Daily Archives: September 20, 2006

AUR#760 Sept 20 Economic Reform Agenda; Special Economic Zones; Who Should Pay For Education?; Embarrassment In Brussels; UN To Declare ’33 Genocide?

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               –——-  INDEX OF ARTICLES  ——–
              Clicking on the title of any article takes you directly to the article.               
    Return to the Index by clicking on Return to Index at the end of each article
SigmaBleyzer Emerging Markets Private Equity Investment Group
Kyiv and Kharkiv, Ukraine, Houston, Texas, Washington, D.C., Sep, 2006

ANALYSIS: By Hanna Cherednychenko, ICPS economist
ICPS Newsletter, #29 (333), Kyiv, Ukraine, Monday, Sep 18, 2006

                             SACRIFICES SOCIAL ORIENTATION
ANALYSIS: Roman Bryl, Ukraine Analyst
IntelliNews – Ukraine This Week, Kyiv, Ukraine, September 15, 2006

Ukrainian News Agency, Kyiv, Ukraine, September 20, 2006

5.                                       UKRAINE’S MOVE
   Ukraine has a choice to make: Will it be a confident, forward-looking state
  willing to accept foreign investment and embark on a path of rapid economic
growth? Or will it be divided, yearning for the past rather than meeting the future?
by M. Ron Wahid & Barton W. Marcois
The Wall Street Journal, New York, NY, Wednesday, September 20, 2006

                             ON WARSAW STOCK EXCHANGE
          First company from a former Soviet country to debut on the WSE.
Business Digest, Liga, Tuesday, August 22, 2006

INTERVIEW: With Ludwik Sobolewski, President
Warsaw Stock Exchange Management Board
Interviewer: Jacek Swidzinski, Newsletter PolishMarket
Warsaw, Poland, Thursday, September 07, 2006

Atlantic Council of the United States, Washington, Wed, September 13, 2006

OP-ED: By Tom Coupe, Kyiv Post, Kyiv, Ukraine, Wed, Sep 13 2006

Ukrainian News Agency, Kyiv, Ukraine
Kyiv, Ukraine, Friday, September 15, 2006

                       BIO FUEL PLANT IN POLTAVA REGION 
Ukrainian News Agency, Kyiv, Ukraine, Friday, September 15, 2006

12.                             EMBARRASSMENT IN BRUSSELS
COMMENTARY: By Serhiy Leshchenko, Brussels-Kyiv
Original article in Ukrainian translated by Eugene Ivantsov
Ukrayinska Pravda, Kyiv, Ukraine, Friday, September 15, 2006


Associated Press, Kiev, Ukraine, Tuesday, September 19, 2006 

       Yanukovych once again demonstrated who the master of the house is.
By Tatiana Silina
Zerkalo Nedeli On The Web, Mirror-Weekly
International Social Political Weekly, No. 35 (614)
Kyiv, Ukraine, Saturday, 16 – 22 September 2006 year

       ICPS calling on government bodies and civil society organizations to
      begin a broadbased public dialog on Ukraine’s integration with NATO
             and the benefits of carrying out the Membership Action Plan.
International Centre For Policy Studies (ICPS)
Kyiv, Ukraine, Wednesday, September 20, 2006


                       AMBASSADOR TAYLOR OF NATO CHOICE 
Interfax-AVN military news agency website, Moscow, 19 Sep 06
BBC Monitoring Service, United Kingdom, Tue, Sep 19, 2006

forUm, Kyiv, Ukraine, Friday, September 15, 2006

18.                        “WHY RYBACHUK WAS DISMISSED”
             New chief of staff appointed to boost Ukrainian president’s role
With Yuriy Yakymenko, Razumklov think-tank expert
By Kateryna Kobernyk, Korrespondent.net website, Kiev, Russian 19 Sep 06
BBC Monitoring Service, United Kingdom, Tuesday, Sep 19, 2006

19.                      “BALOHA: CAREER AND SCANDALS”
                  Dubious background of new presidential chief of staff.
By Bohdan Barbil and Oleksandr Ilchenko
Segodnya, Kiev, Ukraine, in Russian 18 Sep 06; p 3
BBC Monitoring Service, United Kingdom, Tuesday, Sep 19, 2006

UNIAN news agency, Kiev, in Ukrainian 1356 gmt 19 Sep 06
BBC Monitoring Service,United Kingdom, Tue, Sep 19, 2006

 [Holodomor: Induced starvation, death for millions, genocide of 1932-1933]
By Nick Wadhams, Associated Press Writer
United Nations, New York, NY, Wednesday, Sep 20, 2006
22.                    THE PARADOX OF 20TH CENTURY DEATHS
WorldNetDaily Exclusive Commentary: By Jim Rutz
WorldNetDaily.com, Medford, Oregon, Tuesday, August 29, 2006
23.                                    THE GENOCIDE TEST
                  Surely China does not believe Sudan’s brazen lies.
The Washington Post
Washington, D.C., Tuesday, September 19, 2006; Page A20
                                    AND VICTOR PINCHUK
PRNewswire, New York, NY, Tuesday, September 19, 2006
ANALYSIS: By Roman Kupchinsky
RFE/RL Belarus, Ukraine, and Moldova Report, Vol. 8, No. 32
Prague, Czech Republic, Tuesday, September 19, 2006

SigmaBleyzer Emerging Markets Private Equity Investment Group
Kyiv and Kharkiv, Ukraine, Houston, Texas, Washington, D.C., Sep, 2006

The economic and business reform agenda of the new government
should include the following:


[a] Clearly define the Objectives/Role of the Government limiting it to
“public” goods and support – not substitution – of the private sector;
[b] Undertake a comprehensive “audit” of all government programs, with a
view to transfer some of them to local governments, sub-contract others to
the private sector and eliminate unnecessary/overlapping activities.
[c] Develop the concept of well-defined ‘Programs and projects” for all
government activities (this will help to improve administrative efficiency,
deal with corruption and also bring equilibrium to the fiscal budget)
[d] Improve the efficiency in retained “core” government activities and
local governments, increasing public transparency and access to
government information.
[e] Carried out a civil service reform introducing effective “Incentives”
and “Control” Systems


[a] Strengthen fiscal policies (improve tax administration, reform the
pension system, decentralize budget financing).
[b] Strengthen monetary policies (develop techniques for inflation
targeting -open market operations, forecasting models)
[c] Liberalize foreign exchange rate policies (abandoning the exchange
rate anchor)


[a] Improve the practice of “public” consideration of any legislative act
to be adopted, including their correspondence with existing legislation.
[b] Ensure the independence of the Judiciary by further improvement
of the financing of courts.
[c] Improve court administration and enforcement procedures


[a] Secure effective implementation of the second phase of the quick
deregulation strategy (permits, licenses).
[b] Increase stability of existing regulations by avoiding frequent changes
in legislation concerning business activity.
[c] Improve coordination between central and local government bodies on
regulatory policy issues by avoiding conflict of interests between different
levels of executive power and making clear distinctions in the area of their


[a] Accelerate the adoption of the Joint Stock Company Law, complying
with international corporate governance standards.
[b] Speed up the adjustment of Ukrainian accounting standards to
international accounting standards.
[c] Remove inconsistencies between the Civil and the Commercial Codes
by eliminating the Commercial Code and passing some of its provisions
to the Civil Code
[d] Develop corporate governance codes


[a] Ensure entry into the WTO as soon as possible.
[b] Promote signing free trade agreements with the EU, CIS and the US.
[c] Continue streamlining customs procedures and formalities to ensure
prompt consideration and to avoid opportunities for rent seeking behavior.
[d] Soften export restrictions and eliminate import nontariff restrictions.
[e] Ease the system of certification and standardization to acknowledge
international standards.


[a] Better enforce banking regulations and supervision
[b] Ensure equal “playing conditions” for domestic and foreign banks.
[c] Provide mechanisms to deal with risky unsecured debts issued by
commercial banks
[d] Encourage stock market transactions to be made on the organized
[e] Stimulate development of nonbanking financial sector by introducing
a framework law on nonbanking financial institutions.


[a] Implement a corruption prevention program, including public
administration reform to improve transparency of decision making
process and procurement procedures.
[b] Reduce the ambiguity and discretion of government regulations and
raise accountability of the public servants for their decisions by
introduction of e-governance resources.
[c] Strengthen the capacities of the internal audit and make it fully
accountable for public.


[a]  Strengthen the Investment Promotion Agency and implement specific
activities for large investors (identify major projects, carry out targeted
promotional campaigns, identify niches/sectors) and for  small firms
(access to bank credit, better information on laws, etc).
[b]  Take measures to eliminate power abuses at different levels of
[c]  Resolve outstanding investment disputes with foreign investors
(such as OPIC, United States)
[d]  Ensure fair treatment of foreign investors in courts.
[e]  Engage the country’s embassies and other missions to disseminate
up to date information on Ukraine and its business opportunities.

NOTE:  The above document is a short version of a larger document
on the subject of a reform agenda for Ukraine. To receive a copy of
the larger document contact Morgan Williams, SigmaBleyzer,
Washington, D.C., MWilliams@SigmaBleyzer.com
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

The new Government has announced that one of its economic priorities
will be reviving the special conditions for business operations under
Special Economic Zones (SEZs). ICPS economist Hanna Cherednychenko
says that SEZs need to be changed from mere “tax resorts” where tax
holidays are handed out, to “incubators” where the conditions for start-ups
in priority sectors are generally favorable

ANALYSIS: By Hanna Cherednychenko, ICPS economist
ICPS Newsletter, #29 (333), Kyiv, Ukraine, Monday, Sep 18, 2006

Special economic programs are one way to resolve certain economic problems,
but to be successfully applied, specific conditions must apply as well. For
one thing, the purpose of setting up special programs has to be in step with
the country’s development goals over a particular period.

For another, the features of any program have to be developed in such a way
that they will actually facilitate reaching those goals. The main goal of
SEZs is to offer greater returns for using available resources.

Given the situation in Ukraine today, the main purpose for SEZs to operate
has to be to offer greater returns for utilizing available resources, not to
encourage greater use of resources.

Extensive growth resources, such as greater employment-unemployment has
shrunk and is getting close to the “natural” level associated with
sustainable growth-have effectively been exhausted in Ukraine at this point.

This means that further growth will be sustained largely by increasing the
competitiveness of the economy. Any new type of SEZ that is set up should
be subordinated to this macroeconomic goal.

This means, in turn, that the features of a new SEZ program must increase
the country’s competitive advantages. One of the main barriers to improving
Ukraine’s competitive edge has been the high cost of transactions, which is
largely the result of a flawed institutional environment.

Businesses are forced to spend an inordinate amount of money and time on
non-productive processes: registering their businesses, getting the use of
land, interacting with permit-granting bodies, and running a very
complicated accounting system.

What is more, they cannot develop any reliable long-term business plans
because the way that the state regulates the economy is mutable and
unpredictable, corporate legislation is poorly evolved and contradictory,
and the legal system does not offer reliable protection for businesses.
This set of problems has led to very high risks for doing business, which,
in turn, hampers investment, especially to projects with long-term ROI.

According to foreign investors, it is these high risks associated with
Ukraine’s business environment that constitute the main barrier for both
internal and foreign investment in Ukraine.

This is why any new SEZs will have to firstly be directed at radically
improving the business environment on their own territories. Once these
“pilot” reforms of business conditions prove themselves, the experience
of the SEZs can then be extended to the entire country.

Should they fail, SEZs will have to continue being reformed until the best
approach is found. In this way, the new SEZs will be testing grounds for
reforms that can be applied nationwide.
                          INVESTORS WILL BELIEVE IN SEZs
This kind of SEZ has a slew of advantages over those programs that existed
in Ukraine until 2005. The main one is that they will focus on the real
problems faced by investors instead of compensating them for unresolved
problems with tax and duty breaks.

This kind of program will gain the confidence of investors, as it will be
long-term when future Governments find little objective reason to change
them significantly.

Any direct and indirect costs to Ukrainian society for these programs will
be lower than the overall gains, mainly because they will not be linked to
the distorted economic incentives provided by tax breaks and the widespread
abuse associated with previous SEZ programs.

