AUR#786 Nov 6 Texas,Tennessee & Ukraine Work Together; Don’t Litigate, Negotiate; Corporate Raiding; Bulgaria Economic Report;

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

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

                                                                                    
ACTION UKRAINE REPORT – AUR – NUMBER 786
Mr. E. Morgan Williams, Publisher and Editor  
WASHINGTON, D.C., MONDAY, NOVEMBER 6, 2006
                
               –——-  INDEX OF ARTICLES  ——–
              Clicking on the title of any article takes you directly to the article.               
    Return to the Index by clicking on Return to Index at the end of each article
1. TENNESSEE & TEXAS WORK TOGETHER TO ASSIST UKRAINIAN
            GIRL RECEIVE SPECIAL FACIAL SURGERY IN THE USA
                  Iryna Shevchenko, a young Ukrainian girl with severe facial
     disfigurement, set to receive treatment in Memphis from a top U.S. surgeon.
By E. Morgan Williams, Publisher and Editor
Action Ukraine Report (AUR) #786, Article 1
Washington, D.C., Monday, November 6, 2006

2.         UKRAINIAN MODERNISTS, ALL ALONE, HERE AT LAST
                        ‘CROSSROADS: MODERNISM IN UKRAINE’
ART REVIEW: By Grace Glueck, The New York Times
New York, NY, Saturday November 4, 2006

3TATIANA HLADYR OF UKRAINE TAKES SECOND IN WOMEN’S
                  RACE AT THE NEW YORK CITY MARATHON
Associated Press, New York, NY, Sunday, November 5, 2006

4.                               GLIMPSE OF THE ABYSS 
                    A glitzy night in Kiev to remember a tragic past
The Economist print edition, London, UK, Thursday, October 26, 2006

5UKRAINE: POLISH CAR SEAT COVERING PRODUCER EXPANDING 

                     Has plant in Uzograd with over a thousand workers
Polish News Bulletin, Warsaw, Poland, Sunday, Nov 05, 2006

6.    IVANO-FRANKIVSK: TYCO TO BUILD EUR50 MILLION PLANT 
By Volodymyr Obolonsky The Ukrainian Times
Kyiv, Ukraine, Tuesday, November 7, 2006

7.          VODKA COMPANY PLANS TO LAUNCH IPO IN LONDON

By Alla Bakulina, The Ukrainian Times, Tuesday, November 7, 2006

8.       EUROPEAN ELDORADO ELECTRONICS AND HOUSEHOLD
          APPLIANCES CHAIN OPENS SUPERMARKET IN KHARKIV
                Has 88 supermarkets in Ukraine, will open 3 more this year
Interfax-Ukraine, Kyiv, Ukraine, Monday, October 30, 2006

9FINNISH-UKRAINIAN JV EXPANDS BATHROOM CERAMICS FACTORY
           The JV will be the leading supplier on the Ukrainian market and will
           expand its activities on the Russian, Belarusian and Kazakh markets.
Interfax-Ukraine, Kyiv, Ukraine, Friday, October 27, 2006

10POLISH INSURANCE COMPANIES UKRAINIAN SUBSIDIARY HAS
     LARGE IRREGULARITIES, EMBARRASSMENT TO MANAGEMENT
Polish News Bulletin, Warsaw, Poland, Sunday, Nov 05, 2006

11.     GOVERNMENT HAS INFORMATION ON FORTHCOMING
                    UPGRADE OF UKRAINE’S CREDIT RATINGS

IntelliNews – Ukraine This Week, Kyiv, Ukraine, Monday, Oct 30, 2006

12.   EXPANDING BIOFUEL INDUSTRY CHANGING AG MARKETS
            Ukraine has ample land, but is dealing with land reform issues.
Dow Jones Newswires, Chicago, Illinois, Friday, November 3, 2006

13.                           DON’T LITIGATE, NEGOTIATE
UKRAINIAN VIGNETTE, ASK THE LAWYER!
INTERVIEW: With Dr. Irina Paliashvili, President
Russian-Ukrainian Legal Group, P.A. Washington, D.C. and Kiev
The Ukrainian Observer magazine, Issue 225
The Willard Group, Kyiv, Ukraine, November 2006

14.       UKRAINE – CORPORATE RAIDING: POST-SOVIET STYLE
ANALYSIS & COMMENTARY: By Jim Davis, Editor
Ukrainian Observer magazine, Issue 225
The Willard Group, Kyiv, Ukraine, November 2006

15UKRAINIAN BANKING SECTOR: EVOLUTION & CURRENT STATE
DIALOGUE AND DEBATE: By Natalya Dushkevych & Valentin Zelenyuk
The Ukrainian Observer magazine, Issue 225
The Willard Group, Kyiv, Ukraine, November 2006

16.            OUR ROTTEN, DEFENSIVE ATTITUDE TO CHANGE
              How can the EU turn its back on the former Soviet republics of
                         Ukraine, Belarus, Moldova, Georgia and Armenia?
COMMENTARY:
By George Parker, Financial Times

London, United Kingdom, Monday, November 6 2006

17BULGARIA – MACROECONOMIC SITUATION – OCTOBER 2006
               Another country near Ukraine who will join the EU soon.
MONTHLY ANALYTICAL REPORT: Oleg Ustenko,
Edilberto Segura, and Olena Kramarska
SigmaBleyzer Emerging Markets Private Equity Investment Group,
The Bleyzer Foundation, Sofia, Bulgaria, Monday, Nov 6, 2006

18.        EU EXECUTIVE TO RESIST DRAWING FINAL BORDERS
                Will neither offer a membership prospect to states such as
            Ukraine, Moldova, Georgia or Belarus, nor rule them out forever.
Reuters, Brussels, Belgium, Sunday, November 5, 2006

19THE BERMUDA TRIANGLE BETWEEN SURGUT AND BRUSSELS
               Trilateral relations: Russia, Ukraine, and the European Union
COMMENTARY: Alexander Sadchikov
Izvestia, Moscow, Russia, Wednesday, November 1, 2006

20.                       UKRAINE’S POLITICS UP FOR GRABS
            The birth-pangs of democracy, or an unseemly power struggle?
The Economist, London, UK, Week of November 4-10, 2006

 
                Perhaps East, West Ukraine Should ‘Go Their Own Ways’
COMMENTARY: by Aleksandr Dugin, Director 
Center for Geopolitical Expertise
Izvestia, Moscow, Russia, Wed, October  25, 2006
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1
.TENNESSEE & TEXAS WORK TOGETHER TO ASSIST UKRAINIAN
           GIRL RECEIVE SPECIAL FACIAL SURGERY IN THE USA
               Iryna Shevchenko, a young Ukrainian girl with severe facial
   disfigurement, set to receive treatment in Memphis from a top U.S. surgeon.

By E. Morgan Williams, Publisher and Editor
Action Ukraine Report (AUR) #786, Article 1
Washington, D.C., Monday, November 6, 2006

WASHINGTON, D.C. – An investment banking executive from Tennessee
has teamed with an internationally known pastor-humanitarian from
Texas to provide assistance to doctors and persons in Ukraine with severe
medical issues.

Don Clanton, a Memphis-based Duncan-Williams, Inc. investment banking
executive, and his friend of Waco, Texas, Rev. John Wood, who has
performed religious, humanitarian and medical ministries in Russia and
Ukraine for the past 13 years, are working together on a series of special
medical programs for Ukraine.

I was introduced to Rev. Wood and his work in Ukraine by Michael
Bleyzer, President of SigmaBleyzer Private Equity Investment Group of
Houston, TX and Kyiv, almost two years ago. Rev. Wood comes to
Washington quite often as his daughter, Lee Ann, is the wife of Texas
Congressman Chet Edwards and he has two grandsons here.

Rev. Wood serves as president of John Wood Ministries, Inc. and
the International Medical Education Foundation, Inc.  He also conducts
medical exchange programs between the United States and Ukraine in
which American physicians are enlisted to mentor and train Ukrainian
doctors in their specialties.

These Ukrainian physicians, in turn, collaborate with other Ukrainian
doctors in efforts to assist patients.  Ukrainian physicians also are
brought to the U.S. to observe and learn the latest surgical procedures,
technologies and treatment regimens.

Dr. Alexander Etnis, Kyiv, Ukraine, serves as Medical Coordinator for
Rev. Wood and his work in Ukraine.  His knowledge of English and his
relationship with local physicians have made him an invaluable team
member over the past several years.
 “OFF-PUMP BYPASS” OR “BEATING HEART BYPASS SURGERY”
In 1999 U.S. physicians began teaching “off-pump bypass” or “beating heart
bypass” surgery in the Cardiovascular Surgical Institute in Kyiv, the
capital of Ukraine.  “We have learned to stabilize that portion of the heart
needing repair and perform the surgery while the heart continues beating,”
according to Rev. Wood.

This procedure does not require a heart-lung machine, which is quite
expensive and often not available in developing countries.  The results have
been amazing.  The number of cardiovascular procedures has increased
900%, and the mortality rate has been lowered from 12% to 0.5%.

These are the best results worldwide and have drawn the attention of
President Viktor Yushchenko and the First Lady, Kateryna Yushchenko.

The First Lady invited Rev. Wood to her office, where they spent over two
hours exploring ways to network and improve the delivery of healthcare
in Ukraine.

Mrs. Yushchenko has launched a program called “Hospital to Hospital”
through the Ukraine 3000 Fund and has asked Rev. Wood to help in
selecting and enlisting 25 U.S. children’s hospitals to partner with 25
children’s hospitals in Ukraine.
    12 YEAR OLD GIRL WITH SEVERE FACIAL SCARS
At Mrs. Yushchenko’s invitation, Wood agreed to participate in a television
interview with a 12-year-old Ukrainian girl, Iryna Shevchenko, who was
born with a large hemangioma covering half her face.

Hemangiomas are abnormally dense collections of dilated small blood
vessels classically recognized by red skin lesions often referred to as
“port wine stains.”

Ukrainian physicians had removed her “birthmark” when she was one
year old, but terrible scars resembling a bad burn remained on over
almost one-half of her face.

During the interview, Rev. Wood promised the young girl and her mother
that he would try to help her.

I was in Kyiv working with Rev. Wood at the time. He told me two days
after meeting this young girl, “Morgan, I have not been able to sleep.  I
have been staying awake thinking about what we can do. Unfortunately the
surgeons in Ukraine several years ago were not able to give this girl what
she needed and this has left her physically and emotionally scarred for life
unless we can help her.”

A few weeks later during a telephone conversation about a banking matter
Memphis investment banker Don Clanton asked Rev. Wood to update him
on his recent projects. Rev. Wood told Clanton about his commitment to
help Iryna Shevchenko.
 MEDICAL ASSISTANCE PROGRAM SET UP IN MEMPHIS
Rev. Wood e-mailed Clanton some photographs taken during his television
interview with the young girl and her mother.  Clanton shared those photos
with Scott Stafford, CEO of Evolve Bank & Trust, and the effort to help
Iryna was launched.

Banker Stafford discussed the medical need with Mrs. Roseann Painter and
Dr. Garnett Murphy, who were instrumental in introducing him to Dr. Robert
D. Wallace, a nationally recognized Memphis plastic surgeon, who then
volunteered to perform the surgery pro-bono.

Dr. Wallace currently holds the rank of Associate Professor of Surgery and
Otolaryngology at the University of Tennessee – Memphis Health Science
Center.  He is also Chief Program Director of the Division of Plastic
Surgery. In 2006 he was included on the “Top Doctors List” in the United
States.
            MEMPHIS ASSISTANCE NETWORK EXPANDS
John and his wife, Patricia, have known Memphis realtor Bob Neal and his
wife Charlotte for years. The Neal’s enthusiastically joined the two other
Memphis businessmen, Clanton and Stafford, in their efforts to help make
this little girl’s dreams come true.

Others providing support in this humanitarian project are Tom and Barbara
Mattingly and Sandra Crews.  Memphis doctors Chuck and Melanie
Woodall have agreed to provide housing for the Ukrainian family.
   IRYNA SHEVCHENKO ARRIVES IN MEMPHIS NOV 12
Dr. Alexander Etnis will accompany Iryna Shevchenko to Memphis on
Sunday, November 12, and translate for her during a week of evaluation
by Dr. Wallace and his team.

Rev. Wood has scheduled a dinner meeting in Memphis on Monday,
November 13, for all those who are working on this matter to meet Iryna,
Dr. Wallace and each other.

Rev. Wood will then bring Iryna and her mother to Memphis in January
of 2007, when Dr. Wallace will begin her surgical treatment.

“DREAM FUND” ESTABLISHED FOR NOW & FUTURE
A special “Dream Fund” has been established at Evolve Bank & Trust to
help defray expenses related to making Iryna Shevchenko’s dreams
come true and hopefully assist other young people in the future who have
severe medical needs.

Memphis banker Stafford said, “I am very pleased to participate in this
humanitarian effort and am proud that the compassion of Memphis has
reached around the world.

There will be similar humanitarian efforts needed in the future, and we
hope Memphis will be able to continue to embrace these worthwhile
opportunities, ” Stafford reported.

Tax deductible contributions may be made by mailing checks payable to
“Dream Fund” to Evolve Bank & Trust, 1222 North Missouri Street ,
West Memphis, Arkansas 72301 — Phone: (901) 260-1466.
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FOOTNOTE:  I personally hope some of the readers of the Action

Ukraine Report (AUR) will contribute to the “Dream Fund.” If you
would like to receive additional information about this program please
contact me at mwilliams@sigmableyzer.com.

