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Action Ukraine Report

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       

Discover Ukraine in 2010.....A Place For Business,  
For Travel, For History, For Culture, For Adventure 
Mr. Morgan Williams, Publisher and Editor, SigmaBleyzer Emerging
Markets Private Equity Investment Group,

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

Office of the President of Ukraine, Kyiv, Ukraine, Thu, 31 Dec 2009

Interfax Ukraine, Kyiv, Ukraine, Thu, Dec 31, 2009

Interfax Ukraine, Kyiv, Ukraine, Thu, Dec 31, 2009

Ukrayinska Pravda website, Kiev, Ukraine, in Ukrainian 31 Dec 09 
BBC Monitoring Service, UK, in English, Thu, Dec 31, 2009

Agreement paves way for millions in U.S. investment
Overseas Private Investment Corporation (OPIC)/U.S. Embassy in Ukraine
Washington, D.C., Kyiv, Ukraine, Thursday, Dec 17, 2009
A top priority for USUBC members for many years
U.S.-Ukraine Business Council (USUBC), Wash, D.C., Thu, Dec 17, 2009

Ukraine's capital has rich, beautiful, sad stories for those who stop to listen
Perhaps the only thing I haven't encountered in Kiev is a dull day.  It is an unsung capital full of surprises.
By John Pancake, Special to The Washington Post, Front Page, Travel Section F
The Washington Post, Wash, D.C., Sun, Dec 27, 2009

Analytical Report: by Olga Pogarska, Edilberto L. Segura
SigmaBleyzer Emerging Markets Private Equity Investment Group
The Bleyzer Foundation (TBF), Kyiv, Ukraine, Tuesday, December 29, 2009

Analysis and Commentary: By Timothy Ash, RBS GBM 
merging Markets Strategy | EM Alert | CEEMEA  
The Royal Bank of Scotland (RBS), London, UK, Thu, Dec 31, 2009

By Roman Olearchyk in Kiev, Financial Times, London, UK, Dec 31 2009

Ukraine's Premier, Trailing in Presidential Poll, Vows to Clean Up Corruption, Integrate With EU
By James Marson, The Wall Street Journal Europe, NY, NY, Thu, Dec 24, 2009

By Kate Taylor, The Wall Street Journal/Speakeasy, NY, NY, Thu, Dec 31, 2009 

By Chrystia Freeland, FT’s US managing editor
Financial Times, London, UK, Friday, December 11 2009

Presentation by Yuri Scherbak, Ambassador of Ukraine
Former Ukrainian Ambassador to the U.S. and Canada
Ukraine's Quest for Mature Nation Statehood: Roundtable X
Washington, D.C., October 21-22, 2009
Action Ukraine Report (AUR), Wash, D.C., Nov, 2009

Interfax Ukraine, Kyiv, Ukraine, Thu, Dec 31, 2009

A decade of revolutionary progress and hard setbacks.
Analysis & Commentary: By Peter Byrne and Nataliya Bugayova
Kyiv Post, Kyiv, Ukraine, Sun, Dec 27, 2009

Five years after the “orange revolution”, Ukraine faces a less uplifting election
The Economist print edition, London, UK, Thu, Dec 17, 2009

Op-Ed: by Mark Medish, The New York Times, NY, NY, Tue, Dec 22, 2009
Office of the President of Ukraine, Kyiv, Ukraine, Thu, 31 December 2009

KYIV - Dear Ukrainian people, Dear compatriots,

2009 is coming to an end. This year was not an easy year. It passed under the mark of crisis, however, crisis did not define its essence.

This year was rich in events and generous on conclusions. We will, I believe, learn to evaluate ourselves with dignity, calmly, without emotion, or denigration. I know this year each of you, my dear compatriots, achieved many accomplishments-both great and small.

I greet each of your successes and every good deed. I ask that in this moment we be mindful and supportive of those who encountered losses, experienced deprivation, or lived through shocks. Even heartfelt support through our thoughts can create miracles.

We withstood the blow of crisis. We built stadiums and roads, new hospitals and schools. We achieved the Euro-2012 games will be held in four Ukrainian cities. Our doctors saved thousands of lives. Together, we freed our sailors from captivity.

We concluded a series of very successful foreign contracts. We are uniting with the European Union in various sectors - through common humanitarian, transport, and aviation policies, as well as in the areas of justice and security. This year we entered the Energy Community.

For the first time in our history we came close to signing an Agreement on Association with the European Union, where the key component is a free trade zone.

Life moves forward. In our country and in our families, more children are being born. This is life. It is us. These good events are our life. We should speak about these things daily. So that we cease being captives of exclusively dark, oppressive, and yellow press.

Yes! Speaking without excessive emotion, but with good thoughts, good feelings toward ourselves, our people and country.

A whole chapter of our lives is coming to an end. I am proud of this time. Proud with an inner calm, without arrogance or rose-colored dreams. Proud of the freedom of speech, freedom of choice, freedom for business. Proud of many economic merits.

Proud that the attention of authorities has turned to the social support of many people, support of mothers and children, orphans and disabled.
I am proud to be a Ukrainian and as a Ukrainian I addressed millions. I believe that our great idea of an united Ukrainian nation and strong country will spread steadily and irreversibly.

Today, when thinking of the upcoming year and future years, I address a new Ukrainian person that is being born in hard trials, and even maybe in times of

Do not be afraid of anything. Go forward with confidence. You will win. Our might, the strength of our people, its state, its democracy and culture is powerful, mightier than any inner or outside threats.

Our life is Ukraine, and no forces will return us to the old, foreign, and unsettled seas. We are Europeans. We will be in the European Union and NATO. We will live in a safe, protected and prosperous country.

We together, all the people from Donbas to the Carpathians are capable of reaching great goals. The new Ukrainian-is our personal dignity, faith and confidence. This is a piece of energy that renewed the country, gained freedom and aspires to create new life. This is a better part in each of us.

I address each one of you, dear compatriots. Everything will be alright. We became different. We will not go back. Believe in our strength. Believe in ourselves. Without doubt. Be confident that the year 2010 will bring us victory.

I greet you and your families with new happiness. I greet you and all of our people with new goodness.

I greet all of you with the New Year 2010!
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

Interfax Ukraine, Kyiv, Ukraine, Thu, Dec 31, 2009

KYIV - Ukraine has survived a critical year and will soon be listed among European leaders, Ukrainian Prime Minister Yulia Tymoshenko said in New Year greetings.

"The outgoing year was the most difficult in the entire history of independent Ukraine, but that was only because of the world crisis. Every person, every company and even the government struggled hard to overcome that stress," she said.

"We survived; we did not give in to the crisis," she said. At the same time, the difficult year gave hope for Ukrainian strengthening in the crisis, she said.

"Despite the difficulties of this year, we have prepared for Euro 2012, have built the European largest Dniester pumped-storage plant that is twice as big as the Dnieper HPP, and have strengthened our energy independence. We have pulled through the ten-year bankruptcy our aircraft building industry had and conducted the maiden flight of the Antonov An-148, one of the world's best.

"We have not closed down a single coalmine; on the contrary, our coalmines have recovered and been modernized. We have preserved all strategic enterprises and have restored governmental control over large oil and gas deposits. We are ready to develop these deposits now," Tymoshenko said.

"Ukraine lives. Ukraine can be proud. Our sacred land unites us and we can take on the world if we have a little peace and quiet. Peace will come. I do not have the slightest doubt that Ukraine will become a leader and a jewel of Europe very soon. I know that will happen," Tymoshenko said.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
U.S.-Ukraine Business Council (USUBC):
From 22 to over 100 Members in Two Years, Join Today

Interfax Ukraine, Kyiv, Ukraine, Thu, December 31, 2009

KYIV- Party of Regions presidential candidate Viktor Yanukovych has stated his belief that Ukrainians will live better in 2010. In his New Year's and Christmas greeting posted on the party's official website, Yanukovych said that the holidays bring with them faith in a better life.

"I know that we will be able to overcome difficulties, that we will be able to be happy. I know that our children will be growing up healthy, and that there will be peace and well-being for every family. I know that harmony, peace and well-being will rule in our nation," the politician said.

Yanukovich wished Ukrainians health, happiness and long and prosperous life. "I believe that 2010 will bring new joy and happiness into our homes," he said.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

Ukrayinska Pravda website, Kiev, Ukraine, in Ukrainian 31 Dec 09 
BBC Monitoring Service, UK, in English, Thu, December 31, 2009

KIEV - Prime Minister Yuliya Tymoshenko has described 2009 as the most difficult year since Ukraine became independent. In her New Year address, released by the press service of the cabinet, she said: "The departing year has been the most difficult year for Ukraine since independence only because the world forced the crisis upon us.

"Each individual, each enterprise and also the cabinet have been living through this global stress with difficulty. However, together with you, we have held out and have not collapsed under the blows delivered by the crisis."

In particular, Tymoshenko said that the payment of pensions and wages had not been disputed and default averted. She added that the private banks that had gone bankrupt had been nationalized and deposits returned to millions of people.

"In this difficult year, we have not shut down a single coal mine but have been reviving and rebuilding them. Attempts to seize strategic enterprises from the state have been foiled. We have returned to the state rich deposits of oil and gas, and have prepared for their production," her address reads.

Tymoshenko said that among other achievements was "that for the first time in the past 18 years, we have started giving out thousands of flats at state expense to those in the queue for 20-30 years".

"Ukraine is living! One must be proud of Ukraine. Our holy land unites us all and we are strong enough to move mountains, but I wish there were little peace and calm. They will come. So I do not doubt for a second that Ukraine will soon become the leader and adornment of Europe. I know that this will happen!" she said.

For his part, President Viktor Yushchenko wished his fellow citizens "blessings, good health, optimism and fulfilment of wishes" in the new year. He said that the departing year had not been easy but filled with achievements and events.

"We should be confident that all difficulties are transitory. We are a strong, talented and hard-working people who, once we unite around common national and social values, will build a mighty and prosperous Ukraine," he said in an address posted on his election campaign website.

For his part, [opposition] Party of Regions leader Viktor Yanukovych said in his address that he was convinced that Ukrainians would be able to overcome difficulties, "be happy and joyful".

"Our children will be growing up healthy, and there will be calm and prosperity in every family. Concord, peace and prosperity will again reign in our state," he said.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
U.S.-Ukraine Business Council (USUBC):
Promoting U.S.-Ukraine business relations & investment since 1995.
Agreement paves way for millions in U.S. investment

Overseas Private Investment Corporation (OPIC)/U.S. Embassy in Ukraine
Washington, D.C., Kyiv, Ukraine, Thursday, December 17, 2009
WASHINGTON, D.C. – Paving the way for millions of dollars in potential U.S. private sector investment in the country, the Overseas Private Investment Corporation (OPIC) has restored its programs in Ukraine, following the signing on December 16 of an agreement resolving a dispute over an insurance claim paid by OPIC.
By virtue of the agreement, OPIC is now able to provide financing and political risk insurance to American companies investing in Ukraine.  Previously, OPIC had provided more than $254 million in financing and insurance to 21 projects in Ukraine, in sectors ranging from manufacturing and construction to energy and financial services.
“OPIC is pleased to once again make available its support for U.S. investment in Ukraine, a development which we anticipate will send a highly positive signal to prospective investors in the country,” said OPIC Acting President Dr. Lawrence Spinelli.

“This historic occasion is indicative of Ukraine’s ongoing efforts to improve its investment climate, and we commend the Ukrainian government for its hard work in bringing about this result. We look forward to working with both U.S. and Ukrainian businesses to facilitate new levels of American investment in Ukraine.”
Vice President Joseph R. Biden also noted the significance of the agreement during a visit to Ukraine earlier this year. “I was pleased to learn that the government has taken the final decision necessary to bring the Overseas Private Investment Corporation back to Ukraine. That will make it easier for American companies to reinvest in Ukraine, and invest in the first place, which will help both our economies in the current downturn,” Mr. Biden said on July 21.
The signing of today’s agreement was the culmination of a series of steps leading to full restoration of OPIC programs in Ukraine, including the November 2008 conclusion of a memorandum of understanding between the two governments, and the July 2009 passage in the Ukrainian Cabinet of Ministers of a resolution facilitating settlement of the dispute.

The original dispute involved OPIC payment in 1999 of an insurance claim to the U.S. sponsor of a project in Ukraine.  A prolonged inability to settle the dispute resulted in suspension of OPIC programs in the country.
OPIC was established as an agency of the U.S. government in 1971. It helps U.S. businesses invest overseas, fosters economic development in new and emerging markets, complements the private sector in managing risks associated with foreign direct investment, and supports U.S. foreign policy. Because OPIC charges market-based fees for its products, it operates on a self-sustaining basis at no net cost to taxpayers.
OPIC’s political risk insurance and financing help U.S. businesses of all sizes invest in more than 150 emerging markets and developing nations worldwide. Over the agency's 38-year history, OPIC has supported $188 billion worth of investments that have helped developing countries to generate over 830,000 host-country jobs. OPIC projects have also generated $72 billion in U.S. exports and supported more than 273,000 American jobs.
Visit OPIC on the web at

For further information, contact: Timothy Harwood (202) 336-8744
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
A top priority for USUBC members for many years

U.S.-Ukraine Business Council (USUBC), Wash, D.C., Thu, Dec 17, 2009

WASHINGTON, D.C. - "The opening of the U.S. government's Overseas Private Investment Corporation's (OPIC) program for Ukraine is a great victory for Ukraine and the United States and will lead to a considerable increase in U.S. business investments in Ukraine," said Morgan Williams, head of the SigmaBleyzer government affairs office in Washington, who serves as President of the U.S.-Ukraine Business Council (USUBC). 