According to the ICPS analyst, since this new program will directly increase
the effectiveness, and therefore the competitiveness, of the country’s
economy, any gains will be felt across the economy, not only by individual

The benefits will moreover be long-term, because they will not be based on
the one-time gains in revenues associated with uncompetitive advantages but
with the opportunity for any business whatsoever to operate at a lower level
of transaction costs over the long run.          -30-
CONTACT: ICPS Economist Hanna Cherednychenko
(380-44) 484-4403 or via email at cherednychenko@icps.kiev.ua.
ICPS newsletter editor: Olga Lvova (olvova@icps.kiev.ua)
Phone: (38044) 484 4400. Fax: (38044) 484 4402
English text editor: L.A. Wolanskyj
The International Centre for Policy Studies is an independent research
organization whose mandate is to promote the introduction of public policy
concepts and practices in Ukraine. This is achieved by increasing the
know-how of key government officials for policy choices, formulation and
debate, and the awareness of the public at large of the benefits of policy.
Andriy Starynsky; Client Relations Manager; International Centre for
Policy Studies, (380-44) 484-4410, 484-4400; Fax: (380-44) 484-4402
Address: vul. Pymonenka 13A, Kyiv, Ukraine 04050
E-mail: astarynsky@icps.kiev.ua; Web-site: http://www.icps.com.ua

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

ANALYSIS: Roman Bryl, Ukraine Analyst
IntelliNews – Ukraine This Week, Kyiv, Ukraine, September 15, 2006

On Sep 14 the government sent to parliament the draft state budget for 2007.
According to recent practice, it could take up to several months to get it
approved because MPs that usually try to make some changes to the draft
lobby interests of their business partners. But such changes do not reshape
the draft budget dramatically.

After its approval, it keeps mostly the same key data as before its
presentation to parliament. Taking into account that the majority in
parliament and members of the government are from the same political
coalition, debates on the budget will not last long. The country can receive
its main financial document for next year long before the start of 2007.

Presenting the draft budget to public, EconMin which worked out the

document noted that it tried to first of all make the budget realistic, to
keep its social direction, and transform it into a budget of development.

According to deputy PM Mykola Azarov who de-facto is responsible for
economic development, the new budget is a transitional one.

It aims to restore the balance between economic growth and the social
sector, to stabilize the economy, creating conditions for faster growth and
execution of the innovation & investment plan and administrative reforms.

Government names key economic assumptions for next year: GDP growth –

6.5% y/y; industrial output growth – 14.4%; CPI inflation – 7.5% y/y. Before
presenting the draft, government approved the official forecast of economic
and social development for 2007 to justify key macroeconomic numbers on
which the budget is based.

Thus, according to the forecast, GDP growth will make up 6.5% y/y in
full-2007. Nominal GDP will amount to USD 116.5bn. CPI inflation will total
7.5% y/y, industrial output growth – 14.4% y/y, trade surplus – USD 163mn.
The average annual UAH/USD rate is set at 5.1.

Also government predicts that the natural gas price will increase from USD
95 to USD 135 per 1,000 m³. To avoid negative consequences of the sharp gas
price hike, government included in the budget USD 600mn special funds to be
used in case of emergencies on the gas market. This fund is one of the new
elements in the budget, but not the only one.

Government plans to spend USD 5.14bn on modernization of state
enterprises ——–

Other budget innovations include lowering the rate of obligatory
transfer of revenues of state-owned enterprises to the state budget from 50%
to 15%.

Such companies thus obtain more than UAH 2bn (USD 400mn) for their own
needs. Government hopes they will use these funds for modernization

Government intends to spend an extra USD 5.14bn on modernization, given that
upgrading state enterprises is the basis for stable economic growth. These
state investments will be distributed between key industries. The fuel and
energy industry will receive USD 80mn of state support.

Expenditures on social and economic development of the regions will make up
USD 250mn (mainly these funds will be spent on modernization of housing
utilities). Manufacturing will receive USD 200mn, construction – USD 1.4bn.
The last USD 600mn, as we said, is kept for stabilization of the gas market,
if needed.

Part of these funds will be covered from privatization revenues that should
amount to USD 2bn next year. The money received from privatization will not
be used for social needs, government assures.

Government will surely restore tax-free zones to attract foreign, local
investors —–

Another thing that can make enterprises happier is the reduction of the tax
on FX transactions from 1.3% to 1%. This will save money both for exporters
and importers.

Besides, government plans to restore tax-free economic zones that were
abolished last year by then PM Yulia Timoshenko. Authorities say they will
keep a close eye on the activity of entities working in those zones.

This should help avoid money laundering schemes that were popular among
local firms working in such zones until 2005.

We do not exclude that the decision to restore the zones was made under
pressure of lobbyists that represent companies that made fortunes in
tax-free zones. But it is not only those corporates longing for the zones’

Foreign companies that worked transparently still regret the zones’
liquidation and are ready to come back if the zones will be restored. At
least government hopes so, saying tax-free zones will improve the country’s
investment attractiveness.

State budget deficit set at USD 3bn or 2.55% of GDP —–

Government also made some changes in the social orientation of the budget.
First, it promised to keep all social payments at least at the present
level, but only for poor and middle income citizens. It plans to abolish
social transfers for people with upper-middle-income, increasing the tax
burden on the growing middle class.

This class is not too large (up to 10% of the population) but from on now it
will have a higher tax burden. Government is just starting to get it across
to the upper middle income citizens.

Thus, government proposed to parliament to approve the state budget with
revenues of USD 24.4bn, and expenditures of USD 27.2bn. The budget deficit
will make up USD 3bn or 2.55% of GDP. Revenues of the consolidated budget
should make up USD 36bn, expenditures -USD 39.2bn. The share of local
budgets will be increased to 43.6%.

To cover budget gap, authorities plan to resume borrowing funds at

home and abroad —–

As a result, the country receives a large budget deficit but government does
not feel depressed about it. The main argument it uses to justify this gap
is that currently the amount of state debt makes up only 16% of GDP, while
the indicator allowed by Maastricht agreements for EU countries amounts to
61%. T

Thus the country can feel free to borrow funds on domestic and external
markets. Government has already restored borrowings.

As we reported last week, FinMin will issue medium-term bonds with 2, 3 and
5-year maturity. According to the law on state budget 2006, it is free to
issue UAH 4.55bn (USD 910mn) domestic bonds by end-2006. Government
ordered finance ministry to organize the issue of CHF 384mn (USD
306.5mn) Eurobonds.

The bonds have 12-year maturity and bear 3.5% yield. The maturity date is
Sep 15, 2018. There is a possibility of early redemption scheduled for Sep
15, 2009.

FinMin also does not exclude the possibility to issue Eurobonds nominated in
JPY, head of the ministry’s state debt department Volodymyr Vysotskyi said.
He added that it makes sense to diversify the country’s liabilities. But
Vysoyskyi did not inform about the date or amount of such issues.

As of Jan 31, 2006, total state debt nominated in EUR made up USD 1.844bn
(11.94% of total), in USD – USD 9.672bn (62.62%), in SDRs – USD 1.191bn
(7.71%), in JPY – USD 106mn (0.69%), in UAH – USD 2.632bn (17.04%).

Bottom line: budget focused more on economic development than on

social needs —–

The government’s message is clear: it would like to spend state money first
of all in order to boost economic growth. Given that the largest industrial
enterprises are in one way or another connected with ruling Party of
Regions, we can say the industrial lobby is very satisfied with the budget.
It again gets a chance to use budget funds mainly for modernization,
reducing the need to attract expensive credits for this.

Government made the right move focusing on economic development, and
sacrificing social payments. The country thus goes back to 2004. It will get
strong macroeconomic numbers (like over 12% y/y GDP growth in 2004).

The question is would this also restore corruption and mass state money
stealing that eventually destroyed the success of record economic
performance of the early 2000s. When these practices were confronted in
2005, growth slumped immediately.                            -30-
[return to index] [Action Ukraine Report (AUR) Monitoring Service]


Ukrainian News Agency, Kyiv, Ukraine, September 20, 2006

KYIV – The European Bank for Reconstruction and Development (EBRD)

has decided to invest USD 10 million in the equity of GTC Real Estate
Investments Ukraine B.V. (GTC Ukraine) for development and operation of
international-standard office, retail, and residential real-estate projects
in Kyiv and other major Ukrainian cities.

Anton Usov, the spokesman for the Kyiv office of the EBRD, announced this

to Ukrainian News, citing a decision that the EBRD’s board of directors made
on September 19. The total investment in the project could reach USD 100

GTC Ukraine is registered in the Netherlands and intends to open a
representative office in Ukraine for conducting its operations. The founder of

GTC Real Estate Investments Ukraine B.V. is Globe Trade Center S.A.

As Ukrainian News earlier reported, the EBRD invested a total of EUR 1.9
billion in more than 70 projects in Ukraine from 1993 to 2005.    -30-

[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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5.                                    UKRAINE’S MOVE
Ukraine has a choice to make: Will it be a confident, forward-looking state
willing to accept foreign investment and embark on a path of rapid economic
growth? Or will it be divided, yearning for the past rather than meeting the

BUSINESS EUROPE: OP-ED by M. Ron Wahid & Barton W. Marcois
The Wall Street Journal, New York, NY, Wednesday, September 20, 2006

Earlier this year, Russia was roundly criticized when state-owned gas
company Gazprom shut off supplies to Ukraine. Gazprom’s Western European
customers, who live further down the same pipelines that run through
Ukraine, were left out in the cold too, sparking a debate in Europe about
whether the Kremlin was a reliable energy partner.

The four-day standoff ended with a new pact between Moscow and Kiev, but
trouble may be looming again. If so, Ukraine may have as much to answer for
as Russia this time around.

The Jan. 4 agreement not only preserved Gazprom’s transit rights through
Ukraine and moved the company away from the old Soviet system of gas
subsidies. It also gave Ukraine two important benefits.

[1] First, it offered a predictable revenue stream from gas-transit fees and
the opportunity to buy a large quantity of gas at below-market rates. [2]
Equally important, the agreement was a sign that foreign investors will be
treated fairly in Ukraine, which should boost the country’s foreign
investment and economic growth.

However, Ukraine’s recent behavior has led many energy observers to fear
that it will abrogate the agreement, provoking another showdown with Russia
this winter. Gazprom claims there have been unapproved seizures of gas by
the Ukrainian gas company Naftogaz in violation of the agreement.

Russia’s response has been mild thus far. But if the dispute is not resolved
before winter arrives, the fallout may reduce the amount of gas available
for Europe, should Russia take a firmer attitude.

High-level discussions between Kiev and Gazprom are under way to deal with
these issues. Though details of the Sept. 13 meeting between Ukrainian Fuel
and Energy Minister Yuriy Boyko and Gazprom Chairman Alexei Miller have not
been made public, Gazprom says the parties are seeking “to develop long-term
interaction on principles of market economy and strategic partnership.”

The condition of Ukraine’s infrastructure is also in doubt. Recent problems
with Ukrainian underground storage facilities raise serious questions about
their physical stability. If they fail, or even burst, that would threaten
the flow of gas to Europe and reduce Ukraine’s own energy reserves.

The agreement clearly defines all rights and duties of the two parties,
including Ukraine’s obligations as a transit country, with the common goal
of ensuring a smooth supply of gas to Europe. In fact, one benefit of the
agreement was to separate Gazprom’s commitment to supply gas to Europe
from its supply of gas to Ukraine.

This should have given both Europe and Ukraine comfort that their separate
interests would be respected. The transit price was settled for five years
in this agreement, and Naftogaz has no right to change it now.

Russia has effectively subsidized the states of the former Soviet Union by
supplying energy resources for as little as a quarter of the world market
price. But these countries, including Ukraine, cannot be exempt from the
world-wide trend of higher gas prices.

The January standoff notwithstanding, Gazprom has sought to move gas
prices toward market rates while not disrupting supply.

Despite the rise in price, Ukraine can benefit from honoring the deal in
many ways. Higher prices will encourage more efficient use of gas and
stimulate investment in energy-saving technologies, increasing Ukraine’s

The time is long past, for both economic and environmental reasons, to
reward the inefficient and wasteful use of gas that was the rule during
Soviet times.

Instead, Ukraine will move toward European standards of energy consumption.
And Ukraine will need to lower subsidies as part of its effort to join the
World Trade Organization.