I will be pleased to put you in touch with Rev. John Wood in Waco,
TX;  Don Clanton or Scott Stafford in Memphis, TN, or Dr. Alexander
Etnis in Kyiv if that is needed. There are also photographs available

I can send from when Rev. Wood met Iryna Shevchenko in Kyiv.
AUR Editor Morgan Williams.                           
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2.   UKRAINIAN MODERNISTS, ALL ALONE, HERE AT LAST
                  ‘CROSSROADS: MODERNISM IN UKRAINE’

ART REVIEW: By Grace Glueck, The New York Times
New York, NY, Saturday November 4, 2006

Don’t mistake them for Russians: Kazimir Malevich, El Lissitsky, Alexander
Rodchenko, Alexander Archipenko and Alexandra Exter were actually born,
or identified themselves as, Ukrainian.

According to a new exhibition at the ambitious Ukrainian Museum, it was the
Ukrainian-ness of some of the greats in modern Russian art that informed
their contributions to the Modernist movements of the 20th century.

“Crossroads: Modernism in Ukraine, 1910-1930” displays more than 70
works by 21 artists – each shown for the first time in the United States.
The exhibition was organized by the National Art Museum of Ukraine in

Kiev with the Foundation for International Arts and Education.

Ukraine, a nation of nearly 50 million, regained its sovereignty from the
Soviet Union in 1991 and has been eager to acquaint the world with its own
considerable cultural strengths. One, of course, has been art, with a
history going back to the Greek and Byzantine eras.

Ukrainian classicism and folk art were carried over into 20th-century
avant-garde creations, but within the two decades covered by the show,
there was also stellar participation in experimental work.

The painter, idea man and exhibition organizer David Burliuk (1882-1967),
for example, embraced a “primitivist” approach that became allied with
Italian Futurism; Archipenko produced Cubist sculpture; Malevich developed
the nonobjective movement known as Suprematism, which for all its
abstraction was partly inspired by Ukrainian folk themes; and Rodchenko
associated himself with the architecturally oriented art known as
Constructivism.

Partly because most of their works are in collections outside Ukraine, these
leaders are skimpily represented in the show: Burliuk by his clamorous
“Time” (1910), a whirl of Cubist and Futurist elements; Archipenko (who had
a full-scale show at the museum last year) by a small Cubist standing female
figure of 1914; Malevich by a Suprematist composition of 1920, along with
two very rough sketches from 1930 for the All-Ukrainian Academy of Sciences
in Kiev; and Rodchenko by a 1919 Constructivist composition of bars and
circles in red, black and white on a green ground.

Happily, a bit more of a spread is given to the work of Exter, who studied
in Paris and had a firm grasp of the new European art.

Her rhythmic color abstractions and her exuberant designs for ballet
costumes are a dazzling mix of Cubist forms and Futurist dynamism with
Ukrainian motifs like icon-derived colors, patterns from village
embroideries and weavings, and bright peasant costumes.

But what makes this show well rounded is the inclusion of other, far less
familiar talents – some, to be sure, more interesting than others. The
effort made to expose the period’s wide range of styles has produced a
couple of wonderful surprises.

One is the brilliantly “decadent” work of Vsevolod Maksymovych (1894-1914),
a painter drawing on Symbolist sources who represented the Ukrainian “style
moderne,” or Secession.

Heavily influenced by the campy erotica of the British graphic artist Aubrey
Beardsley, Maksymovych did mural-size paintings drawn from classical themes,
but his most striking creations use stark black-and-white schemes and
sinuous lines.

They are seen here in a fierce, quirky self-portrait against a backdrop of
bubbles and in a high-comedy masquerade scene whose focus is a bewigged,
semi-nude, queenly figure attended by courtiers, a peacock and a kneeling
genie. A drug user, Maksymovych committed suicide at 21 after the failure of
his one-man show in Moscow.

Also eye-grabbing are the “Experimental Compositions” done in the ’20s by
Vasyl Yermilov (1894-1967), a leader of the Constructivist school in Kiev
and a crucial figure of the avant-garde.

His four works here – three of them designs for graphic mediums – consist
of simple geometrical figures, letters and other elements, in combinations
of materials and textures.

They derive from folk art and primitivism as well as from contemporary
movements. The most striking here is his relief painting, a cool composition
of painted geometric elements in wood on a bright blue ground.

A serendipitous discovery is Anatol Petrytsky (1895-1964), little known in
the United States, who made a major contribution to stage design.

A creator of opera and ballet sets for both classical and avant-garde
performance groups in Moscow, Kiev and Kharkov, he was also a painter,
working in several styles. In the late 1920s and early ’30s he produced more
than 150 portraits of Ukrainian modernists, meant for an album; three are
shown here.

When Stalin began his operation against “nationalist deviation” in the early
1930s, he exterminated many of the subjects of Petrytsky’s portraits. The
artist destroyed several of the canvases, and the majority of those
remaining were lost during World War II.

Most engaging, though, are his lighthearted, collage-like sketches for
various operas and ballets. He shows his Constructivist tendencies in
“Europeans,” a delightful costume sketch of a couple for the ballet “The
Red Poppy” in 1927.

Being an artist with anything other than a Soviet agenda was dangerous in
the later years of Stalin’s regime.

A case in point was Mykhailo Boichuk (1882-1937), an influential teacher at
the Ukrainian Academy of Arts, who envisioned creating art for the masses
based on Ukrainian traditions.

He pushed for Ukrainization via the study of medieval frescoes, folk art,
Italian Renaissance painting and Byzantine art (a major influence on
Ukrainian culture), rather than adopting the heroic realism clichés favored
by the Soviet leadership in the late 1920s.

At the same time, he and his followers, known as the Boichukisty, were
keenly aware of international Modernism, though his painting in this show of
a dairy maid from the early 1920s would indicate that his teachings were
perhaps more vital than his art.

But with the beginning of collectivization, the state turned hostile toward
the rural and ethnic content of Boichuk’s and his students’ work, and he was
denounced as an agent of the Vatican.

Amid the purges of the late 1930s, he and some disciples were declared
enemies of the people, arrested and executed.

This show, for all its spottiness, surely proves the importance of Ukrainian
participation in Modernist art. For American viewers, its significance lies
as much in its exposure of lively talents, largely unknown.

“Crossroads: Modernism in Ukraine, 1910-1930” opens on Sunday and runs
through March 11 at the Ukrainian Museum, 222 East Sixth Street, East
Village; (212) 228-0110.                            -30-
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NOTE: Four paintings are shown with the article on the NYT website:
[1] Alexandra Exter’s “Figure With a Dagger” costume sketch, 1920.
[2] “Relief ‘A,’ ” oil on plywood, by Vasyl Yermilov, from the 1920s.
[3] “Eccentric Dancing. Costume Sketch for Ballet Performance Staged by
K. Goleyzovskiy,” by Anatol Petrytsky, a creator of opera and ballet sets.
[4] Kazimir Malevich’s “Composition in Suprematism,” 1920s.
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http://www.nytimes.com/2006/11/04/arts/design/04ukra.html?_r=1&oref=slogin
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3.  TATIANA HLADYR OF UKRAINE TAKES SECOND IN WOMEN’S
                   RACE AT THE NEW YORK CITY MARATHON

Associated Press, New York, NY, Sunday, November 5, 2006

NEW YORK — Brazil’s Marilson Gomes dos Santos made a remarkable New

York City Marathon debut, breaking away from the lead pack in the last quarter
of the race and holding off an all-star field of challengers to become the
first South American to win the race.

Meanwhile, defending women’s champion Jelena Prokopcuka sped away from

the other top contenders early in the race Sunday and ran by herself at the end,
becoming the first woman in more than a decade to win two straight New York
City Marathon titles. Tatiana Hladyr of Ukraine took second.

Mr. Gomes finished in an unofficial time of two hours, nine minutes and 58
seconds. A pair of Kenyans, Stephen Kiogora and defending champion Paul
Tergat, were second and third.

A pack of nine runners, including three Americans, led for the first
three-quarters of the race. Mr. Gomes made his move heading into The Bronx,
quickly opening a 30-second lead and maintaining it for the next few miles.

Messrs. Tergat and Kiogora made a joint effort to catch the Brazilian as the
race wound through Central Park. In the final mile, along Central Park
South, Mr. Gomes looked over his shoulder several times as the Kenyans
closed in. But then he pulled away for the victory.

Wearing black gloves and sleeves up over his biceps, a black cap and yellow
tank top, Mr. Gomes came across the finish line with his arms raised, then
made the sign of the cross. Wide smiles crossed the Kenyans’ faces as they
crossed behind the winner and embraced Mr. Gomes, who wore a pained

look.

Lance Armstrong was among the celebrities still on the course. The
seven-time Tour de France champion was making his marathon debut, and

he was on pace to meet his goal of finishing in less than 3 hours.

Latvian Ms. Prokopcuka’s bold move away from the lead pack turned the race
into little more than a coronation and crushed the hopes of Deena Kastor,
the world’s top-ranked marathoner, who was favored to become the first
American woman to win the race since 1977. “It was a star-studded field out
there, and I knew it was going to be a tough day,” Ms. Kastor said. “And it
was.”

Ms. Prokopcuka led nearly from start to finish and won in two hours, 25
minutes and five seconds on a perfect day for a marathon — cool, cloudy

and little wind.

She separated from the other favorites in the opening few strides of the
race on the Verrazano Bridge, and joined Tatiana Hladyr of Ukraine in a
breakaway as the race wound through Brooklyn.

By the time the race reached Manhattan, the two Eastern European women

[Latvia and Ukraine] had built their lead to 40 seconds.

They kept pouring it on, extending their lead to nearly 90 seconds — more
than a quarter-mile on the streets of New York — as they headed into the
Bronx and then back into Manhattan, where Ms. Prokopcuka moved away

from Ms. Hladyr for the final segment heading toward the finish line in
Central Park.

Ms. Hladyr finished second in 2:26.05, exactly a minute behind Ms.
Prokopcuka. A pair of Kenyans, four-time Boston Marathon winner Catherine
Ndereba and 2006 Boston winner Rita Jeptoo, were third and fourth. Ms.
Kastor finished sixth in 2:27.54. Another American, Katie McGregor, was
ninth in her debut marathon.

Ms. Prokopcuka is the first woman to win two straight titles since Tegla
Loroupe of Kenya in 1994-95.                    -30-
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4.                               GLIMPSE OF THE ABYSS 
                       A glitzy night in Kiev to remember a tragic past

The Economist print edition, London, UK, Thursday, October 26, 2006

THE great, good and less good of Kiev gathered last week to honour an
illustrious guest and an unlikely artistic collaboration. The guest was
Steven Spielberg, and the occasion was the premiere of “Spell Your Name”,

a documentary about the Holocaust in Ukraine.

“I feel like I’m home,” said the director, whose grandparents emigrated from
Ukraine. A group of elderly survivors and rescuers featured in the film
blinked into the flashlights.

The A-list turnout included Viktor Yushchenko, Ukraine’s president, his
predecessor, Leonid Kuchma, and Viktor Yanukovich, whom Mr Yushchenko
defeated during the “orange revolution” of 2004 but is now awkwardly
reincarnated as Ukraine’s prime minister. One attraction was Viktor Pinchuk,
a canny tycoon (and Mr Kuchma’s son-in-law), whose Jewish grandparents

got out of Kiev in time.

As well as financing the film, he is credited as joint executive producer,
but says he always deferred to Mr Spielberg. Cynics saw “Spell Your Name”

as part of Mr Pinchuk’s effort to launder his reputation and win new friends in
the post-Kuchma era. Perhaps; but Mr Yushchenko and the rest also attended
because Ukraine’s wartime history is still sensitive.

A few days before the premiere, in the streets of Kiev, communists scuffled
with members and supporters of wartime partisan groups, who fought both the
Germans and the Red Army and still crave government recognition as veterans.
But like the Cossack leaders also revered by Ukrainian nationalists, the
reputation of some partisan groups is tainted by the killing of Jews.

Official Soviet anti-Semitism is gone, but the unofficial kind lives on.
Leonid Serebriakov, an octogenarian who appears in the film, says he still
hears of nasty anti-Semitic incidents.

For many ordinary Ukrainians, the Jewish tragedy is just one part of a
century of pain, not least Stalin’s 1930s famine that killed millions. There
is also touchiness about Ukrainian collaboration with the Nazis. The film,
which relies heavily on interviews recorded by Mr Spielberg’s Shoah
Foundation Institute, deals with that theme sparingly, balancing it with
stories of Ukrainian heroism.

It prefers impressionistic snatches of narratives to full-on horror, linking
them with what Mr Spielberg calls a “visual poetry” of Ukraine: melting ice,
empty railway carriages.

One legacy of the Soviet era is ignorance. In the film, a student wonders
whether Jews are recognisable by their earlobes. There is little trace of
the Jewish civilisation that once thrived in the villages of western
Ukraine-nothing, in some places, except the marks left behind by unscrewed
mezuzahs, the little prayer-scrolls that Jews attach to their doors.

