Daily Archives: April 16, 2007

AUR#829 Apr 16 Macroeconomic Situation Report by SigmaBleyzer; Mohyla Academy President Takes New Position; WTO?; 60% Back Disbanding Parliament

                 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       

                           ECONOMIC SITUATION
         Supported by a favorable external environment and robust domestic
      demand, real GDP grew by 8.6% yoy over the first two months of 2007.
                                                   [Article One]

Mr. E. Morgan Williams, Publisher and Editor, SigmaBleyzer

               –——-  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
MONTHLY ANALYTICAL REPORT: Olga Pogarska, Edilberto L. Segura
“Ukraine – Macroeconomic Situation – March 2007”
SigmaBleyzer Emerging Markets Private Equity Investment Group,
The Bleyzer Foundation, Kyiv, Ukraine, Monday, April 16, 2007


    Will direct the International Charitable Renaissance Fund of the Academy
Action Ukraine Report (AUR) #829, Article 2
Kyiv, Ukraine, Monday, April 16, 2007

                   Intesa Sanpaolo in bid for CR Firenze, a Tuscan bank
By Adrian Michaels in Milan, Financial Times
London, United Kingdom, Monday, April 16 2007

FT FUND MANAGEMENT: By Fiona Rintoul, Financial Times
London, United Kingdom, Monday, April 16, 2007

5.                                     A SCREEN SAVIOUR
  During Ukraine’s Orange Revolution. student activists I spoke to told me
   that a favourite technique for springing their protesting friends from police
     cells was to post the phone number of the police station on the internet.
                Sympathisers would then call, jamming the switchboard.
By Chrystia Freeland, Financial Times
London, United Kingdom, Saturday, April 14 2007

Defense-Express website, Kiev, in Russian 12 Apr 07
BBC Monitoring Service, United Kingdom, Sunday, Apr 15, 2007

Interfax, Kyiv, Ukraine, Saturday, Apr 14, 2007

Inter TV, Kiev, in Ukrainian 1800 gmt 14 Apr 07
BBC Monitoring Service, United Kingdom, Saturday, Apr 14, 2007

Interfax, Dnipropetrovsk, Ukraine, Saturday, Apr 14, 2007

Interfax, Kyiv, Ukraine, Saturday, Apr 14, 2007

    Ukrainian ruling party accused of embezzling 140m dollars to fund elections
ANALYSIS: By Ukrayina Moloda, Kiev, in Ukrainian 11 Apr 07,
BBC Monitoring Service, United Kingdom, Sunday, Apr 15, 2007

TV 5 Kanal, Kiev, in Ukrainian 1925 gmt 12 Apr 07
BBC Monitoring Service, United Kingdom, Friday, Apr 13, 2007

Zerkalo Nedeli, Kiev, in Russian 14 Apr 07, p 1
BBC Monitoring Service, United Kingdom, Saturday, Apr 14, 2007

Contrast to Orange Revolution ascribed to new priorities, complicated politics

Tom Nicholson, Spectator staff, The Slovak Spectator
Bratislava, Slovak Republic, Saturday, April 14, 2007

15.                            ‘COLOR’ REVOLUTIONS IN LIMBO
Jim Heintz, AP Online, Moscow, Russia, Saturday, Apr 14, 2007


Ukrayinska Pravda website, Kiev, in Ukrainian 13 Apr 07
BBC Monitoring Service, United Kingdom, Saturday, Apr 14, 2007


ICTV television, Kiev, in Ukrainian 0945 gmt 15 Apr 07
BBC Monitoring Service – United Kingdom, Sunday, Apr 15, 2007

            This time, it’s foes of Orange Revolution in Kiev’s main plaza
Alex Rodriguez, Chicago Tribune, Chicago, Illinois, Sunday, April 15, 2007

UT1 State TV, Kiev, in Ukrainian 1000 gmt 12 Apr 07
BBC Monitoring Service, United Kingdom, Friday, Apr 13, 2007

MONTHLY ANALYTICAL REPORT: Olga Pogarska, Edilberto L. Segura
“Ukraine – Macroeconomic Situation – March 2007”
SigmaBleyzer Emerging Markets Private Equity Investment Group,
The Bleyzer Foundation, Kyiv, Ukraine, Monday, April 16, 2007

[1] Supported by a favorable external environment and robust domestic
demand, real GDP grew by 8.6% yoy over the first two months of 2007.

[2] The consolidated budget ran a surplus of 7.2% of period GDP over
January-February. Higher budget revenues and strong macroeconomic
fundamentals encouraged softening of income policy. Though the targeted
state budget deficit remained unchanged, de facto it was raised by 19%.

[3] Annual consumer inflation decelerated to 9.5% yoy in February.
Moderation of consumer price index growth was the result of food price
deflation, tightening of monetary aggregates and postponement of energy
price pass through to consumers.

[4] Benefiting from robust external demand for its traditional commodities,
growth of world steel prices and a low base effect, Ukraine demonstrated
very strong export performance at the beginning of 2007.

[5] On April 2, the President issued a decree dissolving the Parliament and
calling for early elections. Despite short term disruptions, over the medium
term the country is not expected to change its basic economic direction
towards a free market economy.

                                      ECONOMIC GROWTH
In February, real GDP increased by 7.9% yoy, bringing the cumulative growth
to 8.6% yoy. Some deceleration in February compared to the previous month
may be explained by  a low statistical base effect and adjustment to higher
energy costs.

The latter may be rather mild this year, considering that the Ukrainian
economy showed high resilience to the shock in 2006 and the 2007 increase

in gas prices was anticipated. At the same time, the effect of higher energy
prices was more apparent in February 2007 than in the previous month due to
January’s unusually warm weather.

Economic growth in the first two months of 2007 was led by an increase in
value added in construction, industrial production, trade, and

In particular, strong investment and consumer demand, supported by
continuing expansion of bank credit to the real sector, triggered a 18.7%
yoy increase in value added in construction, 14% yoy and 7.3% yoy growth

in wholesale and retail trade and transport.

Together these sectors explained almost 40% of GDP growth during these
months. Another 30% was explained by the value added growth in the
industrial sector.

Underpinned by favorable external conditions and robust domestic demand,
industrial output grew by 11% yoy in February. Despite the deceleration from
a remarkable 15.8% yoy expansion in January, the cumulative growth rate
remained at a high 13.4% yoy. At the product level, the largest contributors
to industrial output growth were metallurgy, machine-building and food

An 18.9% yoy rise in production of metallurgical products over
January-February was supported by high world prices for steel products,
robust growth in machine-building and construction.

Output in machine-building increased by 28.1% yoy over the period, primarily
thanks to continuing expansion in production of vehicles and transport
equipment (up by about 36% yoy).

The industry benefited from robust investment demand in the CIS countries
(the primary outlet for Ukraine’s exports of these commodities) and strong
domestic demand. A favorable external environment supported a 9.8% yoy
increase in chemicals.

Buoyant domestic consumption triggered a 13.5% yoy output increase in the
food industry, though relaxation of Russia’s ban on Ukraine’s exports of
meat and meat products also contributed to the expansion.

In particular, the meat industry reported a 20.9% yoy increase in output
during the first two months of the year, up from 17.5% yoy in January and
13.6% yoy in 2006.

On the downside, following a 6% yoy increase in output in January,
production of coke and oil-products declined by 4.7% yoy in February. The
worsening of domestic industry performance is related to the upward trend of
world crude oil prices in February.

The industry’s outdated technologies do not allow for deep oil refining,
thus making domestically produced gasoline products noncompetitive with
higher-quality imports.

Another laggard industry is production and distribution of energy, gas and
water. During January-February, the industry’s output declined by 4.5% yoy
due to lower demand caused by a warm winter this year and a high base

Given the high resilience to energy price shocks demonstrated by the
Ukrainian economy in 2006 and the robust growth at the beginning of 2007,
GDP is forecasted to grow by 6.5% yoy in 2007 according to the recent
Consensus Forecast.

On the back of a favorable external environment and likely faster than
expected consumption growth (due to the recently amended 2007 budget law
envisaging a faster rise in the subsistence level and minimum wages), the
forecast may be realistic.

Though Ukraine’s economic growth outlook is quite positive for 2007,
achievement of sustainable economic growth in the medium-term is a
challenging task.

Continuing reliance on fiscal policy and a credit boom-driven consumption
may generate significant inflationary pressures and increase vulnerability
of the banking sector to foreign exchange and credit risks.

In addition, the likely further increases in energy prices and sensitivity
to world steel price developments represent the main downside risks for the
Ukrainian economy in the medium run. Hence, to achieve strong and
sustainable economic growth in the long-run, the country will require new
investments and technology.

                                      FISCAL POLICY
Thanks to robust economic growth and under-execution of expenditures
(typical for the beginning of the year), the consolidated budget ran a
surplus of UAH 6.3 billion ($1.2 billion) in January-February, which is
equivalent to about 7.2% of period GDP.

Consolidated budget revenues increased by a nominal 32.2% yoy to UAH 27.3
billion, while expenditures grew by less than 16% yoy to UAH 21 billion. For
January-February 2007, revenues to the general fund of the state budget
exceeded the target by 7.3%.

Tax revenues, which account for almost 85% of general fund revenues, grew by
more than 40% yoy in nominal terms and were 9% above the target. Proceeds
from major taxes were over-executed with a rate approaching 6% for taxes on
international trade to almost 10% for VAT.

Enterprise profit tax receipts were 6.5% above target, reflecting strong
financial performance of Ukrainian enterprises. In the previous periods,
considerable growth of VAT proceeds was treated with caution due to
accumulation of VAT refund arrears. However, the VAT refund was also
over-executed by 5.7% this year.

Plentiful budget revenues and strong macroeconomic developments encouraged
an upward revision of the state budget earlier than expected. In the middle
of March, the parliament adopted amendments to the 2007 state budget law,
envisaging softer income policy.

According to the amended budget, state budget revenues were raised by 3.1%
compared to the revenues envisaged in the previous budget, while
expenditures (including net credits from the budget) were raised by 4.6%.

Though the difference between state budget revenues and expenditures
(including net credits) constitutes UAH 18.7 billion ($3.7 billion), the
targeted state budget deficit was kept unchanged in the amended budget law
at UAH 15.7 billion.

The latter became possible due to a special provision in the law permitting
the government to use almost UAH 3 billion ($575 million) from cash balances
accumulated on state accounts in 2006 [1] to finance the general fund of the
state budget. De facto, however, the state budget deficit increased by 19%
to UAH 18.7 billion, or 2.9% of forecasted 2007 GDP.

The financing of the targeted deficit remained unchanged with the lion’s
share of the funds to be received from privatization.

For January-February, privatization proceeds amounted to UAH 91.8 million
($18.2 million), which represents less than 1% of the targeted amount. The
privatization process is expected to accelerate in the coming months.

Yet in March, the State Property Fund of Ukraine sold at auction 76% shares
of Luhansteplovoz, one of the leading companies of Ukraine’s heavy
engineering industry, for UAH 292.5 million ($57.9 million) and placed a
number of minority stakes on domestic stock exchanges.

In particular, placement of 0.17% and 0.078% shares of JSC “Mittal Steel
Kryvyj Rih” and 7.8% shares of Pavlogradvuhillia” (coal extraction
enterprise) attracted about UAH 66 million ($13 million) and UAH 108.4
million ($21.4 million) to the budget respectively.

In addition, during March the SPF received approval for the privatization of
telecom monopoly “Ukrtelecom” and one of the largest chemical enterprises
“Odessa port plant”.

In the absence of new government borrowings on both domestic and external
markets, the stock of Ukraine’s public and publicly guaranteed debt has
declined by 1.24% since the beginning of the year to $15.7 billion.

                                     MONETARY POLICY
In February 2007, the State Statistics Committee of Ukraine reported
consumer inflation at 0.6% month-over-month (mom), which translated into a
9.5% annual increase in the consumer prices index.

Inflation was substantially lower than initially expected by most experts,
whose forecasts were based on a considerable fiscal loosening at the end of
the previous year, expectations of a further service tariffs adjustment in
light of the imported natural gas price increase at the beginning of the
year and a low statistical base [2]. However, it seems the authorities
decided to postpone the energy price pass-through to consumers this year.