Ukraine has a choice to make: Will it be a confident, forward-looking state
willing to accept foreign investment and embark on a path of rapid economic
growth? Or will it be divided, yearning for the past rather than meeting the

Ironically, it is only by rising above the pains of its past relationship
with Russia, not by focusing on a Russian threat, that Ukraine would be best
positioned to grow closer to the West. But it is Ukraine’s choice to make.
Mr. Wahid is CEO of RJI Capital Corporation in Washington. Mr. Marcois
is senior vice president of RJI Capital, and former principal deputy
assistant U.S. secretary of energy for policy and international affairs.

[return to index] [Action Ukraine Report (AUR) Monitoring Service]
                          ON WARSAW STOCK EXCHANGE
         First company from a former Soviet country to debut on the WSE.

Business Digest, Liga, Tuesday, August 22, 2006

Liga Biznesinform – Ukrainian major sugar producer Astarta sold 355,683
shares at 19 Polish zloty ($6.34/4.9 euro) per share on the first day of
trading on the Warsaw Stock Exchange (WSE), which set its capitalization at
$158.2 mln (123.4 mln euro), company CEO Viktor Ivanchyk said at a press
conference on August 21, 2006.

Astarta offered five million new shares, 4,149,500 shares or about 83 pct of
the float in the institutional tranche and the remaining 850,500 to
individual Polish investors, Ivanchyk said.

The biggest institutional investor with nearly 5.0 pct in Astarta is Swedish
investment foundation East Capital, interested in buying shares of Russian
and Ukrainian companies on international stock exchanges.

Astarta is among the five major sugar producers in Ukraine, which hold one
third of the domestic market. The company owns five sugar refineries, four
in the Poltava region and one in the Vinnytsia region, as well as 20
agricultural companies specializing in the cultivation of sugar beet.

In 2005 Astarta produced 87,500 tonnes of sugar, reporting a net profit of
9.7 mln euro ($12.4 mln), up 83 pct year-on-year, on a revenue of 51.8 mln
euro ($ 66.6 mln), a 60 pct rise on the year.

[Editor’s note: Astarta ( www.astartakiev.com ) is the first company from a
former Soviet country to debut on the WSE. The Warsaw Stock Exchange has
been chosen for the conditions it offers in terms of IPO fees and legal and
financial requirements for company listing.

In order to make an IPO on the WSE, Astarta registered Astarta Holding N.V.
in the Netherlands, the Ukrainian News Digest reported on July 31, 2006.]
http://liga.net/.                               -30-
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

INTERVIEW: With Ludwik Sobolewski, President
Warsaw Stock Exchange Management Board
Interviewer: Jacek Swidzinski, Newsletter PolishMarket
Warsaw, Poland, Thursday, September 07, 2006

Q: We are having our talk on August 18, one day after the debut of an
Ukrainian company on the Warsaw trading floor? How did it come about?

A: We are talking about Astarta Holding, the owner of Astarta – Kyev, a
Ukrainian company operating in the sugar sector, with a considerably large
share in the local sugar and sugar-processing market.

This is a very interesting case: a foreign company listed on the Warsaw
exchange but conducing neither production nor trade operations in Poland.

Moreover, Astarta does not sell its products outside Ukraine at all. All the
other foreign companies listed on the Warsaw exchange had followed the
pattern: the company is registered outside Poland but conducts some part
of its business activity in our country.

As examples one can mention Amrest, a Dutch company operating on the
restaurant market, and a foreign bank, BACA. In Astarta’s case we have to do
with a company which needed financial resources for expansion and decided
to acquire capital through share issue. And it selected the Polish market to
sell its stock, although it could have chosen Frankfurt or London.

This means a large injection of optimism for us. And one more thing: Astarta
had not been quoted on any other exchange before, which means it is not a
dual listing, i.e. a situation when a listed company for different reasons
floats its stock on another exchange.

Q: But Astarta-Kyev is reportedly listed in the Netherlands.
A: No, it is not listed there. The owners decided only to register the
holding company in the Netherlands, mainly for tax reasons.

Q: Did the Warsaw exchange provide any special care for the debuting
Ukrainian company?
A: Preparations for this floatation started several months ago. We put a lot
of effort into Astarta’s debut, which required admitting the stock to public
trading and registering it with the National Depository for Securities.

We held several meetings with the company’s management designed to discuss
technical details related for example to the requirements they had to meet
to be listed on the exchange.

ING Securities, the listing agent, had the greatest amount of work: they
excellently carried out their tasks in dealings with the Netherlands
Authority for the Financial Markets (the AFM), which had to admit the
stock to public trading.

Q: How large was this issue?
A: From the point of view of the Warsaw exchange, it wasn’t a particularly
large issue but neither was it small: PLN95 million. At the end of August
the Warsaw Stock Exchange is going to send a mission to Ukraine.

We are going to meet there the best-known Ukrainian brokers in order to
establish contacts aimed at attracting more Ukrainian companies to the
Warsaw floor.

We would like to come to know better our prospective clients: it is no
secret that our strategy provides for expanding our influence onto Ukraine
as well as Lithuania, Slovakia and the Czech Republic.

Q: How many Ukrainian companies could be listed on the Warsaw Stock
Exchange by the end of 2007?
A: At least several but I hope their number will be even higher: between 10
and 15. Astarta was the 17th company listed this year.

By the end of 2006 the number of newly-listed companies, both domestic
and foreign, will reach around 30. The interest is there among investors.

Thank you for the interview.                              -30-
LINK:  www.polishmarket.com.pl; newsletter@polishmarket.com.pl

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Atlantic Council of the United States, Washington, Wed, September 13, 2006

WASHINGTON – A distinguished group of transatlantic leaders and
policymakers has called for new rules on foreign investment in the United
States that balance the need to protect national security with the need to
promote that investment.

The Atlantic Council Working Group on Transatlantic Leadership in the Global
Economy, co-chaired by Stuart E. Eizenstat, former deputy secretary of the
treasury, and Grant Aldonas, former undersecretary of commerce for
international trade, has noted the essential role that investment plays in
the U.S. economy and warned that an overly restrictive reform of CFIUS
investment rules could spur reciprocal measures that would restrict U.S.
investment abroad.

Foreign direct investment in the United States now exceeds $1.5 trillion, 70
percent of which comes from European firms. Thus any tightening of
regulations will disproportionately affect key U.S. allies such as the
United Kingdom and the Netherlands.

The members of the Group applaud the efforts of Congress and others in
the U.S. government to enhance national security, and especially to keep
critical infrastructure safe, but that effort should also recognize that
foreign investment remains vital to the health of the U.S. and global

“Foreign direct investment remains the lifeblood of U.S. and European
economies;” says Eizenstat, “and history has shown us that when the channels
of international investment are closed, innovation is stifled and the
economy declines. We must get this right.”

To both protect national security and promote investment, the Working Group
has released a statement emphasizing the need for legislators to ensure that
any CFIUS reform results in:

    [1] Transparency in decision-making, and protection of proprietary
          business information;
    [2] The creation of a predictable, timely, and flexible review process;
    [3] Inclusion of well-defined critical infrastructure in the review
process, without a presumption that foreign investment in such
infrastructure is a national security risk.

The Working Group also considered the impact of new legislation on the
global economy, particularly in light of reviews of investment rules
underway in other countries, including Russia, China, and some European

“Protectionism – real or perceived – will not only discourage the foreign
investment that is key to U.S. economic growth,” says Aldonas, “but also
encourage our trading partners to respond in kind.

Already, several nations are developing their own limits on foreign
investment. Further U.S. restrictions could ripple throughout the global
economy to disastrous effect.”

The Working Group’s recommendations will be fully developed in a report
on transatlantic leadership in the global economy to be released later this
year.                      -30-
For more information on the Working Group on Transatlantic Leadership
in the Global Economy, please see the Atlantic Council’s website:
http://www.acus.org or contact Jan Neutze, Assistant Director of
Transatlantic Relations, Atlantic Council of the United States, 1101 15th
Street NW, 11th Floor, Washington, DC 20005; Tel. 202-778-4990 / Fax.
202-463-7241; E-mail: jneutze@acus.org.
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OP-ED: By Tom Coupe, Kyiv Post, Kyiv, Ukraine, Wed, Sep 13 2006

Article 53 of the Constitution of Ukraine stipulates that education in
Ukraine should be “free”. In the English translation, it reads “Citizens
have the right to obtain free higher education in state and communal
educational establishments on a competitive basis.”

I am sure that many people are disappointed that the Constitution does not
stipulate that haircuts, lunches and black Mercedes should be for free as
well. Indeed, why would anybody object against free things?

Of course, in reality nothing is free – there is always somebody who needs
to pay the bill. In case of education, if it is not the student who pays,
then it is the taxpayer.

A more correct Article 53 would read: “Citizens have the right to obtain
higher education in state and communal educational establishments on a
competitive basis and paid for by the tax payer.”

While in reality, education is not completely free – students for example
buy their own textbooks – Ukrainian universities do have ‘state funded’
students and such students do not pay tuition, the state pays for them.

Still, the state pays less than what students who do not obtain a state
funded place pay. And since all students receive the same education, the
non-state funded subsidize state funded students.

A curious side effect is that due to the way students are selected for state
funded places, students who are most likely to get free education are the
kids of rich parents. Indeed, it is widely known that well-educated parents
are more likely to urge their children to invest time in education.

More educated parents typically earn more too. And since they invested more
in their children’s education, their children are more likely to do well at
the entrance exams of the universities.

Since universities use merit (rather than need) to decide how to allocate
state funded places, richer parents are less likely to pay for university

This is the ‘Matthew effect’, after Matthew’s gospel 25:29: “Everyone who
has will be given more.” Free education thus redistributes from the poor to
the rich.

But why should the taxpayer pay for someone else’s education? The typical
argument for taxpayers to pay is that individuals will not invest enough in
education if they have to pay themselves. This is because individuals often
cannot appropriate all the value of their investment.

An example would be a student who becomes an entrepreneur and creates $10
value – suppose $7 goes to the entrepreneur through profits while $3 goes to
the taxpayer. Suppose the education that would make him an entrepreneur
costs $8.

If he only gets $7 he will not invest. But if society invests $2 into
education, the student will study and society will benefit too. Of course,
if the education would only cost $6, there is no need for the taxpayer’s
intervention – the student himself will invest in education.

The private return to education in Europe is about 10 percent per year of
studies. In Ukraine, it is about 4 to 5 percent (these returns are likely to
be higher for the younger generation. Soviet education is less valuable).

Hence, a person who graduated from a four-year-university program is
expected to earn 16-20 percent per year more than a person that did not take
that education. This effect remains for the whole working life.

To give an example, for an individual without a university degree and with
an income of $5,000 a year, getting a degree would be worth about $1000 –

if he works for 40 years, that adds up to $40,000 extra.

Studying for four years implies no income for four years, so there is
$20,000 in foregone earnings, which still leaves a “profit” of $20,000.

Hence, according to this very simplified example, this person should be
willing to pay about $5,000 a year for his university education. This
suggests that we can shift a substantial part of the cost of education to

What about the benefits of education that cannot be appropriated by the
individual. A society indeed benefits from having a more highly educated
population, not only because higher educated people typically pay more in
taxes but also because higher educated people are, say, less likely to
commit a crime.

In Ukraine, however, given the difficulties of collecting taxes, these
spillovers are likely to be less important than in many developed economies,
making the argument for “free education” less compelling.

Note that in the United States taking a student loan is considered a very
normal thing and that also European countries are shifting more and more of
the cost of education to students.

One could argue that making students pay is not feasible given that their
access to capital is constrained. They don’t have the money to invest in
education when they are young. And they cannot borrow money since they have
no collateral or because the interest rates are too high. Unfortunately,
this is indeed the case.

Many banks have interest rates of over 20 percent a year, require the loan
to be paid back in a very short period and require fixed assets as
collateral. Some banks do have special loans for education.

The best deal I found requires an interest rate of 15 percent (but a
commission of 3 percent) for a loan of up to $5000 which can be paid back
over a period of up to 10 years and no collateral needed. But even these
conditions are unlikely to attract a wide interest of students.

Helping to establish a student loan system with reasonable conditions might
thus be a good idea for banks that want to show they take “corporate social
responsibility seriously”, and for charitable foundations or politicians who
want to stimulate the development of education in Ukraine.

Indeed, let’s imagine the consequences of introducing such a system. First,
since all students would pay tuition the negative image of paying for
education would disappear (remember, now only the less intelligent students
pay), as would corruption in the form of side payments to obtain
state-funded education.