Victims commemorated at the sites of mass graves are often recorded only

as “Soviet citizens”. At the Babi Yar ravine in Kiev, where tens of thousands
of Jews and others were killed, several competing memorials have been
erected. “Spell Your Name” circles around the Yar, with glimpses and
allusions-something too big to be confronted directly.     -30-
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http://www.economist.com/world/europe/displaystory.cfm?story_id=8086872
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5. UKRAINE: POLISH CAR SEAT COVERING PRODUCER EXPANDING 
                   Has plant in Uzograd with over a thousand workers

Polish News Bulletin, Warsaw, Poland, Sunday, Nov 05, 2006

WARSAW – The Wielkopolska based Inter Groclin Auto, a producer of car

seat coverings, is planning further investment in Ukraine. The company already
has production facilities in Ukraine, built in Uzogrod for ZL82m and
employing over a thousand workers.

The management of the company did not reveal any details related to the
location or value of the project, but Eastern countries offer more
favourable conditions for running a business.

According to Groclin’s spokesperson, the Ukrainian government is working on
a programme aimed at luring investors and resembling special economic zones
in Poland. Preferential business conditions may not be the only reason for
such a location.

Unofficially, Volkswagen will open an assembly plant in Ukraine and Groclin
could count on a ZL300-500m contract for the delivery of car seats. In
mid-November the management of Groclin will present the supervisory board
with a strategy for developing the company.               -30-
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6.   IVANO-FRANKIVSK: TYCO TO BUILD EUR50 MILLION PLANT 
 
By Volodymyr Obolonsky The Ukrainian Times
Kyiv, Ukraine, Tuesday, November 7, 2006

KYIV – Tyco Electronics Ukraine Ltd. plans to invest 50 million euros in
construction of the plant which will manufacture electric cables and
household appliances.

Fifteen hectares of land have already been allocated by the Ivano-Frankivsk
municipal council for building a new enterprise. As expected, the plant will
be completed by 2009 and some 3,000 jobs created.

Data from the state chamber of registration under the municipal council
shows that Tyco Electronics Ukraine Ltd. was registered in Ivano-Frankivsk
on February 23.

It was founded by the two companies based in Luxembourg, namely Tyco
International Group S.A. and Tyco Group S.A.R.L. which are subdivisions

of the American electrotechnical company Tyco.              -30-
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7.       VODKA COMPANY PLANS TO LAUNCH IPO IN LONDON

By Alla Bakulina,  The Ukrainian Times, Tuesday, November 7, 2006

The Antimonopoly Committee has permitted the Swiss investment company

B&K Management AG to buy controlling stakes in the firms SV-Plus, Souyz-
Victan Trade and Soyuz-Victan Group. B&K Management AG is incorporated
in the Soyuz-Victan Group. At the end of 2005 the Swiss company acquired
99% of the production-distribution firm Kniazhy Grad.

“The group of companies undergoes reorganization so as to bring its
structure up to international standards,” said Andrei Okhlopkov, chairman of
the supervisory council of the Soyuz-Victan Group. “The composition of
Soyuz-Victan shareholders remains unchanged.”

In addition, managers of the Soyuz-Victan Group stated that they would
launch the IPO onto the London Stock Exchange within the first six months

of 2007. The London-based ING Bank is to be the lead manager of the IPO
project. As expected, the proceeds from the IPO would be used to buy a
foreign alcohol business. Soyuz-Victan intends to float up to 20% of shares.

According to forecasts, the share of the Soyuz-Victan Group in Ukraine’s
vodka market exceeds 20% this year, compared with 15.4% in 2005.
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8.    EUROPEAN ELDORADO ELECTRONICS AND HOUSEHOLD
       APPLIANCES CHAIN OPENS SUPERMARKET IN KHARKIV
             Has 88 supermarkets in Ukraine, will open 3 more this year

Interfax-Ukraine, Kyiv, Ukraine, Monday, October 30, 2006

KYIV – Eldorado, one of the largest electronics and household appliance
chains in Europe, has invested around $1.5 million in a new supermarket in
Kharkiv, the company’s press service has told Interfax-Ukraine.

According to a company report, the Eldorado supermarket opened on Thursday
is the fifth supermarket in Kharkiv. Its total area is 2,000 square meters,
and the range of goods is around 20,000 items.

The head of the Ukrainian Eldorado office, Dmytro Dosko said at the opening
ceremony that this is the latest step in forming a large electronics and
household appliances chain in Ukraine.

At present, 88 Eldorado supermarkets are operating in 54 cities and towns in
Ukraine, and 12 supermarkets are located in Kyiv. By the end of the year the
company plans to open another three supermarkets.

Eldorado was founded in 1944. Ihor Yakovlev is the president and the founder
of the chain. A total of 997 Eldorado household appliances supermarkets and
359 communications services salons are operating in 712 cities and towns of
Russia and Ukraine. The company also is developing Sulpak trade chain in
Kazakhstan.

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9.FINNISH-UKRAINIAN JV EXPANDS BATHROOM CERAMICS FACTORY
           The JV will be the leading supplier on the Ukrainian market and will
           expand its activities on the Russian, Belarusian and Kazakh markets.

Interfax-Ukraine, Kyiv, Ukraine, Friday, October 27, 2006

KYIV – The state Ukrbudmaterialy Corporation and Finland’s Sanitec Group
have signed an agreement to found a joint venture, according to which
Sanitec will own a 51% stake in the enterprise and Ukrainian stockholders
will own a 49% stake, the Sanitec Group press service has told
Interfax-Ukraine.

The press service said that the agreement was signed after a roundtable on
new opportunities for business and investment in Ukraine with the
participation of Ukrainian President Viktor Yuschenko and Finnish President
Tarja Halonen, which was held in Helsinki on Thursday.

According to the agreement, the JV plans to reconstruct a bathroom ceramics
factory in Slavutych in Chernihiv region. At present, the factory produces
2.5 million items per year. The sides also plan to use the equipment and
production technologies that currently are used at Sanitec factories in
Europe.

The JV will be the leading supplier on the Ukrainian market and will expand
its activities on the Russian, Belarusian and Kazakh markets.     -30-
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10. POLISH INSURANCE COMPANIES UKRAINIAN SUBSIDIARY HAS
     LARGE IRREGULARITIES, EMBARRASSMENT TO MANAGEMENT

Polish News Bulletin, Warsaw, Poland, Sunday, Nov 05, 2006

WARSAW – One of the flagship projects initiated by former PZU CEO Cezary
Stypulkowski – foreign expansion – is a serious problem for the current top
brass at the insurer.

Recently PZU Lietuva, the insurance company’s Lithuanian subsidiary, had to
be capitalised with ZL35m. It looks like a similar operation will be
necessary in the case of PZU’s Ukrainian companies, PZU Ukraine and PZU
Ukraine Life.

According to Puls Biznesu, the scale of irregularities in PZU’s Ukrainian
firms is so large that dismissals among the top officials in them will
follow.

A person who read a classified report on the condition of PZU’s Ukrainian
assets told Puls Biznesu that it is an embarrassment to its management and
supervisory board (both entities have the same top guns).

Information on PZU’s foreign investments is to be presented at the insurer’s
extraordinary meeting of shareholders on Friday.            -30-

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11.  GOVERNMENT HAS INFORMATION ON FORTHCOMING
                  UPGRADE OF UKRAINE’S CREDIT RATINGS
 
IntelliNews – Ukraine This Week, Kyiv, Ukraine, Monday, Oct 30, 2006

The country awaits the upgrade of its credit ratings by one of the major
credit agencies, deputy PM Mykola Azarov informed on Oct 25. He did

not indicate the name of the agency, but assured that his information is
reliable and it’s necessary to wait for several weeks to receive the
confirmation of his words.

Deputy PM Azrov (who is also FinMin) added that he received positive
appraisal of the government’s financial policy. Especially, international
financial institutions supported the state budget 2007.

To remind you experts of IMF considers that the state budget deficit should
not exceed 2.5% of GDP, Albert Jaeger the head of IMF mission in the country
said. The IMF official also favours the decrease of social expenditures
stated in the budget draft.

At the same time the expected revenues of the budget seem to be too
optimistic and it can happen that government gains less revenue than it
targets, Jaeger said.

To inform you, according to draft budget 2007 revenues of consolidated
budget will make up USD 36bn (14% y/y increase) and expenditures will

amount to USD 40bn (also 14% y/y increase).

The deficit of the budget totals 2.55% of GDP. Chairman of the parliament
Olexander Moroz said lately that draft budget will be approved by MPs in the
first reading on Oct 31.

Also IMF does not recommend the restoration of tax preferences for free
economic zones. The head of Ukrainian office of the organization expressed
anxiety regarding the problems with VAT reimbursement that appeared during
the last several months.

The first sign that the rating can be upgraded appeared at the end of August,
when S&P confirmed BB- long-term rating for obligations in foreign currency
and BB long-term rating for obligations in local currency. All ratings carried
stable outlook.

In May this year Moody’s upgraded sovereign rating of the country from B1

to Ba3 with stable outlook. But this upgrade was because of the change the
internal methodology of ratings assigning by the agency.

Notably, the declaration of Azarov on forthcoming ratings’ upgrade does not
correspond with the visit of delegation from Moody’s, which made its regular
monitoring of the conformity of domestic economy to current ratings. Fitch
made the same monitoring in the beginning of October.

Ratings monitoring visit of Fitch leads to country’s outlook change

from stable to positive —–

However, it is possible that the results of this monitoring brought the
first shift towards the ratings upgrade. Fitch revised the outlook on
sovereign issuer default ratings from stable to positive. The agency also
affirmed the country’s ceiling at BB- and the short-term rating at B.

The revision of the outlook reflects Fitch’s assessment that Ukraine’s
sovereign ratings should continue to move up, as the economy develops

and the country establishes a longer record of political stability.

The country’s economy should grow an impressive 5.5% in 2006, shrugging

off political uncertainty and January’s rise in gas import prices.

At the same time, the government is only starting to establish political
stability and the risks are still significant. Also Fitch underlined that
the country’s ability to deal with external shocks improved as NBU’s FX/gold
reserves  increased to USD 19.4 billion in September, (23% of GDP), covering
about 4.5 months of imports.

Ukraine’s expected 2006 liquidity ratio of 112% is below the ‘BB’ rating
average of 156%, but stronger than the key peers rated BB, like Turkey (83%)
and Indonesia (98%). Encouragingly, foreign direct investment picked up to
USD 7.8bn (9% of GDP) in 2005.

Bank credits to corporates grew 64% in 2005, which raises some concerns
given the relative weakness of the banking system, the agency noted.
However, the fast-increasing share of foreign ownership in the system
promises a quick improvement of risk-control standards quickly and offers
additional sources of support in a crisis.

Inflation decelerated following a currency revaluation in Apr 2005, but
remained relatively high making up 9.1% y/y in Sep 2006. This highlights the
need for the authorities to remain vigilant for signs of overheating in the
economy.

Domestic bankers believe outlook upgrade improves attractiveness

of country’s external debt —–
 
According to a poll among bankers made by Interfax-Ukraine news agency
the outlook change from stable to positive on the country’s sovereign rating
made by Fitch will have a positive impact. It will improve the attractiveness
of the country’s external debt.

Head of investment department of Ukrsotsbank Eric Niman thinks that other
major rating agencies will change the outlook as well. The upgrade of the
outlook happened before road show for government Eurobonds and it will
improve their attractiveness, head of lending department of Kyiv-based
Alfa-Bank Olexanser Pecherytsyn said.

Earlier FinMin informed that it was in the process of preparing a road-show
scheduled for Nov 8-9 for new Eurobond issue. The ministry did not indicate
the value of the issue.

To inform you, the country did not make any borrowing this year until
September, when issued USD 306.6mn Eurobonds. The bonds have 3-year

maturity and their interest rate made up 3.5%.

According to 2006 state budget the country can borrow abroad up to USD 2bn
during the year. In the beginning of October FinMin chose Credit Suisse,
Deutsche Bank and UBS as the organizers of its borrowings. The ministry
indicated that in total the loans can amount to USD 1bn.

Fitch also upgrades outlooks on ratings of 5 big domestic banks —–

Fitch did not only upgrade the outlook on country’s sovereign rating,
but also changed from stable to positive the outlooks on issuer default
ratings of 5 domestic banks.

The banks affected by the upgrade are: Mriya Bank, (foreign currency issuer
default rating BB-, local currency issuer default rating BB, short-term
foreign currency B rating, 3 rating of support and D/E individual rating);
ProCredit Bank (foreign currency issuer default rating BB- , local currency
issuer default rating BB, short-term foreign and local currency B rating, 3
rating of support, D individual rating, national long-term AAA(ukr)/Stable);
UkrSibbank (foreign currency issuer default rating BB-, local currency
issuer default rating BB, short-term foreign and local currency B rating, 3
rating of support, and D/E individual rating); Ukreximbank (foreign currency
issuer default rating BB- , local currency issuer default rating BB,
short-term foreign and local currency B rating, 3 rating of support, and D/E
individual rating, national long-term AA(ukr)/Stable); Privatbank (foreign
currency issuer default rating B, short-term foreign and local currency B
rating, 4 rating of support, D individual rating).

The outlook upgrade for these financial institutions reflects the potential
for the change of the country ceiling to BB- rating.  Regardless of the
ratings assigned to shareholders the country ceiling sets a limit for the
ratings of local companies.

Fitch places Naftogaz Ukrainy’s local and foreign currency issuer default
ratings B+ on rating watch negative.                      -30-
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12. EXPANDING BIOFUEL INDUSTRY CHANGING AG MARKETS
               Ukraine has ample land, but is dealing with land reform issues.

Dow Jones Newswires, Chicago, Illinois, Friday, November 3, 2006

CHICAGO – Rapidly expanding production of biofuels – ethanol and biodiesel –
is starting to make major changes in U.S. agricultural markets, according to
a report by Credit Suisse analysts released Friday.

