority” for the new administration.

‘BREAK THE LOCK'
“Sixty years ago we had two members of the club,” Roemer said. “Now we have countries like Iran and North Korea trying to break the lock and sneak in.”
As early as 2002, when he was still an Illinois state senator, Obama spoke out on nonproliferation issues, saying the U.S. needs to encourage Russia to better safeguard its nuclear weapons.

Obama’s comments on the issue during his 2004 Senate campaign caught Lugar’s attention, and after the election, Lugar called to congratulate the new senator and suggested he serve on the Foreign Relations Committee.

In the summer of 2005 Obama asked to accompany Lugar on a trip to examine weapons sites in Russia, a rare opportunity because Lugar rarely travels abroad with other lawmakers.
SPENT A WEEK VISITING UKRAINE, AZERBAIJAN AND RUSSIA
The two senators spent a week visiting Ukraine, Azerbaijan and Russia. “He was a very good listener, and a very attentive note- taker,” Lugar said. “This is somebody who was really intent upon learning from these moments.”

RUSSIA INSPECTIONS
The trip included inspections of decommissioned missiles, visits to chemical-weapons labs and a three-hour detention at a Russian airport in a stand-off with customs officers before U.S. and Russian officials intervened. “I couldn’t have had a better guide than Dick,” Obama wrote of the trip in his memoir “The Audacity of Hope.”

Lugar’s work with former Georgia Democratic Senator Sam Nunn on nonproliferation issues is a model for bipartisan cooperation, Obama wrote.
The Nunn-Lugar legislation provided the framework and funding to decommission nuclear-, biological- and chemical-weapon stockpiles in nations that were part of the former Soviet Union.

A follow-up measure, drafted by Obama and Lugar in 2006, aimed to stop the spread of shoulder fired anti-aircraft missiles and was cited by Obama as a central element of his bipartisan record in commercials during last year’s presidential campaign.

CLOSE RELATIONSHIP
Lugar and Obama have a rare close relationship that crosses party lines. Bush faced steady criticism from Biden when the Delaware senator was the senior Democrat on the foreign relations committee. Bush’s predecessor, Democrat Bill Clinton, had a testy relationship with former Chairman Jesse Helms, a North Carolina Republican.

Still, Lugar and Obama have differed over policy. During Obama’s time in the Senate the two disagreed about timetables for the withdrawal of U.S. troops from Iraq, a signature issue of Obama’s presidential campaign, and were on opposite sides of debates on bankruptcy, abortion and taxes.
The changing nature of their relationship was evident in the calls Lugar said he has received from Obama since the election.

“Two of these most recently were in regards to the stimulus package as opposed to arms control,” Lugar said in an interview Feb. 10, a few hours before he voted against Obama’s $838 billion economic proposal.

On most international issues, though, Lugar and Obama will likely remain close allies, as Lugar said he told Obama in their first phone conversation on Nov. 10, less than a week after the election. “We just discussed the fact that we would remain close together in discussing foreign-policy dilemmas that face our country,” Lugar said. “We had a wonderful working relationship, and he said he hoped that would continue and I affirmed it would.”

NOTE: To contact the reporter on this story: Nicholas Johnston in Washington at njohnston3@bloomberg.net
--------------------------------------------------------------------------------
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
===================================================
9. EBRD INTENDS TO PROVIDE EUR 500 MILLION FOR RECAPITALIZATION
OF UKRAINIAN BANKS SAYS EBRD PRESIDENT TOMAS MIROW
Ukrainian News Agency, Kyiv, Ukraine, February 16, 2009
KYIV - The European Bank for Reconstruction and Development (EBRD) intends to provide EUR 500 million for recapitalization of Ukrainian banks.
The EBRD's President Tomas Mirow announced this at a joint press conference with Prime Minister Yulia Tymoshenko.

"The amount [of money for recapitalization of Ukrainian banks] promises to be significantly large. I think that one can speak of about EUR 500 million, which we would be prepared to provide for recapitalization," Mirow said. He did not specify the banks for which the money would be intended because final agreements have not yet been reached.

As Ukrainian News earlier reported, the EBRD has allocated EUR 135 million to Ukraine under a grant agreement for financing safety programs at the Chornobyl nuclear power plant.
-------------------------------------------------------------------------------
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
===================================================
10. AUSTRIA PUSHES FOR EU AID TO STRUGGLING ECONOMIES LIKE UKRAINE

By Chris Giles in London, Financial Times, London, UK, Tue, Feb 17 2009

LONDON - Austria has stepped up its campaign for the EU to aid struggling eastern European economies, with Ewald Nowotny, the governor of the central bank, telling the Financial Times “I cannot imagine a policy of benign neglect will be the last word” for countries of strategic importance such as the Ukraine.

Keen to downplay the problem as one that will bring down Austrian banks, Mr Nowotny insisted that three-quarters of the loans of his country’s banks were to EU eastern European countries with the biggest share in the relatively stable Czech Republic.

Austrian banks, he said, accounted for only 20 per cent of the exposure of western EU banks to Eastern Europe, so “therefore what is important is to see the exposure to this region as a European problem ... and not only an Austrian problem”.

On Monday, S&P, the credit ratings agency, put Ukraine on negative credit watch, as it waits for clarification of the country’s willingness and ability to fulfil the conditions of its International Monetary Fund loan.

A problem in Ukraine could trigger a “domino effect” of economic difficulties in the European Union, Josef Pröll, Austria’s finance minister warned last week.

But Mr Nowotny tried to press home the positive case for engagement with eastern European EU members, saying this would be in the collective interest of western European economies, Germany in particular. “Old Europe,” he said, had a €60bn ($76bn) trade surplus with member states further east, which was vulnerable if these economies were allowed to falter.

While Mr Nowotny insisted that Austrian banks’ loans to customers in eastern Europe were sill healthy, there is little doubt that compared to the size of the economy, Austria is more exposed to the east than other EU states. East European loans account for 75 per cent of gross domestic product, followed by Sweden (30 per cent) and Greece (19 per cent).

Austria’s difficulties with its eastern neighbours has raised the borrowing costs of the government with the yield on Austrian 10-year government debt over 1 percentage point higher than equivalent German debt, still far below the spread in Greece, for example.

Mr Nowotny said that while markets had not differentiated different risks sufficiently within eurozone countries in the past, now “I am afraid we are going from one extreme to another”. “Markets tend to overshoot,” he added.

But the market’s assessment of higher risks in funding the Austrian government has not diminished Mr Nowotny’s desire to promote Keynesian economics on the European Central Bank governing council, an area where most other members are much more cautious.

“What we are relearning – because it is an old Keynesian position – is that if there is a deep recession, monetary policy alone is not enough and has to be supplemented by expansionary fiscal policy”.

With almost all EU countries adopting expansionary policies, he added, “the chances to be effective ... are of course much better than if countries went alone and that is one of the reasons, for me, for cautious optimism”.

LINK: http://www.ft.com/cms/s/0/cc42b276-fc4b-11dd-aed8-000077b07658.html
--------------------------------------------------------------------------------
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
=============================================================
U.S.-Ukraine Business Council (USUBC) www.usubc.org.
Promoting U.S.-Ukraine business & investment relations since 1995.
=============================================================
11. UKRAINE CLOSE TO EMISSIONS DEAL WITH JAPAN - SOURCE

By Risa Maeda, Reuters, Tokyo, Japan, Mon, Feb 16, 2009

TOKYO - Japan is close to completing a deal to buy emissions rights from Ukraine through a government-level trading scheme under the Kyoto Protocol, a source familiar with the talks said on Monday.

Japan has negotiated with about 10 eastern and central European countries over the emission rights, called Assigned Amount Units, in the past two years to help it meet its greenhouse gas emissions target under Kyoto.

"I understand Ukraine is the closest," the source told Reuters in a telephone interview, referring to which country Japan was most likely to purchase its first AAUs. The source declined to comment on the deals size or value, or if there were any other similar deals nearing completion.