Second, if students pay for their education, and what’s more, borrow money
for education, they should also care about the quality of education they
receive rather than just about getting a degree. Now students whose parents
pay sometimes have a “my parents paid so the university owes me a degree”

A student with a student loan, however, will be concerned about repaying the
loan – for that, investing in learning will be more rewarding than just
investing in a degree.

Third, and very importantly, universities would receive extra resources
which they can use to improve the quality of education. Universities will
benefit a lot from this extra money and from the extra control by students.
Tom Coupe, Program Director, Economics Education and Research

Consortium (MA program in economics at the National University of Kyiv
Mohyla Academy) and Academic Director, Kyiv Economics Institute.
The views expressed in this article are the author’s and not the views of
the institutions to which he is affiliated.
LINK: http://www.kyivpost.com/opinion/editorial/25054/
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Ukrainian News Agency, Kyiv, Ukraine
Kyiv, Ukraine, Friday, September 15, 2006

KYIV – The International Finance Corporation (IFC), which is a part of the
World Bank group, has provided a loan of USD 12 million to the leasing
company ALD Automotive Ukraine (former First Leasing Company, Kyiv),
for developing the automobile leasing in Ukraine.

This reads the report of ALD Automotive Ukraine. According to it, the
crediting agreement was signed on September 14. The loan is granted for 6
years. The interest rate has not been disclosed.

As Ukrainian News earlier reported, the European Bank for Reconstruction

and Development (EBRD) opened a credit line of EUR 12 million to ALD
Automotive Ukraine (former First Leasing Company) in the late February.

On February 22, 2006, ALD Automotive International said it had acquired

100% in the First Leasing Company.

After acquiring 100% of the First Leasing Company, ALD Automotive
International decided to rename the company as ALD Automotive Ukraine.

ALD Automotive Ukraine specializes in finance automobile leasing. As of
September 2006, it had a fleet of 2,500 automobiles.
ALD Automotive Ukraine is registered as a limited liability company.

ALD Automotive International is part of the Societe Generale group and
specializes in leasing automobiles. The company is presently represented in
31 countries and has a fleet of 602,000 automobiles.

Ukraine has become a part of the International Finance Corporation in 1993.
As of June 30, 2005, the IFC invested USD 335 million into 18 projects in
Ukraine.                                             -30-

[return to index] [Action Ukraine Report (AUR) Monitoring Service]
                       BIO FUEL PLANT IN POLTAVA REGION 

Ukrainian News Agency, Kyiv, Ukraine, Friday, September 15, 2006

KYIV – The Harvest Moon (US) holding company has plans to invest EUR

45 million in the construction of a bio fuel plant to produce bioethanol by
processing green mass of maize and rape in Pyriatyn district (Poltava

Poltava first deputy governor Ivan Bliuzniuk announced the plans of the
company to the press. Harvest Moon plans, he said, to complete the
construction of the plant within one a year and half and to purchase a
number of agricultural enterprises.

The Poltava first deputy governor said the local authorities were stalling
the project implementation by charging too high transfers to the local
budget (5% of the investment). He proposed the local authorities to cut
their demand to step up the start of the plant construction.

The plant is designed to process over 250,000 tons of maize a year. By
processing one ton of rape it is possible to produce 270 kilograms of bio
fuel. Rape oil (the cheapest of vegetable oil) is used for the production of
bio fuel. Bio fuel can be made from other vegetable oils.

As Ukrainian News earlier reported, the holding company Harvest Moon (US)
has decided to build a plant on processing of green mass of maize and rape
and production of high-octane biofuel called bioethanol (replacement of
diesel fuel) in Pyriatyn district (Poltava region).                    -30-

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12.                         EMBARRASSMENT IN BRUSSELS

COMMENTARY: By Serhiy Leshchenko, Brussels-Kyiv
Original article in Ukrainian translated by Eugene Ivantsov
Ukrayinska Pravda, Kyiv, Ukraine, Friday, September 15, 2006

Viktor Yanukovych is an insider in Brussels. It is the fifth time he has
visited NATO headquarters. According to NATO Secretary General Jaap de
Hoop Scheffer, Ukrainian premier boasted of this fact during their meeting.

At least one such visit was financed by NATO which normally has the practice
of organizing visits to their headquarters for quite different people.

Last time Yanukovych was in Brussels in 2004 as Ukrainian prime minister.
Then, he brought back home the signed agreement of access to EU markets.

Now he has just broken dreams of NATO membership and a number of
embarrassing situations.

On Wednesday night Yanukovych came to Sheraton Hotel accompanied by
sirens and motorcade stretched out for the entire block. Ukrainian premier
occupied 2 hotel suits on the 23rd floor, including presidential apartments.

This trip to Europe was a perfect opportunity for Yanukovych to take rest
from Ukrainian problems, but having landed he cancelled the planned dinner
which was marked in the schedule as ‘private’.

All meetings and press conferences were to be held during one day which
caused a problem for protocol representatives. They had to find time to feed

Breakfast with European Commissioner Benito Ferrero-Waldner, followed by
a press conference, was the beginning of Yanukovych’s working day.

During the first five minutes of her speech Yanukovych controlled his
feelings, smiled and gazed about clenching and unclenching his fists. All in
all, Yanukovych got carried away by his nervousness.

Yanukovych’s first opening statement was rather confusing. “Ukraine is an
unfavorable supporter of EU-integration,” said Yanukovych. It was just the
first failure for Yanukovych during his one day in Brussels.

Yanukovych promised Mrs. Ferrero-Waldner to adopt 21 bills necessary
for WTO entry and to create free-trade zone with Europe after that.

In a conversation with EU representatives Yanukovych chose the right
tactics, refusing to tease them with Ukraine’s intention to get EU

There was just one slip in Yanukovych’s speech while talking to
Ferrero-Waldner. “We stand for stable relations with EU implying prospects
of Ukraine’s membership in this organization,” said Yanukovych.

Having heard that, the European Commissioner blushed. She replied: “I would
not say Ukraine’s membership in EU is being considered now. As to the
membership prospects for Ukraine, the time will show.”

Then Yanukovych visited NATO headquarters where he refused to join NATO
Membership Action Plan.

Having come to the conference hall, the Secretary General guided Ukrainian
premier around the table since NATO member-countries were represented by
Ambassadors and Yanukovych knew nobody by sight. Scheffer introduced him
each diplomat; Yanukovych was either giving a nod or saying “Good

Then Scheffer saw Yanukovych to his seat. “As the Head of Government chosen
by the parliament, we look forward to learning more about your plans for
taking forward Ukraine’s reform efforts and further developing NATO-Ukraine
cooperation!” rejoiced Scheffer. He even came up to turn on Yanukovych’s

What happened further did not please Scheffer. He failed to hear what
Ukrainian officials had been saying for 1.5 years.

Yanukovych read from his notes that Ukraine would like to develop
Intensified Dialogue. He did not mention Membership Action Plan (MAP) at

Maybe because of that or maybe because of some urgent business Scheffer just
turned back to talk to his aid just after Yanukovych finished the first part
of his speech.

At the press conference which followed the meeting Yanukovych just repeated
his words: Ukraine is not ready to join MAP, however, “everything is
possible in the future.”

The sitting of Ukraine-EU Cooperation Council was the next point in
Yanukovych’s schedule. It also brought no sensations.

Everybody knows official Kyiv wants simplification of vise regime with EU.
The corresponding agreement is to be signed during Ukraine-EU summit in
Helsinki. Free-trade zone talks cannot be launched until Ukraine joins World
Trade Organization.

However, it is going to happen sooner or later, and free trade zone may
become the main gift from EU in the new agreement with Ukraine.

Yanukovych did not use another ‘momentous expression’ for European
officials – Associate EU Membership.

During his stay in Brussels Yanukovych never forgot to point out it was his
governments that contributed to the progress in Ukraine-EU relations.

“I got convinced that we had to proceed to action as soon as possible. These
two years when I did not visit Brussels show that we have to proceed from
euro-romanticism to euro-pragmatism,” said Yanukovych.

Happy that Yanukovych will not bother him with his EU membership prospects,
Finland’s Foreign Minister Erkki Tuomioja addressed Yanukovych: “I
understand your concept of euro-pragmatism since the Finns are also known as

Yanukovych did not forget to say hello to his Moscow friends: “During
presidential elections-2004 we realized the importance of Ukraine’s national
interests in a strategic partner – Russia. We need to intensify
Ukraine-Russian relations. It will be always that way.”

Yanukovych tried to make similar statements at the first suitable
opportunity. He used the metaphor ‘Ukraine will be the bridge between Russia
and EU’ (I wonder what PR guy wrote that!) for three times.

The boring press conference was interrupted by a local journalist who asked
Finland’s Foreign Minister about his personal attitude to Yanukovych.

Erkki Tuomioja started stuttering: “W-w-ell, parliamentary election were
carried out in a democratic way, everybody admits that. We talked with
Ukrainian premier about different problems, including unpleasant matters as
corruption. Ukrainian government admits it has to work a lot.”

When Yanukovych understood the kernel of the question he started smiling for
some reason. Although the question was posed not to him he decided to reply.
His answer was somewhat not to the point: “I am always self-confident
because I follow my own economic and political beliefs,” said Yanukovych.

Then Yanukovych was to give interview to Euronews Channel. Its journalist
decided to experiment with Ukrainian premier. “According to scenario I have
to meet you at the elevator, shoot this scene and then proceed to the
interview,” she shared his plan with Yanukovych.

“Where should I stand? Here?” he accepted the scenario.

“Here. Wonderful. Now walk towards me!” asked the journalist. “I’m coming,”

replied Yanukovych unclenching his fists to greet Euronews representative for
the thousandth time.

When the doors behind Yanukovych were closed protocol representatives had
15 spare minutes before the highlight of the program – Yanukovych’s speech
at the conference of European Political Centre. It was the only event at
which the audience had an opportunity of listening to Yanukovych not for 15
minutes but at least for an hour.

People flooded the hall to listen to the Orange Revolution anti-hero.
Observing his tradition, Yanukovych read his 15-page text.

Lucky were those who got their seats in the front rows. Those people already
had English and French translations of the National Unity Pact and
Yanukovych’s speech lying on their seats.

If you have a precise look at Yanukovych you can see the ghost of kuchmism –
premier’s advisor Anatoliy Orel

Unfortunately such initiative of the protocol committee played a low-down
trick with Yanukovych. Since the speech was edited just in the nick, one
could trace all the changes and Yanukovych’s intentions to shift emphasis,
point out his significance or vice versa hide his true viewpoints.

For instance, Yanukovych decided to change the word order in one of the
sentences in a very eloquent way. The original text suggested: “The color of
our government is the color of the national flag; our political credo is an
overall social support for the policy of President Viktor Yushchenko, the
Verkhovna Rada and the Cabinet of Ministers.”

Yanukovych, however, edited the text in such a way: “The color of our
government is the color of the national flag; our political credo is an
overall social support for the policy of the Verkhovna Rada, the Cabinet of
Ministers and President Viktor Yushchenko.”

So, the Head of the State was placed from the first position to the last.

When Yanukovych touched the issue of gas supplies to Europe he had to say:
“I guarantee you the security of gas supplies through our pipelines. Ukraine
will fulfill its obligations.”

As a result, Yanukovych decided not to risk his own name and reputation and
said: “We are sure that gas supplies through our pipelines will be
completely secure. Ukraine will fulfill its obligations.”

Like other Yanukovych’s speeches, this performance was not sensational as
well. His speech did not have any hints on Ukraine’s intention to get EU
membership. “Since neither Ukraine nor EU is ready to discuss the membership
issue we have to agree on the ways of developing and intensifying our
further cooperation,” said Yanukovych.

However Yanukovych gave a clear hint he had changed a lot: “As the prime
minister I have deeper concerns over Ukraine’s integration in EU now than I
had back in 2004.”

At that he did not forget to mention it was he, Yanukovych, who made a
breakthrough in Ukraine-EU relations. It happened for the first time during
his first premiership when Yanukovych worked out an Action Plan Ukraine-EU.

He mentioned it for the second time saying: “I’d like to remind you that
during my visit to Brussels in 2004 we signed a bilateral agreement on the
access to EU merchandise and services markets.”

Could Yanukovych ever imagine that after the Orange Revolution he would
lecture Brussels officials telling them about the new government and
premier’s key role in decision-making?