Due to the demand for ethanol, U.S. corn acres are likely to surge next
year. Credit Suisse analysts anticipate U.S. corn acreage rising to 83
million to 85 million acres, up from 2006 acreage of 79 million acres. The
acreage expansion is likely to come at the expense of soybean planting.

Experience and economic theory suggest a rapidly expanding biofuels industry
could produce a sustained period of increased crop prices, with U.S. corn
potentially rising to $4.00 per bushel, the point at which ethanol
production merely breaks even at $60.00 a barrel crude oil prices, according
to the report.

The expansion of biofuels is accelerating crop demand growth faster than
supply can or is likely to respond, said David Nelson, research analyst with
Credit Suisse, on an analyst conference call Friday.

Currently, U.S. ethanol production is around 5 billion gallons and with
announced capacity that could add another 3.5 billion gallons.

The Renewable Fuels Standard, as part of the Energy Policy Act of 2005,
mandates 7.5 billion gallons of renewable fuels be used in the U.S. fuel
supply by 2012.

With over 100 ethanol plants in production or slated to be created, Nelson
said he sees ethanol capacity expanding rapidly until producers meet
break-even levels. For a dry mill ethanol plant the break-even point is seen
at $4.00 to $4.50 corn, and for a wet mill is seen near $5.00 a bushel corn,
he said.

New ethanol capacity creates demand that’s structural, and once the plant is
built “you have to feed the beast” and that will serve to bid supplies away
from livestock producers, Nelson said on the conference call.

Currently, 18% of the U.S. corn crop is used for ethanol; Credit Suisse sees
that rising to 30%. This will lead to a dramatic tightening of stocks-to-use
ratios.
           U.S. Can’t Plant Enough Corn For Ethanol Usage
The record for U.S. corn plantings is 84.4 million acres, in 1976. If the
U.S. plants 83 million acres to corn in 2007, using an average yield of 150
bushels an acre that equals a 450 million-bushel incremental production
increase.

However, the U.S. Department of Agriculture currently forecasts a 550
million-bushel increase in corn used for ethanol, Nelson said.

This leaves little margin for error. An unpredictable drought or a surge in
demand, say from China, could cause prices to rise further from Credit
Suisse projections, Nelson said.

While acreage expansion is likely for 2007, the real problem comes in 2008,
when the U.S. does not have another 5 million corn acres available for
planting.

Some agricultural economists have suggested land will come out of the USDA’s
Conservation Reserve Program, but Nelson noted those are environmentally
sensitive areas and likely low-producing.

The inability to expand acreage will take ag markets into uncharted
territory, said Nelson. With a stocks-to-use ratio near 5%, which could
happen if incremental demand for ethanol continues to outpace crop
productivity expansion, end-users will begin to get scared, he added.

A rise in corn prices above break-even points for ethanol plants could put a
squeeze on the industry and result in the cancellation of new ethanol plant
developments, analysts said during the call.

Because of that, Nelson said he only sees about 2.5 billion gallons of the
announced 3.5 billion-gallon capacity being produced.
                                   BRAZIL AND UKRAINE
There are areas globally that can be planted to increase ethanol production,
but there are structural issues to be considered. Brazil – already a massive
ethanol producer with sugar cane – has room to grow, but suffers from
infrastructure problems. Ukraine has ample land, but is dealing with land
reform issues.                                    -30-
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Andrew Johnson Jr., andrew.johnsonjr@dowjones.com
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13.                             DON’T LITIGATE, NEGOTIATE

UKRAINIAN VIGNETTE, ASK THE LAWYER!
INTERVIEW: With Dr. Irina Paliashvili, President
Russian-Ukrainian Legal Group, P.A. Washington, D.C. and Kiev
The Ukrainian Observer magazine, Issue 225
The Willard Group, Kyiv, Ukraine, November 2006

Ukrainian Observer: We often hear that international investors are hesitant
to invest in Ukraine due to fears of being abused or defrauded. What can an
international investor do to protect its investment?

Dr. Irina Paliashvili: We have been representing international investors in
Ukraine since 1992, and we have dealt with quite a few horror stories in our
practice over the years. I will be happy to summarize for you the
recommendations we can make based on our experience.

First of all, as a matter of background, I would like to comment that what
we now call “corporate raidership” has existed for years.

Of course, these days it has become more organized and professional, but
this ugly trend emerged almost as soon as Ukraine’s market opened up to
international investment.

There are a number of reasons why this trend has grown to such a dangerous
scale: our underdeveloped and chaotic legal system, flawed judiciary and
vast bureaucracy that is at best indifferent or at worst hostile to
international investors – these are usual factors that investors complain
about.

I do not want to spend time on these factors because they have been
discussed numerous times and because the investment community has little
control over them.

What is discussed less frequently is the factor of careless behavior by
international investors. This factor, unlike the other ones, can be
controlled by international investors themselves.

In our practice, quite a few abuses of international investors by their
business partners or hired executive management could have been avoided, if
the investors had made the necessary efforts to prevent the abuses and used
protection mechanisms that are indeed available under the law.

In essence, I want to focus on how international investors can help
themselves in protecting their investments.

It is understandable that an international investor, when entering a new
market, is looking for local partners and executive management.

By using the word “local”, I do not want to imply at all that dishonest
business partners or executives are always local nationals, although
statistically this is often the case.

We had several instances in our practice where international investors were
defrauded by expats who shrewdly took advantage of the trust vested in them,
as well as of the imperfections of Ukrainian law.

By “local”, I mean partners or executives of any nationality, who are better
acquainted with the local conditions, language, legal system, traditions,
etc., and on whom international investors are relying.

Most frequently, international investors suffer abuse from their minority
local partners, or hired management. The worst-case scenario is when the
dishonest minority partner in a company is also hired as the chief executive
officer (“General Manager” or “GM”).

In this case, the investor has to battle on two fronts: terminating the
employment of the GM, and expelling him as a partner in the company.

Very often, such a dishonest partner/GM uses illegal means, and unless the
international investor resorts to similar means (which does not happen
often, and not what we are talking about), the battle will be long and
costly for the international investor. Sometimes, it can cost more than the
investment itself.

In general, there are two formal protection mechanisms that should be looked
at: company charter and employment contract with the GM; and one practical
mechanism: setting up an internal system of checks and balances, through
which the activities of the local partner/GM can be closely monitored and
abuses can be prevented.

The international investor, even if it does not participate in the
day-to-day management of the company, possesses such important tools,
provided by the law, as the company’s supreme and supervisory bodies, the
possibility to restrict the powers of the GM, the right to review financial
and other documents of the company, the right to audit the activities of the
company, etc.

All these tools should be used to the greatest possible extent through the
company charter and employment contract with the GM. And it is really
surprising how infrequently international investors are using these tools in
practice.

Let’s take two examples – the employment contract with the GM and external
audits.

It is common knowledge that employment laws in Ukraine are
employee-oriented, labor agreements in most cases must be open-ended, and
cannot create any disadvantage to the employee compared to the law, thus
leaving little freedom to the employer to negotiate employment conditions or
terminate employment.

At the same time, not every international investor knows that the GM is
hired on the basis of a different document – an employment contract, which
can be made for a limited term, and can contain special provisions on
disciplining and dismissing the GM.

In the absence of the developed concept of fiduciary duty in our legal
system, this is an effective and perfectly legal tool for an international
investor to protect its investment.

The same is true for external audits. An investor has the right to hire
independent auditors, who should be given full access to company documents.

In practice, however, most external audits are ordered not by the investor,
but by the GM, often from auditors loyal to him, often based on a limited
number of available documents, and often conducted only in Ukrainian, or
even if translated, then in the local professional language incomprehensible
to an international investor.

I have seen many such audit reports, and they were essentially useless in
understanding what was really going on at the company, and in protecting the
investors’ rights.

Therefore, it is important for an investor to take full advantage of this
tool by directly hiring truly independent auditors, paying their bills
directly and demanding complete and comprehensible reports that flag
potential risks where necessary.

If such auditors come back and report a lack of cooperation from the GM,
this should cause immediate concern, and immediate measures should be taken
(hopefully prescribed in the company charter and in the employment contract
with the GM) to ensure full cooperation and disclosure on the GM’s part.

Ukrainian Observer: Can you please provide a point-by-point list of
recommendations?

Dr. Irina Paliashvili: Yes, here is a list of common-sense and practical
“self-help” recommendations for international investors:

[1] Try to ensure compliance with the law to the best extent possible while
setting up and operating your business in Ukraine.

[2] Focus on monitoring your investment and on preventing abuses. In case
of any concern – react immediately.

[3] Do not make your partner the GM and do not make the GM your partner.

[4] Actively use the protection mechanisms available in the law.

[5 ] Set up a practical internal system of checks and balances, and make
sure this system is in compliance with Ukrainian law (often global internal
corporate rules are unenforceable in Ukraine, and need to be “translated”
into local legal language and duly adopted).

[6 ] In case of a problem, act swiftly and decisively, but in compliance
with the law (e.g. even the most dishonest GM, if dismissed improperly,
will be restored to his position by the courts, and often will be awarded
damages).

[7 ] Avoid any dubious activity and verify any recommendations from local
partners/GM if you suspect that what they are suggesting may be illegal (if
you bend the rules, you will give them ammunition to blackmail you in the
future).

[8 ] Avoid the court system. Use every opportunity to negotiate and settle.
It may be frustrating and unfair, but in the long run it will save you
considerable time and money.

[9 ] Watch your investment, learn your lessons and have a very successful
business in Ukraine!                                  -30-
————————————————————————————————-
Dr. Irina Paliashvili, President, Russian-Ukrainian Legal Group, P.A.
Washington, D.C. and Kiev, irinap@rulg.com; http://www.rulg.com/

The Russian-Ukrainina Legal Group is a member of the Ukraine-U.S.
Business Council in Washington, D.C.
————————————————————————————————-
LINK: http://www.ukraine-observer.com/articles/225/957
Article published with permission.
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14. UKRAINE – CORPORATE RAIDING: POST-SOVIET STYLE

ANALYSIS & COMMENTARY: By Jim Davis, Editor
Ukrainian Observer magazine, Issue 225
The Willard Group, Kyiv, Ukraine, November 2006

Since independence Ukraine has received foreign direct investment (FDI)
totaling in excess of $17 billion (as of 1 January 2006), with the highest
level — $4.07 billion – coming in 2005.

Now, some of those investments are under attack and analysts believe the
nature of the attacks could lead to a drastic decline in what had been a
major source of funding for development.

Hostile takeovers, in which a non-majority stockholder attempts to acquire
enough stock to gain control of a corporate entity, are fairly common in the
West and considered perfectly normal business practice when they are
conducted with the framework of existing law.

What is happening in some cases in Ukraine is clearly outside accepted
international standards and is considered corporate raiding. This has
involved situations in which state officials have used their power to bring
foreign-owned corporations under state control.

However, in most cases it is a combination of state officials and private
business interests colluding to engineer the takeover of a foreign-owned
corporation by local business interests.

Over a period of years there have been a considerable number of such
corporate attacks in Ukraine, mostly on smaller corporations, but recently
the attacks have been directed at two of the largest foreign investors.

One involves Telenor, a Norwegian corporation that owns majority interest in
Kyivstar, one of Ukraine’s two largest mobile telephone operators and is one
of the largest telecoms owners and operators in the world.

The other, Bunge, is a historically Dutch corporation now headquartered in
the United States that is recognized as the world’s largest producer of
vegetable-based oils for cooking and industrial use.

Both Telenor and Bunge are very sophisticated and well-run corporations
noted for their good corporate citizenship and enlightened human resource
policies. However, their responses to attack have varied greatly.

Perhaps the most immediately significant is the Telenor case, which although
immensely complex seems to boil down to a question of whether or not a
majority stockholder in a corporation has the rights that are generally
recognized internationally, i.e. for the majority to operate the corporation
according to decisions of a majority-controlled board of directors.

Under Ukrainian law, a minority stockholder in a corporate entity that owns
40 percent or more of stocks is considered to have a blocking stake, i.e.
the ability to block the majority stockholder from taking any action without
the approval of the minority stockholder holding the blocking stake.

This law was at least theoretically designed to protect minority
stockholders from abuses by the majority.

In the case of the Telenor investment in Kyivstar, the minority stockholder,
the corporation Storm, has for over two years refused to attend any board
meetings, thereby making it impossible to take needed decisions at the board
of directors level.

More importantly, Storm, now a wholly owned subsidiary of the Russian Alfa
Group, brought suit that has subsequently adjudicated by Ukraine’s Supreme
Court after a decision unfavorable to Telenor was reached in Kyiv Economic
Court.

The decision on appeal to the Supreme Court, in support of the lower court
decision, is still being interpreted by lawyers for both sides in the case.
However, at this point the decision appears to favor the claim of Storm that
minority stockholders should have equal voice in a corporate entity.

If this decision is appealed and upheld, it is expected to have a chilling
effect on future investments in Ukraine, since a final decision favoring
Storm would turn worldwide corporate practice literally on its head.

In spite of the difficulties caused by the court actions, Sigmund Ekhougen,
Telenor’s official representative in Ukraine said that Telenor considers
Kyivstar a strategic investment and that Telenor has not even considered
leaving the market.

He added that Telenor, with huge investments in telecommunications companies
around the world, had never previously experienced the kind of attack that
it has undergone in Ukraine.