Japan said in December it was at odds with Hungary on the price of one such deal. When asked if the gap with Hungary had narrowed, a second source said the situation had since little changed. Now that a global recession has hit energy use, falling demand for emissions credits has dampened market prices.

European emissions permits, seen as the market's benchmark, are currently valued around 8.40 euros ($10.72) per tonne of carbon dioxide. AAUs are often cheaper than EU permits and other project-based offsets due to estimates that global AAU supplies may be several times larger than demand forecasts.

The environmental integrity of AAUs is also in question as the bulk of them are the result of economic restructuring in eastern and central European countries rather than investment in clean energy. Japan is expected to complete the first set of AAU deals based on its past negotiations, market sources said.

REPORT ON UKRAINE
According to an industry publication report, Japan has made an agreement to buy 30 million tonnes AAUs from Ukraine at 10 euros per tonne, with delivery of 15 million tonnes each this year and next. Both sources declined to comment on the report and said Japan would not finalise any AAU contract before April.

"Japan is ready to buy AAUs. But it's hard to make judgments now that the circumstances surrounding the prices are changing," the second source said.
Japan has pledged to buy a total of 100 million tonnes in carbon offsets from abroad between Kyoto's 2008-2012 period.

In the two years through March, 2008, Japan has bought the equivalent of 23.1 million tonnes, all of which are CERs, or offsets generated by clean energy projects in developing countries under Kyoto's Clean Development Mechanism scheme.

There are several factors Japan must take into account to meet the government's planned spending on offsets for the fiscal year to March, including the results of the latest tender to buy project-based carbon offsets.

In the year started in April, 2008, Japan is allowed to buy up to 81.2 billion yen ($885 million) of offsets from abroad. The value is about double the size in fiscal 2007/08.

Japan also set the maximum cost on delivery of offsets from abroad in fiscal 2008/09 at 30.8 billion yen. On behalf of the government, the New Energy and Industrial Technology Development Organisation (NEDO) plays a key role in buying carbon offsets from abroad.

NEDO closed the last tender to buy project-based emission offsets on January 15. The results are now under scrutiny by its supervisors, Japan's trade and environment ministries. It is the fifth such tender this fiscal year. (Editing by Michael Szabo and James Jukwey)
LINK: http://uk.reuters.com/article/oilRpt/idUKT11979920090216?sp=true
--------------------------------------------------------------------------------
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
=========================================================
Receiving more than one copy of the AUR please contact us.
=========================================================
12. U.S. WESTINGHOUSE INTERESTED IN COOPERATION WITH
ENERHOATOM IN PRODUCTION OF NUCLEAR FUEL ASSEMBLIES
IN UKRAINE SAYS U.S. AMBASSADOR WILLIAM TAYLOR

Ukrainian News-on-line, Kyiv, Ukraine, Monday, February 9, 2009
KYIV - The Westinghouse Electric Company, the United States, is interested in co-operation with the Enerhoatom national nuclear power company in production of fuel assemblies in Ukraine, US Ambassador to Ukraine William Taylor told the Q-club Kyiv international energy club.
Taylor also said that launching of the own production would lower the cost of the fresh nuclear fuel for the nuclear power plants. The ambassador confirmed readiness of the American company to expand the cooperation with the Ukrainian nuclear power plants.

As Ukrainian News earlier reported, the Fuel and Energy Ministry of Ukraine hopes for the supply of 42 fuel assemblies of US Westinghouse Electric Company, designed for the loading of the third reaction of the Southern Ukrainian nuclear power plant in Mykolaiv region, at the end of 2009.

In case of the project success, 2011 will give effect to the March 30, 2008 contract Enerhoatom signed with Westinghouse on commercial delivery of nuclear fuel to the Southern Ukrainian nuclear power plant in 2011 - 2015. The contract envisages supply of 630 fuel assemblies for annual planned reloading of minimum three VVER-1000 type reactors of the NPP.

As agreed, the majority of fuel assemblies will be made in the US, but their final assembly and delivery to Ukraine will proceed from Sweden.
Russia's TVEL corporation is the monopoly supplier of nuclear fuel to Ukraine's four NPPs.
NOTE: Westinghouse is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org.
--------------------------------------------------------------------------------
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
===================================================
13. UKRAINE: OVERCOMING POLITICAL AND ECONOMIC CHALLENGES
Interview with Oleh Shamshur, Ukraine's Ambassador to Washington
By Thomas Cromwell, Managing Editor, Diplomatic Alert
DiplomaticTraffic.com, Washington, D.C. Sat, January 31, 2009

Since the Orange Revolution shook up Ukraine’s political world in late 2004, the country has been in almost constant political crisis, but at the same time has seen a significant expansion of its economy. Foreign investment has increased dramatically, and exports have soared.

However the one issue that has hovered like a dark cloud over the economy, and by extension over the country as a whole, has been relations with Russia over the price Ukraine pays for gas it imports from Moscow.

In January 2006, in what was seen at the time as Russia punishing Ukraine for choosing a president opposed by Moscow, Viktor Yushchenko, instead of its favored candidate, Viktor Yanukovych, gas was cut off in the depth of winter, forcing a solution that ended with Russian giant Gazprom setting up a gas trading company with Ukrainian partners that provided the precious energy at a higher price, although still significantly discounted from European prices.

This winter saw a gas dispute once more shake Russian-Ukrainian relations. Moscow once more turned off the gas on January 7 to put pressure on Kyiv. Since Ukraine is the main transit route of Russian gas to Europe, which gets a quarter of its gas from Russia, a dozen countries suffered from the disruption of supplies.

On January 20 Ukrainian Prime Minister Yulia Tymoshenko agreed a deal with her Russian counterpart, Vladimir Putin, that settled the dispute. Ukraine agreed to purchase Russian gas at a discount of 20 percent on the European price, and Russia began pumping gas through Ukraine’s pipelines again. Middlemen companies were removed from future gas trading with Ukraine.
AMBASSADOR OLEH SHAMSHUR
In a recent interview with DiplomaticTraffic.com, Ukraine’s Ambassador to Washington, Oleh Shamshur, discussed the recent developments in his country, and the ever closer relations between Kyiv and Washington.

The ambassador said that Ukraine acted responsibly in the latest gas crisis. “Ukraine behaved as a responsible party in the pan-European gas dispute,” he said. “We did everything we could to avoid disruption of the gas supply to the European consumers.”

He noted that, unlike in 2006, when the cut off of Russian gas caused real hardship in much of Ukraine, which uses gas as a primary energy source for heating homes as well as in industry, this time around gas had been stored in advance and Ukraine got through the crisis relatively unscathed.

“We are glad,” he said, “that due to a new agreement gas has started flowing to the EU consumers, although at a higher price for Ukraine” ($360 per 1,000 cubic meters in the first quarter of 2009, compared to $179.5 in 2008). He noted that transit prices Ukraine charges Russian suppliers for the gas they sell to European customers are yet to be finalized.

He said that gas is only part of the larger issue of energy sector reforms that need to center upon radically improving energy efficiency and energy saving, expanding nuclear power and coal production for its electricity needs, as well as increasing use of alternative energy sources.

Currently nearly 50 percent of Ukraine’s electricity is nuclear-generated, and the country is planning to build additional capacity. According to the National Energy Strategy, nine new nuclear reactors are to be built by 2030, with the first two in Khmelnytska expected to go into operation in 2016.

Meanwhile, the United States and European Union have been actively involved in a program to undertake major overhauls of Soviet-era plants, so that they meet international safety standards.

Last year the government signed a contract with US-based Westinghouse for the supply of fuel for a nuclear plant, as part of a plan to diversify energy sources.
SPENT NUCLEAR FUEL STORAGE
Another strategically important area in energy security is the Central Dry Storage Project for spent nuclear fuel from three Ukrainian nuclear plants (South-Ukraine, Rivne and Khmelnytska), whose implementation by Holtec International will help Ukraine avoid risks associated with a Russian monopoly in reprocessing of spent nuclear fuel.

“We are looking first and foremost to nuclear energy,” the ambassador said. At the same time Ukraine also has extensive coal supplies, which it wants to exploit further for electricity generation.