"Getting OPIC open for business once again in Ukraine has been a top priority for the members of USUBC for many years" according to Williams.  "USUBC has worked with the U.S. and Ukrainian governments on this issue especially in the last two years and received considerable assistance from former U.S. Ambassador to Ukraine, William Taylor, a member of the U.S. Embassy Economic Team, William Klein, the Prime Minister of Ukraine, Yulia Tymoshenko and Hrygoriy Nemyria, Deputy Prime Minister for European and International Integration of Ukraine."

DPM Hrygoriy Nemyria is in Washington, D.C. today for talks with the IMF and will make a presentation at noon at the annual meeting of the members of USUBC.  "USUBC is so pleased that the person in the Ukrainian government who did so much to solve the OPIC issue will speak on this issue in Washington today. Former U.S. Ambassador William Taylor is in Iraq today so will not be able to celebrate this victory in person with DPM Nemyria," Williams said. 

Additional speakers at the USUBC annual meeting will be: Christopher Smart, Deputy Assistant Secretary for Europe and Eurasia, U.S. Department of the Treasury; Dan Russell, Deputy Assistant Secretary, European and Eurasian Affairs, U.S. Department of State; Brian Sant Angelo, International Business Development, Europe & Central Asia, Export-Import Bank of the US and Dr. Anders Aslund, Senior Fellow, Peterson Institute.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
Ukraine's capital has rich, beautiful, sad stories for those who stop to listen
Perhaps the only thing I haven't encountered in Kiev is a dull day.  It is an unsung capital full of surprises.

By John Pancake, Special to The Washington Post
Front Page, Travel Section F
The Washington Post, Wash, D.C., Sun, Dec 27, 2009

KIEV - Some cities are love at first sight. People fall for Paris in the taxi from the airport.

Others take you slowly. Kiev is like that.

I've walked the streets of this Ukrainian capital almost every day for a year. I've watched white-tailed eagles on a vast swampy island in the middle of the Dnieper River, listened as unseen nuns filled a vaulted church with their harmonies, marveled at the parade of tall women in stilettos clicking confidently down icy sidewalks and suffered a mild concussion myself when my feet shot out from under me in a frozen alley.

I've passed markers commemorating millions of murders. I've negotiated for a baggie of turmeric with a man from Samarkand. I've lost my bearings in candlelit catacombs, felt the sting of the winter wind on the city's high bluffs, watched twilight envelop golden-domed churches and talked to the genius behind the city's strangest museum. (And I'm not talking about the toilet museum, either.)

I've discovered wooden windmills, taxi-driver poets, gilded icons, robed monks, blues singers, cheap river cruises, horseradish vodka and a few new things about myself. Perhaps the only thing I haven't encountered in Kiev is a dull day. It is an unsung capital, full of surprises.

During the day, you may be startled by the sudden cascade of sound that tumbles out of churches on religious holidays -- the "raspberry bells," it's called. By night, you may flinch at the concussion of the boisterous fireworks that Ukrainians send arcing over the city four or five nights a month.

Sixteen months ago, I walked away from my desk at The Post. Shortly afterward, my wife landed an 18-month job in Ukraine.

We arrived on a fall day as the sun was setting and had our first meal at Oscar's Place, a three-table restaurant on the street where we'd be living. My wife, who speaks Russian, told the barmaid that it was my first night in Ukraine. Don't order, she replied. I'll bring you real Ukrainian food. She did. And it was great, though the first dish -- salo, slices of raw pork fat served on black bread -- is best if washed down with vodka.

Since then, I've been spending the afternoons writing and exploring the city and the mornings studying Russian. (Almost everybody in Kiev speaks both Russian and Ukrainian. I picked Russian because I've always dreamed of reading Chekhov in his native tongue.)

I began with a seven-word vocabulary: Yes, no, please, thank you, hello, goodbye and beer ("peevo"). That was enough to get started. People I met were happy to communicate. Gestures and pantomime worked wonders when words failed. I found myself thinking: I doubt this would work with the French.

To my chagrin, I found that people sometimes addressed me in English before I opened my mouth. Was it my clothes? No, I was usually wearing black jeans and a black pullover, like every other man in town. Shoes? In Washington, I could always spot tourists by their shoes. But my low black boots were exactly what many Ukrainians had on. Finally I asked. Turned out, it was my face. I never thought I looked American, but apparently I do, at least in Slavic countries. Most people here have better cheekbones than Tom Cruise. I don't.


Kiev is an old city, one of the cradles of Russian culture. The Russians, in fact, call it the mother of cities. Legend has it that in A.D. 560, three Viking brothers rowed down the Dnieper with their sister at the steering oar. She picked the spot where they settled and named it for the eldest brother, Kyi. Sounds like she was in charge.

Although Kiev is spread out along both sides of the Dnieper, I generally walk the oldest sections, which are scattered along the hills of the west bank. The golden domes of churches, monasteries and bell towers adorn the ridge above the river, as if some giant had dropped a handful of Christmas decorations.

The center of Kiev remains a remarkably intimate place for a big city (2.7 million). Not many high rises. Lots of quirky streets and eccentric apartment buildings festooned with sculptural reliefs -- lions here, gods and goddesses there, laurel wreaths above the windows. There's a concrete rhino poking out of one building. And in some sections, the facades are frosted with a layer of ceramic tile.

If you squint past the drab Soviet architecture that mars some of the city, you can see enormous beauty. But there is sadness in it. People used to say that New Orleans was "the city that care forgot." Nobody ever said that about Kiev.

Everywhere, you sense layers of tragedy and rebirth. The churches of Kiev make the point. Near our flat, you can find the remains of a church destroyed by invaders in the 13th century. A few hundred yards away, on the same hilltop, stands St. Michael's Monastery of the Golden Domes, home to my favorite bells. A church has been on that spot for more than 900 years, but today's lovely cerulean building is a recent reconstruction of an old church that communists blew up in the 1930s.

The nearby streets include ornate pre-Soviet facades and a few cold examples of Stalinist gigantism. You meet many self-congratulatory statues but scads of modest, carefully sculpted portraits, too. They're easy to miss. Most jut just above eye level from the sides of old apartment buildings. Each shows a distinguished painter or agronomist or writer or ballet master . . . who had an apartment in the building the memorial is bolted to. As you walk along, you think of the aging physicist skittering across a frozen curb here or the lovely actress memorizing lines from "Uncle Vanya" on a park bench just there.

On one of my earliest walks, not far from our flat, I found a small stone sculpture of the silhouette of a child inside the outline of a robed woman, perhaps an angel. It commemorates the Great Famine of 1932-33. Unlike most famines, this one was man-made. Ultimately, the man who made it was Stalin. He demanded impossible amounts of grain for export. Desperate to comply, local bosses kept supplies of grain locked in warehouses while Ukrainians starved. Estimates of the death toll range from 2.5 million to nearly 10 million. It was mostly ignored in the West.

Children suffered terribly. Some people survived by eating corpses. Standing in the wind in front of the memorial and feeling very small, I tried to grasp the enormity of it.

Perhaps because my great-grandfather Capt. Frank C. Robbins fought there, I think about the carnage of Gettysburg, one of the bloodiest battles of America's bloodiest war. Seven thousand died at Gettysburg, so -- assuming that 5 million died -- Ukraine's Great Famine killed more than 700 Gettysburgs.

The worst of the famine was not here in Kiev, but in villages. But walking down the city's lovely old streets, passing people whose families almost all endured the famine, you can't help admiring the grit and grace of Ukrainians.

Ukrainians don't get a lot of respect from Westerners. Theirs is the largest country in Europe, save for the European part of Russia. Ukraine was part of the Russian empire and then a republic within the Soviet Union. It became independent in 1991. A pro-Western government took over after the peaceful protests of the "Orange Revolution" of 2004. But a lot of Americans think it is still part of Russia. Someone in the United States sent a letter to a friend here addressed to "Kiev, Russia." It arrived.


When I think of the city, the color that comes to mind is not orange but green. It's a very leafy place.

A beautiful string of parks stretches along the hills above the river. It's probably the best walk in the city. Eventually, you reach the high-walled Kiev-Pechersk Lavra. Once one of the most important centers of Orthodox Christianity and home to 1,000 monks, it was taken over by the Soviet government in 1930. Religious activities resumed over time. Today, some buildings are secular cultural museums and some are part of a religious complex operated by the Orthodox Church.

Beneath several of the churches is a labyrinth of tunnels, used by reclusive monks in times gone by and now the resting place for many saints. Carved into the 660 yards of stone tunnels are a number of tiny, elegant churches fitted with glittering gold icons. Parts of the cave complex are open to the public. For me, lighting a candle and walking through the cramped, whitewashed passages is both strange and moving. Along with tourists, devout worshipers come
here to kneel and pray next to the small, glass-topped coffins.

Part of the Lavra encompasses the secular exhibitions -- which run the gamut from displays of ornamental gold fashioned by the mysterious Scythian peoples who once ruled the Ukrainian steppe to the marvelously quirky Museum of Micro-Miniatures.

The latter grew out of the imagination of one man, Mykola Syadristy, who set out to make items so tiny they could only be appreciated when viewed through microscopes. My favorite consists of a human hair, drilled hollow and then polished to transparency. Inside this tiny tube, Syadristy managed to insert a miniature rose.

Now 72, Syadristy often hangs around the museum. His picture is on the wall, and it's easy to pick him out if he's there. One afternoon, my friend Karen, who speaks fluent Russian, and I struck up a conversation with him. We thought he would regale us with stories of his secret techniques -- how he made the minuscule maiden with an umbrella who sits on the proboscis of a life-size golden mosquito, or how he placed an entire desert caravan inside the eye of a needle.

Our initial question produced an uninterruptible 15-minute oration, but it wasn't about how he put a chess set on the head of a pin. It was about Marx, Engels, Lenin and the shortcomings of Ukraine's current leadership.

The more you talk to Ukrainians, the more you realize that for all their toughness, their hearts have been broken by politicians.

President Viktor Yushchenko, who led the Orange Revolution, seemed poised to become the country's George Washington. But in the run-up to this winter's election, his approval rating is in the neighborhood of 2 to 3 percent, making him perhaps the world's most unpopular elected leader.

Part of the reason is that the financial crisis that shook the United States has been catastrophic here. You wonder how much Ukrainians can take. Unemployment is up. The economy is sagging. People who have been sacked can't get at their savings because banks are in trouble.

But you can walk the streets here and still see plenty of shiny cars threading their way around the rattling Russian-designed Ladas. On the sidewalks march Ukrainian women in glittering shoes and fur-trimmed leather jackets. On the outskirts, marshy fields erupt with hulking McMansions.

It's as if Ukraine is somehow sure that its encounter with misfortune will have a storybook ending, an attitude captured in the local saying: If Khevrya hadn't fallen into the puddle, she wouldn't have gotten married. Although no handsome stranger has pulled Kiev out of the mud lately, people here have a profound understanding of misfortune.

The reality of that hits home as you walk south from the old monastic citadel. The city falls away on either side and the view is dominated by Kiev's perhaps most dramatic landmark: Rodina Mat, the mother of the country.

She is tall, she is titanium, she has a 53-ton sword, she is not particularly happy.

The statue stands atop a museum dedicated to World War II's Eastern Front, and the story inside the museum is more than sobering. Moving through the museum, I often wonder why I knew so little of it until now.

In history courses in high school and college, I got the standard American account of the war: Blitzkrieg, Dunkirk, Battle of Britain, Churchill with a defiant cigar, D-Day, pretty girls showering GIs with flowers in Paris, Battle of the Bulge, our tanks rumbling toward Hitler's bunker. Victory.

Well, no.

Walking through the museum made me want to learn more about the "Great Patriotic War" and the mammoth battles of the Eastern Front.

In the United States, we revere my father's contemporaries as the "Greatest Generation." And their bravery and sacrifice is beyond question. But when the Greatest Generation handed down the story of the war in Europe, they often neglected to mention that it was the Red Army that broke Hitler's back.

The Soviet losses were staggering. In 1941, at the First Battle of Kiev -- which I had never really heard of before I got here -- the Soviet army suffered 700,000 killed, wounded and captured. If you count German losses and civilian carnage, the figure approaches 1 million -- or 20 to 25 Gettysburgs, where 50,000 were killed or wounded. That's just one of the battles fought at Kiev. There were others.

Then there's the secluded gully where in two days in September 1941, the victorious Germans shot 33,771 Jews. Executions of Jews, communists, partisans, gypsies and others continued at the Babi Yar ravine until 1943. A hundred thousand may have died there. Maybe more.

The Soviets erected a grandiose marker in a nearby park in 1976 but didn't quite have room on the tablet to mention that the people shot to death were mostly Jews. Eventually a memorial in the shape of a menorah was built in the woods nearby, overlooking the lip of the ravine.