The court suits against Bunge, while on the surface appearing to have less
merit, could be devastating if the court should rule for the plaintiff.
Bunge’s managing director for Ukraine, Dexter Frye, said that he believes
the basis for the court challenges against Bunge are “preposterous.

The plaintiff is asking to court to lift the statute of limitations in
regard to an alleged failure to adequately serve notice of a shareholders
meeting 12 years ago.

We find it extremely hard to believe that a court could support such a
claim, particularly in view of the fact that the plaintiff subsequently
chaired shareholder meeting for years and raised no complaint.”

Bunge has chosen to develop its local support, including very public
statements by Alexander Zhurid, the long-time Ukrainian general director of
DOEP, who is an avid supporter of Bunge and totally opposed to the attack
on Bunge’s ownership status.

Bunge also continues to emphasize its very advanced human resources
policies, illustrated by such innovations as cash payment to every employee
when the plant is able to avoid lost-time injuries.

Bunge has also promoted large numbers of Ukrainians into top positions
including its finance director, a highly qualified young female from
Ukraine’s growing managerial elite.

There is no decision in the Bunge case, but it is possible that in an
absolute worse case scenario, a court decision could result in negating the
original sale, and thereby placing in jeopardy the ownership status of Bunge
and its multimillion dollar investment in new plant since taking over the
company.

Telenor responded to the attacks with a highly sophisticated legal defense,
which included the use of law firms in the United States to help deal with
its problems that in total involved legal challenges in both Russia and
Ukraine.

Some analysts believe that Telenor made a serious mistake in taking a part
of its defense strategy into United States courts and should have
concentrated its efforts instead on government and public relations efforts
at the local level.

Both cases point up immense gaps in Ukrainian law and corporate practice
that need to be remedied if foreign direct investments currently on the
books are to be protected and new ones attracted. We spoke with a number
of legal experts with long experience in Ukrainian law to gain a better
understanding of just where the problems are most acute.

“Loopholes, and sometimes outright contradictions in Ukrainian corporate
legislation, are a big part of the abuse.  The recent attempt of the
Verkhovna Rada on October 19th to amend the Law ‘On Economic Associations’
by lowering the quorum threshold in the general assemblies of joint stock
companies from 60 percent to 50 percent is yet another example of hasty
legislative changes serving the interests of certain business groups.

“Such unbalanced and fragmentary changes, if legitimized, would inevitably
cause chaos in corporate relations, multiple shareholder rights violations
and massive industrial property redistribution.  Fortunately, the changes
have not yet been approved by the President and, hopefully, will be vetoed.

“However, this approach demonstrated by the parliament, led by industrial
tycoons from Eastern Ukraine, is a disturbing sign that hopefully will not
become a trend,” said Kirill Andrianov, a senior associate at the Frishberg
and Partners law firm.

“Ukraine has a very primitive Companies Act. It was slightly improved by the
Civil and Commercial Codes, but even today the rights of minority
stockholders are not protected,” said Margarita Karpenko, managing director
of DLA Piper Ukraine law firm.

“The situation with the law is so bad that it is a major obstacle to
development of capital markets. We simply don’t have enough mechanisms to
protect added capital,” she added.

The two major associations of foreign businesses in Ukraine, the American
Chamber of Commerce (AmCham) and the European Business Association
(EBA) have engaged in parallel but separate actions to assist their members
in the cases cited above, but also to attempt to preclude such cases becoming

even more burdensome and potentially destructive to foreign investments that
in total amount to many billions of dollars.

In a brief shared with its members, EBA pointed out three areas where it
would felt improvements would be needed to have the greatest impact on
bringing justice and fairness to foreign investors.

The EBA cited:
     [1] abuse of power by government officials;
     [2] the ability of corporate raiders to take advantage of Ukraine’s
          contradictory laws and regulations;
     [3] the situation in which members of the judiciary become in effect
          silent partners to corporate raiders for their own corrupt
          advantage.

In the current political climate in Ukraine, it is hard to see just how much
impact AmCham and EBA may have on the situation. However, both continue
frequent meetings with government officials and make their cases public.

The most basic problem is that those both inside and outside government

are fully aware that the impartiality and basic honesty of the Ukrainian
judicial system is badly flawed.

Both foreign business associations have been in contact with the offices of
President Viktor Yushchenko, Prime Minister and Viktor Yanukovych and
Parliament Speaker Oleksandr Moroz in their efforts to bring pressure to
bear on individual cases and the situation as a whole.

Very recently, EBA sent a letter to the three top officials that included a
phrase that seems to encapsulate the greatest problem of all.

The letter said in part: “There appears to be substantial evidence that some
members of the judiciary have provided ‘unreasonable’ support to one of
the parties in court proceeding, thereby abusing their legislatively defined
authority. Such a biased approach explicitly impacts the dispensation of
true justice in those disputes in which it occurs.

We believe that the economic future of Ukraine, the ability to maintain
existing investments and encourage new ones depends upon resolute
legislative action to establish a clear-cut mechanism for bringing judges
who engage in such practices to responsibility for such perversions of
justice.”

The Telenor, Bunge and other similar cases have sent shock waves throughout
Ukraine’s foreign business community and telegraphed a highly negative
message to investors who might be currently considering new investments.

The consensus of those in the business and legal communities contacted for
this story may be briefly stated as follows:

Be extremely careful in choosing your business partners in Ukraine and take
necessary actions to assure that independent counsel and auditors are
guarding yours interests;

If you do establish an investment in Ukraine and come under attack, you are
well-advised to consider very robust and aggressive responses in the areas
of public relations and government relations.

In particular, the counsel you seek in both areas should be based on the
advice of firms and individuals with long and deep experience dealing with
the realities of Ukraine law and business practice;

More than one lawyer suggested that avoiding the court system is the first
order of business in a difficult situation. They tended to agree that
decisions arrived at by negotiation would almost certainly be preferable to
a court decision that would be more likely based on a biased opinion or even
outright bribery.

The process of negotiation may be immensely frustrating, one said, but in
the end you are likely to save both time and money.

Ukraine is still a country with immense opportunities at all levels.
However, anyone expecting the road to business success to get easier any
time soon is almost certain to be disappointed.             -30-
———————————————————————————————
Contact: Jim Davis: jim@twg.com.ua; Published with permission.
LINK: http://www.ukraine-observer.com/articles/225/944
———————————————————————————————-
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
========================================================
15. UKRAINIAN BANKING SECTOR: EVOLUTION & CURRENT STATE

DIALOGUE AND DEBATE: By Natalya Dushkevych & Valentin Zelenyuk
The Ukrainian Observer magazine, Issue 225
The Willard Group, Kyiv, Ukraine, November 2006

During the last decade, the banking sector in Ukraine has been exhibiting a
high growth potential and was the most dynamic and leading sector in the
country.

Competition continues increasing and, as a recent wave of major acquisitions
suggests, foreign capital has a particular interest in entering this sector.

The goal of this article is to present a concise view of what banking in
Ukraine is about, how it managed to reach its present state as well as to
lay down a stepping stone to understanding the near-term future of this
imperative for the country’s economy.

As in most countries, banking in Ukraine is a two-tier system, with the
first tier being the central bank and the second tier consisting of
commercial banks. Two main laws regulate the sector: the law On Banks
and Banking (1991) and the law On the National bank of Ukraine (1996).

The latter law defines the two key roles of the central bank in the country,
the National Bank of Ukraine (NBU), to be responsible for (i) ensuring
stability of the national currency and (ii) supervising the activity of
commercial banks.

Ukraine started with 76 registered (commercial) banks in 1991, reached 230
banks in 1995 and had 190 banks in the middle of 2006 (see Figure 1).

Most of the banks are universal and a few are specialized in certain
activities (e.g., savings, investment, mortgage, clearing, etc.) banks.
About 80 percent of all the banks are joint stock commercial banks and only
20 percent are limited liability partnerships.

Remarkably, since 1994 there have been only two 100 percent state-owned
banks in Ukraine, amounting to only about 10-15 percent of the total banking
sector assets, which is a very healthy indicator for a transitional economy.

For comparison, in 1999-2000, this share was 18.3 percent in Bulgaria, 24.1
percent in Czech Republic, 35.4 percent in Russia, 50 percent in Romania,
64.5 percent in Slovenia, while in Ukraine it was only 13.6 percent.

The two state banks in Ukraine are the Oshchadbank (“The Savings Bank”)
and the Ukreximbank (“The Export-Import Bank”), which are relatively large
(about 6 percent each of total banking sector assets), competitive and are
likely to represent a good bargain for the country if placed for
privatization.

The environment in the industry is quite competitive: no bank has a dominant
position in most spheres of operation, but must compete with many rivals.

Indeed, the so-called Herfindahl-Hirschman index (HHI) for the Ukrainian
banking industry was consistently low for many years-about 400 points, which
is similar to the level of concentration in the UK, France, Italy and better
than in Spain, Austria, Sweden and many other countries.

 This level of concentration is also 2.5 times less than required for the
sector to be considered as moderately concentrated according to U.S.
commercial law.

So, how did Ukraine obtain such a competitive and very dynamic banking
sector that in many respects is better than those of other transitional
countries? The banking system of sovereign Ukraine passed through six
distinguishing stages of development.

[1] The first stage, roughly 1991-1993, was the period of reorganization and
rapid growth in the Ukrainian banking industry.

(a) First of all, the NBU conducted re-registration of the banks earlier
registered by the State Bank of the USSR.  Most of the banks (Aval bank,
Privatbank, Prominvestbank, Ukrsibbank, Ukrsotsbank, etc.) that have been
the largest players in the sector until now were re-registered or opened in
that period.

(b) Secondly, the industry survived the wave of rapid growth in the number
of banks: a lot of small banks, many of which were so-called “pocket-banks”,
appeared in the industry.  The number of banks registered by the NBU almost
doubled from 1991 to 1992 and doubled again from 1992 to 1993.

Such a dramatic increase in the number of banks was due to the fact that the
entry barriers were minimal.  Indeed, the capital requirement was only about
the same as the market price for a 2-bedroom apartment in a large city!

[2] The second stage of development, roughly 1994-1995, was shaped by the
first large wave of bankruptcies in the Ukrainian banking sector and, at the
same time, by the entrance of the first foreign banks in Ukraine.

Here, the NBU (at that time led by Victor Yushchenko) strengthened its
banking regulations and activity, bringing the standards closer to
international standards.

Some banks that had a lack of capital, a large number of bad loans, and
other problems had difficulty meeting the new standards.

As a result, 11 banks in 1994 and 1 bank in 1995 were liquidated, which hurt
some people but also helped to improve the banking sector.

Specifically, as a response to the wave of unexpected bankruptcies, the NBU
adopted a system of control by beginning to regulate the required financial
indicators characterizing a bank’s liquidity, paying capacity, minimum risk
share per client, minimum percentage of equity, etc., which contributed to
the prevention of future bankruptcies.

On the other hand, in 1994 the NBU also improved the operating environment
by implementing the national electronic payment system that was fast, so
that payments made at a designated payment center, the post office for
example, would appear on the creditor’s computer within an hour, despite the
poor communication system at that time.

The NBU also finally tightened its monetary policy suppressing the
hyperinflation that had jumped from the annual rate of about 10,150 percent
in 1993 to about 400 percent in 1994.

The average interest rate spread (measured as the difference between the
interest rates for deposits and for loans) reached its peak of about 46
percent in 1995, and started to decline since then, slowly reviving credit
feasibility for Ukrainian businesses and consumers.

[3] The third stage of development, roughly from the beginning of 1996 to
the middle of 1998, was a period of further stabilization in the Ukrainian
banking system and the Ukrainian economy in general.

The critical step here was the introduction of a stable national currency,
the hryvnia, in 1996, together with further tightening of the monetary and
budget deficit policy by the NBU and the government, which led to further
reduction in inflation and in the interest rate spreads.

At this stage, an average bank had much more capital and resources for
giving loans as well as more experience in operating in a market economy.
Remarkably, the industry profit in 1996 was twice that of the previous year.

However, the rapid boom of Ukrainian banking was suddenly hit by the

Russian financial crisis in August 1998, which caused sudden depreciation
of the Ukrainian hryvnia from about 2.1 to about 5.4 for 1 US dollar in 17
months. Sixteen banks were liquidated during 1998.

[4] The fourth stage, roughly mid-1998 to mid-2001, was a period of
modernization for the banking system in Ukraine. First, international
accounting standards were adopted in 1998, making the comparison of
Ukrainian banking with the rest of the world much easier.

More banks with foreign capital entered the industry encouraging a widening
of the spectrum of banking services. At this stage, banks became ‘closer’ to
the client and started offering some new products on the Ukrainian market
such as securities custody, registrar services, settlement schemes for the
acquisition of shares, advanced retail banking, various financial
consultations, etc.

The entrance of foreign banks during this early period was expected to boost
the Ukrainian banking sector substantially, but it was suddenly constrained
by the event that placed a ‘black spot’ on the sector’s development.

[5] This was the fifth stage of development, roughly mid 2001-2003, which
began with the inclusion of Ukraine on the ‘black list’ of the Financial
Action Task Force (FATF), in September 2001, as a country that had not
cooperated with FATF and failed to enact anti-money laundering legislation
that met international standards.

Nevertheless, the sector was still growing: the total loans and assets in
the banking sector, for instance, grew, on average, by about 50 percent
annually.

[6] At the beginning of 2004, the FATF removed Ukraine from its ‘black list’
inducing a new, sixth, stage in the sector’s development – 2004-2006 -marked
by a wave of acquisitions of a number of Ukrainian banks by large foreign
banks, which attracted considerable attention of media, government, business
people, and just regular citizens.