It already exports electricity to some Eastern Europe countries. Soon it will be linked to the pan-European electric power grid, making it possible for Ukraine to supply more power abroad.

Despite the political turbulence in Ukraine, the volume of foreign direct investment in the Ukrainian economy totaled USD 36.45 billion since independence by mid-2008, before the global financial crisis set in. FDI was $6.9 billion in the first six months of 2008 alone.

In addition to the financial sector, prime sectors for foreign investment are agriculture, food processing, energy and IT, light industry and, at least until recently, construction.
EURO 2010 SOCCER COMPETITION
In the near future, Ukraine's preparations to host the Euro 2012 soccer competition are expected to attract significant investment in telecommunications, commercial real estate, transportation infrastructure, security services and equipment, and financial services. Potential investors will be looking to the government for a clear strategy to prepare Ukraine for this massive event.

US investment in Ukraine was encouraged when Washington’s OPIC, the Overseas Private Investment Corporation, last year signed a memorandum of understanding to resolve a long-standing dispute over an investment that had gone wrong, opening the way for greater confidence among American investors.

Last year also saw a robust increase in bilateral trade, approaching $5 billion, almost equally divided between the United States and Ukraine.

The ambassador noted that although political disputes hardly help Ukraine, his is a democratic country that has not been afflicted by widespread strikes or violence in the streets. “There is more noise than actual impediments to investment,” the ambassador said. “The situation is sometimes volatile, but never life threatening.”

He said that the main area of reform needed is improvement in the legal framework, to reassure investors that they are well protected, and can get legal recourse when needed, in Ukraine. There have been improvements, and “everyone recognizes that doing business in Ukraine is getting easier,” Ambassador Shamshur said.
INTERNATIONAL MONETARY FUND
To help tide Ukraine over its present financial difficulties, the International Monetary Fund agreed to provide a stand-by credit, after the adoption of anti-crisis laws and the signing of a memorandum on anti-crisis measures by the president, prime minister, central bank governor and finance minister. The stabilization standby credit is for 11 billion Special Drawing Rights (SDR), equivalent to $16.5 billion, of which SDR 3 billion has already been received by the National Bank of Ukraine.

The IMF is tracking the use of the funds, to make sure it is consistent with the terms of the MOU. If satisfied, the IMF will release the next tranche on February 15 (SDR 1.25 billion), and the remaining tranches on May 15 (SDR 2.5 billion), August 15 (SDR 750 million) and November 15 (SDR 2 billion).
The ambassador said that banks in Ukraine had become over-extended primarily through offering too much easy consumer credit, and that a fall in the value of the national currency, the hryvnia, had resulted from related weakening of the financial sector. Some 35 percent of the capital of Ukraine’s banks is held by foreign banks, making them susceptible to the global financial meltdown.

The IMF stabilization package aims to restore financial and macroeconomic stability by adopting a flexible exchange rate regime with targeted intervention, a pre-emptive recapitalization of banks, and a prudent fiscal policy coupled with tighter monetary policy, the ambassador said.

In October 2008, after numerous efforts to put an end to increasing political instability, President Victor Yushchenko issued an order dissolving Parliament and calling an early election. By late December, however, after resistance from parliament and in view of the world financial and economic crisis which heavily affected the country, the president reversed his decision in the name of focusing all efforts on addressing the crisis.

The ambassador said that relations with Washington are getting stronger all the time. “Since 2005 we have managed to create a very solid basis for our relations with the United States, that have acquired the status of strategic partnership,” he said. He said a lot of substance has been added to the relationship, “based on shared democratic values and mutual interests.”

At the same time, Ukraine continues to pursue ambitions to join NATO and the European Union, and sees America as a key international ally. Increased trade and investment as well as more students and professional exchange programs will help strengthen ties, the ambassador said.

He said he is looking forward to working with the new US Administration and believes that there is strong support in Congress for closer US-Ukraine ties and for its Euro-Atlantic ambitions.
--------------------------------------------------------------------------------
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
===================================================
14. PBN SAYS THERE WERE NO INITIAL PUBLIC OFFERINGS (IPOs) BY
COMPANIES IN CIS COUNTRIES DURING FOURTH QUARTER OF 2008
Nothing from Russia, Ukraine or other nations of the Commonwealth of Independent States (CIA)

RIA Oreanda - News from Regions, Moscow, Russia, Thu, Jan 15, 2009

LONDON, MOSCOW, KYIV, ALMATY - On 15 January 2009 it was announced, that during Q4 2008, for the first time since Q3 2004, there were no initial public offerings (IPOs) by companies from Russia and other nations [including Ukraine] of the Commonwealth of Independent States (CIS), according to research issued by The PBN Company, the strategic communications consultancy.

Furthermore, H2 2008 was the slowest six month period in terms of CIS IPO activity since H2 2003 – only one company, Russian fertilizer company Acron, floating during the second half of the year, raising just USD 2.7 million in August.

“Given the drastic decline in equity market activity worldwide, it is not surprising that companies from Russia and the CIS have chosen to bide their time,” said Peter B. Necarsulmer, Chairman & CEO of The PBN Company. “An IPO is now part of a medium to long term strategy for companies from the region, as they wait for international and domestic markets to recover and investor confidence to rebound.”

Although there was no IPO activity in Q4, one company did raise funds in the equity markets – Russian retailer Dixy, which floated on Russian exchanges in 2007, raised USD 52 million in an additional share sale on November 24, 2008.

In addition, Concern Tractor Plants, Russia's largest manufacturer of tractors and industrial machinery, completed a technical listing of global depository receipts on December 29, 2008, that raised no additional capital.

NOTE: THE PBN Company is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org.
--------------------------------------------------------------------------------
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
===================================================
U.S.-Ukraine Business Council (USUBC): http://www.usubc.org
From 22 to 100 Members and Still Growing, Join Today
===================================================
15. KRAFT FOODS INC. EXPANDS RESPONSIBILITY OF ITS KYIV-BASED
UKRAINIAN SUBDIVISION'S ACTIVITY FROM 6 TO 12 COUNTRIES
Now covers Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan,
Moldova, Mongolia, Tajikistan, Turkmenistan, Ukraine and Uzbekistan

Interfax, Kyiv, Ukraine, Friday, December 19, 2009

KYIV - Kazakhstan, Uzbekistan, Kyrgyzstan, Tajikistan, Turkmenistan, and Mongolia have been added to the scope of activity of Kyiv-based Kraft Foods Ukraine for the development of Kraft Foods International's business there.

"Kraft Foods Ukraine received an enlarged sphere of responsibility for the development of the company's business on additional six markets: Kazakhstan, Uzbekistan, Kyrgyzstan, Tajikistan, Turkmenistan, and Mongolia," reads the company's statement on Friday.

Thus, Kraft Foods Ukraine has become a regional center for 12 East European and Central Asian markets. Earlier, the markets of Kazakhstan and Uzbekistan belonged to the sphere of responsibility of Kraft Foods International's Russian-based subdivision.

Today Kraft Foods Ukraine is also in charge of the development of the company's business in Moldova, Belarus, Armenia, Georgia, Azerbaijan and Ukraine.

Kraft Foods has been working in Ukraine since 1994. It operates on the chocolate, coffee and salty snacks markets. It runs Trostianetska confectionery and a Vyshgorod-based potato chips production and coffee packing division in Kyiv region.

In Ukraine the company sells products under the following brands: Korona,Milka,Shokoladna Fabryka Ukraina,Siesta,Lux,Jacobs,Maxwell House,Carte Noire,and Cote d'Or.

NOTE: Kraft Foods is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.com.
--------------------------------------------------------------------------------
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
===================================================
16. CARGILL'S NET PROFIT IN UKRAINE SOARS BY 2.7 TIMES IN 2008

Interfax, Kyiv, Ukraine, Tuesday, January 27, 2009

KYIV - Kyiv-based CJSC AT Cargill, a large operator on the grain and sunflower seed markets, has posted UAH 548.446 million net profit, which was 2.7 times up on 2007. As the company said in a statement, its assets last year rose by 73.2% to UAH 2.65 billion.