Moreover, though February’s CPI incorporated the increases in housing and
utility tariffs in Kyiv, its impact was partially mitigated by a downward
revision of the tariffs in a number of regions [3].

At the same time, services remained the main inflationary component of CPI
growth – the service price index growth accelerated to almost 51% in annual

In addition, despite a notable deceleration in the rate of growth of
gasoline prices, the non-food price index accelerated to 4.4% yoy in
February, up from 2.8% yoy in the previous month.

The speed up occurred on account of higher prices on medicines and medical
appliances, transport vehicles and printed materials. However, these
developments were outweighed by food price deflation.

Food products, which account for more than 60% in the consumer basket,
reported a 0.3% yoy decline in prices in February on the back of
over-saturation on several food markets (both due to domestic
over-production and import acceleration) and a high base effect.

For instance, sugar prices surged 25% mom in February last year, affected by
an increase in world prices for white and raw sugar. This year, the rich
harvest of sugar beets and a high base effect resulted in a 28.4% yoy
decline in sugar prices.

The decline in prices of some other products (such as meat and meat
products, eggs, etc.) may be also attributed to limited export opportunities
and warm weather conditions. On the back of current price developments and
likely slower energy price pass-through, the government forecast of 7.5% yoy
inflation may be realistic.

Lower than expected inflation in the first two months of the year was also
achieved thanks to moderate monetary tightening. The NBU continued to
sterilize excess liquidity in the banking sector, extracting UAH 16.8
billion ($3.3 billion) in February alone.

Coupled with growing cash balances on government accounts with the National
bank (up by 23.2% in February and more than 52% since the beginning of the
year), the monetary base declined by almost 3% mom. In annual terms, the
growth rate of the monetary base declined to 21.1% yoy, down from 26.7% yoy
a month before.

At the same time, the growth of money supply (M3) accelerated to 37.1% yoy
in February, reflecting the speed up of deposits growth. In particular,
deposits grew by 8% mom, driving the annual growth to 40.8%. Acceleration of
money supply, however, had limited impact on inflation due to strong money

The latter was triggered by robust economic growth in the first two months
of the year and revealed through the accelerating pace of credit
disbursement. In particular, commercial bank credits grew by 71.1% yoy in
February, up from 70.1% yoy a month before.

The foreign exchange market was almost balanced in February. The NBU
continued to maintain the hryvnia peg to the US dollar at 5.05 UAH/$.

On the back of robust inflow of foreign currency (in the form of export
revenues, private sector borrowings and FDI) on the one hand and high demand
for foreign currency (due to robust imports and the need to service
foreign-currency-denominated private debt) on the other hand, net NBU
purchases of foreign currency constituted $265.4 million. This allowed the
NBU’s international reserves to exceed $22.8 billion at end-February.


According to the SSC, merchandise exports surged by 37.2% yoy in January
2007 to $3.2 billion, slightly outpacing 36.5% yoy growth of imports.

At the same time, imports reported growth rates exceeding 35% yoy for the
second month in a row, driven by strong consumer and investment demand in
the country. As a result, the merchandise trade balance generated a deficit
of $492 million.

By product breakdown, exports of metals and chemicals, accounting for 48%
and about 10% of total merchandise exports, grew by 51.3% yoy and 46.6%

yoy respectively. Another significant contribution to the overall growth of
merchandise exports came from machinery and transport equipment.

Exports of these commodities, accounting for 14% in total exports, advanced
by almost 60% yoy, driven by robust economic growth in CIS countries, the
main outlet for Ukrainian produced machines.

On the downside, due to the ban on the export of grain and some other
cereals introduced in the fall of last year, exports of grain were almost
twice as low as in January last year, bringing the whole group trading
volumes down by about 60% yoy.

On the import side, mineral products remained the largest contributor to
overall import growth. Accounting for 41.2% of total imports,  mineral
products imports surged up 37.3% yoy in January.

The growth was underpinned by a 47.3% yoy increase in natural gas imports
(primarily due to the rise in imported natural gas prices since the
beginning of 2007) and a more than growth rate of coal imports that was
almost twice as high.

The latter may be explained by re-orientation of a number of large
enterprises (such as Mittal Steel Kryvyj Rih) to higher quality and often
cheaper imported coal.

On the positive side, the import of investment goods was also on the rise.
In particular, imports of machinery and transport vehicles expanded by

36.6% yoy in January 2007.

Despite strong export performance at the beginning of the year and a
favorable outlook for world steel price developments, the merchandise trade
deficit is projected to keep widening throughout 2007, though the pace of it
is likely to be slower than initially expected. A worsening merchandise
trade balance will be the primary reason for the growing CA deficit, which
is expected to reach 3% of GDP.

However, the CA deficit is expected to be securely covered by the high
inflow of FDI anticipated at around $5 billion, according to the recent
Consensus Forecast, and a further increase in private debt. According to NBU
data, gross external debt grew by 37% to $54.3 billion in 2006, or 51.2% of

The growth was primarily underpinned by robust private sector borrowing,
which expanded by more than 60% yoy and exceeded $40.5 billion at the end

of 2006. Though the level of gross external debt is sustainable according to
international standards, the pace of its increase raises concerns.


                             THE INVESTMENT CLIMATE
Shortly after the launch of negotiations on a new Enhanced Agreement between
the EU and Ukraine at the beginning of March 2007, the EC officials
announced a substantial increase in financial assistance to Ukraine over the
next four years.

About EUR 500 million is planned to be allocated to Ukraine during 2007-2010
to support the reform process and the implementation of the EU-Ukraine
Action Plan.

In addition, Ukraine will be eligible for the Neighborhood Investment Fund.
This Fund will be used to leverage additional lending from financial
institutions including the European Investment Bank and the European Bank
for Reconstruction and Development.

On April 2, following the prolonged power struggle between President
V.Yushchenko and Prime Minister V. Yanukovich, the President issued a

Decree dissolving the Parliament and calling for early elections on May 27.

At the same time, the ruling coalition (consisting of the Party of Regions,
Socialist and Communist Parties) questioned the legality of the Decree and
appealed to the Constitutional Court.

All parties have agreed to abide by the resolution of the Constitutional
Court. Despite short term disruptions, the current political turmoil is seen
as a necessary process of political adjustment since the amended 2005
Constitution of Ukraine allowed for overlapping mandates and ambiguous
interpretation of a number of important provisions.

Nevertheless, over the medium term, regardless of how the crisis is
resolved — either by compromise or by new elections — the country is not
expected to change its basic economic direction towards a free market

It will continue market reforms, join the WTO and seek a FTA+ with the EU.
The Ukrainian economy is expected to show positive developments even in
2007, unless the crises were to spread into civil strife, which is quite
unlikely.                                              -30-
[1] In 2006, the government secured resources to finance a projected budget
deficit in an amount that considerably exceeded the actual deficit. As a
result, cash balances on state accounts amounted to UAH 10.6 billion ($2.1
billion) as of the end of the year, according to the Ministry of Finance.
[2] During the first half of 2006, annual inflation was decelerating due to
an administrative delay in energy price pass-through. However, since the
second half of the year, most service tariffs were revised upwards (some of
the tariffs remained unchanged for 6 years), driving year-end consumer
inflation up to 11.6%.
[3] A comprehensive audit of the current level of utility tariffs throughout
the regions of Ukraine was initiated at the beginning of 2007. The lack of

a generally accepted methodology of calculating utility tariffs makes it
difficult to substantiate the magnitude of recent increases in utility
tariffs, thus resulting in their moderate downward revision. The most
significant revision was registered in Kyiv, where tariffs were increased by
1.9 times instead of the previously announced 3.4 times. 
Chief Economist, Edilberto Segura; Editor, Rina Bleyzer Rudkin.
NOTE: To read the entire SigmaBleyzer/The Bleyzer Foundation
Ukraine Macroeconomic Situation Report for March 2007 in a PDF
format, including color charts and graphics go to the following link:
NOTE: SigmaBleyzer/The Bleyzer Foundation also publishes monthly
Macroeconomic Situation Reports for Bulgaria and Romania. The
present and past reports, including those for Ukraine can be found at
Director, Government Affairs, Washington Office, SigmaBleyzer,
Washington, D.C., MWilliams@SigmaBleyzer.com, 202 437 4707.
http://www.SigmaBleyzer.com, http://www.BleyzerFoundation.com.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
    Will direct the International Charitable Renaissance Fund of the Academy

Action Ukraine Report (AUR) #829, Article 2
Kyiv, Ukraine, Monday, April 16, 2007

KYIV – Dr. Viacheslav Briukhovetsky, longtime president of The National
University of Kyiv Mohyla Academy, has announced his intention to leave

that position on August 31, 2007.

“After 17 years, the time has come for change, and the University now needs
a younger president with new ideas for the University’s future development
and top management skills, but I have no intention of leaving the Kyiv
Mohyla Academy where I can still play an important role of significant
responsibility,” Briukhovetsky said.

Briukhovetsky said his decision to step aside is linked with the university’s
ambitious mission and plans for the future, including admission to the list
of the world’s top 500 universities.  In resigning the university’s
presidency, Briukhovetsky is not leaving the University’s campus.

“My new role at the Mohyla Academy ,” Briukhovetsky said, “will be directing
the International Charitable Renaissance Fund of NaUKMA, which is committed
to establishing the financial conditions that will sustain the university in
the future and guarantee its independence.”

In announcing his plans to the Kyiv Mohyla faculty and staff, Briukhovetsky
said his decision is not in any way related to or connected to the current
political situation in Ukraine, as the University always maintained and will
continue to maintain its independence from political influence.

“Kyiv Mohyla Academy was and remains an institution based on democratic
principles where above all, there is respect for freedom of speech and
political opinion,” he said.

Briukhovetsky’s departure from the University’s presidency had been expected
for several months after he told colleagues and friends that after 17 years
of demanding work and travel, he was looking to enhance the University’s
endowment fund and to establish a more strategic role for the University’s

In leaving the presidency, Briukhovetsky is widely respected for
single-handedly orchestrating and bringing about the University’s rebirth,
accreditation and recognition as one of Ukraine’s leading educational and
cultural institutions.

Dr. Briukhovetsky has been bestowed the title of Honorary President of

the National University of Kyiv Mohyla Academy.                -30-
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
                   Intesa Sanpaolo in bid for CR Firenze, a Tuscan bank

By Adrian Michaels in Milan, Financial Times
London, United Kingdom, Monday, April 16 2007

MILAN – Intesa Sanpaolo, which was formed by a merger of two large Italian
banks in January, is already looking for acquisitions and has made an offer
for CR Firenze, a Tuscan bank with a market capitalisation of more than
Eur4.5bn ($6.1bn).

Corrado Passera, Intesa Sanpaolo’s chief executive, said in an interview
that the possible purchase of CR Firenze could be followed by further deals
in two other large Italian regions. Intesa also wanted to buy asset
management companies in western Europe and was still looking at buying a
bank in eastern Europe.

The aggressive growth strategy was outlined by Mr Passera as the bank,
formed by the merger of Banca Intesa and Sanpaolo IMI, presented its first
three-year business plan.

Mr Passera did not say how much Intesa had offered for CR Firenze, but said
it would be a cash deal. “We have a very interesting offer on the table and
one that no other bank can propose. We are confident they will consider it,”
he said.

Intesa Sanpaolo also wanted to increase its presence in the Marche and
Emilia-Romagna regions, said Mr Passera. Together with Tuscany, the three
regions represented areas where Intesa Sanpaolo could have more branches.

The bank, which is one of Europe’s largest with a market capitalisation of
about Euro75bn, is already the largest in Italy.

Mr Passera said the bank would be looking for asset management acquisitions.
“We will be one of the big boys [in asset management],” he said. “In a
couple of moves – if we are capable and lucky enough – we might be in the
top 10 in Europe.”

The emphasis on asset management is a reversal of Intesa’s stance before the
merger. “At Intesa, building a successful asset management company would
have been too expensive and would have taken too long,” said Mr Passera. “In
the new group, we can afford to devote resources and management attention to
this very competitive industry.”

He confirmed a $1.3bn purchase of Ukraine’s Ukrsotsbank had collapsed
because of a lack of authorisation from the country’s central bank. But he
said Intesa Sanpaolo wanted to buy another bank in the region.