Recall that since 1994, Ukraine already had banks that were 100 percent
foreign as well as banks with some foreign share (see Figure 1).  Yet, the
proportion of foreign ownership was relatively small, only about 15 percent,
with the largest 100 percent foreign bank taking just 8th place in terms of
assets.

In the second half of 2005 (the deal was made on October, 20), Ukrainian
media published shocking news: the 93.5 per cent share of the second largest
bank, Aval, was purchased by Raiffeisen International for US $1.028 billion.

A few months later, (February 14, 2006), another major business deal was
announced – the sale of 85.42 percent of Ukrsotsbank to Italian investors
(Banca Intesa), for US $1.161 billion.

A few other large banks (Ukrsibbank, “Forum”, Vabank, “Mriya”) as well as
some smaller banks (Index-Bank, Megabank, etc.) sold some of their shares
to foreigners in 2005-2006 and yet a few more banks are in negotiation.

By August of 2006, the share of foreign ownership in the Ukrainian banking
sector doubled, amounting to about 30 percent (see Figure 2).

An intriguing question that the reader might share with us is: Will this
trend – local banks being taken over by the foreigners – continue for
Ukraine?  The experience of other leading transitional countries suggests
that this trend is indeed likely to continue – if the business environment
in Ukraine continues to improve.

 Indeed, for such countries as Estonia, Slovak Republic, Hungary, Czech
Republic – countries that are often presented as good examples of transition
economies – the foreign share in the banking sector has been about 90
percent since 2002 (see Figure 3).

Yet, it is also very likely that the portion of assets belonging to domestic
investors in Ukraine will continue to be substantially higher than that in
other successful transitional countries, even if the business conditions in
Ukraine are attractive.

This is because, relative to the just mentioned transitional countries,
Ukraine has significantly more large domestically owned businesses, often
referred to as financial-industrial groups, which might prefer owning their
own banks or at least having substantial control over a local bank.

A more robust answer to the question, however, requires deeper analysis of
the reasons behind the takeovers, which is the subject of further research.

There is also a normative question: “Should the Ukrainian government allow
continuation of such a trend?”

As a matter of fact, both the government and the National Bank of Ukraine
have been discussing the issue of placing restrictions on this trend by
limiting the total share of foreign ownership in the entire banking sector
in Ukraine at some level.

The problem is defining the level that would be more or less optimal for the
country.  Indeed, the entrance of foreign banks is often associated with
improvement in the sector due to increased competition.

The average consumers and businesses feel this improvement directly-through
a decrease of interest rates for the loans they can take, a decrease of
prices for the services, an increase in quality and variety of services they
can get from a bank.

Such improvements in one bank induce other banks to improve as well, or
cause them to leave the market – and this is exactly what brought the
Ukrainian banking sector to a level that is better than that in many other
transitional countries.

Actually, the banking sector in Ukraine is one of the few areas of a market
economy of which Ukraine can be proud at this point.

This can be seen, for example, in the recent World Bank surveys “Doing
Business,” where Ukraine is ranked almost as the worst in the world for most
criteria of business environments, but ranked fairly high for the issues
related to banking-better than most transitional and even some developed
countries.

Nevertheless, there is still a lot of room for improvement and the
restrictions on the share of foreign ownership would shake the liberal
foundation that made it as well developed as it is, and would endanger its
further improvement.

[1] What the government should worry about first, instead of building the
new entry barriers for foreigners or any other investor, is to make sure
that the concentration within the sector remains low – to keep the
competition high.

In general, it should not matter who buys a bank – foreigners or locals –
but what should matter is the resulting quality of services offered by the
new owner, its reliability, and how that purchase would affect the level of
competition in the entire financial sector of the country and its particular
regions.

[2] The second issue the government should really worry about, instead of
raising entry barriers, is the weakness of many small banks that are on the
verge of bankruptcy.  As a matter of fact, Ukrainian banking is very likely
to be approaching a large shakeout, which we think would be the seventh
period of its evolution.

An industry shakeout is the period of development that is characterized by a
massive exit of many players and consolidation of other players in the
sector.

By looking at various industries in the world it appears that all of them go
through such a period, with the first shakeout emerging, on average, around
the 15th year of development – with some variation depending on the industry
and economy specifics.

Ukrainian banking has already lived through 15 years of development and
satisfies one of the key factors economists believe to be detrimental for
inducing the shakeout-a decent level of maturity in producing and supplying
the main products (for banking, these are loans and deposits for business
and consumers).

So, in the next 2-3 years it is very likely that we will observe a
substantial reduction of banks in Ukraine, together with enlargement of some
banks, as well as an attempt of some small banks to survive by introducing
relatively new products for Ukrainian consumers (leasing, factoring, etc.).

An important question is how this massive exit of banks from the environment
will be performed.  In the worst case, we will see a large wave of
bankruptcies.  A way to prevent or at least minimize the number of
bankruptcies is to encourage mergers between and acquisitions of small
banks-whether by locals or by foreigners.

Indeed, many of the small banks that are likely to be on the edge of
bankruptcy do not have fatal problems but just management and marketing
difficulties that can be resolved through replacement of their management-a
natural step after the merger or acquisition.

One of the main reasons, however, that kept investors away from buying such
banks is their low level of transparency, which did not allow getting a
clear picture of true problems of the banks by potential investors.

Naturally, what the government and the NBU could and should do in this
respect is to make the international standards of transparency mandatory for
all banks in Ukraine.

It is important to note that some positive steps have recently been taken in
this respect through the new law that was passed and came in force on
October 4, 2006.  According to this law, all the banks must become open
joint stock companies within the next three years.  Note that only about
half of existing banks already have the required status.

Ironically, some of the banks are registered as limited liability companies
and even the central bank (at least officially) does not know the true
owners of some of the banks and the new law is supposed to help in solving
this problem.

Also, according to this law, new entrants in the banking sector would need
to have minimum statutory capital of 10 million EURO (earlier the
requirement varied from 3 to 8 million EURO).

By the data from the second quarter of this year, 117 banks out of 166
registered banks in Ukraine (i.e., more than 70 percent!) do not satisfy the
new requirement.  Interestingly, however, it appears that the new law does
not oblige (at least explicitly) satisfying the new requirement for the
banks that were registered before the law was enforced.

This might suggest that new investors in the sector, if they do not want to
comply with the new capital requirement, would have the option of buying an
existing bank that does not have to comply with the new requirement.

Moreover, such purchase should become easier than it was before, given that
the pre-existing banks would have to become relatively more transparent than
they were before the law was introduced-by having transformed themselves
into open joint stock companies.  So these measures are likely to be very
helpful in ‘sanitizing’ the industry.

Overall, the dynamics of the sector and the recent prophylactic measures
taken by the authorities in Ukraine suggest that Ukrainian banking is about
to go through dramatic changes which, we believe, would help it reaching a
more advanced and robust level.
————————————————————————————————-
Natalya Dushkevych is a researcher affiliated with EROC at EERC and Kyiv
Economics Institute. Valentine Zelenyuk is a Senior Economist at Kyiv
Economics Institute (KEI), Professor of EERC (Kyiv-Mohyla Academy),
and Director of Ukrainian Productivity and Efficiency Group (UPEG).

The authors thank Tom Coupe’ and Albert Jaeger for insightful comments.
The views expressed in this article are those of the authors and do not
represent the views of above-mentioned organizations or people.
————————————————————————————————-
LINK: http://www.ukraine-observer.com/articles/225/951
Article published with permission.
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[return to index] [Action Ukraine Report (AUR) Monitoring Service]
========================================================
16.       OUR ROTTEN, DEFENSIVE ATTITUDE TO CHANGE
            How can the EU turn its back on the former Soviet republics of
                        Ukraine, Belarus, Moldova, Georgia and Armenia?

COMMENTARY: By George Parker, Financial Times

London, United Kingdom, Monday, November 6 2006

Few issues expose the failure of western Europe’s myopic political leaders
more than their inability to explain why the eastward expansion of the
European Union has been such a success.

Instead of celebrating the admission of 10 new members (eight of them former
communist states), the west’s political elite has buckled under populist
campaigns directed against “Polish plumbers” and alleged Roma benefit
scroungers.

“Before, the rockets of the east were pointed at us – that was scary,”
remarked Jean-Claude Juncker, the sardonic Luxembourg prime minister.
“Today the hopes of people from central and eastern Europe are pointed at
us – and surprisingly that is even scarier than rockets.”

The EU’s enlargement from 15 to 25 member states in 2004 brought the forces
of globalisation within the walls of the western club, heightening public
fears of job losses and “delocalisation” of factories to the low-cost east.

Unable to explain the economic benefits or the historical context of this
momentous event, politicians responded by putting up barriers. Citizens
from Bulgaria and Romania – the next countries to join the EU in 2007 –

will face work restrictions.

Meanwhile, membership hopes in the Balkans, Turkey and Ukraine have

been thrown into doubt.

Olli Rehn, the EU’s enlargement commissioner, has written a no-nonsense
tract dismantling the arguments of those who want to halt the process now
and to define strictly the future “borders” of Europe, preferably to the
west of the Bosphorus.

“There is something rotten in the Union of Europe today: our utterly
defensive attitude to change,” the Finn writes. Rather than talk about
fixing borders, Mr Rehn wants Europeans to view the lands to the east as
exciting frontiers to be tackled and tamed.

He also urges Europe’s leaders to raise their eyes. His is a vast EU of 35
or more members with a population of 600m or more, with the economic
muscle to strike favourable trade deals and impose standardson the world.

Mr Rehn approvingly cites Eric Hobsbawm, the Marxist historian:
“Geographically, as everyone knows, Europe has no eastern borders and

the continent therefore exists exclusively as an intellectual construct.”

Since the Union is open to any country that complies with the club’s values
and that is “European”, the membership criteria are either worryingly or
fortuitously vague.

Mr Rehn likes it that way, since he believes the prospect, however distant,
of EU membership helps countries carry out the painful legal, political and
judicial reforms that are the Union’s minimum requirements.

Morocco’s bid to join was rejected because the map locates it firmly in
Africa. But if Turkey’s membership aspirations have been recognised, how
can the EU turn its back on the former Soviet republics of Ukraine, Belarus,
Moldova, Georgia and Armenia?

Mr Rehn takes on criticisms of this maximalist strategy one by one. He cites
economic studies showing that the recent “big bang” enlargement into central
Europe has benefited “old” and “new” members alike. Migrant workers have
filled gaps in the labour market in the west and prosperity has increased.

He says the costs have been manageable too. “One or two cups of coffee per
month is the price each citizen of the ‘old’ member states has paid to help
reunite Europe,” he claims.

Fast-growing new members also buy most of their imports from western
Europe, so aid going out comes back in the form of orders for BMWs.

What about the argument from federalists that the expansion of the EU
weakens its ability to act, turning it into little more than a free trade
area?

Mr Rehn concedes there are teething problems associated with running a club
of 25, but argues: “In the course of the history of the EU, deepening and
widening have moved together in parallel, sometimes even hand-in-hand.”

He explains that the original Europe of Six did not even complete the single
market. That only came after 1986, when the club had reached 12.

The common foreign policy and the euro came as the club moved towards 15
members; the constitution, now in cold storage, was agreed after it reached
25.

Mr Rehn’s views matter. Although national capitals take final decisions on
Europe’s future shape, he is charged with keeping fraught membership
negotiations on track.

It is an uphill struggle and Europe’s Next Frontiers is light on details of
how selling enlargement has been made even harder through past blunders,
including agreeing to let Bulgaria and Romania join when they were not fully
ready. Brussels also badly underestimated the likely scale of westward
migration after the 2004 expansion.

Mr Rehn is more concerned about the future, filling in the “black hole” in
the EU’s map where the former Yugoslavia used to be, making Turkey “an even
sturdier bridge between civilisations” and keeping the door open for others.

Some elected politicians quake at the prospect. But Mr Rehn, a Brussels
functionary, does not have to worry about elections: “It’s a tall order, but
it is also a beautiful mission.”
—————————————————————————————————
LINK: http://www.ft.com/cms/s/f1c60f04-6d3a-11db-9a4d-0000779e2340.html

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[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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17. BULGARIA – MACROECONOMIC SITUATION – OCTOBER 2006
               Another country near Ukraine who will join the EU soon.

MONTHLY ANALYTICAL REPORT: Oleg Ustenko,
Edilberto Segura, and Olena Kramarska
SigmaBleyzer Emerging Markets Private Equity Investment Group,
The Bleyzer Foundation, Sofia, Bulgaria, Monday, Nov 6, 2006

                                            SUMMARY
[1] In August, the growth of Bulgaria’s real sector was driven by the
expanding industrial sector, whose sales grew by 10.7% year-over-year (yoy),
and retail trade, which surged by 13.3% yoy.

[2] The consolidated budget surplus posted in January-August was 4.4% of
full-year GDP, accelerating in nominal terms by 51% yoy up from 46.3% yoy
in January-July.

[3] The consumer price index (CPI) continued to decelerate for the fourth
month in a row and stood at 5.6% yoy in September compared to 6.8% yoy
in August.

[4] The deterioration of the current account (CA) deficit experienced some
slowdown. In January-August, the CA deficit deteriorated only slightly and
reached EUR 1.9 billion. The existing CA deficit can be translated into 7.9%
of the country’s period GDP. The current level of FDI inflow is able to
cover 92% of the CA gap.