As reported, international food and agriculture supplier Cargill has been working in Ukraine since 1991. In 1995, it built a plant for the production of hybrid sunflower seeds in Donetsk region's Starobeshevsky district.

In 1997,the company launched a plant for the production of mixed fertilizers in Mariynsky district and in April 2000 it commissioned a sunflower seed processing plant (300,000 tonnes of seeds a year) outside the city of Donetsk.

In 2005,Cargill bought a sunflower oil refining complex in Kakhovka (Kherson region),from the Chumak company. In 2007,Cargill's net profit grew by 6.7 times,or by UAH 169.96 million compared to 2006,to UAH 199.857 million. Its assets in 2007 shrank by 3%,to UAH 1.53 billion.

All stocks of CJSC AT Cargill belongs to U.S.-based Cargill, according to the State Commission for Securities and the Stock Market of Ukraine.
NOTE: Cargill is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org.
--------------------------------------------------------------------------------
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
===================================================
17. UKRAINE CABINET ENDORSES FEASIBILITY REPORT ON
CONSTRUCTION OF CENTRALIZED SPENT FUEL STORAGE
FACILITY FOR NUCLEAR FUEL
Enerhoatom signed a contract with Holtec International (United States) in December
2005 on construction of a centralized facility for storage of spent nuclear fuel

Ukrainian News Agency, Kyiv, Ukraine, Thu, Feb 12, 2009

KYIV - The Cabinet of Ministers has endorsed a feasibility report on investments in the construction of the centralized spent fuel storage facility for nuclear fuel spent at Ukrainian nuclear power plants' VVER reactors, reads the government directive No. 131 issued on February 4. Project capacity of the spent fuel storage facility is 16,529 of spent-fuel assemblies.

In particular, the facility will be designed to store 12,010 of spent-fuel assemblies of pressurised water reactors of VVER-1000 type and 4,519 spent-fuel assemblies of VVER-440 type reactors.

Project capacity of the spent fuel storage facility startup complex will make 3,616 of spent-fuel assemblies, of them 2,511 spent-fuel assemblies of VVER-1000 type reactors and 1,105 of spent-fuel assemblies of VVER-440 type reactors.

Estimate cost of the storage facility construction is UAH 3,675,463,565, while construction of the startup complex UAH 1,226,697,553.
The term to build the startup complex is thirty-six months.

The Cabinet ordered the Fuel and Energy Ministry and the Enerhoatom national nuclear energy generating company when designing the project of construction of the spent fuel storage facility to take into account relevant recommendations by the State Nuclear Regulatory Committee.

Kyiv Research-And-Development and Project-Designing Institute Enerhoproekt drew the feasibility report on the construction of the centralized spent fuel storage facility and recommended for approval by the state enterprise UkrDerzhBudEkspertyza.

As Ukrainian News earlier reported, according to the draft feasibility report on the project, the preferable location of the storage facility is near the Vektor complex (the complex for processing and burial of low- and medium-active radioactive waste) in the Chornobyl exclusion zone.

Enerhoatom signed a contract with Holtec International (United States) in December 2005 on construction of a centralized facility for storage of spent nuclear fuel from three Ukrainian nuclear power stations (the Rivne, Khmelnytskyi, and Southern Ukrainian nuclear power stations).

NOTE: Holtec International is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org.
--------------------------------------------------------------------------------
[return to index] Action Ukraine Report (AUR) Monitoring Service]
===================================================
Welcome to send us names for the AUR distribution list.
===================================================
18. STOCKHOLM ARBITRATION TRIBUNAL REJECTS VANCO
PRYKERCHENSKA'S REQUEST TO PROHIBIT UKRAINE'S
CABINET OF MINISTERS FROM USING PRYKERCHENSKYI
BLOCK PENDING CONSIDERATION OF ITS LAWSUIT

Ukrainian News Agency, Kyiv, Ukraine, Friday, February 13, 2009

KYIV - The Arbitration Institute of the Stockholm Chamber of Commerce on Friday rejected a petition by the Vanco Prykerchenska Ltd (Virgin Islands) to prohibit the Cabinet of Ministers from using the Prykerchenskyi oil and gas block on Black Sea shelf until the arbitration institute completes the consideration of the complaint that the company filed against the Cabinet of Ministers.

The press service of First Deputy Justice Minister Yevhen Korniichuk announced this in a statement. "Not long after New Year Vanco Prykerchenska Ltd asked the arbitration tribunal to issue a separate injunction prohibiting the government of Ukraine from using the Prykerchenskyi strip on which the company was supposed to operate until the consideration of the case is completed," Korniichuk said.

According to Korniichuk, Ukraine filed an objection to this petition on January 30 and the first arbitration hearing in the case was held on February 11 and it focused on the petition.
"We have already obtained today a decision in which the request of representatives of Vanco Prykerchenska Ltd to issue such an injunction was rejected. The tribunal confirmed that the Ukrainian government's jurisdictional sovereignty was unlimited. In this aspect of the case filed by Vanco Prykerchenska Ltd, the arbitration ruled in favor of the state of Ukraine," Korniichuk said.

He also said that the arbitration institute received assurance from Prime Minister Yulia Tymoshenko that the government was not planning to use the above-mentioned strip and not planning to take any actions involving prospecting, development, or mining of hydrocarbons until a final decision on this case is made.

"In our objections, we provided a sufficient number of documentary proof in this regard. It was important for us to defend our position to ensure that such an injunction was not issued," Korniichuk said.

According to him, an injunction prohibiting the government from using the Prykerchenskyi oil and gas block on Black Sea shelf would limit the procedural abilities and the sovereignty of Ukraine.

As Ukrainian News earlier reported, the Cabinet of Ministers refused on August 5, 2008, to resolve its conflict with Vanco Prykerchenska Ltd out of court because the company filed a complaint with the Arbitration Institute of the Stockholm Chamber of Commerce.

On June 18, 2008, President Viktor Yuschenko suspended the Cabinet of Ministers' resolution that canceled the permission to conclude a product-sharing agreement with the Vanco International company (Bermuda) for oil and gas deposits in the Black Sea shelf's Prykerchenskyi bloc.

On May 21, 2008, the Cabinet of Ministers canceled its resolution No. 828 of October 3, 2007, that approved conclusion of a product-sharing agreement with Vanco International for the Prykerchenskyi bloc.
On April 25, 2008 the Environmental Protection Ministry canceled Vanco Prykerchenska's license to develop oil and gas deposits at the Prykerchenskyi block. In response, Vanco Prykerchenska launched arbitration proceedings against Ukraine.

On October 19, 2007, the Cabinet of Ministers and Vanco International signed a product-sharing agreement for the Prykerchenskyi block. Vanco International ceded all the rights and obligations under the product-sharing agreement to Vanco Prykerchenska Ltd.
In April 2006, the Cabinet of Ministers declared Vanco International Ltd., a subsidiary of Vanco Energy Company (United States), as the winner of a competition for the right to develop oil and gas deposits in Prykerchenskyi block.
NOTE: Vanco International is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org.
--------------------------------------------------------------------------------
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
===================================================
19. UKRAINE: VANCO PRYKERCHENSKA LTD SATISFIED WITH THE
PRIME MINISTER'S UNDERTAKING NOT TO TAKE ANY ACTIONS
CONCERNING THE PRYKERCHENSKA AREA WHILE THE PRESENT
ARBITRATION CASE IS IN PROGRESS

Vanco Prykerchenska Ltd, Kyiv, Ukraine, Wed, 16 February 2009.

KYIV - Vanco Prykerchenska Ltd is satisfied with the Prime Minister’s undertaking not to take any actions concerning the Prykerchenska area while the present arbitration case is in progress.

The Arbitral Tribunal’s expectation that the Ukrainian Government will honour the undertakings of the Prime Minister not to take any actions on the Prykerchenska Block that may adversely affect the rights of Vanco Prykerchenska was expressed in an official Order issued on 13 February 2009 to both parties to the Arbitration.