As expected, Intesa Sanpaolo announced a series of special dividends. Mr
Passera said there was surplus capital, in part from the sale of branches to
Crédit Agricole of France.

Intesa Sanpaolo will pay out Euro2bn in additional dividends this year and
in 2008, and said there could also be an extra dividend in 2009. But Mr
Passera said a decision on whether to spin off part of Eurizon, Sanpaolo’s
asset management and insurance business, had again been delayed.

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

FT FUND MANAGEMENT: By Fiona Rintoul, Financial Times
London, United Kingdom, Monday, April 16, 2007

The growth story in central and eastern European (CEE) markets is well
known. Poland, Hungary, the Czech Republic and the Baltic countries all
outperformed western Europe in the run-up to their accession to the EU and

Buoyed by rising oil prices and expanding consumer demand, Russia, though a
riskier bet, has also been a top performer.

What goes up must come down, however, or at least slow down, and the eastern
European markets aren’t producing the spectacular returns they once did. Is
it perhaps time, then, to look further east?

The Swedish investment boutique East Capital, a specialist in the CEE
markets, certainly thinks so. No one is writing off the CEE markets or
Russia yet, least of all East Capital, but the Stockholm-based firm thinks
the moment is ripe to mine opportunities in the former Soviet Central Asian

“The powerful expansion of these economies is very reminiscent of what we
have seen in Russia, though at an early stage,” says Aivaras Abromavicius,
manager of the East Capital Bering Central Asia Fund launched in January
this year.

“With over 75m inhabitants, the region has great opportunities in the
banking and finance, consumer goods and telecom sectors, as well as oil and
gas and other raw materials.”

In theory, the East Capital fund can invest in 10 of the former Soviet
republics ranging from large countries such as Kazakhstan, which has a land
mass equal to that of western Europe, and Uzbekistan with 26m inhabitants,
to the smaller nations of the Caucasus, such as Azerbaijan, Georgia and

In practice, however, until recently it has been extremely difficult to
travel in, for example, Turkmenistan, much less invest there, and most of
the fund’s investments – up to 90 per cent – will initially be in
Kazakhstan, by far the most developed market.

“Kazakhstan is the beacon country in the region,” says Michael Denison,
lecturer in comparative politics at the University of Leeds and central
Asian political analyst for Control Risks Group. “It has the backing of huge
natural reserves in metals as well as oil and gas, and it also has quite
sophisticated banking and pensions systems.”

But Kazakhstan is also a story that, to some extent, has already been told.
“Kazakhstan is very well known in the investment community,” says Gregor
Holek, fund manager of equities emerging markets at Raiffeissen Capital

The 16 companies that are quoted locally are also listed on the London or
Toronto stock exchanges. Several of the larger Kazakh companies, for example
the copper mining firm Kazakhmys or leading banks such as Kazkommertsbank
and Halyk Bank, have attracted interest from institutional investors
worldwide. Kazakhmys has been in the FTSE 100 since 2005.

The question, then, really is: what other opportunities exist in the region?
Apart from one investment in Georgia, Mr Holek, who is investing for
Raiffeisen’s Central and Eastern European Fund and its Eurasian fund, both
sold to retail investors, stays away from markets other than Kazakhstan.

Within Kazakhstan he sticks with stocks listed in London and has limited
exposure – 1 per cent within the Eurasian portfolio.

By contrast East Capital, whose fund is for professional investors and was
one of the first to invest in the Ukraine and the Balkan countries, likes to
go deeper.

The company has already invested $400m in the region through its Russian and
central and eastern European funds, and now wants to offer investors
undiluted exposure.

For Mr Abromavicius, a Lithuanian national who saw the growth in the Baltic
countries unfold, these markets are the next big transition story and the
time to get in is now.

“The window of opportunity closes faster and faster,” he says. “In the early
days, you could invest in the Baltics for many years until it became market
saturated and valuations were similar to or even higher than in neighbouring

This window of opportunity closed substantially faster in the Ukraine and
Romania. It will close relatively faster in central Asia as well because
these markets are developing very quickly.”

That may be so – Mr Holek felt Kazakh stocks were already being sold at a
premium before February this year – but these markets remain hugely risky.
Some, such as Tajikistan and Georgia have not yet reached their former
Soviet GDP levels. None has anything resembling a western concept of free

Even in Kazakhstan, the jewel in the crown, the presidential elections did
not meet international standards and the portion of the major companies that
isn’t freely floated is usually controlled by factions related, literally,
to President Nursultan Nazarbayev.

Mr Abromavicius admits that “most of these markets are not yet investable”.
But he wants to be in from the start to take advantage of an expected
consumer boom.

Aside from the large listed Kazakh companies, of which more are expected
with several IPOs in the pipeline, and which Mr Abromavicius says have
excellent management, East Capital does its own research to find its

There are no big foreign investment banks in the region, aside from Deutsche
Bank, and information is limited. “We travel a lot on our own,” says Mr
Abromavicius. “We like it that way.”

It is trailblazing stuff and the risks are not to be underestimated. Then
again, with commodity prices looking like they will remain high for longer,
the region’s huge natural resources, focused in Kazakhstan, Turkmenistan,
Azerbaijan and to a lesser extent Uzbekistan, mean it is most definitely in
investors’ sights, even if, as Mr Denison suggests, “the big players are
holding off until the time is right”.

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5.                          A SCREEN SAVIOUR
    During Ukraine’s Orange Revolution. student activists I spoke to told me
   that a favourite technique for springing their protesting friends from police
     cells was to post the phone number of the police station on the internet.
                Sympathisers would then call, jamming the switchboard.

By Chrystia Freeland, Financial Times
London, United Kingdom, Saturday, April 14 2007

It is a truth universally acknow- ledged that Americans have fallen into the
dangerous thrall of their wired – and wireless – electronic devices. On the
pages of The New York Times, culture vultures have inveighed against e-mails
being sent and received during performances at Carnegie Hall.

Lawmakers in Washington state last month proposed a bill that would make DWT
(driving while texting) a crime. The Wall Street Journal has even published
a solemn 12-step programme on how to give up your addiction. My favourite is
the suggestion that you have a cocktail when you get home from the office,
as a substitute for checking your emails.

Like all public sins in the US – remember Prohibition – electronic addiction
has its own activists and non-governmental organisations determined to set
the nation right.

In 10 days, Robert Kesten, the crusading director of the Center for
Screen-time Awareness, will lead Turn-off Week 2007. He is hoping that at
least 20m will voluntarily go dry, renouncing “televisions, electronic games
and checking personal e-mails!”.

As with so many of our fears, Kesten’s focus is on our children. Too much
screen-time, his group warns, can make kids fat, anti-social and might even
harm their brains.

All the parents I know share these worries and we all devise our own weird
domestic rules: one friend used to allow her child to watch TV only while
having her nails cut. My tortured daughters may only watch DVDs and videos
(not live television) and – lucky girls! – much of their collection is in
Ukrainian or Russian. Most of us are also ambivalent and inconsistent:
Barney DVDs have a “play program continuously” button for a reason

But I sometimes wonder whether some of our electronic addiction anxiety
isn’t just that old Luddite shock of the new, or that older parental
bewilderment at the tastes and habits of our children.

After all, there was a time when reading – the virtuous alternative
advocated by screen turners-off – was itself viewed as subject to misuse.
Plato saw the written word as a pale substitute for live discussion.

In an echo of Kesten’s fear that virtual existence might edge out the real
thing, Proust warned that “reading becomes dangerous when instead of waking
us to the personal life of the spirit it tends to substitute itself for it”.
Jane Austen wrote a whole book – Northanger Abbey – about the distorting
influence of reading and believing too many Gothic novels.

One of the things that can disturb us most is the way our electronic devices
encourage us to mix up worlds, such as work and family, that recent decades
have taught us to keep separate. But that might be one of their virtues. One
Wall Street mother of three tells me e-mail is the only reason she can spend
most weekends at home.

The college-going daughter of a corporate lawyer says her mother’s
omni-present BlackBerry is an essential way of keeping in touch: “If she is
on a conference call or in a meeting she can still reply. It is definitely
the fastest way to reach her.”

Worries about the digital divide notwithstanding, electronic communication
often has the most revolutionary impact on people a long way from Wall
Street. During Ukraine’s Orange Revolution. student activists I spoke to
told me that a favourite technique for springing their protesting friends
from police cells was to post the phone number of the police station on the
internet. Sympathisers would then call, jamming the switchboard.

After a few hours, the beleaguered cops often just let the protesters go.
NYT columnist Tom Friedman reported last week that a single cellphone has
transformed the lives of a group of village women farmers in Kenya, who use
it to check goat prices and so avoid being swindled.

Maybe the real problem isn’t our addiction to our screens – it could be that
we haven’t been addicted long enough. Consider telephones: once upon a time,
their imperious ring gave people instant access to our homes and offices.
Now, thanks to caller ID and answering machines, we have become such
effective call-screeners that the big irritation is not getting through.

Learning how to control our electronic devices is one of the goals of
Turn-off Week. Doing so, Kesten promises, will improve our real
relationships with the real people we love: one of the scary conclusions
from studies of internet use at home is that it decreases the time we spend
with family and friends. But even when it comes to something as tactile as
human relationships, I suspect our screens have a more nuanced impact.

The authors of Send, a new book about e-mail etiquette (co-written by a
friend), warn that it is essentially a flat medium and suggest strategies
for managing its affectless tone. Paradoxically, though, it also turns out
to be a great way to flirt – if you don’t do this yourself, just think
Bridget Jones or You’ve Got Mail.

But make sure your cyber-seductions are above board. As a diverse crew
ranging from Harry Stonecipher, formerly of Boeing, to Julie Roehm and Sean
Womack, formerly of Wal-Mart, has discovered, electronic love is more easily
searched than the real thing. I wonder if that will turn out to be
electronic addiction’s biggest downside of all.
Chrystia Freeland is the FT’s US managing editor
chrystia.freeland@ft.com, More columns at www.ft.com/freeland

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Defense-Express website, Kiev, in Russian 12 Apr 07
BBC Monitoring Service, United Kingdom, Sunday, Apr 15, 2007

KIEV – The Zaliv Shipbuilding Plant, which is part of the AvtoKrAZ lorry
holding company, is full of orders until autumn 2008, the press service of
AvtoKrAZ has told Defense Express.

At the present moment, Zaliv continues fulfilling a series of orders to
build hulls of 15000 DVT chemical carriers for the Norwegian corporation
(?AKEP) and a series of container carriers for the Dutch company Damen.

The strategic task set for Zaliv’s new management involves a gradual
transfer from the construction of partially saturated hulls for Western
European dockyards to the building of fully equipped ships at shipowners’

The key tasks of this strategic programme, if implemented, will help the
plant use its capacity smoothly and in full for the next few years.

At present, the plant is conducting a number of promising negotiations with
Western European customers to conclude contracts for building a series of

The signing of the contracts will help the plant to use its berth lines at
full capacity, while the scheduled reconstruction of the second berth line
will enable the plant to double the number of ships which are built on

The capacity of Zaliv’s dry dock will be used solely for the construction of
large displacement ships like, for instance, ships servicing the
infrastructure of the Northern Shelf, tankers for various purposes,
including chemical carriers, as well as complex types like Ro-Ro, while the
level of saturation for these ships is expected to be higher than that for
the plant’s current orders.

Besides, various variants of building platforms for oil and gas extraction
are also being considered. The consideration of preliminary contract terms
with Zaliv’s prospective customers gives every reason to expect that the
contracts will be signed in the near future.

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Interfax, Kyiv, Ukraine, Saturday, Apr 14, 2007

KYIV – The European Commission is concerned over the fact that the prolonged
political crisis in Ukraine may slow that country’s entry into WTO, and
hinder talks on a new Ukrainian-EU agreement, a representative of the EC
said at a meeting of the Foreign Affairs Committee of the European
Parliament on Thursday in Brussels.

The meeting was to discuss the EU council’s recommendations for the mandate
for talks with Ukraine on the agreement. chairman of the Foreign Affairs
Committee at the European Parliament Jacek Saryusz-Wolski said on Thursday,
adding that the parliament will vote on the document at its session this

The deadline for introducing amendments and proposals to the document is

May 16, while the voting will take place on June 4-5,

Ukraine’s WTO entry may be slowed if the government fails to officially
endorse the report of a working group at the next meeting of the WTO
council, the representative said, adding that this will also slow down
Ukrainian-EU talks on the creation of a free trade zone. The situation may
force the negotiations to be temporarily suspended, he said.