Narcissism gripped Viktor Fedorovych and he started showing off: “Just two
years ago people said I was a provincial politician who would never get to
the all-national level. Well, that’s true. That’s my drawback.

Problems of ordinary people are more important for me. I was born in the
region which gives 25% of GDP.Honesty and predictability of your partner is
very important in politics, economics and life. That’s my life principle and
philosophy in politics and economics.”

Well, somebody, residing in Bankova Street, would not agree to that.

However, Yanukovych would not be himself if he did not make a couple of
other flubs. In the evening he came to the office of Euro-Commission to meet
its Vice-President Gunter Verheugen who was known as a consistent opponent
of Ukraine’s integration to EU.

When they showed up together at the press conference Verheugen’s face could
suggest that Yanukovych had hit him below the belt. Verheugen’s emotions
were quite expressive.

First, Yanukovych made a typical Freudian slip: “People in Ukraine and EU
expect intensification of Ukraine-Russia relations.”

Journalists asked the EU official no questions. Moreover those questions had
nothing to do with EU. When the briefing was over Yanukovych offered his
hand to Verheugen to shake it on the background of EU flag.

However, Verheugen.. just did not shake it, having passed by Yanukovych,
instead. At first, shocked journalists did not understand what had happened
but replay verified their awful suspicions.

However, Verheugen’s press secretary reassured that his boss did say
‘good-bye’ to Yanukovych in a civilized way, i.e. shaking him hand, when the
latter was getting in the car.

.The car that took him to the airport, from where he headed for his
Motherland, Ukraine.                                       -30-
LINK: http://www.pravda.com.ua/en/news/2006/9/19/6395.htm

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Associated Press, Kiev, Ukraine, Tuesday, September 19, 2006 

KIEV- Ukraine’s parliament adopted a resolution Tuesday supporting Prime
Minister Viktor Yanukovych’s move to put the country’s bid to join the North
Atlantic Treaty Organization on hold.

A total of 242 legislators in the 450-seat Verkhovna Rada voted in favor of
the stance promoted by Yanukovych, who told NATO officials in Brussels this
week that Ukraine would not push for quick entry into the alliance.

He also said that eventual NATO membership would have to be submitted to a
referendum but that the ex-Soviet republic was not yet ready for such a

His comments angered President Viktor Yushchenko and the foreign and defense
ministers, who said they went against national interests.

They came amid a struggle for influence between Yanukovych and Yushchenko,
his Russian-backed rival in the bitter 2004 presidential election and the
Orange Revolution protests.

Yushchenko’s new chief of staff, Viktor Baloha, told U.S. Ambassador William
Taylor on Tuesday that Yanukovych’s statements would not affect Ukraine’s
“strategic objective” of joining NATO, the president’s office said.

Under Ukraine’s constitution, the president is in charge of foreign policy,
but on a question such as NATO membership he would need the support of the
prime minister and government. Yushchenko has assented to the idea of a
referendum on the issue.

Opinion polls show that most Ukrainians oppose NATO membership: Many are
distrustful of the Soviet Union’s Cold War foe, while others fear membership
would irretrievably harm relations with Russia while bringing little

Yushchenko’s allies in parliament criticized the resolution and said it was
meant to give Yanukovych support ahead of another visit to Brussels, planned

“It is just a political resolution which will have no legal consequences,”
said Yushchenko’s representative in parliament, Yuriy Klyuchkovsky.

Lawmakers also asked the Cabinet to give the public objective information
about NATO and ordered parliamentary committees to draft a bill laying out
rules for Ukraine’s entry into military and political alliances.

Yanukovych’s party won the most votes in March parliamentary elections, and
Yushchenko last month gave in to pressure to submit his nomination as
premier to parliament.                                        -30-

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        Yanukovych once again demonstrated who the master of the house is.

Zerkalo Nedeli On The Web, Mirror-Weekly
International Social Political Weekly, No. 35 (614)
Kyiv, Ukraine, Saturday, 16 – 22 September 2006 year

The visit of Ukrainian Prime Minister Viktor Yanukovych to Brussels may
well dispel the illusions of those who believed that at least foreign policy
in Ukraine has remained the President’s prerogative.

Ukrainian diplomats displayed a desperate persistence in trying to retain
the NATO position which they have won over the last eighteen months.

However, the leader of the Party of Regions has once again demonstrated who
the master of the house is. He said in Brussels that Ukraine is unprepared
for the fulfillment of the NATO membership action plan (MAP).

He did so, despite the entirely opposite oral agreement which he reached
with the president during the preparation of the Universal.

(At least this is what Anatoliy Kinakh said following the announcement of
the Cabinet’s press center which quoted the Premier’s statement about the
postponement of the terms of MAP fulfillment, and nobody has refuted
Kinakh as yet.)

He did so despite the fact that Ukrainian Foreign Ministry has prepared all
necessary documents including the notorious letter to NATO, in which the
Prime Minister was supposed to inform Brussels that Ukraine is interested in
joining MAP.

However, the last paragraph, which carried the meaning of the entire letter,
was withdrawn from the letter. This “crippled” letter, which retained only
general phrases, was send to the NATO headquarters before the Prime

Moreover, the issue of Ukraine’s readiness or non-readiness for MAP was not
discussed at the Cabinet meetings and no decisions were made on this issue.
Viktor Yanukovych made his personal decision.

Educational talks of the President with the Prime Minister (according to our
source, they had at least two of them, one in the airport before
Yushchenko’s flight to Azerbaijan and the other before Yanukovych’s trip
to Krinitsa) did not produce any effect.

First the Prime Minister promised to think about it, but then turned out to
be uncompromising and argued that a positive decision on MAP may split
current coalition due to resentment of the socialists and communist and
would complicate internal relations in the Party of Regions.

However, in Brussels, when explaining the reasons for the postponement of
Ukraine’s joining MAP, the Prime Minister sited entirely different reasons:
the number of Ukrainians supporting the NATO membership of Ukraine “is too
small to make such a move”, and “we must convince the society and this is
the major issue.”

This statement, in fact, has revealed, not the “sincerity and consistency”
of the Premier’s stand, as he described it, but the unavailability and
unwillingness to pursue economic, political and social reforms in Ukraine,
to strengthen democratic institutes, to develop civil society, to reinforce
human rights protection, and to carry out legal reform and the reform of
security sector.

In the end, all of these make the essence of Ukrainian MAP, the text of
which was agreed with NATO and was only waiting for the political decision
of Kyiv.

Had the Prime Minister been so kind as to look through it, he, perhaps,
would have changed his firm stand and realized how Ukraine would benefit
from MAP.

After all, he created the Ukrainian-NATO memorandum on the use of Ukrainian
strategic transport aviation in NATO exercises and operations despite the
objections of several Cabinet members, suffering from NATO idiosyncrasy.

He said at that time, “This is beneficial for Ukraine. We must adopt it.” As
a result the document was passed to parliament for ratification.

Had the Prime Minister displayed at least little interest, he would have
learned that joining MAP does not mean automatically joining NATO in the
future, which is emphasized in corresponding documents of the alliance.

Yet, what else could he expect from his advisors (dubbed by their “old fans”
as “Moscow retransmitters”), if in the past one of them banned officials
from using even the euphemism “Euro-Atlantic integration”, while at the
National Defense and Security Council meeting in Kuchma times, during the
discussion of the flights of the NATO planes to Afghanistan through the air
space of Ukraine, the other one cried out in horror: “And what if they fly
to Moscow?”

The problem is that Yanukovich, who personally may not feel negative about
NATO, simply does not see and does not realize any value of the alliance
either for the state or for his clan or personally for himself.

That is why if there was a chance to trade some MAP for, let’s say, direct
contracts for gas supplies for Donetsk businesses in negotiations with
Moscow, then why not please Russia and get some profit for oneself?

But do Yanukovych and his team realize that, having gained some dividends on
“the sale” of the NATO idea today, they may well loose everything tomorrow
or the day after, having surrendered to powerful and systemic Russian

Ukraine’s NATO membership could become a reliable protection from this

It is true that in Brussels, Yanukovych was doing his best to please
everyone; he was saying nice words, smiling with Hollywood smiles, and
promising “expansion” and “reinforcement” of cooperation with the alliance
as well as the information policy in Ukraine. Could we trust his words, or
was that another trick? Judge for yourselves.

One look at the state budget drafted by the Yanukovych Cabinet last week is
enough. State Committee for Radio and Television, which is imposed with the
major burden of two state programs on public information on European and
Euro-Atlantic integration, was lucky enough this time: for 2007, the
Committee has been allocated 453,024,900 hryvnias as compared to
372,394,000 hryvnias for 2006.

Maybe some of the “additional” 80,630,200 hryvnias is designated for the
reinforcement of the information policy announced by the Prime Minister?
Nothing of the kind!

In 2006 the Yekhanurov Cabinet allocated 5.2 million hryvnias for the two
information programs, which, according the supporters of Ukraine’s NATO and
EU integration was “tears but not the money”. In 2007 the Yanukovych Cabinet
allocated for these purposes little more than half of it – 3 million

Perhaps it assumed that the lack of money will be compensated by the talent
of Eduard Prutnik, who succeeded in promoting his chief in the USA during
the 2004 presidential campaign and who was appointed head of the State
Committee for Radio and Television last week?

Or may be it was decided to allocate significant costs for public
information and education in European and Euro-Atlantic integration from the
treasury of the Party of Regions? Or to finance it with the money of the
most well-to-do party members?

Would these amounts be comparable with the amounts spent by them for the
improvement of their own images with Ukrainians? And by the way, who will
finance activities on the improvement of the image of Ukraine with the
international community? The Ukrainian Foreign Ministry was not as lucky as
the State Committee for Radio and Television.

Its poor budget was cut even more by reducing expenditures on virtually
every line, some of them being totally removed.

Thus, the Yanukovych Cabinet found it unnecessary to allocate any money for
the “financial support of the promotion of Ukrainian achievements abroad”
and for the “activities aimed at the establishment of ties with the
Ukrainians residing abroad.”

Perhaps “self-sufficient” representatives of the Donetsk region do not need
a pro-Ukrainian lobby in key states.

This also applies to the reform and efficiency of Military forces. In the
budget resolution it was planned to allocate two percent of GDP for the
needs of the Military forces, in the draft budget the Military forces were
assigned the amount half as much as the required twelve billion hryvnias.

These figures reveal Yanukovych’s true convictions and intentions much
better that his statement in Brussels that “the strategy which Ukraine has
chose in its relations with NATO has no alternatives today.”

One should not cherish the illusion that “Yanukovych fully supports
Ukraine’s EU integration” and that he is “rather pro-Western” as a matter

of fact.

[1] First, integration and even simple real rapprochement of Ukraine with
the EU requires practically the same reforms, which Yanukovych publicly
gave up in Brussels, having rejected MAP.

[2] Second, the statements of Yanukovych of his “firm intentions” to lead
Ukraine to EU membership do not mean any commitments and do not oblige
him to anything, since the EU, in the person of its External Relations
Commissioner Benita Ferrero-Waldner, made it clear once again that “there is
no membership prospect at this moment.”

In the past, under Kuchma, the faction of the Party of Regions almost
unanimously supported all pro-NATO laws and resolutions including the law
on the national security of Ukraine, which clearly laid down full NATO
membership of Ukraine as a strategic goal of our state.

Now, when asked “What has changed, why are you against now?” the high
ranking party members sincerely answer: “But it was not serious then. Then
nobody believed in the possibility of Ukraine’s membership in NATO.”

Even a few months ago we could say with confidence that Ukraine was
extremely close to NATO membership. The Brussels voyage of Yanukovych
postponed this event for an undefined term. Yet, there are no hopeless
situations and we still hope that the President will manage to take

The National Security and Defense Council of Ukraine (NSDC), which new
members were finally approved last Monday and where the President received
an obvious majority of the votes in support of his course, could be the tool
for that.

We can hope that NATO aspirations of the head of state will be supported not
only by such acknowledged NATO advocates as Foreign Minister Borys Tarasyuk,
Defense Minister Anatoliy Hrytsenko, and acting NSDC secretary Volodymyr
Horbulin, but also by Oleh Rybachuk, Minister of Emergency Situations Viktor
Baloha, SBU head Ihor Dryzhchany, Minister of Justice Roman Zvarych,
Internal Minister Yuriy Lutsenko, Health Minister Yuriy Poliachenko, and
chairman of External Intelligence service Mykoal Malomuzh.