Vanco Prykerchenska Ltd (VPL) has been concerned for some time that the Ukrainian Government may take certain measures regarding the Prykerchenska area of the Black Sea that would permanently damage the company’s interests by the time that VPL eventually wins the Stockholm Arbitration.

Consequently, during December 2008 VPL formally requested the Arbitral Tribunal to instruct the Ukrainian Government not to do anything with the Prykerchenska Block during the arbitration process.

VPL’s request brought an unprecedented reply from the Government in the form of an official letter to the Arbitral Tribunal from Prime Minister Julia Tymoshenko herself. In her letter of 29 January 2009, the Prime Minister made a solemn undertaking that the Ukrainian Government will do nothing to the Prykerchenska area, which could negatively affect Vanco Prykerchenska’s rights, while arbitration over the Prykerchenska Hydrocarbon Sharing Agreement (HSA) is in progress.

By such letter, the Ukrainian Government expressly gave VPL the guarantees it sought by its application to the Arbitral Tribunal of December last year. VPL believes that this is the first time that a Ukrainian Prime Minister has ever given an official undertaking of this kind to an international arbitral tribunal.

In its Order #3 dated February 13th 2009 the Arbitral Tribunal, took note of the Prime Ministers official undertaking not to take any actions aiming at exploration and/or production of hydrocarbons on Prykerchensky Block, and emphasized that it expects the State of Ukraine to abide by the Prime Minister’s undertaking while the case is pending before the Stockholm Arbitration Court. As a result of the assurances from the Prime Minister, the Arbitral Tribunal did not have to issue a formal order to protect the Prykerchenska Block.

Vanco Prykerchenska Ltd. welcomes the undertaking made by the Cabinet of Ministers in response to the Company’s application for an interim order from the Arbitral Tribunal, and the confirmation of such undertaking by the Arbitral Tribunal in its Order of 13 February 2009:

"The official undertaking by the Government of Ukraine has given us the assurances we sought in our application for interim measures of December last year, and the Arbitral Tribunal has made it clear that it expects that the Government will keep its promises. However, I would like to emphasize once again that our Company remains ready for a constructive dialogue with the Government in order to resolve all issues," Jim Bown, President of Vanco Prykerchenska Ltd stated.

For more information, please contact: Ruslan Skyba, PR-manager, "Vanco Prykerchenska Ltd," Тel (044) 207-42-65, e-mail: rskyba@vpl.kiev.ua.
NOTE: Vanco International is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org.
--------------------------------------------------------------------------------
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
===================================================
20. UKRAINE RATINGS MAY BE CUT BY S&P ON IMF LOAN RISK

By Steven McPherson & Daryna Krasnolutska, Bloomberg, NY, NY, Mon, Feb 16, 2009
KYIV - Ukraine’s credit ratings may be cut by Standard & Poor’s, which cited growing risks to a loan arrangement with the International Monetary Fund.

S&P placed the country’s B long-term foreign currency sovereign rating and B+ local currency rating on watch for a possible reduction of “one or more notches,” it said today in an e-mailed statement. A decision will be made in the next two weeks, depending on Ukraine’s response to a request for clarification on how it will implement the loan program.

Ukraine turned to the IMF for a $16.4 billion loan in November, pledging to balance its state budget. The country’s decision-making has been hampered by political clashes between President Viktor Yushchenko and Prime Minister Yulia Timoshenko, whose Cabinet planned a 2.97 percent budget gap for this year.

“Political institutions remain fragile due to the deteriorating real economy and the absence of a clear and enforceable power-sharing arrangement between the government and presidency,” S&P said. “Political commitment to implementing the IMF loan’s conditions is wavering against a backdrop of sharply contracting growth, weakened terms of trade and approaching presidential elections” probably in January 2010.

Eastern Europe’s economies have been hit by the global financial crisis and recession, which has cut demand for exports while limiting credit and investment. Ukraine was among countries in the region that needed international aid to stabilize its banking system and the currency a time when power struggles hamper government efforts to revive economic growth.

FITCH RATINGS
Another international agency, Fitch Ratings, cut Ukraine’s ratings to B, the fifth-highest non-investment grade on Feb. 12 and kept the outlook “negative,” indicating they may fall further.

Moody’s Investors Service may also follow Fitch and S&P and cut Ukraine’s ratings, ING Groep NV in Kiev said today.

“As the Moody’s rating is still one notch higher, we believe it may also downgrade Ukraine in the near future,” said ING in an e-mailed notes to clients.
The hryvnia was the third-worst performing currency against the dollar last year, losing more than 38 percent. The currency devaluation is S&P’s baseline expectation, the report said.

‘PRESSURE ON BANKS’
“The near total closure of the external borrowing channel has contributed to a loss of confidence of domestic economic agents in the stability of the exchange rate and the banking System,” S&P said. “Pressure on banks’ capital has also been increased due to a rapid system deterioration of loan quality, implying rising costs to the sovereign due to the need to recapitalize the financial system.”

S&P lowered Ukraine’s credit ratings twice in 2008 on concern over the country’s banking system, weakening hryvnia and slowing economic growth.
Ukraine’s growth slowed to 2.1 percent last year, compared with 7.6 percent in the previous year. The economy may contract 9 percent this year, according to Alexander Morozov, the chief economist in Moscow for HSBC Holdings Plc, Europe’s biggest bank.

To contact the reporters for this story: Steven Mcpherson at smcpherson@bloomberg.net, Daryna Krasnolutska in Kiev at dkrasno
--------------------------------------------------------------------------------
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
===================================================
Please contact us if you do not wish to receive the AUR.
===================================================
21. UKRAINE'S HRYVNIA MAY DECLINE 19% IN NEXT SIX
MONTHS AS ECONOMY WORSENS

By Emma O’Brien, Bloomberg News, New York, NY, Tue Feb 17

MOSCOW - Ukraine’s hryvnia may tumble 19 percent against the dollar in the next six months as a deteriorating economy and dearth of foreign investment forces the country to abandon its management of the currency, according to five analysts surveyed by Bloomberg.

The hryvnia may slide to 10 per dollar by the end of August, according to the median estimate of the economists and currency strategists surveyed by Bloomberg yesterday. The hryvnia plunged 43 percent since August to 8.2625 per dollar as the economy spiraled toward recession and the International Monetary Fund pledged $16.4 billion in emergency loans.

“Ukraine is really facing an uphill battle,” said Lars Rasmussen, an emerging-markets strategist at Danske Bank A/S in Copenhagen, who forecasts the hryvnia will be at 10 per dollar in six months. “They need to be less focused on holding their currency and concentrate their money on other problems in their economy.”

Ukraine’s economy may shrink 9 percent this year, as the worst global financial crisis since the Great Depression damps demand for its exports and leaves the former Soviet republic struggling to fund deficits in its current account and budget, according to HSBC Holdings Plc, Europe’s biggest bank.
The nation’s reserves slid almost 9 percent to $29 billion in January, as the central bank “regularly” bought and sold foreign currency to control the hryvnia, according to its head of external relations, Serhiy Kruhlik.

DEFICITS
The forecasts in the survey ranged between 8.5 and 11 per dollar. The hryvnia lost 2.6 percent against the U.S. currency this year. It weakened 1.4 percent to 8.2615 per dollar by 3:08 p.m. in Kiev and was 0.3 percent lower at 10.4357 per euro.

Ukraine is struggling to fund a $12.3 billion current- account deficit amid the worldwide seizure in credit markets and a slump in the price of steel, its biggest export. Industrial production slid an annual 34.1 percent in January, the fastest pace in Europe, and steel output declined 46 percent, the state statistics committee said today.

The country passed its 2009 budget in December with a planned deficit of 2.97 percent of gross domestic product. Finance Minister Viktor Pynzenyk submitted his resignation last week because of his opposition to the deficit, which violates IMF requirements. The Washington-based body offered the loan on the condition Ukraine runs a balanced budget.

IMF SUPPORT
“The market is really nervous about them losing their IMF support,” Rasmussen said. “The IMF may use them as an example to say, look, we want to help but if you’re not fulfilling your side of the bargain, goodbye.”