The European Parliament also adopted a new schedule for discussing and
voting on the EU council’s report on the mandate for the talks with Ukraine.

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Inter TV, Kiev, in Ukrainian 1800 gmt 14 Apr 07
BBC Monitoring Service, United Kingdom, Saturday, Apr 14, 2007

KIEV- [Presenter] The political crisis in Ukraine may adversely affect the
country’s economy, Economics Minister Anatoliy Kinakh said during his visit
to the USA.

Nevertheless, his ministry is not going to change the economic growth
forecast for this year – it remains at the level of 6-7 per cent.

If Ukraine remains stable, then the country could receive about 12bn dollars
of investments within the next four years from international organizations
like the World Bank and the European Bank for Reconstruction and

In the framework of the visit Kinakh had negotiations at the US Department
of State. He said that [early parliamentary] election in May is not
realistic because of a legal collision: it is up to parliament to allocate
money for election, but parliament was disbanded following the president’s
order. They did not discuss Washington’s mediation in the crisis.

[Kinakh] With all my respect to mediators, I am against mediators of any
kind being involved in solving our domestic problems. They can advise us,
they can share their experience with us, but we should understand that
neither Washington, nor Moscow, nor Brussels can solve our problems.

It is only our will and sense of responsibility to people, which will help
us to solve our problems. I want so much us to do it on our own.

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Interfax, Dnipropetrovsk, Ukraine, Saturday, Apr 14, 2007

DNIPROPETROVSK – A company from Kazakhstan plans to invest

about $700 million in the construction of a new ferroalloys plant in Ukraine,
a spokesman for the Dniprodzerzhinsk mayor’s office told Interfax.

Construction of the plant in Dniprodzerzhinsk will begin in 2007. The

plant will be built in the northern part of the industrial site of the former
Pridniprovsky Chemicals Plant.                         -30-
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Interfax, Kyiv, Ukraine, Saturday, Apr 14, 2007

KYIV  – The Ukrainian Antimonopoly Committee has allowed Cyprus’s Fess
Enterprises Limited to acquire a stake in the charter fund of LLC
Euroservice-Ukraine, a Kyiv-based sugar processor, the committee’s press
service told Interfax.

Euroservice-Ukraine works in the wholesale trade of sugar. The company
handled more than 5% of sugar beet production in Ukraine in 2006. It owns
five sugar plants, which processed 1.173 million tonnes of sugar beet in
2006 and produced 140,900 tonnes of sugar.

Fess Enterprises has been allowed to acquire a stake that will give it more
than 50% of the votes in the upper management of Euroservice- Ukraine, a
press service representative said. The committee said Fess Enterprises’ main
area of activity is asset management.                    -30-
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    Ukrainian ruling party accused of embezzling 140m dollars to fund elections

ANALYSIS: By Ukrayina Moloda, Kiev, in Ukrainian 11 Apr 07,
BBC Monitoring Service, United Kingdom, Sunday, Apr 15, 2007

The Finance Ministry and the Naftohaz Ukrayiny have carried out a shady
transaction of about 140m dollars right after President Yushchenko

dissolved parliament, the progovernment newspaper has said.

The author suggests that the money might be spent to finance the election
campaign of the ruling Party of Regions in the early parliamentary
elections, which are scheduled for 27 May.

The following is an excerpt from the article entitled “Hundred of millions
for the Party of Regions” published by Ukrayina Moloda newspaper on 11

The government coalition is getting ready for the elections and 700m
hryvnyas have already been stolen from the treasury account.
It looks like the anticrisis coalition realizes that it has not much time
left to rule the country.

Therefore, not a day is missed in the effort to make the most use of it for
personal profit. Since the embezzlement of state funds has always been and
remains the primary activity for Viktor Yanukovych’s government, we witness
more and more of new schemes to “pump out” the money from the state


We have four very interesting documents that beautifully illustrate one of
such schemes.

Businessmen who import products to Ukraine know very well the rule to pay
part of the cost to the customs before bringing the product to Ukraine. The
sum roughly equals the value added tax that they will have to pay to the

The logic of lawmakers is clear: the money turns out on state accounts in
advance and it will be impossible to fool the customs.

The customs keep this money on a special account. In case of force major, if
the product does not cross the border, the money may at once be returned to
the businessman.

There was time when these deposits were transferred via a commercial bank
and later it was decided to move them to the State Treasury, the structure
that is directly subordinated to the Finance Ministry.

When this decision was made, it did not cross anyone’s mind that one day the
Finance Ministry would live through its dark days and will be headed by an
expert in shadow schemes, Mykola Azarov. [Passage omitted: Azarov’s

Finance Ministry earlier illegally refused to finance the Foreign Ministry]

On 30 March 2007, the Naftohaz Ukrayiny [oil and gas trading] company
transferred 696.924m hryvnyas to the account of the regional fuel customs
service. Naftohaz Ukrayiny planned to pay roughly the same amount of money
to the state in the form of the value added tax.

The same day the fuel customs service transferred the money to its account
in the State Treasury. And then, something inconceivable took place and
almost 700m hryvnyas disappeared like in the Bermudas triangle.

On 2 April, the first deputy of the head of State Treasury O. Danevych
signed a letter which demonstrates either his entire professional
incompetence or an intention to break the law.

The date is also interesting, since it was the same day when the political
establishment found out exactly that the president decided to dismiss
parliament and appoint early elections.

In his letter, Danevych informs the customs that “the State Budget does not
envisage payments of VAT to the special fund”. So, all the money…[ellipsis
as published] was sent back allegedly to the Naftohaz account.

None of the experts who carefully studied the documents could understand

why a routine account of the custom service is called in the letter a special
fund. How could an official of such level fail to notice that no special
fund was anywhere near?

Normally, in this case the officials complain that they were set up by their
subordinates: they were in a hurry and did not see what they were signing.

This is not going to work in this situation because Mr Danevych set his
subordinates up. In the previous letter, he assigned a task to the main
directorate of the State Treasury in Kiev: as soon as 696m hryvnyas appear
it must be returned to the accounts of Naftohaz Ukrayiny.

It is practically impossible to trace the money without Mr Azarov’s good
will. The money was transferred from the account and nobody knows what

was next. It is not ruled out that a part of the money, although insignificant,
was returned to the Naftohaz.

The rest of the money vanished into thin air. Successors of the current
government may try to find the money. The Yanukovych government does

not try very earnestly to conceal the deal.                     -30-
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TV 5 Kanal, Kiev, in Ukrainian 1925 gmt 12 Apr 07
BBC Monitoring Service, United Kingdom, Friday, Apr 13, 2007

KIEV – The cabinet of Viktor Yanukovych has resumed the practice of
political persecution of its opponents, Ukrainian TV said.

Similar practice paved the way for the Orange Revolution of 2004, which
effectively ousted then Prime Minister Viktor Yanukovych and former
President Leonid Kuchma, the TV added.

The weekly investigative programme “No-go area” on the 5 Kanal commercial TV
channel on 12 April reported about measures taken by the Yanukovych cabinet
to uproot the popular People’s Self-Defence opposition movement led by
former Interior Minister Yuriy Lutsenko.

“Prime Minister Viktor Yanukovych put this in no uncertain terms at a news
conference,” TV said. “Does our country currently need this marches? What if
someone uses arms during these marches?

Whoever does not allow people to live in peace in this country, whoever
scares people, mothers and force their children to take part in some
marches, I will find legal solutions and I will never allow this to happen,”
the programme showed a clip from Yanukovych’s news conference.

“Escalation is under way in this country which can have grave consequences.
The opposition is calling for a march on Kiev. We are observing the spring
aggravation of political schizophrenia now. We have to stop this political
schizophrenia,” Tsushko echoed Yanukovych on 17 March.

These words were immediately acted on, the TV said. The danger of
totalitarism returning to Ukraine is as real as never before, the
programme’s presenter Volodymyr Aryev said.

The programme went on to report about an arms cache allegedly planted in the
basement of the apartment block in Kiev, where the People’s Self-Defence has
its office. Activist Yaroslav Hodunok says that the incident involving the
arms cache reminded him of the events in the run-up to the Orange

He said that he easily recognized the work of “a deputy interior minister”,
which he had already witnessed in 2004 when arms were also planted in his

Yuriy Lutsenko recalls a search in his apartment in March 2006, which was
sanctioned by deputy Prosecutor-General Renat Kuzmin. Lutsenko said that

the latter set up an investigative team involving 12 officers to investigate
Lutsenko’s alleged abuses.

This team is comparable in size to the teams which investigated the
poisoning of President Viktor Yushchenko or the death of opposition
journalist Heorhiy Gongadze, he said.

Video shows officers from the Prosecutor-General’s Office in Lutsenko’s
flat. TV says that the Prosecutor-General’s Office charged Lutsenko with
holding an Israeli passport and having violated the procedure of
presentation weapons when he was the interior minister just to force him to
give up his opposition activities.

Lutsenko told the programme that the search was ordered by Kuzmin and that
Prosecutor-General Oleksandr Medvedko learnt about the search post-factum.
Kuzmin received an order to intimidate Lutsenko from the “Donetsk political
group”, Lutsenko added.

Activist Yaroslav Hodunok says that soon after an arms cache was found near
his flat, the police attempted to arrest him. He adds that he found bugs in
his office. Video shows a police mini van near the office, which moved away
after filming began. The programme says that searches were conducted in
flats or offices of other opposition activists in Kiev.

Lutsenko goes on to say that most police officers and prosecutors do not
want to be involved in acts of provocation against the opposition. Before
signing off Aryev says that the government “which is using the same methods
as in 2004 is doomed”.                              -30-

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Zerkalo Nedeli, Kiev, in Russian 14 Apr 07, p 1
BBC Monitoring Service, United Kingdom, Saturday, Apr 14, 2007

KIEV – According to a telephone poll conducted by Ukrainian Institute of
Social and Political Psychology on 9-10 April, 60 per cent of Ukrainians
favour President Viktor Yushchenko’s decree disbanding parliament, the
Ukrainian newspaper Zerkalo Nedeli reported on 14 April.

According to the poll, 60 per cent of the respondents consider that by
issuing the decree, Yushchenko wanted to ensure the observance of human
rights and put an end to the usurpation of power.

This opinion is shared by every third resident polled in Donetsk Region,
every second resident in Kiev, 90 per cent of those polled in
Ivano-Frankivsk, 46 per cent in Dnipropetrovsk and by over 55 per cent of
those polled in Sumy and Cherkasy, the paper said.

Over 50 per cent of those polled in Donetsk, Odessa and Kharkiv consider
that the president’s decision reflects his personal interests, Zerkalo
Nedeli said.

The poll showed that 65 per cent of those polled expressed readiness to take
part in a snap parliamentary election scheduled for 27 May, Zerkalo Nedeli
said. In all, 2, 600 persons from Ukraine’s 15 regions were polled, the
paper added.                                          -30-

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Contrast to Orange Revolution ascribed to new priorities, complicated politics
Tom Nicholson, Spectator staff, The Slovak Spectator
Bratislava, Slovak Republic, Saturday, April 14, 2007

Contrast to Orange Revolution ascribed to new priorities, complicated
politics AS A POLITICAL crisis in Ukraine triggered by President Victor
Yushchenko’s decision to disband parliament and hold early elections entered
its second week, foreign diplomats and well-wishers travelled to Kiev
offering to help broker a solution.

Slovakia, despite having declared Ukraine its foreign policy priority in
2004, was not represented, nor did it issue any official statements on the

Ukrainian Prime Minister Viktor Yanukovych, whom Yuschenko accuses of

trying to oust him, met on April 12 with Lithuanian Prime Minister Gediminas
Kirkilas and reassured him that the crisis would not affect Ukraine’s foreign
or economic policy.The country is a major transit route for natural gas to
European markets.

A group of European Parliament members was also in Ukraine on a mediation
mission, with EP deputy speaker Marek Siwiec urging European lawmakers to
pay more attention to what he described as “a power struggle”.