Only Prime Minister Viktor Yanukovych, First Vice Prime Minister Mykola
Azarov, and current Economics Minister Volodymry Makuha could oppose

The alignment of forces in the NSDC will not be upset even by Speaker Moroz
and Prosecutor General Oleksandr Medvedko, who could also join it and who
obviously would support Yanukovych in this issue.

The president can also count on the vote of the head of National Bank of
Ukraine Volodymyr Stelmakh, who could join it as well.

Thus, it is quite possible to convene an urgent NSDC meeting, put forward
the issue of Ukraine joining NATO Membership Action Plan for its
consideration, and adopt a resolution of Ukraine’s interest in such a move.

The NSDC decisions are enacted by appropriate presidential decrees, and,
according to the Constitution, presidential decrees are compulsory
throughout Ukraine, which means they also apply to the Cabinet of Ministers
and its head. NATO headquarters should be immediately notified of the NSDC

We will leave out the question why all of the above was not done before
Yanukovych’s visit to Brussels. The most important thing now is not to miss
another chance.                                            -30-
LINK: http://www.mirror-weekly.com/ie/show/614/54524/
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
        ICPS calling on government bodies and civil society organizations to
       begin a broadbased public dialog on Ukraine’s integration with NATO
             and the benefits of carrying out the Membership Action Plan.

International Centre For Policy Studies (ICPS)
Kyiv, Ukraine, Wednesday, September 20, 2006

Premier Viktor Yanukovych’s 14 September announcement in Brussels that
Ukraine would postpone joining the Membership Action Plan (MAP)
indefinitely demonstrated that Ukraine currently does not have a coordinated
and consistent policy of integration with NATO.

The country’s foreign policy remains hostage to the struggle for power.
Meanwhile, not only Ukrainian society but also politicians themselves
understand little about the purpose of integrating Ukraine with NATO and
the Membership Action Plan.

The Premier’s statement did little to illuminate the Government’s short-term
or long-term plans with regard to relations with NATO.

It is not clear what Ukraine’s refusal to join the MAP will mean for the
reform of the country’s Armed Forces and its security sector. How will
Ukraine’s ambiguous position affect its relations with partners both West
and East?

Moreover, the Premier’s announcement gave no answer to the question, What
is the Government’s position in terms of ensuring Ukraine’s national
security? Has it weighed the costs and benefits of joining the MAP?

If Ukraine does not join the MAP, what form will its cooperation with NATO
now take? If Ukraine does not want to become a member, what alternative to
NATO does the Government see?

By not providing a clear, unambiguous and wellgrounded answer to these
questions, the Government is deliberately reducing discussion around NATO
to blackandwhite clichés and deliberately ignoring the fact that the issue
of Ukraine’s national security has now moved from the political arena to the
level of state policy.

The Premier explained his decision to “take a break” as necessary in order
to increase the level of popular support for Ukraine’s membership in NATO.

But the Draft 2007 State Budget actually cuts state funding for a public
awareness campaign on integration with NATO to UAH 3mn, from UAH
5.3mn in the 2006 Budget.

By comparison, in Slovenia, whose GDP is one third of Ukraine’s, a similar
campaign in 2001 cost the country US $7.5mn.

In addition to formally not joining the MAP, the Premier’s decision has
disrupted the entire logic of the process of cooperation that Ukraine has
undertaken with NATO.

Moreover, the MAP itself is mostly needed by Ukraine, because it is an
internal country plan for carrying out political, economic and social
reforms, for internal security, for strengthening democratic institutions,
for human rights, for the court system, and for reforming the army and
internal security agencies-and it does not obligate the country to join
NATO after its completion.

Considering the importance of integration with NATO for Ukraine’s national
security, the serious concern is being expressed by thinktanks and community
organizations over the situation since the Premier’s bombshell in Brussels,
and the conflict over political integration with NATO among Ukraine’s
political leadership and Ukrainian society, the International Centre for
Policy Studies is calling on government bodies and civil society
organizations to begin a broadbased public dialog on Ukraine’s integration
with NATO and the benefits of carrying out the Membership Action Plan.

ICPS supports the calls by leading thinktanks and community organizations
about the idea of holding a special session of the National Security Council
dedicated to this issue.

We believe that this kind of meeting also needs to be done in the presence
of television cameras with the participation of top analysts from both state
and nongovernment organizations, with this kind of agenda:

1. The meaning and purpose of Ukraine’s relationship with the North Atlantic
Alliance as it is set up in the Membership Action Plan.

2. The Verkhovna Rada-Government coalition’s vision of the meaning and
plan of action in terms of carrying out the Manifesto of National Unity and
Ukrainian legislation on national security and relations with the North
Atlantic Alliance.

3. A review of the Draft State Budget of Ukraine with regard to the items on
plans to increase public awareness about NATO activities and Ukraine’s
integration with the Alliance.

ICPS is of the opinion that an open meeting of the NSC should not become
a platform for any particular political force to force its own solutions on
this issue “down everybody’s throats.”

Instead, the NSC should launch a public debate about Ukraine’s relationship
with NATO and the Government’s policies in this area at the highest possible
level.                                                   -30-
CONTACT: Andriy Starynsky, International Centre for Policy Studies,
13-a Pymonenka Street Kyiv 04050, Ukraine
Phone: +38044 484-4400; Fax: +38044 484-4402
E-mail: office@icps.kiev.ua; Web-site: http://www.icps.kiev.ua
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

Interfax-AVN military news agency website, Moscow, 19 Sep 06
BBC Monitoring Service, United Kingdom, Tue, Sep 19, 2006

KIEV – Kiev’s policy towards integration with NATO remains unchanged,

Viktor Baloha, the head of the secretariat of the Ukrainian president, told US
ambassador William Taylor on Tuesday [19 September].

“The statement of Prime Minister [Viktor] Yanukovych that Ukraine is not
ready to fulfil the NATO Membership Action Plan will not affect long-term
relations or Ukraine’s strategic objective to join NATO,” the Ukrainian
president’s press service quotes Baloha as saying.

“Under the Ukrainian constitution, neither the prime minister nor the
government has the same authority in the foreign policy sector as the
Ukrainian president has,” Baloha said.

[Yanukovych said that Ukraine is not ready to fulfil the NATO Membership
Action Plan, speaking in Brussels on 14 September.]          -30-

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

forUm, Kyiv, Ukraine, Friday, September 15, 2006

KYIV – Ukraine’s Ombudsperson Nina Karpachyova met with US Ambassador to
Ukraine William Taylor to discuss matters related to Ukrainian orphans, who
have been adopted by Americans; the Cabinet press office informed referring
to the Ombudsman press service.

In the course of the meeting, Karpachyova drew the US diplomat’s attention
to Ukrainian kids, who have suffered from parental violence and sexual

The diplomat expressed his regret over such tragic incidents and informed
Nina Karpachyova about the US Administration’s steps to duly protect adopted

In particular, Peggie Sue Hill, who killed her Ukrainian adopted child, was
sentenced to 35 years in prison. As far as the three Ukrainian boys are
concerned, who were sexually molested by D. Krueger and who were visited by
a Ukrainian Consulate General official in San Francisco, the envoy pledged
his personal control over them.

In view of the USA posing as the nation, which adopts the biggest number of
Ukrainian children, the Ombudsperson suggested to sign bilateral agreements
on adoption between Ukraine and the USA.

As she said, US adopted parents have adopted 6,271 Ukrainian kids out of the
total number of 16,174 children, since Ukraine became an independent state.

Regrettably, as of July 1, 2006, Ukrainian diplomatic institutions received
no mandatory accounts about 795 Ukrainian adopted children from their
parents. Nina Karpachova also stated her concern over adopting children as
having become a most profitable business for unscrupulous agents.   -30-

LINK: http://en.for-ua.com/news/2006/09/15/130430.html
[return to index] Action Ukraine Report (AUR) Monitoring Service]
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18.                “WHY RYBACHUK WAS DISMISSED”
          New chief of staff appointed to boost Ukrainian president’s role

INTERVIEW: With Yuriy Yakymenko, Razumklov think-tank expert
By Kateryna Kobernyk, Korrespondent.net website, Kiev, Russian 19 Sep 06
BBC Monitoring Service, United Kingdom, Tuesday, Sep 19, 2006

An expert of the Razumkov think-tank and former employee of the presidential
administration, Yuriy Yakymenko, has said in an interview with a Ukrainian
website that the new head of the presidential secretariat, Viktor Baloha,
will have to restructure the agency.

He will also have to ensure control over local governments in conditions of
constant conflicts with the Cabinet of Ministers.

The following is the text of the interview Yakymenko gave to Kateryna
Kobernyk entitled “Why Rybachuk was dismissed” published on the Ukrainian
Korrespondent.net website Korrespondent on 19 September; a subheading has
been inserted editorially:

The main reason for the replacement of the head of the presidential
secretariat was the need for a sharp and considerable strengthening of the
political positions of the president [Viktor Yushchenko] in conditions of a
reduction of his constitutional powers as well as the vigorous actions of
[Prime Minister Viktor] Yanukovych and his team in establishing control over
the entire vertical power structure of the executive.

The director of political and legal programmes of the Razumkov Centre
[think-tank], Yuriy Yakymenko, a former member of staff in the Ukrainian
presidential administration [forerunner of the secretariat under former
President Leonid Kuchma], said this in an interview with a journalist from

[Kobernyk] How does the present presidential secretariat differ from the
administration that existed under Leonid Kuchma?

[Yakymenko] Under the former president, the administration was called “a
parallel cabinet” and, in essence, that is what it was. Functional units of
the administration in effect monitored ministries and other central bodies
of the executive in their “sectors”. Special attention here was paid to the
vertical power structure’s control of local bodies of executive power.

Heads of regional administrations probably attended conferences with the
president more frequently than they did with the prime minister. In this way
the administration was an effective mechanism for implementing powers and at
the same time a way of enlarging them.

To a large extent this was in contradiction with legal norms, but ensured
the effectiveness of the system. Apart from that, a considerable role was
played by the personality of the head of the administration.

From 1994 to 2004 there were five of them and, what is more, from my
viewpoint, the most effective ones – and I’m not talking about a “sign”
[positive or negative] of that effectiveness – were [Dmytro] Tabachnyk and
[Viktor] Medvedchuk.

[Kobernyk] What changed after the creation of the secretariat?

[Yakymenko] After Yushchenko’s victory at the [2004] presidential election,
a reform of the administration started that is still ongoing. At the first
stage its basic idea was to scrap the functions of a parallel directorate
recognized as “unnecessary”, to limit their role to providing the president
with information and analysis and to ensure his constitutional powers “in a
narrow sense”.

On the outside this was expressed in accompanying events with the
president’s participation, and with the accent on the humanitarian sphere.
As for the quality of the analysis, the secretariat in effect has not
managed to become a generator of political initiatives, which has led to a
weakening of the political influence of the president.

[Kobernyk] Why is it that the need to change the format and main tasks of
the secretariat has come to a head right now?

[Yakymenko] In actual fact, the present changes were provoked by the recent
[parliamentary] election and the situation that came about in the country
after them: the Cabinet of Ministers was working in an acting capacity, the
Supreme Council [parliament] was virtually not functioning, bodies of local
government were taking destabilizing decisions (the status of the Russian
language, “NATO-free areas”), law-enforcement agencies were sorting out
their relationships with each other and so on.

Even then the impression was formed that the president was merely observing
the process, but not influencing it. The situation was further complicated
after the formation in parliament of the anti-crisis coalition and the
Cabinet of Ministers headed by Yanukovych, whose policy to a large extent
runs counter to Yushchenko’s election programme.

All these events visibly demonstrated that the presidential secretariat had
not worked out an integrated system of reacting to the new situation.

Although at expert level the question of how the remaining powers of the
president were to be used to maximum effect had long ago been posed.
Responsibility for that lies not only with [Oleh] Rybachuk as former head of
the secretariat, but also with all his leadership.

[Kobernyk] Does that mean that Rybachuk’s dismissal was connected with his
disparity with the new demands that the president was placing on the

[Yakymenko] I think so. Baloha was chosen for this role as a stronger and
more experienced figure, first and foremost in operational matters. Most
likely he will start by strengthening or restoring influence on local
executive bodies, initiating where necessary rotations of staff.

The aim is to ensure the loyalty of the vertical power structure of local
administrations directly to the president. And one way or another he will
have to go into conflict with the Cabinet of Ministers.