[5] In the October 22nd presidential election, no single candidate was able
to receive a majority of votes; the second round is scheduled for October
29th.
                                  ECONOMIC GROWTH
In August, Bulgaria’s real sector demonstrated very positive developments,
which were mainly supported by the rapidly growing industrial sector. During
the month, industrial sector sales accelerated by a very strong 10.7% yoy
compared with 4.9% yoy in July.

Moreover, industrial output also posted significant acceleration in its rate
of growth. Industrial output statistics were very encouraging in August,
posted record high growth for the year of 10.5% yoy, accelerating from 3%
yoy in the previous month.

Due to the existing time lag between sectoral output and sales, the
significant increase in industrial output in August should secure strong
growth in industrial sales during September and October.

The increase in Bulgaria’s industrial sector was a result of the very good
performance demonstrated by all of its components. The growth leader in
August was the mining sector, where sales accelerated to an impressive
27.2% yoy up from 13.4% yoy in the previous month.

Since output of mining also surged at a significant rate of 10.5% yoy, there
is enough evidence to be optimistic about the performance of Bulgaria’s
mining sector over the next several months.

Within the mining sector, the growth leader remains the same as in the
previous two months – metal ores – whose sales surged by a very strong
52.8% yoy in August, up from 18% yoy posted in the previous month.

The manufacturing sector, which traditionally drives Bulgaria’s real sector
growth, posted a 9.6% yoy increase in sales in August and 9.1% yoy growth in
output. A structural breakdown of the country’s manufacturing shows that the
growth leaders in August were machinery products, which grew by more than
30% yoy on average, and manufacturing of metal products, which posted a
17% yoy rate of growth.

Good performance in Bulgaria’s real sector was supported by the surging
retail sector. In August, its sales surged by 13.3% yoy accelerating from
12.6% yoy in the previous month.

However, there was an opposite tendency in wholesale trade, which
decelerated to 2.2% yoy in August, down from 3.9% yoy in July.

                                          FISCAL SECTOR
In January-August, the government continued to conduct prudent fiscal
policy. Due to an accelerated increase in revenues on the back of only a
moderate increase in expenditures, the fiscal surplus grew at a rate of 51%
yoy and reached EUR 1.0 billion (Lev 1.9 billion) or 4.4% of full-year GDP.

As a result of excess revenue collections in the first half of the year, the
Bulgarian government revised the year-end fiscal surplus up to 3.2% of GDP.

In January-August, fiscal revenues continued to grow at an accelerated rate.
They grew by 10.4% yoy during the period and reached EUR 6.6 billion (Lev
12.9 billion). Tax collections, being the largest part of revenues, grew at
a rate of 12.2% yoy vs 11.6% yoy in January-July and constituted EUR 5.3
billion (Lev 10.5 billion).

On a positive note, there was a slowdown in the decline of non-tax revenues.
In January-August, they fell by 0.7% yoy while the decline rate was 2.8% yoy
in January-July.

During the same period, expenditures increased at a lower rate than
revenues. In January-August, they grew by 5.3% yoy and constituted EUR 5.6
billion (Lev 10.9 billion). The largest increase in expenditures (53.6% yoy)
was noted in public wages and insurance, which accounted for 15.3% of total
budget expenditures.

At the same time, social expenditures, whose share of total budget
expenditures is around 40%, experienced some deceleration in their rate of
growth. In January-August they surged by 12.8% yoy, down from 13.6% yoy
in January-July.

In January-August, the government continued to demonstrate sound debt
management. Since July, the amount of public and publicly guaranteed debt
declined by EUR 27 million and equaled EUR 6.3 billion, including EUR 1.5
billion of domestic debt and EUR 4.8 billion of external debt.

The decline was a result of debt repayments processed during the month. The
stock of domestic debt declined by EUR 1.1 million, while the stock of
external debt declined by EUR 25.9 million. In August, the debt-to-GDP ratio
equaled 27.2%, which is an improvement of 0.1 pps since the last month.

The breakdown of debt by currency suggests that all debt is well
diversified, with 52.4% being made in Euros, 21.4% in US dollars and
17.4% in Lev.
                                    MONETARY SECTOR
During September, consumer price inflation continued to decline, driven
mainly by deceleration in the growth of food prices. By the end of the
month, CPI posted a growth rate of 5.6% yoy, down from 6.8% yoy in
August.

Food prices demonstrated the lowest price inflation among the CPI
components. In September, they grew by 2.3% yoy down from 3.7% yoy in
August.

Therefore, September became the fifth month in a row with food price
deceleration. Although food products are the largest component of CPI, their
contribution to overall CPI growth in September was only 0.86 pps.

Non-food and service prices demonstrated deceleration in their annual growth
rates. In September, the annual growth of non-food products constituted
11.1% yoy as compared to 12.9% yoy in August, and the monthly growth rate
fell by 0.3% mom.

Prices of services grew at a decelerated rate of 3.9% yoy, after two months
of stable growth at a rate of 4.1% yoy.

The producer price index (PPI) remained almost unchanged from its previous
month’s level. In August it posted a growth of 10.7% yoy as compared to
10.8% yoy in July.

The high growth rate of the PPI is driven by the high growth rate in prices
for mining products, which surged by 52.4% yoy in August. At the same time,
prices in the manufacturing and utilities sector grew at accelerated rates
of 7.5% yoy and 8.1% yoy respectively.

In August, money supply grew at an accelerated rate of 22.5% yoy and reached
Lev 28.9 million. At the same time, the monetary base shrank from Lev 9.7
million in July to Lev 9.1 million in August, reflecting a deficit in the
balance of payments, and its annual growth rate constituted 18% yoy compared
to 33.1% yoy in July.

As a result, the monetary multiplier stood at 3.2 in August, demonstrating
an improvement from the previous month. In September, the BNB raised the
interest rate again, setting it at a level of 2.94 per annum (p.a.).

The stock of credits issued by banks to the non-government sector during
August exceeded July’s level only slightly. By the end of the month, the
credit volume reached Lev 20.3 million, which is only 0.8% higher than in
July.

The annual growth rate of loan stock to the non-government sector
decelerated and constituted 22.9% yoy compared to 24.2% yoy in the
previous month.

Loans to non-financial corporations have been issued mainly in foreign
currency (64%), while Lev-dominated loans (82%) dominated loans issued to
households. As a percentage of full-year GDP, credit volume has been stable
at a level of 44%.
                   INTERNATIONAL TRADE AND CAPITAL
In January-August, the Bulgarian trade deficit in goods and services
continued an upward trend and reached EUR 3.1 billion compared to EUR
2.6 billion in January-July. The existing trade deficit represents 12.9% of
the country’s period GDP compared with 10.8% in January-July and 9% in
January-June.

The upward trend is backed by constantly increasing prices for imported
energy resources and relatively stable prices for Bulgarian exported goods.
However, due to the recent decline in world oil prices, some improvements
in Bulgaria’s international trade balance should be expected in the last
quarter of 2006.

In January-August, Bulgarian exports grew by 30% yoy, slightly accelerating
from the previous month’s level when the growth rate was 29.1% yoy. Growth
in exports is due to the still favorable situation on the world market for
metals and surging world demand for mineral fuels and fertilizers.

The geographical breakdown of Bulgarian exports shows that in
January-August, the most significant increase was in exports going to
Central and Eastern European countries, which grew by 60.5% yoy.

The increase in the share of exports to Albania, Bosnia and Herzegovina,
Croatia, Romania, Serbia, and Macedonia supports the idea that interregional
trade has become more important and economic relations within Central and
Eastern Europe are strengthening.

Merchandize exports going to Central and Eastern Europe region are mostly
represented by relatively high value added products. On the opposite side, a
significant portion of exports going to EU countries has a lower value added
component.

In January-August, there was some marginal acceleration in the rate of
growth of Bulgarian imports. During the period it increased by 27.1% yoy up
from 26.6% yoy in the previous month.

On a positive note, imports grew by 3 pps less than exports. The relative
slowdown in the rate of import growth is largely due to a decrease in energy
prices, which started in late August.

In January-August, Bulgaria’s CA deficit was on an upward trend and reached
EUR 1.9 billion compared to EUR 1.82 billion in the previous month. The
existing CA deficit can be translated into 7.9% of the country’s period GDP.

On a positive note, FDI period inflow is able to cover 92.2% of the CA gap
and can ensure the country’s long-term macroeconomic stability.

                           INTERNATIONAL PROGRAMS
On October 5th, the Bulgarian government and the European Investment Bank
(EIB) signed a Memorandum of Understanding for the Development and
Financing of Infrastructure. The signing of the document was made in the
framework of the Bulgarian government’s transport and basic infrastructure
investment plan (2007-2013).

In October, the new IMF mission started to work in Bulgaria. The main agenda
is to discuss Bulgaria’s draft budget for next year. The other issues to be
discussed include the review of the execution of the precautionary stand-by
arrangement between Bulgaria and the IMF and the execution of the 2006
budget.

Special attention will be also paid to the planned tax policies for next
year, as well as of the overall fiscal stance in 2007 within the framework
of the 2007 draft budget.

   OTHER DEVELOPMENTS AND REFORMS AFFECTING
                           THE INVESTMENT CLIMATE
On October 22nd, the presidential election had a low turnout, which did not
exceed 43%. The first election round was rife with negative campaigns led by
most of the candidates and frequent scandals.

President Parvanov urged right-wing politicians to take a more constructive
and tolerant stance in the future. The next round of elections are scheduled
for October 29th.

In October, the Bulgarian parliament passed in final reading a special
amendment to the Corporate Tax Law, which will reduce the profit tax rate to
10% down from the current 15%. This amendment will apply to all businesses
starting at the beginning of next year. The new profit tax rate will make
Bulgaria a country with one of the lowest tax rates in EU.

The household income-expenditure survey conducted by the National
Statistical Institute showed that household expenditures grew twice as
fast as incomes in August -9.2% yoy against 4.6% yoy.

The existing gap between growth rates in expenditures and incomes is partly
explained by strong growth in consumer credit. According to the survey,
monthly household income per person was around EUR 109 in August.

In October, the two seminars “The Structural Funds- Opportunities and
Challenges” and “The Structural Funds and the Cohesion Fund-the new
legal framework” were held with the participation of Bulgarian government
officials and representatives of the directorate of DG Regional Policy at
the European Commission.

During the seminars, the latest trends in European regional policy as well
as regulations and requirements of European Funds absorption were
discussed. One of the words of advice to the Bulgarian government was to
start preparing the projects and have them ready by January 1st, 2007 for
application under the structural instruments.
—————————————————————————————————
NOTE: To read the entire SigmaBleyzer/The Bleyzer Foundation Bulgarian
Macroeconomic Situation report for October, 2006 and previous monthly
reports in a PDF format, including several color charts and graphics click
on the following link: http://www.sigmableyzer.com/en/page/532.
————————————————————————————————
NOTE:  SigmaBleyzer/The Bleyzer Foundation also publishes monthly
Macroeconomic Situation Reports for Romania and Ukraine. They are
published at http://www.sigmableyzer.com/en/page/532.
————————————————————————————————
FOR FURTHER INFORMATION CONTACT: Morgan Williams, Director,
Government Affairs, Washington Office, SigmaBleyzer, Washington, D.C.,
MWilliams@SigmaBleyzer.com, http://www.SigmaBleyzer.com,
http://www.BleyzerFoundation.com.
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18.  EU EXECUTIVE TO RESIST DRAWING FINAL BORDERS
             Will neither offer a membership prospect to states such as
       Ukraine, Moldova, Georgia or Belarus, nor rule them out forever.

Reuters, Brussels, Belgium, Sunday, November 5, 2006

BRUSSELS – The European Commission will resist pressure from France and
others to draw final borders for the European Union when it publishes a
sensitive report this week on the bloc’s capacity to absorb further members.

EU leaders, under pressure from France and Austria, where public opposition
to Turkey’s candidacy is strongest, instructed the Brussels executive in
June to prepare a definition of the Union’s “absorption capacity” for a
summit next month.

The focus on “absorption capacity” has become a coded way of questioning
whether the EU will ever be able to absorb such a large, poor, populous and
overwhelmingly Muslim country as Turkey, extending the bloc’s borders to
Iran, Iraq and Syria.

The study will accompany a critical report on Turkey’s progress in the year
since it began membership talks, which EU sources say will lament a slowdown
in the pace of reforms and a failure to open its ports to shipping from
Cyprus.

The Commission will argue on Wednesday that Europe’s frontiers are “defined
more by values than by firm geographical borders,” according to a source
familiar with the report. “It’s not possible to take a pen and draw final
borders,” the source said.

Conservative French presidential frontrunner Nicolas Sarkozy called in a
recent speech in Brussels for the EU to spell out its ultimate borders.

He argued the EU should offer an intermediate status, which he calls a
“privileged partnership”, to countries such as Turkey or North African
countries which in his view should never join.
            CONSOLIDATION, CONDITIONALITY, CAUTION
Enlargement Commissioner Olli Rehn contends that the onus is on the

EU to improve its ability to integrate newcomers by reforming its creaking
institutions and overhauling its budget.

Rehn says he is taking account of “enlargement fatigue” among voters,
particularly in Western Europe, by consolidating the existing expansion
agenda, applying strict conditions in entry talks, and being very cautious
about any new commitments.

That means the EU stays open to Turkey and all the Western Balkans
countries, once they meet all the criteria, but it will neither offer a
membership prospect to states such as Ukraine, Moldova, Georgia or

Belarus, nor rule them out forever.