Yuschenko and Yanukovych are old foes from Ukraine’s Orange Revolution in
2004, when Yuschenko won a repeat presidential vote after Yanukovychs
victory in the first round was found to have been accompanied by massive
election fraud.

Following the defection last month of some MPs in the Ukraine parliament to
Yanukovychs ruling coalition, Yuschenko accused the government of trying to
gain enough support to impeach him, and shut the legislature down.

The parliament has continued to meet, however, while Yuschenko insists new
elections will be held on May 27.

Siwiec said the European Parliament and the European Union should “change
their attitude to what is happening in Ukraine, since if we allow the crisis
to escalate it could threaten European interests and Ukraine’s European

” Even former Polish President Aleksander Kwasniewski has been on hand to
mediate between the two Ukraine leaders. Kwasniewski played a major role in
brokering an agreement during the Orange Revolution.

However, in Slovakia, Foreign Ministry spokesman Jan Skoda said his ministry
would not comment on a situation it regarded as an internal matter of

“We are monitoring the situation on a daily basis, and of course we support
all democratic forces in Ukraine,” he told The Slovak Spectator. “What we
are doing is adequate for the situation. We cannot compare what is happening
to the Orange Revolution.

“Priorities Following Juschenkos victory over Janukovych in early 2005,
then-Prime Minister MikulaS Dzurinda said in an interview with The Slovak
Spectator that “today we are going to pay even closer attention to Ukraine
than yesterday. Slovakia will offer Ukraine all of its experiences gained
from reform.

“The country was praised for its engagement on Ukraine by US President
George W. Bush during his speech in Bratislava at the Bush-Putin summit in
February 2005.

However, the programme statement of the Fico government from August last
year makes no mention of Ukraine as a priority, and stresses that “the
economic dimensions” of foreign policy will be “thoroughly strengthened”.

High-level contacts with Ukraine have continued under the Fico government,
including visits by Fico and Foreign Minister Jan KubiS this year and
Defence Minister FrantiSek KaSicky and Speaker of Parliament Pavol PaSka in
late 2006.

Foreign policy analyst Alexander Duleba of the Slovak Foreign Policy
Association said it was too early to tell what the nature of Slovakias
interest in Ukraine would be under the new administration – whether
business, or Ukraine’s democracy and Western integration.

“In Slovakia there is no public pressure, no demand for the Foreign Ministry
to respond,” he said. “The situation in Ukraine is also very complicated,
because it is possible to cast doubt on what both Juschenko and Janukovych

“Moreover, Kwasniewski is in Ukraine because that country is part of Polands
internal domestic discourse, whereas there is no public discourse on Ukraine
in Slovakia. We had a debate on Turkey and Kosovo, but never Ukraine.

” Duleba added that “personally, I would have expected the Foreign Minister
to say something on the subject,” noting that as the head of the OSCE, KubiS
along with Kwasniewski had played a key role in resolving the 2004 crisis.

However, he added, as long as high-level contacts remained, and Slovakia
continued at least formally to support Ukraine’s integration to NATO and the
EU, “I don’t see it as any kind of tragedy.

” For Martin Lengyel, a former spokesman for Dzurinda who served as a
campaign advisor to Juschenko in 2004, Slovakias current silence on Ukraine
is not helping its Western integration prospects. “Of course we should be
more engaged,” he said.

“Even though EU membership for Ukraine is in the distant future, we should
be talking with them about it and pulling them towards the West. The danger
is that if we dont pull them towards the West, they will drift towards

” Prime Minister Yanukovych supports close relations with Russia, and
rejects NATO entry for Ukraine because he says most Ukrainians oppose it.
“Compared to this administration, the Dzurinda government was extremely
involved,” said Lengyel.

“This government is different. It should be engaging with Ukraine, and not
just paying visits with airplanes full of businessmen.”           -30-

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15.                   ‘COLOR’ REVOLUTIONS IN LIMBO

Jim Heintz, AP Online, Moscow, Russia, Saturday, Apr 14, 2007

MOSCOW – The scenes from Kiev and Bishkek are unsettlingly familiar:
thousands of demonstrators crowding the central squares of the capitals of
Ukraine and Kyrgyzstan, waving banners and shouting demands.

Less than three years ago, similar protests helped propel reformist
politicians into both countries’ presidencies, raising hopes that democratic
movements across the former Soviet Union would triumph over regimes

marked by corruption, stagnation and manipulated elections.

The future, briefly, seemed as bright as the cheery names the demonstrators
adopted – Ukraine’s Orange Revolution, Kyrgyzstan’s Tulip Revolution.

But within a few months both countries were mired in political crises that
seemed to recur like a case of malaria – a raging fever, some relief, and
another case of the chills and the sweats. The only difference this time,
perhaps, is that the presidents who came to power after the revolutions are
themselves in jeopardy.

Georgia, whose Rose Revolution of 2003 was the first of the so-called “color
revolutions,” has not seen mass protests like Ukraine’s and Kyrgyzstan’s.
But even there, disappointment and dissatisfaction are brewing.

Analysts, though, aren’t ready to call any of them outright failures. And in
Russia some watch the turmoil with longing, saying the clash of opposing
forces in those nations is preferable to their own country’s gray, grim

Kyrgyzstan’s revolution came after Georgia’s and Ukraine’s, and its
honeymoon period was the shortest.

Kurmanbek Bakiyev became acting president in March 2005, after a mob of
demonstrators drove President Askar Akayev into exile. Three months later,
thousands stormed the government headquarters to protest the
disqualification of a presidential candidate.

Protests broke out again in the months after Bakiyev was elected in what
Western observers called the most free and fair election ever held in former
Soviet Central Asia, and tensions since then have only increased.

Michael Hall, an analyst in Bishkek for the International Crisis Group, said
much of the dissatisfaction stemmed from Bakiyev’s efforts to strengthen the
presidency, partly driven by how easily Akayev was driven out. “He wanted to
ensure the same thing didn’t happen to him,” Hall said.

But Bakiyev also was saddled with a particularly contentious parliament –
the body whose election had sparked the March protests. The bold
legislature, power struggles between the country’s southern and northern
clans and Bakiyev’s inability to rein in corruption and bolster the economy
all have kept Kyrgyzstan in a state of political turmoil.

But Hall said Bakiyev’s recent concessions to curb his own power and his
appointment of an opposition figure as prime minister could eventually
mollify his critics.

Although Ukraine also has a bumptious parliament, its presidency is
relatively weak. That left the country in a chronic power struggle between
the executive and legislative branches.

The parliamentary majority consists of opposition politicians who won their
seats a year ago in elections dominated by disappointment in President
Viktor Yushchenko’s inability to implement reforms.

The current protests broke out after Yushchenko ordered parliament
dissolved, claiming his legislative foes were trying to usurp power. The
Constitutional Court is to rule on the order’s validity.

Ukraine’s crisis isn’t proof the Orange Revolution failed, said Steve Pifer,
a former U.S. Ambassador to Ukraine, now an analyst with the Center for
Strategic and International Studies.

“What you have is hardball politics, but it’s still essentially democratic
… a fight between the democratically elected president and the
parliamentary majority that was chosen in democratic elections,” he said.

However, Yushchenko remains in a delicate position. New elections would
likely swell the ranks of the opposition in parliament, recent polls
indicate; if the court rules his order was unconstitutional, the parliament
likely would try to impeach him.

Georgia has not seen large scale protests since its 2003 Rose Revolution
despite hardships created by economic reforms and a growing gap between

rich and poor.

The country voted in a new parliament just two months after Mikhail
Saakashvili was elected president – while post-revolution optimism was still
high – and the body is dominated by his supporters. Georgia’s comparative
political stability is also bolstered by concern about neighboring Russia,
said Soso Tsintsiadze of the independent Diplomatic Academy.

“One factor unifying the population of Georgia is the fact that Russia has
stood and stands for conflict in Abkhazia and South Ossetia,” two separatist
regions inside Georgia’s borders, Tsintisadze said.

For all the problems afflicting the post-revolution countries, they still
look good to some in Russia, where opposition forces are increasingly

“Oh, how I envy our neighbor,” commentator Boris Vishnevsky wrote of

Ukraine in the newspaper Novaya Gazeta. “They have a vibrant life and
movement toward the future, despite mistakes and stupidity. ”   -30-
Jim Heintz, The Associated Press’ Moscow news editor, covered the
“color revolutions” and their aftermaths in 2003-2005
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
Ukrayinska Pravda website, Kiev, in Ukrainian 13 Apr 07
BBC Monitoring Service, United Kingdom, Saturday, Apr 14, 2007

KYIV – Ukrainian Prime Minister Viktor Yanukovych has called a statement
made by the Russian Duma [the lower house of the Russian parliament] on the
situation in Ukraine “a normal practice”. Yanukovych said this in an
interview with the Polish media, the prime minister’s press service has

Asked to comment on the Russian Duma’s direct assessment of Ukrainian
President Viktor Yushchenko’s decree [of 2 April on dissolving parliament
and calling an early election], Yanukovych said: “This is a normal practice.
This is Duma, they are politicians, MPs.

If they are voicing their views on the political level, one should take this
easy. In any country, MPs are politicians. When they express their point of
view, they express their own political point of view.”

The prime minister reiterated that the Ukrainian authorities share the same
stance on the country’s foreign policy. “Attaching tags to the Ukrainian
authorities – pro-Western or pro-Eastern – is not of benefit to Ukraine,” he

“We are in a 100-per-cent agreement on the country’s European integration.
We are now working together on the preparation of documents that have to do
with a new agreement with the European Union for the next 10 years. We are
unanimous on this,” Yanukovych said.

As for Euro-Atlantic integration, the prime minister said that he [and the
president] are supporting different approaches. “What do we disagree on? We
disagree the fact that the NATO-entry rhetoric is being repeated over and
over again.

This produces nothing but irritation in society. Such rhetoric has yielded a
negative result, and society’s support for joining NATO has hit its record
low, with less than 20 per cent,” Yanukovych said.

“This is why I believe that the issue of joining NATO should be removed from
the agenda. We can only talk about expanding cooperation with NATO, reforms
that have to start. NATO requires not just military reforms, although
military reform is under way now too,” the prime minister said.   -30-

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

ICTV television, Kiev, in Ukrainian 0945 gmt 15 Apr 07
BBC Monitoring Service – United Kingdom, Sunday, Apr 15, 2007

KIEV – The People’s Self-Defence Bloc of Yuriy Lutsenko has approved an
election list to take part in early parliamentary election scheduled for 27

Leaders of parties forming the bloc admitted they had wanted to run for
parliament jointly with the propresidential Our Ukraine party, but after
their offer to form a large bloc of democratic forces was rejected, they
questioned the possibility of unity between democratic forces in future

The following is the text of a report by Ukrainian ICTV television on 15

[Presenter] Members of opposition forces continue preparations for early

The People’s Self-Defence Bloc of Yuriy Lutsenko approved its election lists
this morning. The number one on the list is [former interior minister] Yuriy
Lutsenko himself. Other political parties which joint the bloc are Forward,
Ukraine! and the Ukrainian Christian Democratic Union [the latter being a
part of the pro-presidential Our Ukraine at the last parliamentary election
in March 2006.]

Members of the People’s Self-Defence Bloc say they wanted to join the Our
Ukraine Bloc’s election lists, but they were rejected.

The peculiar feature of the People’s Self-Defence Bloc of Yuriy Lutsenko is
a great number of young people never seen in big politics before.

The leaders of the parties of the bloc admit that they are not certain about
the unity of all the opposition forces if the early election to parliament
takes place.

[Volodymyr Stretovych, captioned as leader of the Ukrainian Christian
Democratic Union Party] It was very painful for us to learn about the
position of Our Ukraine, which refused to form an election bloc with us and
insisted on individual membership. After six years of captivity [of Our
Ukraine], now we have to choose a new partner, but the future will show that
we were right.

[Viktor Musiyaka, captioned as leader of the Forward, Ukraine! party] Again,
many questions appear when setting up pre-election democratic structures:
some want to take part in the election on their own, others put forward
conditions to set up a bloc.

Some political forces are not going to set election blocs at all. This is an
alarming signal showing that if these forces make it to parliament, it will
be difficult to unite them later.