Fitch Ratings reduced Ukraine’s credit rating to B last week, five levels below investment grade, amid concern the economy will shrink 4.5 percent this year. Standard & Poor’s said yesterday it may also cut the country’s rating because of concern the IMF loan arrangement may be at risk.

“If Ukraine’s IMF program goes off-track, the economy will find itself falling into the abyss,” said Ivan Tchakarov, an economist in London for Nomura Holdings Inc., which has the hryvnia at 8.5 per dollar in six months time. “But given the kind of deterioration the economy has experienced since the announcement of the program, I think the IMF and Ukraine will meet somewhere in the middle ground.”

The IMF expects the hryvnia to average 8.6 per dollar this year, said Petro Poroshenko, head of the central bank’s council, Kommersant-Ukraine newspaper reported today.

Table of analysts’ forecasts:

Institution Hryvnia vs dollar in six months
Nomura Holdings Inc. 8.5
ING Groep NV 9.2
Danske Bank A/S 10.0
Citigroup Inc. 10.2
Commerzbank AG 11.0

To contact the reporter on this story: Emma O’Brien in Moscow at eobrien6@bloomberg.net
--------------------------------------------------------------------------------
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
===================================================
22. UKRAINE ON THE BRINK

Financial Times, London, UK, Monday, February 16 2009

Ukraine's name, by some accounts, means "at the edge" - which is where its economy finds itself today. Austria's finance minister warned last week of the risk of an economic "catastrophe" in the 46m-strong country triggering a "domino effect" of problems further west.

Ukraine's finance minister, meanwhile, resigned amid differences over budgetary policy that delayed the second tranche of a $16.4bn International Monetary Fund loan, due this weekend.

Fitch downgraded the country's credit ratings to B. Some forecasters say the economy could contract by 10 per cent this year; the national currency has slid 40 per cent against the dollar. Spreads on Ukraine's credit default swaps are over 3,000 basis points.

Demand and prices have plummeted for steel, previously 40 per cent of Ukraine's exports, while industry faces higher prices for Russian gas. Cheap foreign financing has dried up. The woes are compounded by the fact that the president and prime minister, leaders of the 2004 Orange Revolution, spend more time mudslinging than working together on coherent anti-crisis policies.

The main sticking point over the IMF loan is a projected 3 per cent budget deficit this year, when the IMF's conditions stipulated a balanced budget. But scope remains for a compromise to get the IMF programme back on track.

If so, notes Dresdner Kleinwort, with public sector gross external financing needs of $3bn this year, the country should still be able to service its sovereign debt, which accounts for only about one-fifth of its total $105bn external government and corporate debt.

But with gross financing needs of about $45bn for the economy as a whole, mounting corporate and bank defaults are inevitable - as in Russia. Russia, however, has greater resources for selective corporate bail-outs. And its less dire economic position gives Moscow potential to reassert influence. Russia is one of several partners from whom Ukraine is seeking $5bn of loans to bridge its budget gap.

LINK: http://www.ft.com/cms/s/0/2a5114e0-fbc8-11dd-bcad-000077b07658.html
--------------------------------------------------------------------------------
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
=========================================================
U.S.-Ukraine Business Council (USUBC): http://www.usubc.org
Promoting U.S.-Ukraine business investments since 1995.
=========================================================
23. UKRAINE'S LEADERS BICKER AS ECONOMY BURNS
Not long ago, they were Orange Revolution allies. Now, Tymoshenko and Yushchenko despise each other.

By Fred Weir, Correspondent of The Christian Science Monitor
Boston, MA, Wednesday, February 18, 2009

KIEV, Ukraine - Rearranging the deck chairs on the Titanic.

That's how many Ukrainian observers describe the very public, escalating power struggle between liberal president Viktor Yushchenko and his erstwhile ally in the Orange Revolution, the fiery populist prime minister, Yulia Tymoshenko.

To many observers, Ms. Tymoshenko and Mr. Yushchenko are already fighting presidential elections that are nearly a year away and are using their official positions mainly to undermine any decisions taken by the other. In recent weeks, both have issued statements blaming the other for the country's galloping financial crisis, which has seen the hryvna plunge in value by nearly 60 percent, Kiev's main stock market fall by 75 percent, and most banks cease lending or even returning depositors' cash.

DIRTY POLITICAL LAUNDRY ON NATIONAL TV
In an internal memo leaked to the Ukrainian media late last month, Ukraine's finance minister, Viktor Pynzenyk, warned that the economy is on the verge of collapse: "We have entered an extremely serious and deep crisis. Ukraine's [economic] situation is the worst in the world."

Following the memo's publication, Yushchenko took to the airwaves to blame it all on the "populism" of Tymoshenko, whose 2009 budget incurs a huge deficit to pay public sector wages, pensions, and other social obligations. As a result of her "irresponsibility," Yushchenko charged, "salaries, pensions, and stipends will no longer be paid.... all this can bring about a social catastrophe."

Tymoshenko appeared on TV the next day to accuse the president of spreading "falsehood, panic, and hysteria. Everyone can see that the president is not the kind of leader they need when Ukraine is reeling under the blows of the global economic crisis." Surveys show that nearly 85 percent of Ukrainians believe there is no government order in the country.

"It's a good thing when they compete in elections, but when they continue competing afterwards, it's disastrous," explains Vira Nanivska, president of the National Academy of Public Administration in Kiev. "It becomes impossible for needed decisions to be taken."

A REVOLUTION'S BITTER AFTERTASTE
In 2004's Orange Revolution, Tymoshenko and Yushchenko worked together to defeat pro-Moscow leader Viktor Yanukovych. During weeks of protests in Kiev's freezing main square it was usually Tymoshenko, a passionate orator, who would warm up the crowds before turning the stage over to the more measured and cerebral Yushchenko.

Following Yushchenko's election as president, the two quickly had a falling out. Within a year, Yushchenko dismissed her from the prime minister's job. Tymoshenko has since clawed her way back to power in parliamentary elections and now leads a fragile majority parliamentary coalition.

"There was a binary charisma between them that won the Orange Revolution, but which has now acquired an equally compelling explosive force," says Dmytro Vydrin, a member of Yushchenko's National Constitutional Council.

POLITICAL RUMBLES REMAIN FROM GAS DISPUTE
Last month, Tymoshenko traveled to Moscow to sign a deal with Russian Prime Minister Vladimir Putin ending a two week pipeline dispute that had cut energy supplies to 18 European countries. But she was forced to agree to a near doubling of the price for gas. Yushchenko subsequently denounced the accord as a betrayal of Ukraine's national interests, and vowed to overturn it – a threat he later retracted under pressure from nervous Europeans.

Last week, Tymoshenko's parliamentary coalition voted to dismiss the governor of Ukraine's National Bank, a Yushchenko appointee whose job is to save the country's teetering banking system, even though there is no potential replacement on the horizon.

Tymoshenko, who earned a fortune peddling Russian gas to the Ukrainian market in the 1990s, is accused by Yushchenko's backers of selling out to Moscow in exchange for the Kremlin's political support in winning the presidency.

Such heated rhetoric is not unusual in Kiev's current atmosphere, say experts, including Viktor Nebozhenko, director of Ukrainian Barometer, an independent think tank, and a former adviser to the prime minister. "Yushchenko is pursuing a scorched earth campaign to stop Tymoshenko, and even seems willing to take her down with him."

The prime minister has hurled similar invective, describing Yushchenko as a "state criminal," Mr. Nebozhenko says. "The competition between the two of them is highly personal, and deeply dangerous for the country."

A DIVIDED UKRAINE HEADS TO THE POLLS
Few experts believe allegations that Tymoshenko is in Mr. Putin's pocket, but some say she may be angling for the Kremlin's support in the electoral battle to come. The logic lies in Ukraine's deep cultural split, in which the country's heavily Russified and pro-Moscow east and is pitted against its nationalistic and Europe-leaning west.

The majority of eastern voters back the Russia-friendly Party of Regions, which led the pack with 22 percent support in a mid-December survey conducted by the independent Democratic Initiatives Foundation in Kiev. Tymoshenko follows with 14 percent, while Yushchenko has fallen into the realm of statistical error, with just 2.2 percent, according to the poll.