Brussels has set tougher conditions in accession negotiations with Turkey
and Croatia than were imposed on any previous candidate, much to the
frustration of Ankara, which feels the EU keeps raising the bar.

The Commission will resist French pressure to declare public acceptance

a condition for further enlargement, but Paris has effectively done this
unilaterally by writing into its constitution a provision that any new
accession after Croatia will be subject to a referendum in France.

Wednesday’s report will propose some practical steps to improve the quality
and transparency of accession negotiations with candidate countries.

But it will point to the need for institutional reforms in EU decision
making and the long-term budget, notably to modernise agricultural and
regional subsidies, as a necessary preparation for further enlargement.

A senior EU official said the bloc had a de facto breathing space of about
five years until the next enlargement, once Bulgaria and Romania join in
January.

That leaves time for a new institutional settlement and budget reform
provided the Union can overcome a political deadlock caused by the

rejection of the EU constitution by French and Dutch voters last year.
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19. THE BERMUDA TRIANGLE BETWEEN SURGUT AND BRUSSELS
              Trilateral relations: Russia, Ukraine, and the European Union

COMMENTARY: Alexander Sadchikov
Izvestia, Moscow, Russia, Wednesday, November 1, 2006

Lawmakers and analysts gathered for a trilateral conference
at the Chateau de Forge Russian cultural center outside Paris,
with the aim of analyzing European Union policy on Russia and
Ukraine. They concluded that expansion could drive the EU into
schizophrenia, while Ukraine still hasn’t made up its mind on
whether to side with Russia or Europe.

“The Russia-Ukraine-EU triangle is like the Bermuda triangle:
there are many initiatives, but they all disappear without being
realized,” says Jacques Sapir, research director at the Ecole des
Hautes Etudes en Sciences Sociales in Paris. This is primarily due
to substantial differences of opinion within the EU: its 25 member
states won’t be able to co-exist according to the principles
initially developed for the ten original members.

“Political schizophrenia is a contagious disease, and we’re
infecting our new members with it,” says Sapir. “The golden age of
the EU – when new member states were given plenty of subsidies –
is now over.”

Bulgaria and Romania are due to join the EU in 2007. Ukraine
is also standing in line, but the mere fact of EU membership won’t
solve its problems. Sapir says: “Economies can’t be created as
easily as independent states – 1991 was proof of that.”

The Ukrainians are undeterred. Agreements signed with the EU
and the declarations of Ukrainian politicians show that Ukraine
sees itself as part of Europe. “Drinking coffee in Brussels beats
drinking vodka in Surgut,” said one speaker at the conference. As
a new EU member, Ukraine would receive $1-2 billion each year in
aid. Then again, this aid might be accompanied by EU demands for
entire sectors of Ukrainian industry to be shut down – costing
Ukraine $10-15 billion.

“We don’t necessarily have to reach the goal [EU membership]
– what’s important is deriving maximal benefits from the journey
towards that goal.” This ambiguous statement, made by Oksana
Belozir, chairwoman of the Supreme Rada’s international relations
subcommittee (and reportedly a close friend of President
Yushchenko), may be regarded as the basic principle in Ukraine’s
current policy on relations with the EU.

Ukraine is suspended “between here and there”: declaring its
aim to join the EU, while trying to derive benefits from both the
EU and Russia. “Over the past 15 years, Ukraine hasn’t done
anything towards joining the EU. Cyprus spent 15 years planting
trees so that its forested areas would meet European standards,”
says Ukrainian lawmaker Dmitri Vydrin. Oddly enough, it appears
that half of Ukraine’s population wants to side with Russia and
Europe simultaneously.

Russia will be guided by its own interests in structuring its
relations with Europe. “In the past, the formula for Russia-EU
relations was ‘integration through change’ – but now it’s
‘integration through interweaving,'” says Sergei Kulik, head of
the EU relations department at the Kremlin administration. This
may sound like mere semantics, but the first option entailed
Russia changing to suit Europe, while the second is all about
taking each other’s laws and traditions into account.

 The conference on Russian-Ukrainian-EU trilateral relations,
organized by the National Investment Council, may now become a
regular event. Ruslan Grinberg, director of the Economics
Institute at the Russian Academy of Sciences, proposed that the
next meeting should discuss specific issues (trade, energy,
migration). The more solutions to these problems are found, the
less this triangle will resemble the Bermuda triangle.   -30-

(Translated by Elena Leonova)
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========================================================
20.               UKRAINE’S POLITICS UP FOR GRABS
           The birth-pangs of democracy, or an unseemly power struggle?

The Economist, London, UK, Week of November 4-10, 2006

KIEV – WHEN Ukraine emerged from the dying Soviet Union there were
some, especially in Russia, who said its independence was provisional,
and its destiny was to be swallowed up by its neighbours.

During the “orange revolution” of 2004, which swept Viktor Yushchenko
to Ukraine’s presidency, the threat of dismemberment was revived by
supporters of Viktor Yanukovich, his Russian-backed rival. That talk
has receded, but all else in Ukrainian politics continues to be provisional.

Mr Yanukovich’s status as a disgraced election-rigger was temporary.
After his party won most seats in parliament last March he again became
prime minister, the job he held before the revolution. Other old faces
have returned with him. Under new, possibly provisional, constitutional
arrangements, the job carries increased powers that overlap with the
president’s.

Oleksandr Chaly, deputy head of the presidential administration, says that
all democracies go through transitional periods in which the powers of
various arms of government are defined. But in Ukraine the process looks
less like constitutional fine-tuning than a revived power struggle.

So far, says a Western diplomat in Kiev, “the prime minister is winning”.
The constitution makes the president responsible for foreign policy, but
that did not stop Mr Yanukovich saying, on a trip to Brussels, that
Ukraine’s integration into NATO should be delayed.

Despite Mr Yushchenko’s urgings, parliament is stalling over the
legislation needed for Ukraine to join the World Trade Organisation
(WTO). Last week José Manuel Barroso, president of the European
Commission, admitted that neither the European Union nor Ukraine was
ready to talk about Ukrainian accession to the EU.

Mr Chaly insists that there are “no strategic differences” between the
two Viktors. Yet the course of Western integration that Mr Yushchenko
had set may turn out to have been provisional.

Mikhail Fradkov, Russia’s prime minister, was in Kiev just as a new deal
was being reached on Ukraine’s gas imports. Ukraine faces a rise in the
price of gas it buys from Russia and Turkmenistan in 2007, though not
as sharp as it feared. The prospect of a renewed gas crisis, in which
supplies to Ukraine could be cut off as they were last January, seems to
have been averted.

But the deal is temporary and opaque, and rumours swirl over what
concessions the Russians have extracted in return. Mr Fradkov talked of
the two countries “synchronising” their WTO bids (the Russians fret
that Ukraine might get in before them).

Mr Yanukovich mooted the possibility of Russia’s Black Sea fleet
staying at Sebastopol, its Crimean base, after its lease runs out in
2017. Mr Yushchenko’s line, repeated again this week, was that it would
have to go. The bigger fear is that Kiev’s control of Ukraine’s gas-pipeline
network may be provisional too.

So might be the uncomfortable cohabitation of the two Viktors. Our
Ukraine, the president’s party, last month broke off coalition negotiations
with Mr Yanukovich’s lot­talks that, somewhat incredibly, had been going
on ever since March.

Several ministers whom Our Ukraine had provisionally nominated to the
cabinet have now tendered their resignations­ even though murmurs about
restarting the talks are growing louder.

Mr Yanukovich’s coalition still has a parliamentary majority, but its odd
combination of Communists and business tycoons may prove unstable.
(Like so many revolutionary alliances, the “orange” team, led by Mr
Yushchenko and Yulia Tymoshenko, was purely tactical and has now
collapsed.)

Some in Mr Yanukovich’s team see Mr Yushchenko himself as a
temporary president. He has brought some tough businessmen into his
administration. But his popularity is now so low that his chances of
winning the next presidential poll, in 2009, look slim.

A few crowd-pleasing arrests of corrupt former officials would buoy up
his ratings; but it seems that his campaign promises of justice were
themselves provisional. Whether the real gains of the revolution­ freer
 media, cleaner elections and competitive politics ­prove more lasting
remains to be seen.                                    -30-
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21.  UKRAINE: FOR SOME THE WEST, FOR OTHERS, THE EAST”
              Perhaps East, West Ukraine Should ‘Go Their Own Ways’

COMMENTARY: by Aleksandr Dugin, Director 
Center for Geopolitical Expertise
Izvestia, Moscow, Russia, Wed, October  25, 2006

A parliamentary crisis has only just ended in Ukraine before it has
immediately begun once again. The parliamentary faction of
President Yushchenko’s Our Ukraine has announced that it is
going into opposition to the parliamentary majority, where the tune
is called by the Regions Party, Moroz’s socialists, and Symonenko’s
communists.

 
The deputies have even demanded that Our Ukraine’s members in the
Yanukovych government relinquish their ministerial authority or quit
the party.

It is clear even to a schoolboy now that there is not one Ukraine but

two. One Ukraine sees itself as part of Europe. These are the western
lands, which not that long since were under the Poles, Lithuanians,
and Austrians and which became impregnated with Catholic and Uniate
culture.
They evidently like to feel themselves second-class people in Western
civilization and to vegetate on its sidelines. They are accustomed to it.
But it is “civilization”.

Yes, washing dishes together with Maghrebites in Parisian bistros really

is “civilization”. But Russkies, who, albeit with tremendous difficulty,
built their own Slav Russian state with Kievan roots common to all of us,
are mortally hated in Western Ukraine.

Muscovite Rus and its heir, the present Russia, are a symbol of the Slavic
peoples, free and proud and imperial and bowing the head to no one. This

needles. And instead of rejoicing in the grand new future in a common
fraternal Slav home, the westlanders are opting for a path to the West–from
nostalgia for the Polish-Lithuanian or Austrian boot.

This is the westland Ukraine of Yushchenko and Tymoshenko, running to

NATO, which is aiming, as it is, to sting Russia as painfully as possible,
having stolen on the sly our Eurasian gas.

There is even in Lviv a Dudayev Street, which, true, activists of the National

Bolshevik Front (NBF) and the Eurasian Youth Union (ESM) last week
painstakingly at each building and each signboard renamed Stalin Avenue,
for which they were brutally–in the Bandera tradition–beaten up.

But wouldn’t you just know it–a Lviv street given the name of the bloody

separatist who caused not only the Russian but also the Chechen people
themselves so much suffering. Stalin, on the other hand, incidentally,
annexed Lviv and Galicia to Ukraine, hereby creating the Ukrainian state.
But the “Orange” have their own logic.

But, you see, they were uncomfortable even with the mild and vague

Yanukovych, who is prepared for compromise. Consequently, a political
crisis is brewing in Ukraine once again.

The second Ukraine–Donetsk, Crimea, and, to some extent, Right-Bank–

is populated by other people entirely. The influence of Uniatism and the
Catholics was much weaker here, and the memory of unity with other
branches of the Russian tribe–Great Russians and White Russians–far
stronger. And this Eastern Ukraine is opting for a path of unity with Russia,
Belarus, and the fraternal peoples of the former empire, both white and red,
Soviet.

On both sides of the Russo-Ukrainian border live one and the same people

speaking one and the same language and confessing one and the same
religion.
 
And this people, which has found itself in independent Ukraine, is insisting
on its historical rights: to be together with Russia, to speak Russian, and
to believe and pray according to the rituals of its forefathers, in the old,
Orthodox way.

Two Ukraines mean two goals, two value systems, two historical choices.

The incessant squabbles in Kiev, which have become the rule, show that
they are not managing to get along together.
Neither Ukraine wants to compromise. And some people have only to
attempt to come to terms, and everything immediately falls apart once
again.

And new elections will do nothing. Some are for the West, others, for the

East. This is the considered and recognized choice of two peoples.
And it is hardly likely that anyone can under such conditions appreciably
change it. So let each go its own way, perhaps?            -30-
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and e-mail contact information to morganw@patriot.net. Information about
your occupation and your interest in Ukraine is also appreciated.
 
If you do not wish to read the ACTION UKRAINE REPORT please
contact us immediately by e-mail to morganw@patriot.net.  If you are
receiving more than one copy please let us know so this can be corrected
 
                SPAM BLOCKERS ARE A REAL PROBLEM                 

If you do not receive a copy of the AUR it is probably because of a
SPAM BLOCKER maintained by your server or by yourself on your
computer. Spam blockers are set in very arbitrary and impersonal ways
and block out e-mails because of words found in many news stories.
 
Spam blockers also sometimes reject the AUR for other arbitrary reasons
we have not been able to identify. If you do not receive some of the AUR
numbers please let us know and we will send you the missing issues. Please
make sure the spam blocker used by your server and also the one on your
personal computer, if you use a spam blocker, is set properly to receive
the Action Ukraine Report (AUR).

========================================================
                          PUBLISHER AND EDITOR – AUR
Mr. E. Morgan Williams, Director, Government Affairs
Washington Office, SigmaBleyzer, The Bleyzer Foundation

Emerging Markets Private Equity Investment Group
P.O. Box 2607, Washington, D.C. 20013, Tel: 202 437 4707
Mobile in Kyiv: 8 050 689 2874
mwilliams@SigmaBleyzer.com; www.SigmaBleyzer.com
========================================================
        Power Corrupts and Absolute Power Corrupts Absolutely. 
——————————————————————————————————
return to index [Action Ukraine Report (AUR) Monitoring Service]
========================================================
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