[The 5 Kanal television channel at 1100 gmt showed Yuriy Lutsenko calling

on democratic political forces to unite and tell their intentions regarding
future actions in parliament before the election. “I am calling for unity
and openness, calling on everyone.

If we are now talking about unity of democratic forces, I would like the
leaders of every democratic bloc to tell, whether a so-called grand
coalition is acceptable to them. If it is so then this is a surprise for us,
but we have to learn this before they are in parliament,” Lutsenko said.]

[return to index] Action Ukraine Report (AUR) Monitoring Service]
     You are welcome to send us names for the AUR distribution list.
            This time, it’s foes of Orange Revolution in Kiev’s main plaza

Alex Rodriguez, Chicago Tribune, Chicago, Illinois, Sunday, April 15, 2007

KIEV, Ukraine — Amid a sea of orange flags and banners crammed into a small
downtown roundabout, Vyacheslav Kireichuk angrily jabs his finger toward
Independence Square about 200 yards away.

There, thousands of opponents of President Viktor Yushchenko have seized
what Kireichuk regards as sacred ground — the place where the Ukrainian
democracy movement known as the Orange Revolution all began.

They have hunkered down in canvas tents in and around the square, just as
Kireichuk and thousands of other Orange revolutionaries did in the frigid
winter of 2004. And they have been dancing in the plaza day after day, just
as Kireichuk’s compatriots did.

The Maidan, as Ukrainians call Independence Square, “is where I stood for so
many days in the snow for the sake of the revolution,” Kireichuk says,
spying legions of countrymen draped in the opposition’s color, sky blue.
“Looking over to the Maidan today, I feel as if this place has been

In the topsy-turvy world of Ukrainian politics, about the only thing anyone
agrees on these days is that their country is in the throes of another
political crisis — the latest in a series of crises that have dogged
Yushchenko’s presidency ever since the Orange Revolution launched him into

The latest imbroglio, however, is by far the country’s worst since the
revolution, pitting Yushchenko on one side against Prime Minister Viktor
Yanukovych and parliament on the other, with the country’s constitution
hanging in the balance.

And for every Orange devotee like Kireichuk, you’ll find a sky blue-clad
loyalist of Yanukovych who says it’s Yushchenko, the Orange movement’s
leader, who has made a mess of Ukraine’s politics and economy.

After seeing his presidential powers steadily eroded by Ukraine’s
Yanukovych-led legislature, Yushchenko on April 2 decided to fight back by
ordering the dissolution of parliament. He said new parliamentary elections
would be held May 27, just 14 months after Ukrainians elected the current

Yushchenko and Yanukovych had been at loggerheads since Yanukovych’s Party
of Regions won the largest share of votes in the March 2006 parliament
election. For Yushchenko, however, the last straw came with the defection of
11 lawmakers from Yushchenko’s Our Ukraine party and Orange ally Yulia
Tymoshenko’s bloc over to Yanukovych’s ruling coalition.

The defections gave Yanukovych 260 lawmakers in the 450-seat parliament,
drawing him closer to the 300-vote supermajority he would need to override
any Yushchenko veto.

Yanukovych and his allies have refused to abide by Yushchenko’s decree and
have continued to work in parliament. They also have bused thousands of
Ukrainians from Yanukovych’s support base in the east and south to Kiev’s
Independence Square to demonstrate daily against Yushchenko’s decision.

The impasse has been put in the hands of Ukraine’s Constitutional Court,
which is expected to begin discussing the legality of Yushchenko’s decree

They were scheduled to begin their work last week, but hearings were
postponed after five of the court’s judges complained they were being
pressured by Yanukovych’s allies.

For many Ukrainians, the latest political row has left them deeply
disillusioned about the value of the Orange Revolution, a milestone that was
supposed to mark an end to years of post-Soviet corruption and political
                                REELING PRESIDENCY
Instead, Ukrainians have anxiously watched as Yushchenko’s presidency has
reeled from one crisis to the next. Yushchenko’s partnership with Tymoshenko
broke down long ago.

Corruption allegations have brought down other key members of Yushchenko’s
circle. In the March 26, 2006, parliament election that resurrected
Yanukovych’s place in Ukrainian politics, Yushchenko’s party finished a
distant third.

“Right now, the overriding sentiment in Ukraine is one of lost opportunity,”
says Volodymyr Polokhalo, a Kiev-based political analyst. “After the
revolution, Yushchenko had a chance to make so many changes and reforms to
improve politics, the economy, the judicial system. But he didn’t do it.”

So far, Yushchenko has refused to back down, though on Thursday he said he
would be willing to postpone the holding of early parliament elections to
ease the crisis. “This is a political crisis, and politicians must use their
best skills to make sure that this conflict is resolved by political means,”
Yushchenko said at a news conference in Kiev. “This is the best way.”

Yanukovych says he won’t agree to early parliament elections unless they are
accompanied by an early presidential election, a contest Yanukovych’s allies
believe their leader is in an ideal position to win.

The standoff is being eyed closely by the West, which regards Yushchenko as
a pivotal ally wedged between the European Union’s easternmost border and
Russia. Yushchenko has been actively pursuing Ukraine’s possible membership
in NATO, despite strong opposition from Yanukovych and much of Ukraine’s

Further weakening of Yushchenko’s authority in Ukraine jeopardizes the
country’s pro-West agenda, says Vadim Karasyov, an analyst with the
Kiev-based Institute for Global Strategies.

“This crisis is demonstrating to the West just how unstable Ukraine is right
now,” Karasyov says. “It suggests we haven’t reached a certain level of
development. No matter who comes out the winner, I’m afraid this instability
will go on for many years.”

Such dire forecasts may have more to do with Ukraine’s history than with its
current cast of political players. Ukraine’s pro-Yushchenko western and
central regions are oriented culturally and economically toward Europe,
while the eastern and southern sections of the country are staunchly
pro-Russian. Ukrainian is spoken in the country’s western half, Russian in
the east.

Many in Ukraine believed that the momentum the Orange Revolution supplied
Yushchenko would give him the clout he needed to erase Ukraine’s east-west

By rallying thousands of orange-clad Ukrainians to Independence Square every
day for several weeks in 2004, Orange movement leaders mustered enough
support to overturn rigged election results that would have given the
presidency to Yanukovych instead of Yushchenko. A rerun election was held,
which Yushchenko won with 51.9 percent of the vote.

However, even members of Yushchenko’s Our Ukraine party acknowledge that
Yushchenko didn’t do enough to unify the country after the rerun.

“Yes, we can blame him because right after he was elected, he didn’t act
decisively,” says Yuri Artemenko, an Our Ukraine lawmaker. “This division
between east and west just festers and worsens. And I’m afraid new elections
won’t help. The only hope is to negotiate.”
                         MEETINGS YIELD NO PROGRESS
Yushchenko and Yanukovych have been meeting regularly, but neither side has
shown signs of backing down. Appearing onstage before thousands of his
supporters at Independence Square on Wednesday, Yanukovych made it clear he
was digging in his heels.

“Two and half years ago, there were people here under a different flag — an
orange flag — and they promised a happy life,”

Yanukovych said. “Did we get that happy life? I don’t think there is anyone
in Ukraine who is happy with their life. … Today we have crisis, and it
has a visible negative impact on every person and every family.”

Yanukovych asserts that the president’s order to dissolve parliament was
illegal and tantamount to a coup. He has ordered his government to not pay
for the holding of new parliament elections.

Constitutionally, Yushchenko has the power to dissolve the legislature and
order new elections under certain circumstances. In this case, he said
Yanukovych and his allies violated the constitution by recruiting opposition
lawmakers over to Yanukovych’s side.

According to Ukraine’s Constitution, parliament is elected on the basis of
political party factions, not individuals. Switching parties, therefore, is
unconstitutional in Yushchenko’s view.

Both sides have agreed to abide by whatever decision the constitutional
court makes, but that ruling could take weeks. On Independence Square,
Yanukovych’s supporters insist they’re willing to wait, in part because they
are in no big hurry to relinquish the Maidan.

“Being here on the Maidan, it means we’re the winners now,” said Alexander
Elytch, 26, of Zhitomyr in central Ukraine. “The Orange camp, they had their
chance and lost it. They promised so much, and never kept their promises.”

Contact: ajrodriguez@tribune.com
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

UT1 State TV, Kiev, in Ukrainian 1000 gmt 12 Apr 07
BBC Monitoring Service, United Kingdom, Friday, Apr 13, 2007

KIEV – Ukrainian President Viktor Yushchenko has said he will not back down
on disbanding parliament and his dissolution decree remains in force.

Yushchenko was speaking at a two-hour press conference that was broadcast
live by three national TV channels, he said the election may be delayed from
the originally planned date of 27 May, but refused to make public a number
of proposals he made to Prime Minister Viktor Yanukovych as a way of ending
the crisis.

Yushchenko said he would obey any Constitutional Court ruling on the
legality of parliament’s dissolution, and ruled out the use of force. He
also rejected Prime Minister Viktor Yanukovych’s demands that a presidential
election be held as well should the parliamentary polls go ahead.

The following is an excerpt from Yushchenko’s press conference broadcast

on Ukrainian state-owned television UT1 on 12 April:

Respected journalists, first of all, it is a great honour and pleasure for
me to meet you today. I want to greet all of you, both Ukrainian and
international journalists. I am sure you all came here to learn the truth
about what is going on in Ukraine and what are the predominant processes.

To start with, I would like to say there is no tragedy in Ukraine. Ukraine
is following the democratic path. Problems arise while Ukraine is following
this difficult path.

What is most important for me as the president is for my nation to provide a
democratic response to such problems and to find a democratic answer to the
challenges along this way. This is the essence, I believe. The rest is
emotions which should not be taken into account.

The situation in Ukraine is stable and under control. I am confident that
today the Ukrainian nation shows itself to be European and tolerant, even
though there can be differences in the views of political forces or parts of
society on some issues.

The second thesis I would like to share with you will bring more clarity to
the understanding of today’s political situation.

My decree on dissolving the Supreme Council of the fifth convocation must be
complied with as it has entered into force. This is the main political
reality that the Ukrainian people are living in today. The other political
reality is that the president is not going to repeal the decree.

I would like to stress once again that the parliament dissolution is not a
goal in itself for me. This is the only means of turning the political life
in Ukraine into the lawful track. This is the only means. [Passage omitted:
MPs need to be responsible; background of political conflict]
After the consultations [with the prime minister, speaker and political
leaders on 2 April], the parliament speaker asked me for a separate talk. I

The talk started with discussing what actions the president believed needed
to be taken in order to regulate the situation. I told the speaker there
were three options.

[1] The first one, which I preferred, was to adopt a single package of
common activities, starting with how to return to parliament the over 200
MPs who were boycotting parliament sessions.

In other words, it was about starting urgent negotiations within the
coalition of parliamentary factions and seeking understanding within
parliament because, above all, this is a parliamentary crisis.

[2] The second thesis is that in order to avoid what happened on 22-23 March
[when individual opposition MPs chose to join the parliamentary coalition],
it is necessary to adopt a law introducing amendments and addenda to the law
on MP status with regard to the binding norms.

The current wording of the law on the Cabinet of Ministers needs to be
cancelled, as the prime minister and speaker said. It is necessary to adopt
the provisions of the declaration of national unity at the level of law and
to develop these priorities into legal norms, not just declarations.

[3] The next issue is to create a joint working group on amendments and
addenda to the constitution because the political crisis may be exacerbated
because of some unsettled issues pertaining to the system of checks and
balances and the functioning of government bodies. Certainly, we discussed
the need to adopt some other laws, including one on the opposition.

To put it briefly, we discussed a package [of laws] which could have been
adopted by parliament within several days had it had the will to do this. As
I understood it, the parliament speaker received the president’s position

Although I added that if the package was not approved, I, as the president,
would like parliament to resign of its own free will because it failed to
provide responses to the crucial challenges of the political situation.

If this were not done, there would be the third option – the president’s
decree on the parliament dissolution. Having reached the understanding that
the adoption of the package amendments would be preferable, we said good bye
to each other.