Yet despite all this sadness and grief, there is wonder and splendor, too. Twist your way down the street known as St. Andrew's Descent, past the wedding-cake architecture of St. Andrew's Church and the tiny cafes clinging to the slope, and you can almost image you are seeing Kiev 100 years ago, when the great novelist Mikhail Bulgakov ("The Master and Margarita") lived and worked in a little house on the right.

To find much of this charm, you must look around, or at least understand, the top layer of the city: the Soviet layer. It has a special grimness. Peeling back the layers of a place takes time. I was in Miami for 16 years and spent most of the time trying to figure out what was at the heart of it. It's a slippery place. I never got to the center, but I did figure out that the center wasn't very important. It was what was on the glittering surface that mattered.

Kiev is the opposite, I think. Yes, it's a city with plenty of tricks. But it has been around for more than 14 centuries. Kiev knows who it is.

The place where I feel the heart of Kiev most intensely is looking at the green and golden domes of St. Sophia's Cathedral. This building somehow survived the attack of Batu Khan and his Golden Horde in the 13th century. Down the street, the khan, grandson of Genghis Khan, burned down an even older church with 3,000 Kievans inside. St. Sophia's also survived the czars, the Bolshevik Revolution and Hitler. It survived Stalin's penchant for blowing churches to smithereens.

Kievans tell of a legend that the call of the city's church bells can weave a shield over the city.

Looking at them with my foreign eyes, I consider the centuries of faith here and think about being from a culture where a shield involves missiles or lasers.
And it occurs to me that when I leave, the thing I will miss most of all will be the bells.

NOTE: The writer John Pancake is a former Washington Post editor,

       St. Sophia's Cathedral has survived centuries of warfare. (Trey Ratcliff,
       A bronze bell at Kiev-Pechersk Lavra, once a center of Orthodox Christianity. (Ulana Switucha)
       The snowy rooftops of old and new homes in Kiev. (Trey Ratcliff,
       St. Michael's Monastery of the Golden Domes, a recent reconstruction of an old church. (Trey Ratcliff.
       A sculpture at the Great Patriotic War Museum, dedicated to World War II's Eastern Front. (Idealink Photography/Alamy)


Kiev is best enjoyed once the weather starts turning milder in the spring. KLM and Lufthansa offer one-stop flights out of Washington Dulles starting at about $800 round-trip in March. U.S. citizens do not need a visa. Getting from the airport to the city is a hefty taxi ride. Hawkers will ask outlandish amounts, but if you negotiate you should be able to get a ride for $20-$25 (160-200 hryvnia).

Central Kiev is walkable. Most things are no more than 20 minutes from the main square, Maidan Nezalezhnosti, or Independence Square. There's a good Metro system (20 cents a ride). You should be able to get a taxi to any place in the center of the city for about $5 (40 hryvnia), but if you flag down a cab on
the street, negotiate the fare before you get in.

Hotel Lybid, Peremohy 1, 011-380-44-236-0063, A five-minute cab ride from the heart of the city. Doubles from $115.

Khreschatyk Hotel, Khreschatyk Street 14, 011-380-44-596-8000, Slightly down at the heels, but a great location on the main drag. Doubles from $108.
Sunflower B&B Hotel, Kostelnaya 9-41, 011-380-44-279-3846,  A few steps from the central square. Rooms from $135.

Volkonsky Cafe and Bakery, 5 Khreschatyk Passage, 011-380-44-270-5996. Perfect for a light lunch or coffee and a pastry. Entrees $10-$16.

Tike, Sagaydachnogo 31A, 011-380-44-417-4062. This Turkish restaurant near the river is not cheap, but the food is great. Main dishes, $10-$15.
Varenichnaya, 28 Esplanadnaya St., 011-380-44-287-1539. This is the place to get varenyky-- dumplings stuffed with meat, mushroom, vegetables or cheese -- perhaps the signature Ukrainian dish. Save room for the sour cherry ("vishna") varenyky for dessert. Entrees $5-$11.

Bar on 8, Hyatt Regency Hotel, 5 A. Tarasova St., 011-380-44-581-1234, This eighth-floor lounge is a great place for a drink at the end of the day. Fabulous views of St. Sophia's Cathedral and St. Michael's Monastery of the Golden Domes. In nice weather, you can sit on the terrace and watch the sun set over the city.

Kiev-Pechersk monastic complex, 21 Sichnevogo Povstannya. Also called the Lavra. Part of the complex, including the very interesting underground caves and chapels, is free. There is a small admission fee of about $2 for the rest. The many museums in the complex house exhibits that range from Scythian gold jewelry to the tiny wonders of the Museum of Micro-Miniatures.

Great Patriotic War Museum, 44 Ivana Mazepy St., 011-380-44-285-9452. The most interesting museum in the city; a cab ride from the center or a short walk from the Kiev-Pechersk complex. Tells the story of the titanic struggle between the Russian and German armies with thousands of artifacts. Includes the massive Rodina Mat statue. Admission less than $2.

St. Sophia's Cathedral, 24 Vladimirskaya St. Entrance to the grounds is less than $1. Tickets to the various museums inside are sold separately for a few dollars at a booth on the left just past the gate.


-- J.P. (John Pancake)

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Analytical Report: by Olga Pogarska, Edilberto L. Segura
SigmaBleyzer Emerging Markets Private Equity Investment Group
The Bleyzer Foundation (TBF), Kyiv, Ukraine, Tuesday, December 29, 2009

USUBC NOTE: Theentire Ukraine Macroeconomic Situation analytical report for December 2009 from SigmaBleyzer and The Bleyzer Foundation (TBF), members of the U.S.-Ukraine Business Council (USUBC),, is found below and is also found in the attachment to this e-mail in a PDF format which includes twelve detailed statistical charts in color.  

(1) Ukraine’s economy is emerging from a deep recession, benefiting from global economic recovery, a good harvest and a favorable base effect.

(2) Ukraine’s GDP is expected to return to growth in 2010, although the recovery is forecast to be moderate.

(3) Public finances are the main cause of concern for late 2009-early 2010 amid poor revenue collections, pre-election relaxation of social expenditures and off-track IMF financing.

(4) Sustaining fiscal accounts would require bold reform efforts after the presidential elections. Otherwise, inflation risks and public debt sustainability concerns may notably increase, hindering recovery.

(5) Ukraine has further progressed in disinflation as consumer price inflation decelerated to 13.6% yoy in November.

(6) Deposit growth rebounded in October-November, which may signal the gradual restoration of public confidence in the banking system of Ukraine.

(7) The lending activity of commercial banks remains suppressed, impeding the pace of economic recovery.

(8) The current account balance kept improving, while external financing needs still remain high next year.
Recent real sector data confirms that the recovery in economic activity of Ukraine, the first signs of which became apparent in May 2009, is underway. The pace of real GDP decline eased from over 20% yoy in 1Q 2009 to less than 16% yoy in 3Q 2009, according to preliminary estimates of the State Statistics Committee of Ukraine.

The pick up was primarily driven by improving industrial sector performance, the good agricultural harvest and a favorable base effect. The latter will be an important contributor to the overall improvement in economic performance of virtually all sectors in Ukraine at the end of 2009 as well as in the first half of 2010.
Being dependent on exports, the Ukrainian industry has benefited from the ongoing revival of the global economy, and rising world steel prices in particular. Industrial output has risen by about 13% (not seasonally adjusted) from June to November 2009. In annual terms, a 34% yoy contraction in the industrial sector in January 2009 turned into a 8.6% yoy increase in November, although the increase was achieved on a very low base  (-15% yoy in November 2008).
Metallurgical production grew by 16% yoy in October 2009 and 47.6% yoy in November, compared to a 46% yoy decline at the beginning of the year. Although this impressive rebound was partly due to recovering world steel prices, it was primarily the result of an extremely low base (in November 2008, metallurgical production fell by almost 50% yoy). Tightly bound to metallurgy, output in mining and coke industries has also notably picked up.

Thus, production of ores and coke were up by about 33% yoy and 28.5% yoy in October 2009 and 2-2.5 times in November 2009. The rebound in fertilizer prices, which closely follow energy prices, favored Ukraine’s chemical industry. The output contraction in the industry eased from almost 50% yoy in January 2009 to about 9% yoy in October. In November 2009, the industry demonstrated a 12.4% yoy increase in output.

At the same, the improvements in some other key industries, such as machine-building and production of construction materials, were quite slow due to scarce credit resources, lower household income, a depressed construction sector and still slow recovery in the destination countries for Ukraine’s export of machinery (Russia, Kazakhstan, Hungary, etc.).
According to the SSC of Ukraine, the country had harvested almost 48 million tons of grain as of November, the fifth largest crop in Ukraine’s history. However, due to a high base effect (a historically high crop in 2008), over January-November 2009 agricultural output in comparative prices remained at the level of the previous year. Excellent grain outputs for two years in a row supported a livestock recovery process (particularly in production of poultry and pork).

Nevertheless, domestic supply of primary livestock products remained insufficient for local food processing industry. In previous years, the deficit was compensated for by imports of agricultural products. However, following sharp Hryvnia depreciation in the fall of 2008, the respective goods imports fell by about 25-30% yoy over the first ten months of 2009. Coupled with lower domestic consumption [1], this resulted in a 6.5% yoy decrease in food-processing industry output.
Thanks to a favorable base effect and expected strengthening of world economic recovery, further improvements in Ukraine's economic activity will become more apparent in the last months of 2009 and the beginning of 2010. Overall, however, real GDP is forecast to decline by about 14% in 2009 (due to a severe downturn in the first half of the year) and recover to positive growth in 2010. In 2010, growth is forecast to be supported by improved external trade prospects.

In addition, consumer demand is likely to remain resilient on the back of pre-election social spending increases (which are, however, forecasted to only be partially implemented) and a large informal economy. Public investments related to preparations for the Euro 2012 football championship will also contribute.

At the same time, as credit will continue to remain scarce (some revival is expected only in the second half of the year) and export prices are unlikely to increase as fast as in pre-crisis years, real GDP growth is forecast at a relatively moderate 3% in 2010.

Ukraine’s fiscal accounts have continued to be under significant stress. Moreover, due to pre-election fiscal expansion since the beginning of November 2009, public finances became the main cause of concern.
Until recently, the budget deficit was tightly managed, although tax revenues were squeezed due to the economic slowdown, while budget expenditures remained virtually unrevised. Over the first ten months of 2009, consolidated budget revenues fell by 10.4% yoy in nominal terms. In particular, tax collections were 13.4% yoy lower in nominal terms due to recession-driven factors (lower household income and enterprise profits, a drop in imports, etc.).

At the same time, budget expenditures reported a 4.4% yoy nominal increase over the period, although the pace of expenditure growth decelerated thanks to cuts in capital expenditures. As a result, the budget deficit stood at UAH 28.4 billion ($3.6 billion), or less than 4% of estimated GDP for the period.

For the whole year, the consolidated budget deficit was targeted at 6% of GDP (not including debt recapitalization and imbalances of the state-run natural gas company Naftogaz). The size of the deficit was agreed upon with the IMF and looked realistic to achieve.
In October 2009, however, the Ukrainian authorities approved 20% increases in the minimum wage and pensions, which were enforced at the beginning of November. The hikes in social spending, if fully implemented, are estimated to balloon Ukraine’s overall fiscal deficits (including bank recapitalization, imbalances of the state-run natural gas company Naftogaz and pension fund) in excess of 10% of GDP in both 2009 and 2010.

The approval of the law went against the IMF requirement, which, coupled with non-compliance with some other IMF requirements (principally, delay of the gas tariff increase for the population, approval of a realistic 2010 budget), put the IMF program off track. Although the IMF program is not officially suspended, the international agencies are likely to wait until after the elections to determine the commitment of the new authorities to sound policies.
With the IMF program off-track, the Ukrainian authorities lost one of the main sources of budget deficit financing. Indeed, about $4.5 billion out of the $6 billion released by the IMF in 2009 was directed at covering the fiscal financing gap. As external markets remain virtually closed and domestic financing is costly, the marked relaxation of fiscal expenditures raised concerns over deficit monetization and/or sustainability of domestic public debt.

Over January-October 2009, the government issued about UAH 49 billion of domestic securities, a substantial portion of which was spent to recapitalize problem banks, Naftogaz and repay due public debt. While the National Bank of Ukraine acquired a considerable share of domestic T-bills issuance, it increasingly resisted monetizing the deficit.

Hence, to receive necessary the funds from the private sector, the government proposed short-term T-bills with high yields, which reached almost 30% pa in October 2009. Being aware that such a practice is unsustainable, the government reduced the yields to about 20% pa in November. However, such offers faced little demand; as a result, at the beginning of December the government raised the yields to 24-25% pa.
Due to active T-bills issuance, Ukraine’s domestic government and state guaranteed debt more than doubled in ten months of 2009 and reached UAH 96.3 billion ($12 billion) at the end of October 2009. Despite quite modest domestic public debt with respect to GDP (about 13%), debt management could be a challenging task next year due to the high costs of debt servicing and large domestic debt repayments.