[Kobernyk] What reshuffles might there be in the secretariat with the
arrival of the new leader?

[Yakymenko] Judging from the first statements of the new secretariat head,
his deputies, first and foremost [the first deputy head, Ivan] Vasyunyk,
will keep their jobs. The changes will probably affect middle-ranking

However, a new structure of the secretariat is also needed in the new
conditions. It will have to be reformed quickly, most likely in conditions
of confrontation with the parliamentary coalition and the cabinet. An
important factor in the success of the project for strengthening the
secretariat will be how far the president is prepared to support it.

[return to index] [Action Ukraine Report (AUR) Monitoring Service]
19.                   “BALOHA: CAREER AND SCANDALS”
                   Dubious background of new presidential chief of staff.

ANALYSIS: By Bohdan Barbil and Oleksandr Ilchenko
Segodnya, Kiev, Ukraine, in Russian 18 Sep 06; p 3
BBC Monitoring Service, United Kingdom, Tuesday, Sep 19, 2006

The new head of President Viktor Yushchenko’s secretariat, Viktor Baloha,
has deep roots in Transcarpathian business, a daily has said. It alleges
that Baloha was involved in dodgy land deals.

The following is the text of the article by Bohdan Barbil and Oleksandr
Ilchenko entitled “Baloha: Career and scandals” published in the Ukrainian
daily Segodnya on 18 September. Subheadings are as published:

Never yet in history has any resident of Transcarpathia flown so high in his
career as Viktor Baloha – neither in the times of independent Ukraine nor
under the USSR, nor in Austro-Hungary, nor in Czechoslovakia (these
countries at one time possessed the lands on the banks of the [River] Tisa).
                                             THE PATH
The 43-year-old new head of the secretariat was originally from the village
of Zavydovo in Mukacheve District, Transcarpathian Region. Possessing a 1984
diploma from the Lviv Commerce and Economics Institute and having served in
the army, in 1986 Baloha got a job in his speciality – he went to work as a
trade specialist. With the start of market reforms, he engaged in business.

The biggest structure that he is connected with is the Barva firm. With the
support of the USDPU [United Social Democratic Party of Ukraine] and [its
leader] Viktor Medvedchuk in 1998 he became mayor of Mukacheve and then
governor of Transcarpathia.

True, he fell out with the social democrats soon after, by supporting (with
the mediation of [prominent supporter of President Viktor Yushchenko] Petro
Poroshenko) the then prime minister Viktor Yushchenko in 2000. After that,
he left the post of governor and became a deputy in the [propresidential]
Our Ukraine faction.

He became widely known to the whole country after the scandalous elections
of the mayor of Mukacheve in 2004. Then he was fighting his former USDPU
comrade-in-arms, Ernest Nuser. The electoral commission announced the
victory of the latter, but Our Ukraine proclaimed ballot rigging and forced
Nuser to leave his job.

After the Orange Revolution Baloha became governor of Transcarpathia. Not a
month passed without corruption scandals starting to explode around him.
                                       THE ACCUSATIONS 
The eternal opponent of Viktor Ivanovych, the present mayor of Uzhhorod,
Serhiy Ratushnyak, has showered the president with letters with compromising
material about Baloha: saying that the Barva firm has become a monopolist,
raking in everything to itself, destroying rivals and no democracy. The
president did not react.

Baloha at first wanted to sue Ratushnyak, but later withdrew his lawsuit.
Ratushnyak summed it up like this: Yushchenko and Baloha have become almost
brothers-in-law; they outline their common action plan during their climb up
Hoverla [highest mountain in Ukraine, much loved by Yushchenko] or in the

It should be noted here that nasty talk constantly circulated regarding
Baloha’s dubious commercial operations, dating back from the time when
Baloha, as a loyal comrade-in-arms of Medvedchuk, became mayor of Mukacheve.

It was said that he had big sums of money in foreign banks, real estate and
property in Hungary, involvement in wholesale purchases of agricultural and
alcohol and tobacco goods.

The Barva firm also constantly figured in scandals: it allegedly created
favourable conditions with the help of Viktor Ivanovych and a preferential
system of management, in particular when allocating plots of land and using
budget resources.

Law-enforcement agencies have instituted criminal cases on the facts in
question, but there have been few questions to Baloha personally.

Just as there has been no official confirmation of the rumours of Baloha’s
links with contraband and other criminal elements. Yesterday the press
secretary of the interior minister, Inna Kysil, told us that at present the
ministry had no complaints against the newly appointed secretariat chief.

                                             THE INCOMES 
This spring Baloha reported his income for 2005 and disclosed his
declaration. The total sum of income as a whole, consisting of his salary,
amounted to 105,146 hryvnyas and that of members of his family to 915,989.
The family also owns parts of enterprises worth 1.4bn hryvnyas. Baloha owns
a modest VAZ-09 [car].

Family members own two somewhat smarter foreign-made cars – an Audi and a
Daimler-Chrysler. The minister [Baloha was formerly emergencies minister]
also indicated property in the form of two apartments with a floor space of
101.1 and 57.8 sq.m., two plots of land measuring 2,406 and 341 sq.m. and a
garage of 43 sq.m.

But Baloha does not have any bank deposits, if one believes his official
declaration.                                             -30-

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

UNIAN news agency, Kiev, in Ukrainian 1356 gmt 19 Sep 06
BBC Monitoring Service,United Kingdom, Tue, Sep 19, 2006

KIEV – The Constitutional Court of Ukraine elected Constitutional Court
judge Ivan Dombrovskyy as its chairman at a special sitting today, the
court’s press service has told UNIAN.

Dombrovskyy was born into a peasant family in 1947 in the village of
Tsekhanivka, Krasni Okny District, in Odessa Region. He started his

employment record as a welder at Odessa’s ship repair plant No 1 in 1965.
He served in the army.

Dombrovskyy graduated from the law faculty at the Mechnykov Odessa State
University in 1975. He worked as a notary at the Kelmenets district notary
office in Chernivtsi Region in 1971-76.

From 1976 to 1997 Dombrovskyy worked as a judge at the Sokyryany district
court in Chernivtsi Region, headed the Storozhynets district court and
worked as a judge at the Chernivtsi regional court.

He was a judge at the Supreme Court of Ukraine from 1997, and a judge and
secretary at the Supreme Court’s plenum from 2003. Dombrovskyy was

appointed Constitutional Court judge at the seventh congress of judges in
November 2005.

On 4 August 2006 he was sworn in as a Constitutional Court judge. From 7
August 2006 Dombrovskyy was acting chairman of the Constitutional Court.

He is an honoured lawyer of Ukraine.                     -30-
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  [Holodomor: Induced starvation, death for millions, genocide of 1932-1933

By Nick Wadhams, Associated Press Writer
United Nations, New York, NY, Wednesday, Sep 20, 2006

UNITED NATIONS – Ukraine is campaigning for a U.N. General Assembly
resolution that would declare the 1932-33 famine [induced starvation]that
killed up to 10 million people a genocide, Foreign Minister Borys Tarasyuk

Ukraine has the support of several nations and Tarasyuk will use the
two-week annual U.N. General Assembly event now under way to canvass
dozens more, he said in an interview with The Associated Press Tuesday.

The resolution would accuse Soviet dictator Josef Stalin’s regime of
deliberately instigating what Ukrainians call the Great Famine.

“We expect that the delegations here at the United Nations will deplore this
artificially made famine as an act of genocide against the Ukrainian
people,” Tarasyuk told The Associated Press. “We would like that the
international community pay tribute to those who perished.”

Stalin provoked the famine as part of his campaign to force Ukrainian
peasants to give up their land and join collective farms. Cannibalism was
widespread during the height of the disaster, which was enforced by the
confiscation of all food by the Soviet secret police.

Ukraine has long sought international recognition of the famine as a
genocide, but has been unable to overcome opposition from Russia and
governments that do not want to upset Moscow. The famine was kept secret
by the Soviet authorities, and it was only in 2003 that Ukraine declassified
more than 1,000 files documenting it.

That same year, Ukraine’s U.N. Ambassador Valery Kuchinsky presented a
statement signed by 30 countries that condemned the actions of Stalin’s
regime but stopped short of calling the famine a genocide.

Ukraine will mark the 75th anniversary of the famine in 2008, and Tarasyuk
said that would be an appropriate time for a General Assembly resolution
calling it a genocide.

Earlier this year, Ukraine failed in its bid for the Commonwealth of
Independent States, made up of 12 former Soviet republics, to consider
recognizing the famine as a genocide.                      -30-
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

WorldNetDaily Exclusive Commentary: By Jim Rutz
WorldNetDaily.com, Medford, Oregon, Tuesday, August 29, 2006

Last week I relayed the news that Ukraine has opened its secret files on the
“Holodomor,” the Soviet holocaust of Joseph Stalin that killed about 6
million Ukrainians in the winter of 1932-33.

This phony “famine” has been probably the world’s most underpublicized
democide in history. (Democide is a broader term than genocide.) In fact,
Genia Turanova, a noted investment authority, wrote me a few days ago
saying that when she was a schoolgirl in Ukraine in the Soviet era, the
textbooks said not a word about that event.

Then Dr. W. Dave Thweatt sent this appalling comment:

The Ukrainian famine affected my wife’s family. Her grandmother and two
of her uncles lived through it by keeping a goat hidden in the closet and
drinking her milk. Here’s how the progression ran in their little village:

They ate what they had stored in their private root cellars.
They ate their livestock.
They ate their pets.
They ate vermin and insects.
They resorted to cannibalism of the dead.
Some resorted to cannibalism of the living.
They died.

When will Hollywood tell this story?

I felt sadly compelled to tell him that Hollywood will never touch it. Even
a conservative-minded producer could not find an uplifting angle. It’s
totally depressive.

Then Kevin Craig, a Libertarian candidate for Congress from Missouri,
called my attention to the fact that China under Mao killed 77 million of
its citizens, not just the 38 million I stated. (I’d heard estimates of up
to 100 million for many years, but that seemed too extreme for me, so I

went with one of the more conservative common estimates.)

The main man for worldwide death figures is R.J. Rummel, a professor
emeritus of political science living in Hawaii. Based on strong new
evidence, he raised his estimate last year from 38 million to 77 million.

The 39 million jump is from one single cause: the status of the Great Famine
of 1958-61. Most Western scholars had felt that the famine was the result of
collective farming, bureaucratic bungling and tail covering by commune
managers who wouldn’t admit they missed their quotas.

But today Rummel admits, “I can now say that yes, Mao’s policies caused
the famine. He knew about it from the beginning. He didn’t care! Literally.”

If your liberal friends castigate you for quoting such numbers, here is
Rummel’s crucial explanation:

“Those in the top circle of the CCP tried to alleviate the famine. They were
arrested, some tortured, some executed or allowed to die horribly. Even in
1961, [Mao] wanted to increase the amount of food taken from the people.

But, at great risk to himself, Liu Shao-ch’i (president of the PRC and
second in power) ambushed Mao at a CCP conference of 7,000, which
agreed with Liu to alleviate the famine.

Mao could not forgive Liu and the others, and because he believed he was
thus losing control of the CCP, he launched a purge in 1965 called the
Cultural Revolution to overthrow the CCP and replace it with the military.
About 100,000,000 people were persecuted, and around 3,000,000 were

So Rummel’s total for the democide: 3,446,000 before Mao’s takeover +
35,226,000 afterward + 38,000,000 by famine = 76,692,000.

Compare that to the Soviet slaughter: 66 million. Hitler is a distant third:
21 million.

Rummel has now thus revised his world total for all democides 1900-1999 to
212 million, with Communists accounting for 148 million of that. (Drop this
onto your agnostic friends who froth at the mouth about the alleged
multitudes of those who’ve died in religious wars.)

And how about the 20th century’s pure combat deaths (World Wars I and II,
Korea, Vietnam plus the Russian and Mexican revolutions, etc.)? They come
to 34,021,000. In other words, Mao killed twice as many as died in uniform

But to round out The Big Picture for this week, we need to notice how small
our 212 million deaths are when compared to the overall numbers. Today the
earth has 6.64 billion living souls. In other words, our population has
almost quadrupled even while this century of slaughter has gone on.

What does that say about the overpopulation problem? Well, suppose the
current wrangling in the Middle East erupts into all-out war. Some Muslim
group explodes A-bombs serially in New York, then London, then Paris,
promising to continue until the West surrenders.