The trick for Tymoshenko, who has rolled up most of Yushchenko's "Orange" support, is to win votes in pro-Moscow eastern Ukraine, and for that she needs a nod from the Kremlin, says Vadim Karasyov, director of the independent Global Strategies Institute in Kiev.

"The Kremlin wants to remove Yushchenko because he embodies the pro-Western and pro-NATO membership course for Ukraine," he says. "Tymoshenko has shown flexibility on the big geopolitical issues and, unlike Yanukovych, she can win votes all across Ukraine."

SIGNS OF DEMOCRACY OR SEEDS OF DICTATORSHIP?
Some observers worry that things might come to a head long before the presidential polls at the end of the year. "The Ukrainian state is in danger of losing control over the situation," says Andrei Yermolayev, director of the independent Sofia Center for Social and Political Studies in Kiev. "The gloves have come off, and each side is fighting for a monopoly of power. One possible outcome of this struggle is the emergence of an authoritarian regime in Kiev."

Other experts believe that after nearly two decades of independence from the USSR, democracy has become firmly entrenched as a means for Ukrainians to settle differences.

"If the economic situation gets really bad, the authorities will let steam out through new parliamentary elections," says Mr. Vydrin. "Because we are a democracy, we have this option to let the population channel their anger in peaceful and creative ways."
--------------------------------------------------------------------------------
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
===================================================
24. UKRAINE WITHOUT FINANCE MINISTER AS INDUSTRIAL OUTPUT DIVES

By Sabina Zawadzki, Reuters, Kiev, Ukraine, Tue, Feb 17, 2009

KIEV - Ukraine's parliament accepted the resignation of the veteran finance minister on Tuesday as data showed industrial output suffered the worst drop in January in its history, pointing to a deep recession this year.

The resignation of Viktor Pynzenyk last week compounded the ex-Soviet state's woes. With recession looming, Ukraine failed to secure the second tranche from a $16.4 billion IMF loan, prompting rating agencies to cut or threaten to cut ratings.

Pynzenyk infuriated Prime Minister Yulia Tymoshenko by criticising the budget, which he said was based on overly optimistic forecasts and includes a deficit. Political turmoil means finding a replacement for him may take some time.

The economy has been hit hard by falling global demand and declining prices for steel and chemicals -- key exports for Ukraine -- a squeeze on lending that has paralysed business and a weakened currency that has destabilised the banking system.

Data showed output fell 34.1 percent year-on-year in January and 16.1 percent month-on-month. The slump, albeit hastened by Russia's three-week gas supply cut-off during a pricing row, has prompted forecasts of a dramatic economic decline in January.

"This is a historic fall not only since Ukraine's independence but for the previous Ukraine too," said Valery Lytvytsky, the central bank's top adviser. "....January's GDP figures are most likely to be negative. Calculating them accordingly, about -20 percent, by my estimates," he said.

Ukraine's steel output fell 50 percent in January compared to a year ago. Chemical and petrochemical production shrank just under 50 percent. Much of that industry ground to a halt last month during the gas dispute. Machine building and mineral production both contracted by over half year-on-year.

SHAKY BANKS, UNCERTAIN FUTURE
Tens of thousands of workers have been put on unpaid leave. Many of those had taken out dollar-denominated loans to pay for cars and homes and seen their repayments shoot up as the hryvnia currency lost half of its value at the end of last year.

That and deposit withdrawals has shaken the banking sector. Seven banks were put in receivership. Prominvestbank, the 11th largest, has since been bought by Russia's state-controlled VEB Bank.

The European Bank for Reconstruction and Development said on Monday it was willing to invest 500 million euros to support individual banks in the country. The International Monetary Fund agreed to lend to Ukraine in November, but under certain conditions, and said some of the cash should go towards supporting banks.

But a mission left last week without disbursing a second tranche. The uncertainty over if and when the next tranche could be given out led to a ratings downgrade from Fitch and a threat to downgrade from Standard & Poor's.

A key condition for the loan was a balanced budget, for which Pynzenyk had fought and lost. The budget plan has a 3 percent deficit and is based on the assumption that the economy will grow 0.4 percent this year. Analysts believe it will shrink instead by up to 6 percent from 2.1 percent growth in 2008 and 7.6 percent growth in 2007.

Tymoshenko now needs to propose a new finance minister to be approved by parliament. But finding one who would suit both her and the shaky ruling coalition in parliament will be tricky.

The coalition includes supporters of both Tymoshenko and President Viktor Yushchenko, who have been embroiled in a power struggle for over a year.
Commentators have long suggested two experienced figures could take over once Pynzenyk went - former central bank head and minister Serhiy Tyhypko and Petro Poroshenko, head of the central bank's policy-making council.

But Tymoshenko may want to find a more compliant candidate, such as Vitaly Gaiduk, who currently heads a group of her advisers. The head of Tymoshenko's bloc in parliament, Ivan Kyrylenko, told journalists parliament could vote on new ministers, including a finance minister, as early as on Thursday. But no names have been put forward as yet. (Additional reporting by Natalya Zinets and Yuri Kulikov; editing by Stephen Nisbet)

LINK: http://www.reuters.com/article/usDollarRpt/idUSLH46371920090217?sp=true
--------------------------------------------------------------------------------
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
===================================================
25. EU NEIGHBOUR UKRAINE AT RISK OF GOING BUST

By Philippa Runner, Euobserver, Brussels, Belgium, Monday, Jan 16, 2009

BRUSSELS - Bank analysts predict that Ukraine is heading for a historic default on its national debt, in a scenario that could complicate EU-Ukraine relations and have an impact on the recent Russia-Ukraine gas transit deal.

"The market is pricing in a probability of sovereign default of almost 90 percent," Commerzbank analyst Ulrich Leuchtmann told EUobserver on Monday (16 February). "It could happen in the next couple of quarters."

Ukrainian industrial production has plunged 26 percent compared to last year. The hryvna has lost over a third of its value against the US dollar and the International Monetary Fund is hesitating on payments of a rescue loan as Kiev declines to keep down public spending.

The political battle between President Viktor Yushchenko and Prime Minister Yulia Tymoshenko ahead of upcoming presidential elections is making matters worse. Some experts even fear that Mr Yushchenko will use his influence over the central bank to prevent it from bailing out the Tymoshenko government on debt repayments.

"One party could provoke this kind of sovereign default to reap a political benefit," HSBC bank expert Alexander Morozov said. "In that case, Tymoshenko could not fulfill promises to her electorate in terms of paying wages and pensions and so on."

The biggest national default in history, Argentina, in 2001 plunged ordinary Argentines into deep poverty for several years and saw international creditors snatching up Argentine state-owned assets abroad.

A more likely model for Ukraine would be Russia's financial crisis of 1998, which saw Russia write off billions in foreign debt. The Russian economy bounced back by 2000, however, as investors returned because of the country's long term growth prospects.

UKRAINE FALLOUT
If Ukraine defaults, Austrian, French, Swedish, Italian and German banks stand to be the worst losers, with collective exposure of around €30 billion ($40bn) in the country, according to the Bank of International Settlements.

A default could also have implications for Ukraine's gas trade with Russia, hot on the heels of the January gas crunch, which saw Moscow halt the flow of gas to the EU over a bilateral price dispute with Kiev.

"[Russian gas supplier] Gazprom could be a victim," HSBC's Mr Morozov said. "If there is no money, then decisions will have to be made on what kind of debts won't be paid and Russian gas could be the first among these."

The European Commission is monitoring the situation with "concern." But for the time being, there is no talk in the EU of crafting a rescue package from institutions such as the European Bank for Reconstruction and Development, as EU states concentrate on economic tensions at home.

BUSINESS AS USUAL?
Negotiations on an EU-Ukraine free-trade agreement and a political "association" pact are continuing as normal, with industry commissioner Gunther Verheugen in Kiev on Monday launching an EU scheme to help Ukrainian small and medium-sized enterprises.