Indeed, the government will have to roll-over about UAH 13 billion ($1.6 billion) during December 2009-September 2010. This will add to fiscal deficit financing challenges, particularly in the first half of 2010, as the economic recovery is forecast to be slow while fiscal austerity measures are unlikely until after the end of presidential elections.
On a positive note, total public and publicly guaranteed debt of Ukraine is still on a relatively moderate level of about 30% of GDP. Moreover, the next sovereign external debt repayments are due at the end of 2010 (JPY 35 billion of Eurobonds). However, after the elections a comprehensive revision of Ukraine’s fiscal policy will be needed to sustain fiscal accounts.

The agenda is difficult - adjusting expenditures downward, rebalancing Natfogaz and improving the financial conditions of the pension funds. However, without progress in these areas, both inflation risks and public debt sustainability concerns may notably increase, pressuring exchange rates and hindering the recovery.
Despite a number of supply-side pressures, Ukraine kept progressing in disinflation thanks to subdued demand-side factors. Although the monthly consumer price index slightly accelerated during October-November, in annual terms it fell below 14% yoy in November.

The prices were pressured by the continuing pass-through of sharp Hryvnia devaluation in the fall of 2008 on consumer goods (particularly, apparels and footwear, home appliances, etc.), higher excises on alcohol and tobacco, rebounded world energy price growth, and a reversing base effect.

The upside pressures, however, were counterbalanced by postponed gas price increases for the population, and subdued demand side factors. In addition to lower household disposable income, domestic consumption is affected by the severe credit squeeze that started at the end of 2008.

Going forward, the high fiscal deficit, recovering economic activities (and credit growth) and scheduled utility tariff increases may further complicate progress in reducing inflation. We forecast inflation at about 13% at the end of 2009 and 13-15% next year.
Tight monetary conditions have contributed to subsiding inflationary pressures and helped to contain foreign exchange volatility. On the other hand, however, the abrupt monetary tightening was one of the main reasons why Ukraine landed harder than other emerging economies affected by the global liquidity crisis.

Indeed, sizable NBU interventions to support Hryvnia exchange rate ($10.3 billion over January-November 2009), sterilization operations (UAH 85.8 billion, gross) amid relatively moderate refinancing operations (UAH 61.4 billion, gross) caused monetary base to squeeze by almost 3% from January to November 2009 compared to an almost 22% increase over the same period last year. In addition, a shrinking deposit base and growing commercial banks’ losses led to sharp deleveraging of the Ukrainian economy.
Recent monetary statistics signal a gradual restoration of public confidence in the banking system of Ukraine. Indeed, the stock of foreign currency deposits grew by 3.8% during October-November 2009; deposits in national currency rose by 1.1% mom in November 2009.

However, despite these improvements, commercial banks' deposit base remains weak after losing almost ¼ of all deposits from October 2008 to April 2009 and vulnerable to new outflows as a substantial portion of new deposits was attracted on a demand basis or for a very short-term.

A weak deposit base coupled with the growing losses in banking (mainly due to rising expenses related to increasing non-performing loans (NPLs) [2] and tighter reserve requirements), more conservative lending practices, NBU sterilization operations and a crowding out effect from government placement of short-term T-bills at high yields kept commercial bank lending activity suppressed.

Thus, the stock of Hryvnia-denominated loans grew by about 14% from January to November 2009, while foreign currency denominated loans (expressed in US Dollars) declined by 16.5% over the period compared to about 30% and 48% respective increases over the same period a year before. As a result, highly leveraged sectors (such as construction, trade and industry) saw a sharp contraction of economic activity.

Improving public confidence in the banking system was closely related to the stability on the foreign exchange market observed since October 2009.

Moreover, the Hryvnia appreciated with respect to the US Dollar by about 2% from October to mid-December 2009, going below UAH 8 per USD, while the NBU reduced its interventions on the market to about $400 million per month during October-November compared to about $1 billion on average during January-September 2009. The exchange rate stability was achieved on the back of tight Hryvnia liquidity, a mix of NBU administrative measures and forex interventions, and improving external imbalances.

Ukraine’s external trade kept improving as the country, heavily dependent on exports, benefited from the recovering global economy, rebounding world commodity prices (particularly on steel products, fertilizers) and a favorable base effect.

Thus, the pace of contraction of merchandise exports eased from about 50% yoy during the first nine months of 2009 to about 26% yoy in October 2009. The pick up was led by higher exports of metallurgical products, while exports of chemicals and agricultural products also notably contributed.

However, the slow recovery in CIS countries, which on average accounted for about 35% of Ukraine’s total exports of goods during 2007-October 2009, and more intense competition on foreign markets will keep restraining the volume growth of Ukraine’s exports. On the upside, with the low base effect gaining momentum during November 2009 – first half of 2010, Ukraine’s exports in value terms are forecast to show notable improvement over the respective period.
Imports, however, remained subdued, although the rate of contraction moderated from more than 50% yoy during January-September 2009 to about 40% yoy in October 2009. Recovering exports on the back of still low exports supported an ongoing adjustment of Ukraine’s current account balance. During September-October, the current account reported small surpluses, bringing the cumulative CA deficit to $1.0 billion, 11 times lower than in the corresponding period last year.

The current account deficit is forecast at about 1% of GDP in 2009. With next year's  volume of natural gas imports recently agreed with Russia being lower than was initially contracted, improving exports, and a rise in natural gas transit tariffs, Ukraine’s current account is forecast to be balanced in 2010, even despite the expected increase in imported natural gas prices.
The notable adjustment of Ukraine’s current account has significantly eased the country’s external financing needs this year and should not to be an issue requiring forex financing next year. At the same time, large external private sector debt requirements still may be a source of vulnerability.

Over the first ten months of 2009, Ukraine successfully met its external financing needs thanks to a higher-than-initially expected debt roll-over ratio (74%) and significant financial support from International Financial Institutions (IMF, WB, etc.).

However, Ukraine’s gross external debt grew to $104.4 billion at the end of September 2009, of which about $30 billion [3] is estimated to be due within one year. To roll-over a significant portion of these debts, the government will have to maintain a good degree of confidence among foreign investors, international institutions and the population by pursuing sound policies and progressing in structural reforms.


[1] According to household income and expenditure survey results, consumption of fish, meat, milk and dairy products declined by 14% yoy, 6% yoy and
     12% yoy respectively in 1H 2009.

[2] According to the NBU, the share of NPLs, defined as doubtful and loss, in the total credit portfolio of commercial banks grew from less than 4% in 4Q
      2008 to 9.6% in 3Q 2009. However, the international practice is to include substandard loans in the definition of NPLs. According to IMF estimates,
      the share of NPLs (defined as substandard, doubtful and loss) stood at about 30% at the end of June 2009, up from about 14.5% at the end of 2008.

[3] According to the NBU, short-term private sector debt (by original maturity) stood at about $20 billion at the end of September 2009. Assuming a 6-year
      average maturity for MLT debt, which stood at $61 billion (including intercompany lending), total private external debt due during next year was
      estimated at around $30 billion.
NOTE: To read the entire SigmaBleyzer/The Bleyzer Foundation (TBF) Ukraine Macroeconomic Situation update report for December 2009 in a PDF format, including twelve color charts and graphics click on the attachment to this e-mail or go to the following link, and click on Ukraine December 2009,

SigmaBleyzer/The Bleyzer Foundation (TBF) also publishes monthly Macroeconomic Situation reports for Bulgaria, Romania and Kazakhstan. The present and past reports, including those for Ukraine can be found at  SigmaBleyzer and The Bleyzer Foundation (TBF) are members of the U.S.-Ukraine Business Council (USUBC), Washington, D.C.,
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Analysis and Commentary: By Timothy Ash, RBS GBM 
merging Markets Strategy | EM Alert | CEEMEA  
The Royal Bank of Scotland (RBS), London, UK, Thu, Dec 31, 2009

LONDON - In a somewhat remarkable move, the IMF released a statement last night which indicated that its board has agreed to adjust down the floor on Net International Reserves under Ukraine's stand-by arrangement by around US$2bn to allow it to cover gas payments to Russia due over the next few months.

This is a significant positive for Ukraine, and should enable it to get through the difficult New Year period without a repeat of the damaging gas supply disruptions which have now almost become an annual event in Ukraine. It should also help the government span the difficult period until the conclusion of presidential elections scheduled for January 17 (with a second round run-off vote likely to be forced on February 7).

To recap, Ukraine's SBA went "off-track" in October after parliament, and the president, approved a 20% hike in pensions and wages which in effect blew a hole in the 2009 budget and indeed budget plans for 2010.

Without IMF financing, and with the NBU reluctant still to print money to cover an enlarged budget deficit, the government has been struggling to find resources to cover the cost of imported gas; the budget in effect has to cover the difference between imported gas and the much lower domestic price of gas, via subsidies paid to the state-owned gas supply utility, Naftogaz.

Under the terms of the revised gas price agreement reached between Russia and Ukraine in January 2009, Ukraine has to pay for gas supplied over the prior month by the 7th day of the following month.

Thus far in 2009 Ukraine, by hook or crook, has managed to stay current on these payments, albeit over the past couple of months only by drawing down Ukraine's additional 2009 SDR allocations; i.e. very much a short run "fix". With these SDR allocations more or less exhausted, the government has been struggling to identify financing sources to meet the December, and likely January gas import bill.

In this regard, Deputy prime minister Nemyrya, led a delegation to Washington earlier this month, pleading for the IMF to disburse emergency funds to Ukraine to avoid a repeat gas crisis with Russia. At that point the Fund made it clear that it would be impossible to disburse new funds under the existing programme, without efforts by the government to resolve outstanding issues, e.g. over the proposed hikes in wages/pensions.

However, with the announcement by the IMF yesterday it would appear that the IMF has opted to cut the government some considerable slack, clearly with an eye to the serious potential regional repercussions should Ukraine fail to meet the monthly gas payment to Russia: the IMF is mindful not to be the cause of Europe freezing again this winter.

As further context note that over the past couple of weeks the governments of Russia and Ukraine have reached notable agreements covering gas and oil supply/transit, which appeared set to alleviate the risks of disruptions to energy supplies to Ukraine and then on to Western Europe this winter. The fact that Moscow agreed to hike gas and oil transit fees charged by Ukraine also suggests that it is adopting a much more conciliatory attitude towards Ukraine as the country heads towards presidential elections.

Our read herein is that with Moscow's two favoured candidates (Tymoshenko and Yanukovych) leading in opinion polls in the run up to the vote, and its arch nemesis incumbent president Yushchenko lagging by some distance, it is eager not to rock the boat in the run up to the polls: its number one policy objective at present is to ensure the smooth transition from power of Yushchenko.

Even with the IMF indicating great flexibility in the use of official reserves, to cover budget financing needs (at least to cover gas import costs), there is still the issue as to whether the NBU will sanction the use of reserves to cover budget financing needs.

President Yushchenko does have a considerable degree of influence over the NBU, and in the past has been critical of IMF and NBU financing of the budget; seeing this as "political" and in effect providing the government with the opportunity to pork barrel in the run up to elections.

However, with the IMF clearly stating that NBU funds can be used to cover gas payments, and in effect to avoid gas supply disruptions, and with Moscow appearing conciliatory, we doubt that even President Yushchenko would feel able to use the gas card this time around, when he would likely now be squarely blamed for any such disruptions.

The IMF announcements, and indeed the gas/oil price agreements reached with Moscow over the past couple of weeks do provide a considerable degree of assurance now that a gas/oil supply crisis over the New Year, with damaging consequences for Europe, can be avoided.

One big take out from the above is that the IMF is adopting a remarkably soft attitude towards Ukraine; I am struggling to remember an occasion when a country has been cut such slack from the Washington-based lender.

A big picture view seems to have been taken to cut Ukraine sufficient slack to get it through presidential elections, and the New Year energy supply hiatus, presumably with the assumption that the IMF will be better able to crack the whip with programme conditionality in March/April next year, with a new face in the presidential palace and hopefully then also a new government with stronger coalition backing in parliament, i.e. a greater ability to effect IMF-compliant policy.

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By Roman Olearchyk in Kiev, Financial Times, London, UK, Dec 31 2009

KIEV - The International Monetary Fund gave the green light to Ukraine to lower its minimum international reserve requirement, freeing up $2bn from central bank coffers to pay Russian natural gas bills and keep the cash-crunched country financially-afloat ahead of a hotly contested presidential election.

The announcement late on Wednesday helped further to defuse fears in Europe that gas supplies could be cut off again as they were during last January’s Moscow-Kiev spat, should recession-ravaged Ukraine fail to cover multi-billion-dollar import bills in coming months.

“The IMF Executive Board agreed to the government’s request to modify the performance criterion on Net International Reserves, as specified in the current Stand-By Arrangement, to lower the end-December NIR floor by about $2bn,” said Max Alier, the IMF’s resident representative to Kiev. “This important step will enable the Ukrainian authorities to use existing resources to make external payments due – including gas payments – within the framework of Ukraine’s programme with the Fund.”

The IMF has helped keep Kiev afloat since the global financial crisis, providing $11bn in support as Ukraine’s gross domestic shrank by 15 per cent. But the fund froze assistance in November due to lacklustre reforms and political infighting in Kiev. Mr Alier said that fresh aid hangs on the ability of Ukraine’s leadership to demonstrate consensus and adopt a fiscally prudent 2010 budget.