So the West decides our only hope of survival is to wipe out the entire
Middle East, and we annihilate everybody there, from Cairo to Istanbul to
Tehran. That would be about 295 million people, God forbid.

But notice: Today’s planetary growth rate would make up that deficit in
three and a half years.                                -30-
You are invited to comment on this exasperating state of affairs. Please
keep your thoughts brief, jrutzwnd@cs.com.
LINK: http://worldnetdaily.com/news/article.asp?ARTICLE_ID=51721

[return to index] [Action Ukraine Report (AUR) Monitoring Service]
23.                             THE GENOCIDE TEST
                    Surely China does not believe Sudan’s brazen lies.

EDITORIAL: The Washington Post
Washington, D.C., Tuesday, September 19, 2006; Page A20

THE NEXT FEW days will show whether China means to let Sudan’s
dictatorship get away with genocide. A series of meetings at the United
Nations in New York offers the best and possibly the last chance to
persuade the Sudanese to allow U.N. peacekeepers into Darfur. The
deployment is required by a Security Council resolution passed last

It is supported by nearly all the leading powers and even by factions within
Sudan’s government. But China has so far refused to tell Sudan’s isolated
leaders to drop their opposition to a U.N. contingent, even though its
extensive investments in Sudan give it the power to do so. If it wants to be
regarded as a responsible power, China should use its leverage.

Consider the arguments for not doing so, as presented by Sudan’s spokesmen.
Yesterday, Sudan’s deputy ambassador to the United Nations protested that
blaming hundreds of thousands of deaths on his government was unfair: “The
armed groups in Darfur are the real culprits,” he asserted.

But China’s leaders surely know this is absurd: The leading murderers in
Darfur are the Janjaweed militia, which has been equipped by Sudan’s
government. Meanwhile, at the World Bank-International Monetary Fund
meetings yesterday, Sudan’s finance minister argued that “what Darfur needs
is not peacekeepers. . . . What Darfur needs most is resources for water,
resources for schools, for hospitals.”

But Sudan’s air force has strafed Darfur’s hospitals and schools, and its
Janjaweed allies have addressed the region’s water scarcity by poisoning
wells with corpses.

Sudan’s president asserts that “the U.N. forces have a hidden agenda in
Sudan because they are not coming for peace in Darfur. They want to
recolonize Sudan.”

His henchmen have indicated that, in place of U.N. peacekeepers, they might
be willing to extend the mandate of the African Union force, which is due to
leave at the end of this month.

Before China accepts this preposterous description of the United Nations and
embraces the supposed concession of a renewed African Union mandate, it
should read the recent dispatches from journalists inside Darfur.

The Post’s Craig Timberg reports that Sudan’s government has seized A.U. jet
fuel and used it to fill its own military aircraft; indeed, the airstrip
used by the African Union in North Darfur is controlled by Sudanese
government forces at night, so fuel is regularly looted.

Meanwhile, Janjaweed fighters recently demonstrated their contempt for the
A.U. forces by assaulting civilians who had gathered to speak to them.

In short, Sudan’s government is presenting the extension of the African
Union’s mandate as a concession, even as it destroys the organization’s
ability to operate.

The A.U. presence is not preventing the government from mounting bombing
raids on civilians with a frequency not seen since the height of the
genocide in 2003; nor is it preventing the obstruction of humanitarian
efforts in North Darfur, where more than 300,000 people have been cut
off from food aid.

The African Union has become almost irrelevant, and no responsible
government can accept an extension of its mandate as an alternative to a
real peacekeeping force.

Is China’s a responsible government?                       -30-

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

PRNewswire, New York, NY, Tuesday, September 19, 2006

NEW YORK – President Bill Clinton and two Ukrainian foundations, headed
by Elena Franchuk and Victor Pinchuk, signed an agreement of cooperation
today that will expand the work against HIV/AIDS in Ukraine.

Under the agreement Ukraine will receive access to the best practices to
fight epidemics and the latest know-how in the area of HIV/AIDS prevention,
treatment and care.

The Elena Franchuk ANTIAIDS foundation will cooperate with Clinton HIV/
AIDS Initiative for the next five years in implementing project aimed at
reducing HIV/AIDS escalation, care and support of people living with

HIV/AIDS in Ukraine. Elena Franchuk and Victor Pinchuk are contributing
US$2.5 million toward the project.

The funds will be used during the next five years to pay for programs aimed
at slowing the growth of new HIV/AIDS cases, as well as for treatment and
support of people living with HIV/AIDS in Ukraine.

“I’m happy to be working with the Elena Franchuk ANTIAIDS Foundation and
the Victor Pinchuk Foundation on expanding access to HIV/AIDS prevention,
care and treatment services in Ukraine,” President Clinton said.

“Through their generous support, we will be able to greatly increase the
number of people with access to these services, and I am grateful for the

“The work of Clinton Foundation made tremendous difference in treatment
and care of people living with HIV/AIDS in many countries. I am sure that
Ukraine will benefit from President Clinton’s expertise,” Elena Franchuk

“For the ANTIAIDS Foundation this partnership means an expansion of our
activities, which have been centered for the last three years on media
campaigns. Now, to change the AIDS situation in Ukraine, the country needs
the best international experience and know-how in combating the epidemics.”

Work during the first year of the project will be centered on the
Dnepropetrovsk region, in the southeast part of Ukraine, which is home to
more than 3 million people. The program’s initiatives will be replicated in
other regions of Ukraine in following years.

Specifically, the programs will work to increase access to rapid testing,
improve laboratory capacity, train and mentor health care workers, introduce
HIV treatment/substitution therapy and to improve drug procurement

The program will also work nationally in Ukraine to expand HIV testing
legislation, develop rapid HIV test guidelines, register methadone for use
and improve distribution and drug procurement processes and prices.

The agreement is the result of discussions started in 2004, when
representatives of the Clinton Foundation visited Ukraine at the invitation
of Ms. Franchuk.

Following that visit an agreement between the Clinton Foundation and the
government of Ukraine was signed, which assisted the government in
receiving access to the lowest prices on generic antiretroviral drugs for
HIV/AIDS treatment.

The agreement allowed more patients in Ukraine to receive access to
live-saving therapy as part of the Global Fund to Fight AIDS, TB and
Malaria grant.

The work continued in 2005 during President Clinton’s visit to Ukraine,
with the signing of a memorandum which identified priority directions of
cooperation of Clinton Foundation and the Government of Ukraine in the
fight against HIV/AIDS. The five year program resulted from that

The Elena Franchuk “ANTIAIDS” Foundation and the Victor Pinchuk
Foundation expressed their readiness to join efforts in the implementation
of this project and committed the US$2.5 million.

The Clinton Foundation HIV/AIDS Initiative ———-
The Clinton Foundation HIV/AIDS Initiative (CHAI) strives to make
treatment for HIV/AIDS more affordable and to implement large-scale
integrated care, treatment, and prevention programs.

Since its inception, CHAI has helped bring AIDS care and treatment to
over 415,000 people living with HIV/AIDS around the world.

The Elena Franchuk “ANTIAIDS” Foundation ———-
Elena Franchuk has long been involved in business and charitable activities
in Ukraine. She established her foundation in September 2003.

It is the first and sole foundation in Ukraine committed to fighting
HIV/AIDS. The Foundation activities are aimed at: drawing attention of
opinion makers, government authorities and business leaders to the HIV/AIDS
problem; implementing large-scale informational and educational campaigns;
providing direct support to people living with HIV/AIDS; attracting
resources for supporting relevant projects on HIV/AIDS prevention and
treatment; and diminishing the stigma and discrimination of people living
with HIV/AIDS.

The Victor Pinchuk Foundation ———
Victor Pinchuk is the founder of Interpipe Corporation, one of the largest
Ukrainian industrial groups. Interpipe is the only East European company
member of the Global Business Coalition against HIV/AIDS.

The Victor Pinchuk Foundation develops and supports projects that contribute
to the development of Ukraine. The six fields of activity and the projects
of the Foundation have been selected because of their strategic importance
for the future of the country: Health (Neonatal Centers), Education
(Stipends Programs, School of Economics, cooperation with the Aspen
Institute), Culture (Contemporary Art Centre, Film on the Holocaust with
Steven Spielberg), Rule of Law (with the Soros Foundation), International
Development (promotion of Ukraine in the EU) and support for local
communities in Ukraine.                        -30-
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

ANALYSIS: By Roman Kupchinsky
RFE/RL Belarus, Ukraine, and Moldova Report, Vol. 8, No. 32
Prague, Czech Republic, Tuesday, September 19, 2006

The case surrounding the apparent poisoning two years ago of Viktor
Yushchenko remains shrouded in mystery — so much so that even
Yushchenko himself routinely uses cryptic language to describe it.

Speaking to journalists in Baku on September 8, the Ukrainian
president stated the investigation into the alleged poisoning in
September 2004 was “one step away from the active phase of solving
this case.”

Yushchenko’s statement came as Ukraine’s prosecutor-general, Oleksandr
Medvedko, announced investigators had determined the time, place, and
circumstances in which the poisoning attempt took place.

All that remains, apparently, is to find the individual, or individuals,

Austrian doctors responsible for examining Yushchenko several
months after the poison was reportedly administered said the
Ukrainian politician had ingested a concentrated dose of dioxin.

The powerful toxin caused bloating and pockmarks on Yushchenko’s
face, giving his skin a greenish hue and adding a macabre note to a
tumultuous political season culminating in the mass Orange Revolution
protests in December 2004.

Prosecutor-General Medvedko, confirming earlier allegations,
said tests on the dioxins found in Yushchenko’s blood showed they
were highly purified and manufactured in either Russia, the United
States, or Great Britain.

He declined to divulge other details. If investigators have in fact traced
the time and place of the poisoning, it would mark a significant
development in a seemingly stagnant case.

The mystery began on September 6, 2004. Yushchenko, the pro-
Western presidential candidate facing off against the Kremlin’s preferred
nominee, Viktor Yanukovych, became violently ill, suffering severe
abdominal pain and facial lesions.

When he was rushed four days later to Vienna’s Rudolfinerhaus clinic,
his liver, pancreas, and intestines were swollen, and he was barely able
to walk.

Doctors were initially baffled. But Yushchenko’s supporters already had
a theory: that the candidate had been poisoned during a dinner September
5 with Ihor Smeshko, the head of Ukraine’s Security Service, at the summer
home of Smeshko’s deputy, Volodymyr Satsyuk.

Later that month, many were surprised to read a Rudolfinerhaus press
release stating doctors did not believe Yushchenko had been poisoned.

But several days later, officials at the Vienna clinic publicly objected,
insisting the press release was a forgery — an episode that conjured up
images of a Soviet-style disinformation campaign.

By December, doctors had confirmed that dioxin was behind Yushchenko’s
ailment, and that he had received the substance from a perpetrator who
allegedly intended him harm.

Yushchenko’s supporters immediately pointed to Yanukovych ss the
likely suspect, and accused Moscow of providing the dioxin. The
Yanukovych camp vigorously denied the charges. Some questioned
whether there was in fact any real evidence to suggest Yushchenko had
been poisoned.

At the peak of the Orange Revolution protests in December,
Yushchenko announced he would soon have proof his opponents had
attempted to assassinate him. The proof, however, never materialized.
Since then, an investigation by the Ukrainian Security Service and
Prosecutor-General’s Office has been under way. But no findings have
been announced.

In the interim, many Ukrainian and Western observers have begun to
express doubt the case would ever be solved.

Some questioned why it was taking so long to discover the
truth — especially when Yushchenko himself was offering frequent
assurances a solution was around the corner. Was the investigation
being blocked? Or have investigators simply been unable to build a
solid case?

A member of the investigative team told RFE/RL that in such a
high-profile matter as the Yushchenko poisoning, it is prudent to
wait until the evidence is so watertight that there is no way the
case can be thrown out of court.

But many of Yushchenko’s supporters believe that with Yanukovych
now in the prime minister’s post it is unlikely the case will be solved
soon — if ever.                              -30-

“RFE/RL Belarus, Ukraine, and Moldova Report” is prepared by Jan
Maksymiuk on the basis of a variety of sources including reporting by
“RFE/RL Newsline” and RFE/RL’s broadcast services. It is distributed
every Tuesday. Jan Maksymiuk at maksymiukj@rferl.org.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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