At about 1930 [1630 gmt], I learnt that the parliament speaker called an
urgent meeting. Between 2000 and 2100, I made five or six phone calls to the

I was trying to say, Oleksandr Oleksandrovych [Moroz], we agreed that at
1000 tomorrow you would report to MPs on the outcome of our talk so that we
could come up with a package of proposals, invite the parliamentary factions
to sit down for talks and discuss this package of proposals put forward by
the president.

The parliament speaker said he had this urgent session for briefing
purposes. Fifteen minutes later, I learnt that a draft resolution was being
prepared. I warned the speaker against adopting any decision today.

First, half of MPs are absent from the session hall. Second, the president
is not familiar with the decisions that you are going to make. It would be
better for us to coordinate our steps.

Nevertheless, the preparations for an urgent meeting were under way. At
2045, I learnt from credible sources that one of the resolutions being
prepared concerns the dissolution of the Central Electoral Commission.

At 2055, I called the parliament speaker with a final request to stop all
initiatives in this format since they make relations destructive, above all
within parliament.

The speaker told me he could not come to a parliament session without a
draft resolution. My last phrase was Oleksandr Oleksandrovych, you act
according to your conscience, I will act as the constitution tells me. At
2100, I signed the decree to disband the Supreme Council of the fifth

                                      LEGAL ASPECTS
We will move on to the legal side of this issue. I would like to turn your
attention to two aspects of the statements made on 22 and 23 March:
individual applications [to join the coalition] and the addition of
parliamentary factions to the majority.

I would like to state firmly and unambiguously that the Ukrainian
constitution foresees only one format for forming a majority coalition. This
format is formed on the basis of a coalition of factions – full stop.

Article 83 of the constitution does not foresee any other – individual or
group – membership. This is an imperative principle, which is not open for
discussion. This principle is binding.

What’s more, if we talk about the time limits for forming the coalition, the
article continues – a coalition of factions in the Supreme Council of
Ukraine [parliament] is formed within one month from the day of the opening
of the first session of the Supreme Council.

Nine months have passed, esteemed colleagues, and we are raising the
question in parliament of new members of the coalition and formation of a

So I proceed from the undeniable fact that when a coalition is formed in
this way by a majority of factions, as occurred on 22-23 March, the
constitution was blatantly violated and the majority coalition of factions
was reformatted outside the legal bounds.

I would like to emphasize that the most recent parliament election that took
place in March last year was the first election in the history of Ukraine
that took place on a purely proportional basis. A proportional basis means
competition of parties and not of first-past-the-post candidates.

This is a competition of political programmes. This is a competition of
parties that, on entering parliament, form factions. The coalition of
factions is a majority coalition.

This is the simple logic of the entire constitutional process that the
coalition should formed exclusively in this manner. There are no two views
on this.

Today none of the political forces has appealed to parliament on this
position. This is the essence of the violations that occurred on 22-23
March. So I testify that this is a blatant violation of the constitution.

In this way, the formation of a majority coalition bypassing the
constitution means the decisions of this coalition are illegitimate. Because
you know that in the hall of the Supreme Council apart from this coalition,
most MPs from other factions do not take part in sessions.

So I continue the logical chain further. The coalition is formed in an
invalid way. Accordingly, its decisions are illegitimate.
I would like to continue this sequence.

If we allow – even in theory, ignoring the constitution – the possibility of
forming the coalition in this way, we will allow – in practice – the
political results of the election to be ignored.

In this case, the movement of MPs from one faction to another is a
manipulation of people’s votes. In essence, this is ignoring the will of the
voters, who supported this or that party – not this or that MP.

I want to emphasize that the bearers of a mandate in the Ukrainian
parliament are parties and factions, not MPs. This is the point. The party
holds the mandate.

If we continue with this sequence it means that a coalition, majority and
government formed in this way produces illegitimate decisions and ignoring
of voters, who are the sole source of power. In the end, it leads to
usurpation of power and a threat to the constitutional order in Ukraine.

I would ask esteemed journalists to understand that this is not an issue of
arithmetic – whether two or 11 or 25 [MPs] moved. This is a matter of

If this principle means that the will of voters is ignored, that in these
conditions elections are not needed, then the president should carry out his
mission to act as guarantor of the observance of the constitution, rights
and freedoms. You know that the fundamental right is the right to choice.

[Passage omitted: Yushchenko insists that he exhausted the potential of
negotiations; says the coalition’s desire to form a constitutional majority
threat to democracy.]
What happened on 22-23 March is similar to what happened in November 2004.
Why did people come to Independence Square in November 2004?

Because the authorities at the time, the president [Leonid Kuchma] and prime
minister [Viktor Yanukovych] and Central Electoral Commission [CEC], allowed
a revision of the political results of the [presidential] election.

Because they allowed the people’s votes to be manipulated. Then the law came
into effect, through the mechanism of the Supreme Court. The violations were
of such a character that this was the mission of the Supreme Court.

What happened in March was the same sort of manipulation, but this was a
manipulation with mandates which represent people’s votes. The migration of
MPs from one faction to another, in essence, partially cancels the election
in this or that territory.

So if we are speaking of the origins of this process, the origins of the
political crisis, at its basis is the parliamentary crisis, the illegitimate
processes that are becoming a norm and a tradition in the Ukrainian
parliament. Behind it is not just technical migration, behind it is
political corruption.

It is impossible to build the nation’s democratic prospects on political
corruption. [Passage omitted: compares situation with Brazil situation]

I often use two terms – usurpation of power and political corruption. I
would like to explain, especially to the international media, their
specifically Ukrainian features.

Usurpation is not simply concentration of power in the hands of one person.
This is the loss of democratic checks and balances in relations between the
higher branches of the Ukrainian authorities.

Usurpation of power is already producing results. They directly affect your
rights. As president, I am here to protect your rights, to defend ordinary
people. I am fulfilling my oath. I am doing my job as president. I will do
it regardless of the threats that are aimed at me. [Passage omitted: more in
this vein]

What are we to call it when before our eyes, in broad daylight, the keys of
the safe of the head of the Pecherskyy court are taken, it is opened and the
stamp of the Pecherskyy court is taken? This is only possible in one case –
when usurpation and the feeling that everything is permitted is flourishing.

We aren’t afraid of anything because we have everything in our hands. I want
to underline that it was not simple thieves from the street who came in and
took the keys. The keys were taken by Party of Regions MP [Serhiy] Kivalov
and three other MPs. Is this democracy?

I dismissed the head of the Pecherskyy court, a pocket court that processes
pocket suits. I dismissed him on the basis of a request from the head of the
Supreme Court of Ukraine. I was obliged to do this. It wasn’t a whim, it was
my duty and I carried it out.

Why did the Feodosiya court of general jurisdiction sit to review the issue
of the non-implementation of the presidential decree of 2 April.

Why did a judge who took an oath and understands well that this is the
exclusive jurisdiction of the Constitutional Court allow this review,
feeling that everything is permitted because he is backed by high-ups who
will cover for everything?

Admittedly, the following day the court cancelled its decision. Why did the
Artemivsk court adopt a similar decision a few days later, and cancel it a
few days after that. These are the results of the usurpation of power.
Let’s turn to other aspects of our life. Why did parliament take a decision
to recall the entire composition of the CEC? This is a thought about
democracy, though they understand well that this is done exclusively at the
request of the president and that this is illegitimate. That this cannot

But they consciously allowed this violation. I am convinced that this is an
insult to all Ukrainian citizens. I think we will see the day when even
those who pass laws will comply with these laws.

Why are four members of the CEC ill today. I am convinced that this is an
illness with one diagnosis. Why are others, according to MP Yuliya
Volodymyrivna Tymoshenko, being offered 2 million [currency unspecified] to
fall ill. This is usurpation and political corruption.

So I am appealing not to politicians, I am appealing to the nation before it
is too late. Esteemed Ukrainian community, these problems are not restricted
within the Kiev fence or the parliament fence. They may reach every
Ukrainian family if we do not understand that our values are democracy and
the supremacy of your rights.

Why did the Constitutional Court not work for a whole year? Who did not want
this? There were two, three political forces that did not want this, and
these today make up the majority coalition. It was in order to prevent the
possible initiation of the review of this or that principle.

Why is there this politicization around the Constitutional Court today? This
is an echo of what began in the Ukrainian parliament as political
corruption. This is an echo of how parliament began to reformat itself not
in line with the constitution.

It is possible to continue this sequence. Why was the law on the Cabinet of
Ministers adopted? Excuse me, if I say it was for money and not for small
amounts of money.

Finally, we have the manipulation of consciousness. When I was leaving for
work today, there were four lads outside my house holding a Party of Regions
flag. I sent my lads to ask them – the task was to find out what they wanted
to say – who are you and who put you out here?

[They said:] We don’t know the name of the person from the Party of Regions
who put us out here. But they said that they would be paid 100 hryvnyas [20
dollars] each in the evening. This is how we are trying to create an
illusion, a virtual people’s position.

I do not want to address anyone personally, but I would like to say to those
people who are standing and holding flags – it doesn’t matter which – for 60
or 100 hryvnyas. We should not forget our honour and conscience.

We need to have values behind us. Everything else will lead to disaster.
Neither you nor the nation need this. Do not sell your conscience for a
doubtful 60 or 100 hryvnyas.
                                    PRIVATIZATION ISSUES
The last thing. Political corruption has become a problem for the nation.
Political corruption that starts within the walls of parliament reaches
every village council, every person. It affects your interests.

I urge you to be allies of the president because I do not aim to achieve
some political goal through holding the snap election. My goal is to affirm
something else – the supremacy of your rights and of the constitution.

If we are not in solidarity over this, if we interpret the point of this
political moment differently, then we will see the so-called privatization
of the Luhansk locomotive-building plant take place before our eyes, as it
indeed took place.

It took place without a tender. Instead of the experts’ estimates of 2bn
hrynvyas [about 400m dollars], the treasury received 292m hryvnyas. They
miscalculated a little.

Who was it did not receive this money? Invalids, pensioners, teachers,
medics – it was the Ukrainian nation that did not receive it. It was all of

There is what is happening with Ukrtelekom. It is proposed to privatize not
a controlling stake, but a part of it. It is clear that if it is a
controlling stake, then a key investor will come. But for a minority stake,
it will be a Ukrainian confidence trickster.

We are watching this, and we believe that this policy is possible. This is
the consequence of usurpation. This is the consequence of political

It will be the same with the Odessa port plant, the regional gas
distributors [oblhazes], the internal wholesale energy market, if the nation
does not realize that it is being robbed in this way. If it does not support
the efforts not just of the president, but of all people of goodwill to
resist this political behaviour, Ukraine will lose.

I could continue this sequence. There is today more than 8bn in VAT overdue
for reimbursement. Half of the oil refineries are not working today because
they are being reconstructed and the other half wrote a consolidated letter
that they have not been compensated 880m hyvnyas.

What will be the price at the pumps when there are such relations with
kickbacks? You can see the trend from prices at the petrol pump.

This is not a crisis from the president’s decree. This is a crisis that
began within the parliament’s walls and began to migrate from the higher
echelon of power. Thank you. [Passage omitted: press secretary asks for

[Serhiy Sydorenko, Kommersant] I have a question on the current work of the
Constitutional Court. A few days ago, five judges refused to consider
high-profile issues, complaining of political pressure.

The head of the Constitutional Court, Mr [Ivan] Dombrovskyy, earlier spoke
of political pressure, but he is still in his post.

There are forecasts that there won’t even be a quorum in the court to review
issues, in particular the issue of the legitimacy of your decree. Do you
expect the court to consider this issue?

[Yushchenko] I would start by saying that I will submit to any decision of
the Constitutional Court. I am a democrat. I respect the law. But I am
worried about the situation that has arisen around the work of the
Constitutional Court.

I would like for these people to understand one thing – that their decision
is vital not for two Viktors, but for 48m Ukrainians. Corruption should not
affect the work of the Constitutional Court.

I urge Constitutional Court members to be as brave as the Supreme Court

was when it considered an absolutely fateful issue two years ago.

Either Ukraine would descend into civil war with conflicts that were
difficult to pacify, or we would receive an answer through law as a
democratic state. I wish them courage and wisdom. These are two things that
are needed for the work of the Constitutional Court.

For my part, I will do everything for the Constitutional Court to function.
I am aware of attempts, I know a lot of things that unfortunately I cannot
speak of publicly right now – because these are things that involve nuances
after which society may be disappointed in many things.