Ukraine’s request in December for a fresh $2bn emergency loan was turned down, and the IMF has sought to keep its distance from the country’s messy pre-election politics. Kiev’s political leaders are bitterly divided, with president Viktor Yushchenko, prime minister Yulia Tymoshenko and ex-premier Viktor Yanukovich all campaigning in a January 17 presidential election campaign.

Ms Tymoshenko’s opponents have accused the IMF of being too soft on her government. Ms Tymoshenko accuses opponents of trying to cash-starve her government and undercut her presidential bid by sabotaging cooperation with the IMF. The political temperature is not expected to cool down until after a second round run-off is held in February.

Wednesday’s decision marks continued flexibility by the IMF in dealing with Kiev. It should help keep Ms Tymoshenko’s government afloat with just enough cash from central bank reserves that were built up with IMF funds after the global financial crisis struck.

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Ukraine's Premier, Trailing in Presidential Poll, Vows to Clean Up Corruption, Integrate With EU

By James Marson, The Wall Street Journal Europe, NY, NY, Thu, Dec 24, 2009

LUHANSK, Ukraine -- Prime Minister Yulia Tymoshenko pledged to pull Ukraine further toward Europe by cleaning up corruption and bringing order to the country if she wins the presidential election early next year.

Campaigning in the country's industrial east, which traditionally favors front-runner Viktor Yanukovych, Ms. Tymoshenko said in an interview that voters have a stark choice between a European future and a corrupt past, embodied by her chief rival.

She said he is a political relic who represents "very powerful criminal groups" and accused him of working with President Viktor Yushchenko to derail her presidential bid by undermining the economy.

Mr. Yanukovych, in an earlier interview, accused Ms. Tymoshenko and Mr. Yushchenko of their own corruption and fueling "chaos" through ineffective leadership.

Ms. Tymoshenko is using fiery rhetoric in an attempt to attract voters disappointed by the country's lack of progress in eradicating corruption and prosperity after gaining independence in 1991 when the Soviet Union split.

Eighteen candidates are vying for the presidency in the Jan. 17 election, and none will likely get more than 50% of the vote, setting the stage for a runoff between the two leading candidates in February.

The France-sized country of 45 million was set on a democratic path in 2004 when street protests, known as the Orange Revolution, overturned a presidential election fraught with allegations that it was rigged and brought Mr. Yushchenko to power. But domestic political and economic changes foundered amid bitter infighting between Mr. Yushchenko and Ms. Tymoshenko, his ally during the revolution.

In the most recent polls carried out by the International Foundation for Electoral Systems this month, Mr. Yanukovych led with 31%, followed by Ms. Tymoshenko's 19%. No other candidate had more than 5% support. However, she is expected to pick up more votes from other candidates than Mr.
Yanukovych in the runoff, which political observers expect to be tight.

Now in her second stint as prime minister after being fired by Mr. Yushchenko less than a year after the Orange Revolution, Ms. Tymoshenko blamed the president for the failure to push through economic changes and combat corruption, calling him a "very weak president, who is unable and unwilling to fight the lawlessness he declared war against."

Ukraine was hit hard in the fall of 2008, when demand for its major steel and chemical exports plunged. The International Monetary Fund stepped in quickly with a $16.4 billion loan, which has helped prop up an economy that has contracted 15% this year. The IMF cut off funding last month, though, after a rise in social spending that was supported by Mr. Yanukovych's political party and signed off on by the president.

Ukraine Finance Minister Ihor Umanskiy said Wednesday that he doesn't expect the scheduled $3.8 billion installment to be disbursed until next year.
In combative campaign speeches, Ms. Tymoshenko has slammed political opponents and corrupt officials for exacerbating the country's economic woes for their own benefit. She vowed in the interview to bring order to the country by establishing "dictatorship of the law" where "no crime would go unpunished."

"Tymoshenko is campaigning in Bolshevik style by finding enemies to fight against," said Yevhen Bystrytskiy, executive director of the Kiev-based International Renaissance Foundation, a democracy-promoting think tank. "Instead of talking about other candidates, she should present a platform of systemic reforms."

Ms. Tymoshenko's campaign has portrayed attacks on her as also being directed against the country. "She plays on the idea that she is a fragile woman on the one hand, and she is the only real man in the country on the other," said Oleh Rybachuk, who worked for Mr. Yushchenko as chief of staff and served in Ms. Tymoshenko's government as deputy prime minister.

Ms. Tymoshenko said she would "build Europe in Ukraine" to pursue integration into the EU. She called for "pragmatic" relations with Russia, while urging Moscow to "respect" its neighbor.

Mr. Yushchenko accuses Ms. Tymoshenko of betraying Ukrainian interests in dealings with Russia, particularly in agreements to buy Russian natural gas.
Ms. Tymoshenko has developed a strong relationship with Russian Prime Minister Vladimir Putin, who has described working with Ms. Tymoshenko as "comfortable."

Ms. Tymoshenko is cooler on the North Atlantic Treaty Organization than the current president, who has irritated Russia with calls for membership in a bloc the Kremlin views as hostile. She calls for continued cooperation, but stresses the lack of support among Ukrainians for membership, talking instead of
a pan-European security pact.

Mr. Yanukovych has also softened the pro-Russian message that failed to bring him victory in 2004, promising to foster closer ties with the European Union while strengthening relations with Russia that have become strained under Mr. Yushchenko.

But observers say both front-runners will struggle to make significant progress toward Europe, which would necessitate more transparency in politics and business.
"They both see Ukraine as part of Europe, so it's not so much about the direction, but the speed," said Mr. Rybachuk. "We have a train going toward Europe, but the speed at which we are going is clearly not fast-track with either."

NOTE: Write to James Marson at LINK:
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

By Kate Taylor, The Wall Street Journal/Speakeasy, NY, NY, Thu, Dec 31, 2009
NEW YORK - Victor Pinchuk, the richest man in Ukraine, with a fortune of $2.6 billion, held a party at the Gramercy Park Hotel last night to announce his new Future Generation Art Prize, which will be awarded every two years to an artist 35 years-old or younger. The top prize winner will receive $100,000 ($40,000 of which must go toward the production of new work), while up to five other winners will receive residencies or other forms of support.

Demonstrating Pinchuk’s clout as a collector, the board of his new prize is a who’s who of art-world heavy-hitters: fellow collectors Eli Broad and Dakis Joannou; Elton John; Miuccia Prada; and museum directors Richard Armstrong, of the Solomon R. Guggenheim Foundation and Museum; Glenn Lowry, of the Museum of Modern Art; Alfred Pacquement, of the Centre Georges Pompidou; and Nicholas Serota, of the Tate. Pinchuk also convinced four superstar artists whose work he collects — Damien Hirst, Jeff Koons, Takashi Murakami, and Andreas Gursky — to serve as mentors to the prizewinners.

But, for an international prize that is intended, as Pinchuk said last night, to be “democratic,” the list is oddly limited. There is only a single woman on the board (and none among the mentors), and Murakami is the only non-American or European.

In terms of artistic practice, three of the four mentors are artists who function essentially as brands, running workshops/factories with dozens of assistants. (Gursky is the exception, and his humble, soft-spoken manner last night — admitting at one point that he was looking forward to the dialogue with young artists, because in his normal life, he only talks about art with two or three friends — suggested he was an exception in other ways, as well.)

Giving this kind of award to a young artist could be extremely important. Koons noted that for a struggling young person the prize could be “a lifeline.”
But why not have a Kathy Halbreich on the board, or a Rachel Whiteread among the mentors? Such issues were little remarked upon by last night’s guests, who also included Broad, Armstrong, former ArtBasel honcho Sam Keller, and art dealers Larry Gagosian and Jay Jopling.

Koons, in his remarks, stressed “community.” Asked if he would offer the young artists any business or career advice, the brilliant careerist said, “The only advice you can offer someone is to commit yourself fully to your work. If you do that, everything else automatically follows. People will want to give you a platform.”

Broad, in conversation, confirmed reports that he will choose among Santa Monica, Beverly Hills, and “one other city” to locate a museum for his 2,000-piece collection. He was also eager to boast about the progress that has been made at the Museum of Contemporary Art in Los Angeles since he stepped in to save it from financial trouble last year with a donation of $30 million.

He said the museum, which is being run on an interim basis by former U.C.L.A. chancellor Charles Young, will appoint a new director in January or February. Ten candidates have been interviewed so far in New York and Miami, he said, adding: “Everyone wants this job.”

Meanwhile, at an off-the-record location elsewhere downtown — i.e., the fabulous loft of an artist who did not want the publicity — Rolex celebrated the selection of the six people who will serve as mentors in the 2010-2011 cycle of the company’s Mentor and Protégé Arts Initiative.

They are: Trisha Brown (dance), Brian Eno (music), Anish Kapoor (visual art), Peter Sellars (theater), Zhang Yimou (film), and Hans Magnus Enzensberger (literature). Each mentor will select a protégé from a group of finalists in the spring and then spend the year advising him or her.

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

By Chrystia Freeland, FT’s US managing editor
Financial Times, London, UK, Friday, December 11 2009

Victor Pinchuk had to have lunch with the prime minister of Ukraine, so we end up eating supper together instead. At least getting a reservation isn’t a problem: Pinchuk has booked an entire hotel restaurant. That’s the sort of thing you can do if you’re one of the richest men in Ukraine (with a net worth of $2.6bn according to Forbes), own a home in London that cost a reported £80m, and avidly collect contemporary art.

Even oligarchic grandeur has its limits, though. The dining room and adjoining garden haven’t been reserved just for the two of us – they are the venue for a “BBQ Party”, the concluding event of a two-day geopolitics conference that Pinchuk has convened in Yalta, the Crimean resort town beloved of both tsars and commissars.

The annual gathering, the sixth one he has organised, is just one part of Pinchuk’s campaign to assert himself as a player in the universe of civic-minded, international plutocrats. He is already a member of the World Economic Forum – a fixture at its annual meeting in Davos – and is also one of the leading foreign contributors to the Clinton Global Initiative, the former president’s foundation.

Fifteen years ago, Pinchuk was a pipes magnate living in his hometown of Dnipropetrovsk in eastern Ukraine. By 2004, he was being invited to George HW Bush’s 80th birthday bash. Now, when he visits Manhattan, he mingles with the likes of Caroline Kennedy and Jeff Koons and has been admitted as an investor to General Atlantic, an elite investment fund.

Membership of the western plutocracy has been the ultimate objective for a number of the billionaires who emerged from the wreckage of the former Soviet Union. But Pinchuk’s yearning for international tycoon status has proceeded in tandem with his equally insistent efforts to make Ukraine a player on the international stage – with him as the essential facilitator, of course.

Bill Clinton and Tony Blair, in their afterlives on the high-paying international speakers’ circuit, have attended his Yalta conference; the US billionaire and philanthropist Eli Broad has visited his super-dacha outside Kiev; he underwrote a Paul McCartney concert in the Ukrainian capital last year.

Pinchuk is keen to emphasise this Ukrainian connection at our supper. Determined that our menu should reflect his country’s cuisine, Pinchuk orders for both of us. For our zakuski, or appetisers, he chooses charcuterie, including salo, or pork fat, one of Ukraine’s most prized national dishes, cured fish, and potato pancakes. A serious traditionalist would wash these salty morsels down with vodka.

But it has been a busy two days (Ukrainian presidential candidates have attended Yalta in person, while Alan Greenspan, George Soros and Dominique Strauss-Kahn participated in video-link interviews I conducted) so Pinchuk suggests the lighter option of a bottle of burgundy. He picks one that he says is “good, but not too good”.

It is a Saturday night and nearly ten o’clock. Pinchuk, who turns 49 next week, is wearing freshly pressed black jeans and a striped blue shirt. His once black hair is greying and cut very short, perhaps to mask his receding hairline. He is slim, with alert brown eyes, and happy – the conference is over and has gone well – but too focused on our discussion to be described as relaxed. He suggests we speak in Russian, Ukrainian or English as the conversation dictates, and handles each language with ease.

I begin by telling Pinchuk that one of the board members of his foundation told me that, before signing on, he had asked Pinchuk whether its purpose was the stated one of lobbying for Ukrainian accession to the European Union or if it was chiefly intended to provide political protection by transforming Pinchuk from an oligarch into a statesman.

Was the board member right? Pinchuk toys with evading my question for a sentence or two, then parries with a clever and unexpected rebuttal. “Frankly speaking, this topic – European Union membership – is not very strong protection,” he says. “If you speak about freedom of speech, for example, that is much stronger protection for you. If you speak about the European Union, what kind of protection is that?”

Why does freedom of speech offer better political protection? “Because the rest of the world really likes to speak about it,” Pinchuk says, with the slightly weary air of an eastern European explaining the obvious to a western naïf. “If somebody attacks you, then you can say, ‘It’s because I am a supporter of freedom of speech.’ It is much easier to play the game.”

In that case, why not choose freedom of speech as your big cause? Pinchuk smiles slightly and I have the feeling of having been manoeuvered.
”Because, for me, it was really much less about PR and more real,” Pinchuk says. ”It was much less protective and much more about real participation.”