But if the EU does nothing to help even as Ms Tymoshenko courts Russia for a rescue loan, it risks further dampening Ukraine's hopes of a post-Soviet era allegiance with the West.

"This issue puts everyone's attention on the Western world and what it could do to help Ukraine from going bust," Credit Suisse analyst Cristian Maggio said. "But in this wider crisis, everyone is out for themselves."

LINK: http://euobserver.com:80/?aid=27623
--------------------------------------------------------------------------------
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
===================================================
26. UKRAINE INDUSTRIAL OUTPUT SHRINKS BY OVER A THIRD YEAR ON YEAR Y/Y
Reuters, Kiev, Ukraine, Tuesday, February 17, 2009

KIEV - Ukraine's industrial output shrank by over a third in January compared with a year earlier, data showed on Tuesday, the worst drop in over a decade as the ex-Soviet state begins its slide into a deep recession. Output fell sharply year-on-year in January across the board, apart from in oil refining, data from the State Statistic Committee showed. All in all, it fell 34.1 percent year-on-year and 16.1 percent month-on-month.

The economy has been hit hard by falling global demand and declining prices for steel -- key exports for Ukraine -- a squeeze on lending that has paralysed businesses and a much weakened currency that has destabilised the banking system.

Political turmoil has delayed policy making to combat the financial crisis and threatens a $16.4 billion loan from the International Monetary Fund, which failed to agree last week on disbursing a second, much-needed tranche.

Parliament on Tuesday accepted the resignation of Finance Minister Viktor Pynzenyk, a veteran economic reformer who quit after a protracted row with Prime Minister Yulia Tymoshenko over high budget spending and a deficit.

The IMF has stressed the need for strong crisis management in Ukraine. The uncertainty over when the next tranche could be disbursed led to a ratings down grade from Fitch and a threat to downgrade from Standard & Poor's.

Chemical and petrochemical production shrank just under 50 percent. Much of the industry ground to a halt last month when Russia cut gas supplies to Ukraine over a pricing dispute. Machine building and mineral production both contracted by over half year-on-year.

Tens of thousands of workers have been put on unpaid leave by the industry as a consequence of the drop. Many of those have taken out dollar-denominated loans to pay for cars and homes and seen their repayments shoot up as the hryvnia currency weakened. That, as well as deposit withdrawals, has shaken up the banking sector.

Seven banks have been placed in receivership, including the country's fifth and seventh largest. Prominvestbank, the fifth largest, has since been bought by Russia's state-controlled VEB Bank.

Analysts predict Ukraine will suffer the worst recession in over a decade this year, forecasting economic contraction at between 3-6 percent. Economic activity slowed sharply at the end of last year, leading to growth of 2.1 percent over all, against 7.6 percent in 2007 and initial forecasts of over 5 percent. (Reporting by Sabina Zawadzki; Editing by Andy Bruce)
--------------------------------------------------------------------------------
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
========================================================
"ACTION UKRAINE REPORT - AUR"
A Free, Private, Not-For-Profit, Independent, Public Service Newsletter
With major support from The Bleyzer Foundation, Kyiv, Ukraine
Articles are Distributed For Information, Research, Education, Academic,
Discussion and Personal Purposes Only. Additional Readers are Welcome.
LINK TO THE 2007-2008 AUR ARCHIVE: http://www.usubc.org/AUR/
------------------------------------------------------
SigmaBleyzer/The Bleyzer Foundation Economic Reports
"SigmaBleyzer - Where Opportunities Emerge"
The SigmaBleyzer Emerging Markets Private Equity Investment Group and The Bleyzer Foundation offers a comprehensive collection of documents, reports and presentations published by its business units and organizations.
All publications are grouped by categories: Marketing; Economic Country Reports; Presentations; Ukrainian Equity Guide; Macroeconomic Situation Reports (Ukraine, Romania, Bulgaria, Kazakhstan). LINK: http://www.sigmableyzer.com/index.php?action=publications
"UKRAINE - A COUNTRY OF NEW OPPORTUNITIES"
------------------------------------------------------
TO BE ON OR OFF THE FREE AUR DISTRIBUTION LIST
If you would like to read the ACTION UKRAINE REPORT- AUR, several times a month, please send your name, country of residence, and e-mail contact information to morganw@patriot.net. Information about your occupation and your interest in Ukraine is also appreciated.
If you do not wish to read the ACTION UKRAINE REPORT please contact us immediately by e-mail to morganw@patriot.net. If you are receiving more than one copy please let us know so this can be corrected.
ACTION UKRAINE PROGRAM - SPONSORS
"Working to Secure & Enhance Ukraine's Democratic Future"
1. THE BLEYZER FOUNDATION, Dr. Edilberto Segura,
Chairman; Victor Gekker, Executive Director, Kyiv, Ukraine;
Additional supporting sponsors for the Action Ukraine Program are:
2. UKRAINIAN FEDERATION OF AMERICA (UFA), Zenia Chernyk,
Vera M. Andryczyk, President; Huntingdon Valley, Pennsylvania
3. KIEV-ATLANTIC GROUP, David and Tamara Sweere, Daniel
Sweere, Kyiv and Myronivka, Ukraine, kau@ukrnet.net
4. RULG - UKRAINIAN LEGAL GROUP, Irina Paliashvili,
President; Kyiv and Washington, general@rulg.com, www.rulg.com.
5. VOLIA SOFTWARE, Software to Fit Your Business, Source your
IT work in Ukraine. Contact: Yuriy Sivitsky, Vice President, Marketing,
Kyiv, Ukraine, yuriy.sivitsky@softline.kiev.ua; Volia Software website:
http://www.volia-software.com/.
6. U.S.-UKRAINE BUSINESS COUNCIL (USUBC), Washington,
D.C., Promoting U.S.-Ukraine business investments since 1995.
Join USUBC Today....LINK: http://www.usubc.org
7. UKRAINIAN ORTHODOX CHURCH OF THE USA, Archbishop
Antony, South Bound Brook, New Jersey, http://www.uocofusa.org
8. WJ GROUP of Ag Companies, Kyiv, Ukraine, David Holpert, Chief
Financial Officer, Chicago, IL; http://www.wjgrain.com/en/links/index.html
9. EUGENIA SAKEVYCH DALLAS, Author, "One Woman, Five
Lives, Five Countries," 'Her life's journey begins with the 1932-1933
genocidal famine in Ukraine.' Hollywood, CA, www.eugeniadallas.com.
10. SWIFT FOUNDATION, San Luis Obispo, California
11. DAAR FOUNDATION, Houston, Texas, Kyiv, Ukraine.
12. ArtUkraine.com; www.ArtUkraine.com, to purchase Ukrainian
magazines and books write to ArtUkraine@voliacable.com.
13. DUNWOODIE TRAVEL BUREAU, Specializing in Ukraine travel,
Alesia Kozicky, Owner/Travel Agent, http://www.DunwoodieTravel.com;
14. bne, businessneweurope, Berlin, Ben Aris, Editor-In-Chief.
http://www.businessneweurope.eu; editor@businessneweurope.eu
15. UKRAINE ANALYST, Dr. Taras Kuzio, Editor
http://www.TarasKuzio.net; tkuzio@rogers.com
PUBLISHER AND EDITOR - AUR
Mr. E. Morgan Williams, Director, Government Affairs
Washington Office, SigmaBleyzer, The Bleyzer Foundation
Emerging Markets Private Equity Investment Group;
President, U.S.-Ukraine Business Council (USUBC)
Trustee, "Holodomor: Through The Eyes of Ukrainian Artists"
1701 K Street, NW, Suite 903, Washington, D.C. 20006
Tel: 202 437 4707; Fax 202 223 1224
Needed: 'Vice Presidents in Charge of Revolution'
To keep the power and spirit of the Orange Revolution alive and well
Power Corrupts and Absolute Power Corrupts Absolutely.
========================================================
return to index [Action Ukraine Report (AUR) Monitoring Service]
========================================================

Copyright ©2007-2008. All rights reserved. U.S.-Ukraine Business Council. Web development by Artdriver.com