I set my goal simply avoid these things, not to allow them to happen. I am
for a viable Constitutional Court. [Passage omitted: repetition]

[Olena Savchenko, Interfax-Ukrayina] The Cabinet of Ministers has asked you
to suspend the decree on dissolving parliament until the Constitutional
Court verdict. How would you respond to this request?

[Yushchenko] I have already answered that I will not take such a step. The
president’s decree is in force. I would not like Ukraine to get used to the
tradition where presidential decrees can be changed by the Feodosiya or the
Artemivsk court or at the request of the government.

The president’s legal acts are acts of the highest legal level. They must be
obeyed. Those who ignore or disobey this or similar acts will be held
legally liable today or tomorrow by the Prosecutor-General’s Office. There
will not be any other reaction.             

[Savchenko] One more question, please. The Pentagon has reiterated its
intention to cooperate with Ukraine on the anti-missile defence system. What
precisely they are talking about and do they mean the deployment of the US
anti-missile defence system’s components in Ukraine?

[Yushchenko] No, no-one has ever raised this issue, and Ukraine has no
intention to consider this.
[Roman (?Kirik), Polish Television] As I understand, the [dissolution
decree] may not be repealed. But a compromise in some form or shape

between you and Mr Yanukovych has to be reached.

As I understand, the date of an early election [initially scheduled for 27
May] may be changed. Can you please say whether this is correct and for

how long are you ready to delay an election: until autumn or sooner?

[Yushchenko] The short answer is yes. To expand it, I am a firm believer
that political means are the best way to resolve the situation existing in
the Ukrainian parliament which triggered the political crisis in Ukraine.

This is a political crisis, and politicians must use their best skills to
make sure that this conflict is resolved by a political mechanism. This is
the best way. In my view, it is not right to put a political question to the
Constitutional Court. [Passage omitted: repetition]

I envisage the resolution of the political crisis in line with a plan
[forwarded to Yanukovych on 10 April] consisting of three parts.

The prime minister and I have agreed that I would not disclose these
initiatives because I proposed them as working initiatives, understanding
that the other side has to examine them and adopt a decision to either
accept this model or deny it. This is why I cannot disclose its details
today, but I can tell you about the basics of this proposal.

The first thing that the process of understanding should begin with is a
joint appraisal of events that triggered this parliamentary crisis. [Passage
omitted: Yushchenko lists the developments that led to the crisis.]

The second part [of the settlement plan] says what we have to do to balance
mutual proposals in the context of the dissolution decree.

I will be honest with you, this will make it look like there is no winner
and loser and will save the sides’ face, so that we could say that we both
bear responsibility and we are politically ready to accept this, starting
with the binding mandate [banning MPs from swapping parliamentary factions],
the law on the Cabinet of Ministers [which significantly decreased the
president’s powers], a single constitutional commission [that would focus on
the further implementation of constitutional reform] and so forth and so on,
and ending with an early election.

I am not going to comment on this in detail. This is not what my answer is
for. But we have to do this in a way which will enable parliament to work in
full so that 200 [opposition MPs] return to the chamber and the
parliamentary factions find a compromise. This is an inseparable part of the

One cannot declare the conflict solved if 200 MPs continue to ignore
parliamentary sittings. In other words, we have to immediately start
political consultations among the parliamentary parties, reach an
understanding and learn to listen to each other. Without this the
president’s efforts will not do.

And of course, I would like to stress the issue of the election date.
[Passage omitted: Yushchenko explains provisions of the constitution.]

But there are many things that require a reasonable timetable. This is
something that one should pay attention to. But how can you do this if the
existing law does not give an answer to this. One should find a compromise

In other words, what I want to say is this: if there is the will to resolve
this conflict in a political way, there are more than enough opportunities
for this.
[Sonya Koshkina, Ohlyadach] Mr President, you described in detail your talk
to Mr Moroz before signing the decree on the parliament dissolution. Could
you please tell us about your communication with Mrs Tymoshenko that day or
a day before?

Is it true that you had an agreement that in case of the parliament
dissolution, Tymoshenko would insist, particularly through the
Constitutional Court, on cancelling the political reform in your favour?

And would you please be more specific about your reaction if the
Constitutional Court responds negatively to your decision? Will you
apologize or there will be another reaction? Which one?

[Yushchenko] As for the first question, it is only up to the president to
decide on the dissolution of parliament of the fifth convocation. I do not
use advice from any institution. This is my decision for which I am
personally responsible. It is conscious. I am eager to share the letter and
intent of this document.

Therefore, there are no backstage negotiations regarding the cancellation of
the reform. If there was a political force in this country to which one can
appeal regarding the cancellation of the reform, I would let you know.

Today I am confident that if we are clearly aware of the problems caused by
the recent amendments and addenda to the constitution, if we are well aware
of these problems, the only way to collect 300 voices is through dialogue.
No-one in any political force can make a decision on his or her own.
Possibly, this is the strength of our situation.

Therefore, I offer to set up a working group outside the parliament
building. I would like to note at once that this group should be chaired
neither by the president, nor by the parliament speaker or prime minister.

It should engage the most professional adequate members – lawyers,
journalists, public initiatives, parties, the representatives of the
government, parliament and the presidential secretariat.

Everyone is welcome to join and form a single position. The most important
is that we discuss the constitution chapter by chapter to form the system of
checks and balances that would provide the leverage against usurping power
by one side of the system.

And these positions should be used as a starting point for amendments and
addenda to the constitution, which the president is later ready to refer
officially to parliament.

Parliament should form a constitutional commission to prepare and process
this issue and to arrange for a dialogue between the factions and political
forces to have it finally accepted in the session hall. This is what we did
not have in 2004.

This is the truth that was hidden from people then when without any
discussion the fathers of the constitution, as if for the sake of people,
made the changes [to the constitution]. [Passage omitted: more background]
                        RELATIONS WITH TYMOSHENKO
[Serhiy Leshchenko, Ukrayinska Pravda] At the rally on Independence Square
yesterday, the prime minister first time said that even if this country is
to have a snap parliamentary election, this will only be together with the
snap presidential election. What was your reaction to this statement?

Second, how would you describe your relations with Yuliya Tymoshenko now
because previously they fluctuated from comrade to rival?

Is there any guarantee that if the Yuliya Tymoshenko Bloc wins [the snap
parliamentary election], Tymoshenko will be nominated for the prime
minister? Will the same situation we had after the election last year be

[Yushchenko] Excuse me, speaking of the past election, what did the
president do wrong? The coalition proposed and I did not nominate?

[Leshchenko] There were talks which finally resulted in the creation of the
anticrisis coalition because there were parallel talks between the Orange…

[Yushchenko] Serhiy, I asked to specify the question only because I want the
questions to be put in an honest manner, without any manipulations.

[Leshchenko] The question is about relations between Tymoshenko and

[Yushchenko] I understood, I understood. I wanted other to see I am well
aware of the point of your question. I want to say that the president is not
involved in any manipulation. If the democratic coalition failed to come to
an agreement, it was not because of the discussion about [sound jumps]

Another coalition took the floor [sound jumps]. In other words, let us
separate apples and oranges. When we say constitutional norms are violated
in this or that case, we need to rely on law.

If these norms are not violated, we need to rely on the constitution, which
is law as well. The rest is theory, blackmail, emotions or an attempt to
show that this country would not do without me, would have no prospects and
the sun would rise not in the east but in the west. I would not pay much
attention today to the emotional part of the statements.

I am perfectly aware that the steps that need to be taken and those that
were made give a lot of reasons for emotions, for artificial heat-up, but I
am confident that politicians, especially the prime minister, need to be
ruled by the law only. This would show his respect to the millions of
people. [Passage omitted: comments on economy]
                              SITUATION WITH ARMY
[Halyna Rusyn, Tonis TV channel] Right before your news conference,
coalition MPs said in parliament that the Ukrainian army is on alert and
special squads are ready to storm the parliament building and the cabinet.

As the commander-in-chief, are you aware of what is going on in the
Ukrainian army? Can you guarantee internal security and order in the

[Yushchenko] I am well aware of what is going on in the Ukrainian army as I
am the commander-in-chief, and I hold information briefings with
law-enforcement and security ministers on the daily basis. What you quoted
is a lie.

No changes in the army’s regime have been authorized or will be authorized.
The army is out of politics. There will be no use of force in Ukraine. Let
those who talk about it calm down. These are their emotions, not more.

Moreover, I authorized the defence minister to inspect military detachments
by the groups of MPs who cannot control their emotions, while complying with
the rules of access to special facilities.

I am ready to offer the same to journalists. If you want to monitor it with
respect to the regime of security, let us do this. I want this issue removed
from agenda once and for all.

I understand the responsibility you are talking about. I understand the
price of the challenge, so I would like everyone to dedicate their energy in
a productive way but not on these rumours, emotions and reactions. I would
like to stress if there is a need, I am ready to hear your ideas. [Passage
omitted: more details]
                           RUSSIAN DUMA’S STATEMENT
[Olha Papiy, Halychyna Television, Ivano-Frankivsk] Esteemed Mr President,
it is clearly pointless to deny that the attempt to purchase 300 votes in
the Supreme Council was an attempt to return us to 2004. [Passage omitted:
more in this vein]

Representatives of the Russian State Duma are coming to the Supreme Council,
which no longer exists after your decree. What is this? The latest
interference in Ukraine’s internal affairs or an attempt to realize the
Kremlin geopolitical projects? [Passage omitted: Yushchenko reiterates need
for snap election.]

[Yushchenko] As for the reaction of the Russian Duma, I distinguish Russia’s
official reaction that was expressed in the words of the Russian foreign
minister, and only the Russian Foreign Ministry has the right to interpret
the official state position, from the emotions that are present in the
decisions of the Russian State Duma.

I understand that behind these emotions there was a desire to say more than
is allowed by Ukraine’s sovereign status. I would like to say that what is
happening in Ukraine is exclusively Ukraine’s problem. We have sufficient
wisdom and reason to sort these issues out without this sort of assistance.
[Passage omitted: repetition]
                                       VISIT TO RUSSIA
[Yevhen Havrylov, RIA-Novosti] Viktor Andriyovych, you just said Ukraine

is ready to cope with the conflict on its own.

Does it mean that you flatly rule out the use of foreign mediation as it was
during the presidential election [in 2004]. Second, certainly, the internal
situation is a priority for you, but when are you planning to visit Moscow?

[Yushchenko] I talked to Vladimir Vladimirovich [Putin] about four days ago.
We discussed the visit as well. We agreed that my visit should be delayed
due to the events of 2 April. We are in a good dialogue.

We had several talks during the recent five or six days. I support active
communication and aim to brief him on my views and opinion about the
situation within Ukraine.

By the way, I do the same with the heads of all European institutions, the
presidents from Europe and the world. I treat it as one of my functions
because country leaders should learn the news on the political peculiarities
in Ukraine directly from me.

As for the use of third parties in the settlement, I want to say that I do
not rule out this. However, I would like to explain when such need may

I am confident that today the Ukrainian nation and politicians need to form
their part of a dialogue that should have place. I remember asking for this
in 2004.

No-one wanted to talk to us back then – the president and the prime minister
avoided us, representatives of authorities did not attend the meetings of
political forces.

We needed this dialogue because someone wanted at least one drop of blood to
be shed in Khreshchatyk [Kiev’s main thoroughfare] to run any force
scenario. We did not want it, but we needed the dialogue. But how can one
force authorities to do this? Only with the use of third parties.

Today I say I am open to negotiations. I take part in it every day. I meet
any group representing one or another political force or NGOs or Ukraine’s
respected people. My motto is the president will be as engaged in the
settlement of this conflict as it is necessary. But it is important not to
overdo things.

We should not ignore parliamentary forces. They should play their solo and
be invited to negotiations. Just like any other institution. Moreover, I
want no discrepancy in the connections, understanding and views between the
central and regional authorities. [Passage omitted: more details]

In my view, the most correct thing to do is to ask for international
assistance only after all legal problems are resolved which would pave the
way to a political decision. It is very important to have a third party
involved, when forming this political decision.

In this case it will cement the decision and encourage us to make higher and
more serious commitments. [Passage omitted: discussion of the technical side
of election]                                              -30-

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