The strongest motivation behind his civic activity, he tells me, is his conviction that “my generation is extremely lucky and this is really a great life”.
If you grew up expecting to become a Soviet metallurgist and, instead, found yourself a globe-trotting billionaire, you probably would consider yourself extremely lucky. But Pinchuk has something more fundamental in mind. His good fortune, he says, is to be present at the birth of the new Ukrainian state.

Our zakuski arrive. A Ukrainian-Canadian myself, I deem them delicious. Pinchuk is a little more demanding: “We are not in a two-star Michelin restaurant, but it’s OK. For Ukrainian cuisine, it’s OK.”

His enthusiasm for Ukraine’s nation-building project is a surprise. Pinchuk, who is Jewish, was raised in eastern Ukraine, which was ruled by Russia for centuries. Did he feel Ukrainian growing up? “No, as a child, I was proud to be Soviet. I never felt I was Ukrainian or Russian.” Later, Pinchuk returns to this point: at the time, he says, he felt the collapse of the USSR to be “a big tragedy ... I liked the Soviet Union, I was proud of it.”

As it turned out, the collapse of the Soviet Union was the best thing that ever happened to Pinchuk. He grew up an only child of “very respected and very poor” Soviet engineers. The family lived in a tiny apartment. “I often say to my children [he has three – a daughter from his first marriage, a stepson and a daughter from his second marriage], ‘The size of this closet is bigger than the apartment I lived in with my parents.’”

Pinchuk followed his parents into metallurgy but, he says, “entrepreneurship was in my blood ... I really liked money. It was just one or two roubles, but I liked it.” He was also, he tells me, “always lucky, thank God”. That luck manifested itself with the advent of perestroika, and the tentative opportunities it offered for commerce.

It is time for borscht, served with the classic Ukrainian accompaniment of light yeast rolls. Pinchuk checks with the waiter that the rolls will be served, as tradition requires, dipped in a garlic sauce.

Then it’s back to the slow collapse of the Soviet economy, and how Pinchuk turned out to have a talent for reconnecting the industrial supply chain, which was disintegrating even more quickly than the political grip of the Communist party. The typical former Soviet businessman, Pinchuk tells me, says: “‘Don’t ask me about my first million!’ I have a totally different story. I am proud to tell about the first million.”

And he launches into the tale of what he calls his first million-dollar deal, which involved using refrigerators and microwaves to buy coal from Ukrainian miners, and, through a series of transactions, transforming it into pig iron for a Russian factory.

The story is cut short only when James Wolfensohn, the former head of the World Bank, strolls over to talk to Pinchuk about their plans for the next day. They are travelling together on Pinchuk’s private jet to spend Yom Kippur with Pinchuk’s parents in Dnipropetrovsk. “We’re going to pray tomorrow,” a jovial Wolfensohn explains. “It’s the Jewish Day of Atonement and he has many sins, so I’m going to try and help him by praying with him.”

Metallurgy may be Pinchuk’s vocation and entrepreneurship his avocation, but his true genius is befriending influential people. One of his most important personal connections has been with Leonid Kuchma, president of Ukraine until he was overthrown in the Orange Revolution, and whose daughter, Elena, became Pinchuk’s second wife in 2002. Joining the Kuchma family catapulted Pinchuk from Dnipropetrovsk to the apex of Ukrainian politics – he moved to Kiev and even served two terms in parliament from 1998 to 2006.

Pinchuk remembers the day he met Elena: November 17 1996. A leading Russian actor, who had become a personal friend, invited Pinchuk to a theatre performance in Kiev. “He told me, ‘The wife of the president of Ukraine will be coming, I will introduce you,’” Pinchuk recalls. “I came. Why not? I was from Dnipropetrovsk. I didn’t know people.”

Mrs Kuchma attended with Elena: “Between the first and second acts, I was already totally in love.” But the romance was complicated. “I was married and she was married,” Pinchuk says. “And her husband was the son of the prime minister of Crimea. You can imagine this story – the daughter of a president, the son of a prime minister, and I’m a Jew.”

For the sake of her father’s career, Elena tried to break it off, Pinchuk says. “We tried to stop our relationship.” Then – and if this were a film, there would be a soundtrack by Elton John, another Pinchuk pal – Princess Diana died. Pinchuk and Elena hadn’t seen each other that summer but he phoned her the next day and she suggested a meeting: “After that, we never stopped our relationship, and later she explained that the influence of this tragedy was very strong.”

The arrival of our main course – a perfectly prepared Chicken Kiev – gives me a chance to shift gears from Pinchuk’s Romeo and Juliet version of his marriage to the apparent financial consequences of that alliance. Like all of the region’s post-communist billionaires, he has been the beneficiary of rich privatisation deals.

One, his purchase of Nikopol, one of the world’s largest iron alloy producers, provoked a lawsuit from a business rival in which Pinchuk was accused of wrongfully diverting hundreds of millions of dollars. (Pinchuk denied the charges and the case was settled in 2006.)

His purchase, together with fellow oligarch Rinat Akhmetov, of Kryvorizhstal, one of the world’s largest steel mills, was even more controversial. Public outrage over that sweetheart deal was one of the inspirations for the 2004 Orange Revolution. Yulia Tymoshenko, now prime minister and a leading candidate in next year’s presidential ballot, revoked the sale and organised a televised auction of the company.

The reversal was one of Pinchuk’s biggest business losses, and one of Tymoshenko’s proudest political accomplishments. Yet, in a measure of both the conciliatory character of Ukrainian politics and of Pinchuk’s flexibility, Tymoshenko appeared at Pinchuk’s conference this year, giving a speech also broadcast on his television station.

Having built his fortune on one revolution (the Soviet collapse) and survived a second (Ukraine’s Orange Revolution), Pinchuk seems to have endured the recent convulsions of global capitalism with relative ease. His industrial business was badly hurt by the fall in commodities prices, and he had to postpone an initial public offering of Interpipe, his flagship company. But that was offset by Pinchuk’s sale of his Ukrainian bank for a top-of-the-market price.

Our final course of cherry varennyki – a sweet Ukrainian version of ravioli, served with crème fraîche – has now arrived. As we eat, Pinchuk talks about his next projects. These include his proposal to stage the “hottest” event at the 2010 Davos conference by organising a debate between the top two candidates for the Ukrainian presidency.

He is equally excited by another venture, a contest to identify Ukraine’s top contemporary artists, as selected by a jury chaired by Damien Hirst (the winner was announced this week). The longest queues in Kiev, he tells me, are to his PinchukArtCentre, which has one of the largest collections of contemporary art east of Berlin. “I have to create an environment for the new generation. Contemporary art will help me to modernise our society,” he says.

It is nearly midnight. Before leaving, Pinchuk asks me a very Ukrainian question: “It was enough food for you?” I assure him that it was, and ask if I can have the bill. He tells me that won’t be necessary – he has hired the whole restaurant for the night. I explain that for Lunch with the FT, I need an itemised menu and that I should pay. I expect a fight: it goes against the Slavic grain for a man, especially a billionaire, to let a woman pick up the tab.

But Pinchuk is a quick student of western ways and he immediately arranges for a bill to be brought to our table, though he hesitates before passing it on to me. When he ordered our food, Pinchuk had assumed he was my host: the “good” burgundy turns out to have been a $300 bottle.

The theme of our meal has been Pinchuk’s commitment to building a new Ukrainian national identity, and he took great pains to select a menu to match – but, even when he eats salo, borscht and varennyki, he is unable to escape the fact that he is also an oligarch.
Oreanda Restaurant, Oreanda Hotel, 35/2 Lenin St, Yalta, Ukraine
Borscht x 2 Hryvnia 94.00; Chicken Kiev x 2 108.00
Fried potatoes with onion x 2 40.00; Varennyki with cherries x 2 86.00
Evian, two bottles 70.00; Bottle of burgundy 2,500.00; Tea x 2 50.00
Total Hryvnia 2,948.00 (£227)

By Georgina Adam, Editor-at-large of The Art Newspaper
Financial Times, London, UK, Friday, December 11 2009

Victor Pinchuk burst on to the art scene at the Venice Biennale in 2005 when he showed part of his collection in the 16th-century Palazzo Papadopoli, as a curtain-raiser for the art centre he opened in Kiev the following year, writes Georgina Adam.

Since then the PinchukArtCentre, the first private museum in the former Soviet Union, has continued to represent his country at the biennale. To advertise the Ukrainian pavilion this year, Pinchuk plastered the Accademia gallery with a giant poster of a burly boxer brandishing gold roller skates. The boxer is the 6ft 5in tall, world heavyweight champion Wladimir Klitschko, tagged “curator” on the billboard.

The high-impact image is typical of Pinchuk’s taste in art. He likes it shiny, showy and figurative, and he has wholeheartedly espoused some of the highest priced and most visible artists during the recent art boom, which ended with the financial meltdown in September last year. Pinchuk probably contributed to the escalation in art prices: he is believed to have paid $23.6m for Jeff Koons’ “Hanging Heart (Magenta/Gold)”, bought at Sotheby’s in 2007, and $11.8m for Koons’ 2005 “Diamond (Blue)” (at Christie’s in 2007).

As well as Koons, Pinchuk has works by Takashi Murakami, Antony Gormley (he bought the artist’s misty room, “Blind Light”, 2007, for a price rumoured to be about £1m), Andreas Gursky and Peter Doig.

But Pinchuk is most closely associated with Damien Hirst. Among the many Hirsts Pinchuk owns are paintings of cancerous cells, 13 canvases covered with flies and resin, and “Jesus and the Disciples”, a work consisting of 13 steel tanks, 12 of them containing cows’ heads in formaldehyde.

This year Pinchuk unveiled the largest Hirst exhibition ever, a retrospective of more than 100 works spanning 1990 to 2008, many lent from other collections. He also has many of Hirst’s recent, all-his-own-work paintings currently on display in the Wallace Collection’s show, No Love Lost.

As well as backing a contest to find the best young contemporary Ukrainian artists, he has just launched the Future Generation Art Prize, a global competition to identify emerging artists.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
Presentation by Yuri Scherbak, Ambassador of Ukraine
Former Ukrainian Ambassador to the U.S. and Canada
Ukraine's Quest for Mature Nation Statehood: Roundtable X
Washington, D.C., October 21-22, 2009
Action Ukraine Report (AUR), Wash, D.C., Nov, 2009
WASHINGTON, D.C. - In several days we will celebrate the 20th anniversary of the fall of the Berlin wall. This event marked the end of the cold war and the end of the Communist dominance in Eastern and Central Europe. Eventually, it led to the collapse of the Soviet Union and restoration of Ukraine’s state independence.
We witnessed the birth of new hopes of peaceful and democratic future for all European nations without divide, without hostility and military conflicts. We believed in this and worked towards fulfilling the dream of Ukraine joining the European and Euro-Atlantic structures.
And what do we see today?

       [1] We observe ruining of the post-Cold war order related to the deep financial, political, institutional and moral crisis of the humankind and
        intensification of the struggle for natural resources.
       [2] We watch a new leader – China - rising on the world stage.
       [3] We witness the Americans’ failure in Iraq and Afghanistan and diminishing of the U.S. leading role and authority on the global scale.
       [4] We observe the growing imperial ambitions and hostile spirit of Russia, which is turning into an authoritarian state that claims a dominant role in
       the post-Soviet space. Using the weakness of the United States and indecisiveness of the European Union, Russia conducted a military operation
       against Georgia, with disproportionate use of military force, ethnic cleansing of Georgians and violation of Georgia’s territorial integrity.
       Russia turned out to be a good student in the geopolitical game: we see it mimicking some of the West’s previous geopolitical moves such as
       supporting independence of South Ossetia and Abkhasia with reference to the Kosovo precedent – a practice that could be possibly extended to other
       disputed areas in the Russian near-abroad.
       In the so-called frozen conflicts on the territory of the former Soviet Union, Russia’s persistent interference – either in the form of the military presence
       or as political and economic pressure on the parties to the conflict – serves as a chilling agent that does not allow the situation to unfreeze.

       It is worth reminding that all those territories in the region where Russia preserves and builds up its military presence are the breeding ground for drug
       trafficking, smuggling and counterfeiting, which could not exist without implicit backing of Russian officials.

       On the other hand, those areas are close to existing or potential strategic transport routes or oil and gas pipelines. So, the so-called Russian peace-
       enforcement or peace-keeping is far from contributing to regional security but clearly provides substantial economic, not to say political, benefits to
       [5] And, finally, we see the unprecedented weakening of the geopolitical position of Ukraine, both due to the above-mentioned external reasons and as
       a result of the country’s internal disturbing developments. Among the latter is the current state anarchy, the Hobbesian “war of all against all” among
       politicians and within the Ukrainian authorities, which led to the degradation of the state system of Ukraine, increase of corruption and marginalization
       of the Ukrainian foreign policy.
This sad and disappointing result of the developments taking place within a one-generation period (20 years) is evidence of the drastic growth of threats to existence of the Ukrainian statehood in the 21st century.
The message of President Medvedev to President Yushchenko became a brutal ultimatum to the whole people of Ukraine, to its security and civilizational Euro-Atlantic choice, and its right to have its own history and national identity. The goal of Moscow is obvious: to assert its claim to the privileged sphere of interests and to turn Ukraine into a protectorate or a bandustan of Russia, ruled by a puppet pro-Russian government.

If such actions succeed, there are prospects for Ukraine to turn into a part of the Eurasian empire, lose its European and national identity, develop into a demographic, as well raw-material and food reserve of Russia and become a dangerous Eurasian base for hostile actions against its members – EU and NATO member-states.
The Ukrainian civil society and expert community is alarmed by the growing Russia’s economic, informational and even military threat to Ukraine. If you analyze statements of Russian politicians, military experts and media representatives, it would become clear that this alarm is well-grounded:
       [1] The information war of Russia against Ukraine has intensified and this has already had a number of consequences. According to a recent poll
       conducted by the Moscow-based Levada Centre, 33% of Russians have a negative attitude to the US, 19% to the EU, 44% to Ukraine and 65% to
       [2] A targeted campaign is waged to discredit the Ukrainian values, language and history in order to prepare the Russian population for possible
       hostile actions against Ukraine, in particular in Crimea, by making those actions legitimate in the eyes of the Russian people.
       [3] Activities of the pro-Russian “fifth column” in Ukraine, agents of influence and FSB and GRU intelligence units on our territory have sharply
       intensified. There have been revealed facts of transfer of large sums of money from Russia to pro-Russian organizations in Ukraine. Under these
       circumstances, respective actions of the Ukrainian counterintelligence seem to be ineffective.
       [4] Recent amendments to its legislation allow Russia to deploy troops to protect the so-called “Russians abroad”, that is, those nationals of Ukraine
       who received Russian passports, as well as to conduct secret special operations against unwanted persons or organizations.
Pro-democratic forces that care for Ukraine’s future draw concrete conclusions from these developments. The conclusions are made not in the neoliberal language of political correctness but in the language of realism, taking into account the power balance and the factor of military threats.
1.   The United States, by entering the process of “resetting” the relationship with Russia and being interested in cooperation with Russia on solving the
       problem of Afghanistan and Iran, has actually agreed to Russia’s demand to declare Ukraine as a zone of imperial interests of Russia. No statement of
       US Vice-President Joe Beiden or Assistant Secretary of Defense Alexander Vershbow, who deny that Ukraine has become a means of payment in the
       deal between the US and Russia, can reassure the Ukrainian civil society. There is a growing distrust in the USA and the ability of its leadership to
       fulfill its commitments.
       There are civic organizations created with aim of protecting the Ukrainian statehood and democracy. More and more people are concerned with the
       current developments and believe that Russia will undertake hostile actions towards Ukraine – either in the form of the new gas war or of military
       provocations in Crimea. All this is taking place against the background of the deepened political struggle in connection with the presidential elections.
2.   We call for a return to the Budapest protocol of 1994 regarding assurances of our security by great powers and believe it is necessary to conduct a
       special session of negotiations to renew these obligations. This could be done in the course of the next round of negotiations on the non-proliferation
       regime to be held in 2010 in New-York.
3.   There is an opinion, which sounds more and more often these days, that Ukraine made a fatal mistake when it surrendered its nuclear weapon and took
       on trust the reassurance of the USA, Russia, United Kingdom and France that they would protect Ukraine in case of need. 
      There are even calls to recreate Ukrainian nuclear (tactical) weapons to deter a potential aggressor. According to some estimates, the Ukrainian
       technical, scientific and nuclear potential allows to do that within a short time period.
       Definitely, this kind of thinking is not productive if our country wants to build an image of a responsible and trustworthy partner on the international
       arena, and, luckily, at the moment those pro-nuclear voices do not have support neither among the wider public nor among the ruling elites but this may
       change if threats to Ukrainian statehood become more pronounced.
4.   Having found itself in the grey security zone, abandoned by the western allies, Ukraine has to pursue an independent defense policy, with no
      perspective for joining NATO and the EU.
       This means that now we have to completely rebuild our defense strategy, which, for a long time, was based on the premises of the Euro-Atlantic
       integration of Ukraine. Now that the words “NATO membership” are disappearing from the speeches of our politicians, as well as from declarations
       of our European and American partners who have actually declined the admission perspective for Ukraine, it is critical to think how we can close the
       emerging security gap and on what forces we can count in this effort.
5.   Even though Ukraine seems to be left alone in solving that puzzle, the problem of our defense is not only our own. Any possible military operations
      against Ukraine, even limited in time and space, could potentially lead to an all-European catastrophe. The concentration of nuclear power plants,
      energy and chemical facilities, transport routes and power lines on the territory of Ukraine is such that any action will cause mass losses among the   
      civilian population and create millions of refugees fleeing to the West.
Dear friends, we gather for the 10th time here in Washington, in Brussels, Kyiv or Kharkiv and have calming discussions about Ukraine’s road to Europe and the US support of its strategic ally.
As a permanent participant of all those meetings and a person with considerable political experience, I have the moral right to say: enough of reassuring each other! It is time to wake up and face the truth.
As a former Ambassador to the United States and Canada, I call our American and Canadian friends to inform the leadership of their states, their civil society and media about our concerns.
I would also like to remind you that the public in Central Europe is also concerned about the recent change in the US plans regarding placement of the Ballistic Missile Defense (BMD), which is considered by many as a concession of Obama’s administration to Moscow’s pressure.
Americans risk losing their supporters in this part of the world if they continue the current policy of abandoning their allies for the sake of seeming warming of relationship with Russia and pleasing it to ensure its backing of US plans elsewhere.
Russian politicians love to repeat the words of Emperor Alexander the Third who said that “in the whole world Russia has only two reliable allies – its army and its fleet”. Taking into account its geopolitical ambitions, Russia could become only an ally of the moment for the US, so trading several strategic allies for one questionable tactic partner seems to be a short-sighted policy.
Apart from losing its allies, the US may also lose in a larger geopolitical game. Nobody has disaffirmed the axiom of the geopolitical theory that the region and Ukraine in particular is a key to the fate of the whole Europe.

It is possible to receive a Nobel Peace prize and at the same time lose peace, lose Europe. Let’s not forget this.
The American administration and European liberals call us to be friends with Russia. Having good neighborly relationship with Russia is our objective as well – we definitely do not need the unreasonable and counterproductive animosity with our big neighbor. But what should be the price of that? The price of losing our sovereignty and our national values? 
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
Ukraine Macroeconomic Report From SigmaBleyzer: 

Interfax Ukraine, Kyiv, Ukraine, Thu, Dec 31, 2009

KYIV - The social, economic and political situation in Ukraine could have been worse in 2009, however, the country has managed to achieve some positive results, according to political scientists.

"Of course, a positive result was the adoption by UEFA of a final decision on holding Euro 2012 in Ukraine and Poland… Of course, a negative result was the fact that the Verkhovna Rada has turned into a political talking shop and finally undermined citizens' trust in the political system," head of the Open Policy Analytical Center Ihor Zhdanov said at a press conference at the Interfax-Ukraine news agency on Friday.

He said that the government had managed to prop up the social and economic situation. "Apocalyptical scenarios were announced at the beginning of this year that wages and pensions will not be paid in March 2009, however, this didn't happen," Zhdanov said.

He said that it was a positive result that Ukraine and Russia had switched to the formula-based determination of the gas price. "This will weaken Russia's pressure on Ukraine," he said, asserting that "it's clear for everybody that the higher the gas price is, the greater political pressure from Russia [on Ukraine] is."

"Ukraine was paying for gas on time, and this could obviously be expected in the future, so I forecast that it's unnecessary to expect the escalation of Russian-Ukrainian relations in the gas sector early in 2010," he said. The political scientist also described a 60% increase in the gas transit rate as "very important."

Director of the Penta Center for Political Studies Volodymyr Fesenko said the whole year had been marked by the economic crisis, but agreed with Zhdanov that "apocalyptical forecasts made at the beginning of the year did not come true."

Fesenko outlined several main events of the outgoing year, in particular, a Ukrainian-Russian gas crisis in January 2009 and the signing of a gas agreement between Ukraine and Russia, the failure of an effort by the Tymoshenko Bloc to ally itself with the Party of Regions to create a broad coalition in parliament, and the closure of the gambling business.

"If we sum up the general results of the year, I would point to such a conclusion - the situation could have been even worse," he said, adding that the issue concerns the economic and political situation in the country.

Fesenko panned the election campaign of Arseniy Yatseniuk as the "failure of the year." "Yatseniuk's team provided us with a textbook example of how not to run a presidential campaign," he said.

On the other hand, Sergiy Tigipko's participation in the presidential election was the "political comeback of the year," Fesenko opined. He noted that the resignation of Viktor Baloha in May as head of the Ukrainian presidential secretariat had also influenced the country's political situation.

Fesenko said that he cannot name the person of the year. "The year was marked by crisis and no Ukrainian politician deserves to be the person of the year," he said.

Director of the Institute for Economic Research and Policy Consulting Ihor Burakovsky said that Ukraine's economy had not been reformed ahead of the crisis. "This means that there are little funds in Ukraine to launch large-scale fiscal packages stimulating the economy. Moreover, the state is too weak to hold a comprehensive and well-considered policy on minimizing the consequences of the crisis," he said.

"The government, in general, took decisions and resorted to anti-crisis measures that corresponded to the logic and direction of anti-crisis measures in other countries," he said.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
A decade of revolutionary progress and hard setbacks.

Analysis & Commentary: By Peter Byrne and Nataliya Bugayova
Kyiv Post, Kyiv, Ukraine, Sun, Dec 27, 2009

KYIV - First, some of the decade’s high points: Democracy triumphed, but only briefly, in the dead of the 2004-2005 winter. Millions of Ukrainians are living better than a decade ago. Many are eating better. Consumer goods are in abundance and many more people can afford them. More cars clog the city streets. Almost all teenagers have mobile phones, even if they have no money to use them.

Today, in fact, it is possible to purchase almost anything, including power, political patronage and university degrees, just like 10 years ago. And herein lies some of the nation’s intractable problems.

For all the signs of progress, Ukraine’s achievements don’t decisively add up to a nation that is starting 2010 in better shape than it started the year 2000. Instead, the nation embarks on the new decade hobbled by many of the same old problems: distrust, corruption, instability, billionaires who stifle both democracy and the economy, a judicial system incapable of dispensing justice, a demographic crisis and dire poverty for a quarter or more of its 46 million people. And on and on.

Still, taking into account decades and even centuries of misery, Ukrainians may have never had it so good. But millions – perhaps four million Ukrainians – have left the nation in frustration and in search of better lives and better jobs abroad, while many of those stayed behind in the homeland are quick to say that their lives are hard and should be better.

Overall, the nation is freer, but still poor and corrupt.

Here is a look back:


The 2004 Orange Revolution is the decade’s highlight. It briefly enhanced national self-esteem and raised hopes. But the subsequent political breakup of heroes President Victor Yushchenko and Prime Minister Yulia Tymoshenko created instability, with the nation ending the decade in stagnation and economic recession.

The decade started with former President Leonid Kuchma grabbing power after his 1999 re-election. When hundreds of hours of his taped conversations and the Sept. 16, 2000 murder of journalist Georgiy Gongadze showed that Kuchma may have grabbed too much power, people started to revolt. The disobedience of the Ukraine Without Kuchma rallies in the early 2000s paved the way for the 2002 parliamentary election triumph of Yushchenko’s Our Ukraine and Tymoshenko’s eponymous bloc.

This national assertiveness culminated in the successful street protests of the Orange Revolution, which overturned the Nov. 21, 2004, presidential election rigged for Victor Yanukovych. Yushchenko was swept into office with high popularity and international adulation. He is ending his five-year term with almost no public support, in no small part because of his administration’s inability to solve crimes and rein in the nation’s high-flying billionaire oligarchs who control such a large share of the nation’s economy.


Fueled largely by raw material exports and a credit boom, Ukraine’s decade of robust economic growth came to a screeching halt in the fall of 2008, and then slipped into reverse. The ongoing recession translated into extended furloughs, mass layoffs, a credit drought and a nation edging closer to default and bankruptcy. The central bank spent billions of dollars to prop up the hryvnia, but failed to arrest its slide from Hr 5 to the dollar to Hr 8.

The International Monetary Fund rode to the rescue with a $16.4 billion line of credit, but abruptly stopped its lending at $11 billion after it blanched at the fiscal irresponsibility of the nation’s leaders. In rescuing the nation’s commercial banks, perhaps billions of dollars were misspent or stolen. The ex-chief executive officer of Nadra Bank, Igor Gilenko, was among the many accused criminals on the lam by year’s end.


The birth of new media and death of Internet journalist Gongadze, co-founder of one of the country’s first news websites, Ukrainska Pravda, started the decade. The murder triggered civil disobedience and nationwide protests. Digital recordings implicated Kuchma in the crime and so many more: rigging court rulings and elections, illegal surveillance and blackmail.

But the authorities spent the rest of the decade squelching any meaningful criminal investigation into the tapes revealed by Mykola Melnychenko, a former Kuchma bodyguard. Law enforcement – from police to prosecutors and judges – remains impotent, corrupt or unwilling to solve the nation’s major crimes.


In other areas, Ukraine joined the world in logging on to the Internet, blogging and connecting with each other on social networks, on You Tube and by texting. But traditional media – including TV stations with national reach – remained under the ownership of competing groups of influential businesspeople. While censorship is gone, few would argue that Ukraine’s public and media are truly free, at least in the information sphere.


The nation ends the decade still trying to find a Constitution that works. Kuchma sought stronger presidential powers in 2000, but was rebuffed. Yushchenko wants changes to the Constitution he agreed to amend in 2005 to end the Orange Revolution. The guiding document today muddles executive authority, diluting presidential powers and giving the prime minister many executive roles.


The hryvnia is worth half of what it was in 2000 against the dollar and inflation has worsened its buying power. In 2000, Yushchenko became prime minister and helped to mitigate the economic lows of the 1990s. He and his deputy prime minister, Tymoshenko, squeezed out corruption from the electricity sector and started paying wages and pensions on time.

Combined with his successful introduction of the hryvnia in 1996, Yushchenko was building his reputation as a successful economic manager. But the Yushchenko-Tymoshenko pair did nothing to break Kuchma’s grip over law enforcement or the doling out of state assets to favored insiders in rigged privatizations. Government stakes in chemical factories and regional energy utilities were put on the auction block and sold like fattened calves to oligarchs within the president’s close circle.

As the 2004 election neared, Kuchma undertook the mother of all scams by selling the country’s largest steel producer Kryvorizhstal to his son-in-law, Victor Pinchuk, and Donetsk billionaire Rinat Akhmetov for $800 million, a small fraction of its worth. Re-privatization became the mantra of the Orange team of Yushchenko and Tymoshenko.

They re-sold Kryvorizhstal to ArcelorMittal in late 2005 for $4.8 billion – six times the Akhmetov-Pinchuk price of a year ago – in a fair, open, transparent, competitive, televised auction. The success was never repeated, before or since, in the nation’s history.


Relations between Kyiv and Moscow deteriorated significantly after the 2004 Orange Revolution, following the defeat of Kremlin-favored presidential candidate Yanukovych. Yushchenko embarked on an agenda to bring Ukraine closer to NATO and the European Union, irritating Moscow. In the end, Ukraine came no closer to either. Yushchenko further alienated Ukraine’s big neighbor by seeking to win international recognition of the Holodomor famine of 1932-1933 as Soviet genocide of millions of Ukrainians who starved to death.

Ukraine and Russia sparred over the Russian Black Sea Fleet in Crimea and the 2008 Russia-Georgia war. Disputes over natural gas pricing prompted Moscow to cut off supplies twice, in 2006 and again in 2009. At decade’s end, Russian Prime Minister Vladimir Putin was flirting with his counterpart, Tymoshenko, keeping his distance from Yanukovych and doing nothing to conceal his contempt for Yushchenko.

Ukraine’s reputation suffered in many parts of the world as unending tragedies, disasters and political infighting gave rise to questions about whether the nation can govern itself. “Ukraine fatigue” arose in Europe. The Sept. 11, 2001, attacks on America shifted the attention of one of Ukraine’s friendlier international patrons. The U.S. remained bogged down in wars in Afghanistan and Iraq through much of the decade, and is now beset by its own economic troubles and spiraling debt.


From an estimated 54 million persons living in Ukraine in 1991, the decade closed with just under 46 million people estimated to be living in the nation today. There are 3.5 million less Ukrainians than 10 years ago. The nation has yet to find the key to reversing its demographic slide and public health crisis.

With one of the highest death and suicides rates in Europe, Ukraine is the European leader in HIV/AIDS prevalence and tuberculosis. It is a world leader in smoking and child alcoholism. The number of Ukrainian drug addicts increased exponentially over the last decade. Officially, Ukraine has more than 500,000 hard-drug users but, unofficially, it is believed to have many more.

Poverty may be at the root of much of this social breakdown. Some 26 million Ukrainians earn less than Hr 1,567 ($200) monthly, according to Myroslav Yakibchuk, the head of the National Forum of Labor Unions in Ukraine. No one knows for sure, because so much of the economy remains in the shadows.

Some experts say that real disposable income increased by 178 percent in the last 10 years. But debts also grew, reaching $19 billion (about 30 percent of gross domestic product) in sovereign foreign debt and more than $100 billion in foreign debt, private and public.

And simply changing the calendar doesn’t wipe the slate clean.

NOTE: Kyiv Post staff writers Peter Byrne can be reached at and Nataliya Bugayova can be reached at

[return to index] [Action Ukraine Report (AUR) Monitoring Service]
Five years after the “orange revolution”, Ukraine faces a less uplifting election

The Economist print edition, London, UK, Thu, Dec 17, 2009

LONDON - THE good news is that nobody can predict the result of Ukraine’s presidential election on January 17th, a sign of a healthy democracy. The incumbent, Viktor Yushchenko, who swept to power in the “orange revolution” in 2004-05, is almost certain to be voted out.

But a second round of voting is likely to be needed between Yulia Tymoshenko, the prime minister and former orange ally of Mr Yushchenko, and Viktor Yanukovich, a former prime minister who was the anti-Yushchenko loser then.

In the fluid world of Ukrainian politics, allies become enemies and vice versa. Russia strongly backed Mr Yanukovich in 2004. This time, the Kremlin would settle for either frontrunner and has also promised no gas war this Christmas.

After years of political crisis, at least Ukraine is taking the election in its stride. The protesters’ tents that were once a fixture of Ukraine’s political life are so far absent. Political fighting is fierce, as reflected by television channels that plug the interests of their powerful owners. But at least the overall coverage is diverse.

The bad news is that the leaders of this country of 46m, bordering the EU in the west and Russia in the east, have largely squandered the credit they won in the heyday of the orange revolution. Corruption is rife, the courts are bent, institutions are dysfunctional and the economy (dominated by Soviet-era steel and chemical factories) is sick.

Instead of reforming Ukraine, politicians have fought over power and assets, blocking each other’s decisions. This is exemplified by Mr Yushchenko’s recent actions, aimed at damaging Ms Tymoshenko at any cost, even if they discredit the country.

Mr Yushchenko has even managed to sabotage the disbursement of a badly needed IMF loan. The fund bailed out Ukraine to the tune of $16.4 billion, and was relatively lenient over its conditions. One thing it did ask was that the budget deficit be kept down. So when Mr Yushchenko signed a law to increase public-sector wages, the fund had little choice but to suspend the final $3.8 billion tranche.

On paper, both Ms Tymoshenko and Mr Yanukovich are promising reforms. But Ukrainians know better than to believe promises. Ms Tymoshenko’s record in office is mixed. In two stints as prime minister, she reversed one of Ukraine’s more controversial privatisations and scrapped an opaque intermediary in the gas trade between Russia and Ukraine. She has also held down public spending.

But her bid to control prices, her rabble-rousing instincts and her scheming were all alarming. Not long ago she tried to forge a deal with Mr Yanukovich to amend the constitution so that parliament would elect the president. According to a leaked document, parliamentary elections were to be held in two rounds, giving the winning party total control. The arrangement fell through only after Mr Yanukovich walked away.

The common wisdom in Ukraine suggests that, if Ms Tymoshenko wins the election, she will consolidate her power, undermine the opposition and micromanage the government. There is no danger of micromanagement with Mr Yanukovich, who represents the interest of big industrial groups in the Russian-speaking east.

Worryingly, his political camp includes Ukrainian officials involved in the scrapped gas intermediary. Yet corruption is so rife in Ukraine that even the most scandalous allegations surprise nobody. “The trouble is that 80% of what Tymoshenko says about Yanukovich is true, but 80% of what Yanukovich says about Tymoshenko is also true,” says Yulia Mostovaya, editor of Zerkalo Nedeli, a weekly.

The choice in this election is not, say some Ukrainians, who would do the best job but who would do the least damage. Whoever wins will have to amend the constitution that makes decisions in Ukraine so hard to reach. The worst outcome would be a result in the second round so close that neither concedes defeat. If that happens, expect more tents in Kiev.

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Op-Ed: by Mark Medish, The New York Times, NY, NY, Tue, Dec 22, 2009

Ukraine holds presidential elections next month, and the outcome is likely to spell the epitaph of the Orange Revolution. The euphoria of 2003-04, when a grand display of “people power” reversed a rigged election, has long faded.

The country of 46 million has been one of the hardest hit by the global financial meltdown, suffering a sharp currency devaluation and a projected 14 percent GDP drop this year.

President Viktor Yushchenko, once the Orange hero, is now polling in low single digits. Much like Lech Walesa in Poland a generation ago, the out-of-touch Yushchenko has unceremoniously morphed from national icon of change into political footnote.

The January ballot is likely to lead to a run-off between Prime Minister Yulia Tymoshenko, a feisty populist, and Viktor Yanukovich, a drab but steady former premier and Yushchenko rival, whose Party of Regions boasts the strongest organization.

Both are pragmatic leaders. But whichever wins will face enormous challenges, foremost restarting the anti-crisis program with the IMF, which suspended its $16 billion lending facility last month due to the bitter political impasse between Yushchenko and Tymoshenko.

The winner will also need to remember that to lead Ukraine is to balance East and West. This imperative reflects the pressures of both external geopolitics and internal demographics.

Russia and the United States tend to view Ukraine as a key battleground in a cosmic proxy war between East and West. Both have a bad habit of trying to pick winners in Ukrainian politics. These interventions, naïve in their own ways, tend to backfire, often at Ukraine’s expense.

Russian meddling fueled the Orange backlash against the mediocre Leonid Kuchma and his cronies and ended in a series of crippling winter gas cut-offs and sabre-rattling over Crimea.

Meantime, the U.S. expected far more from Yushchenko than he could deliver, deepening his isolation at home. The curse of U.S. foreign-policy idealism, whether neoconservative or liberal, is to make the best the enemy of the good.

By putting more emphasis on the symbolism of a failed NATO membership bid than the unglamorous work of energy reform, the U.S. did no favor for Ukraine’s security. It should be clear that an independent Ukraine must not consume Russian-sourced energy as though it were still part of the U.S.S.R.

By contrast, Russia’s designs on Ukraine are hardly idealistic. At the NATO summit last year, Vladimir Putin reportedly remarked to former president George W. Bush, “You understand, George, that Ukraine isn’t even a country. What is Ukraine? Part of its territory is Eastern Europe, and part of it, a significant part, was given by us.”

Political bullies can be clever at implanting a grain of truth in their predatory barbs. Like other European nations, Ukraine’s ethnicity is mixed and its borders were not God-given. These things emerged through collisions of tribes, ethnic intermingling and considerable bloodshed over centuries.

Western Ukraine — Galicia and Bukovina — were Habsburg lands and never part of the czarist empire. The Crimean peninsula was transferred from the Russian Republic to Soviet Ukraine by Nikita Khrushchev in 1954, when both were part of the Soviet Union.

Ukraine faces deep identity issues. Ethnic Russians are roughly 20 percent of the population, and many more Ukrainians speak Russian. The languages are close, like High German and Bavarian or Danish and Swedish.

Europe prides itself on what Freud called “the narcissism of small differences.” However, Ukrainian nationalists would be wise not to overplay their hand, as Yushchenko often has done on sensitive language and historical issues.

In the 21st century, Ukraine needs to pursue its own path as a pluralist democracy and emerging market, balancing Western integration with a respect for its older cultural roots and affinities. Despite the present economic crisis and wide dissatisfaction with the political elite, Ukraine has a bright future. It has fertile land, solid industry and well-endowed human capital.

It also has a libertarian Cossack streak that explains how Ukraine came into being — precisely because of the proud self-reliance of its diverse people. The streets of Kiev, Lvov, Kharkov, Dniepropetrovsk and Simferopol (forgive the Russian transliterations) today have a distinct whiff of freedom, and they should keep it.

What should the West do to help? The U.S. needs to continue balancing its important “reset” policy with Russia by reassuring its neighbors, foremost Ukraine, of its active commitment.

It is the fate of the post-Soviet countries to be part of what Moscow calls the “near abroad.” While these states will always be near, it must be the policy of the U.S. and European Union to make sure they remain “abroad,” and free and prosperous.

Earlier this year, a senior Ukrainian official, anxious about the reset, asked me whether the Obama administration would “trade us for something like cooperation on Iran.” I told her that the U.S. was rooting for Ukraine even when Leonid Kravchuk and Leonid Kuchma, less than stellar figures, were its elected leaders. This will not change.

Yet Ukrainians remember lost dreams of statehood during the two great European wars in the 20th century. And they remember the “Chicken Kiev” speech of President George H.W. Bush to the Ukrainian Supreme Soviet on Aug. 1, 1991, just months before the unraveling of the U.S.S.R., when he said, “Americans will not support those who seek independence in order to replace a far-off tyranny with a local despotism.” Bush had uncannily bad timing, but his underlying point about the need for political maturity remains important.

Ukrainians and their Western partners alike should stick to a balanced path of reform and long-term sustainability, not quick fixes and grand gestures. The end of the Orange era will not be the end of Ukraine's independence — nor of its Euro-Atlantic identity.

NOTE: Mark Medish, a visiting scholar at the Carnegie Endowment, served as senior director for Russian, Ukrainian and Eurasian Affairs on the National
Security Council under President Clinton.

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