AUR#876 Oct 10 Macroeconomic Update Report By SigmaBleyzer; Gazprom; New Turmoil; Crossroads; Oranges & Lemons; Learning Problems; ABC’S

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Mr. E. Morgan Williams, Publisher and Editor, SigmaBleyzer
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“Ukraine – Macroeconomic Situation – September 2007”
Monthly Analytical Report: By Olga Pogarska, Edilberto L. Segura
SigmaBleyzer Emerging Markets Private Equity Investment Group,
The Bleyzer Foundation, Kyiv, Ukraine, Wednesday, Oct 10, 2007
By Daisy Ku, Reuters, London, UK, Thursday, Oct 4, 2007

Interfax, Kyiv, Ukraine, Thursday, October 4, 2007

By Ellen Pinchuk and Daryna Krasnolutska
Bloomberg, Moscow, Russia, Thursday, October 4, 2007

By Torrey Clark and Lucian Kim, Bloomberg News
Moscow, Russia, Tuesday, Oct. 9, 2007

By Alexander Koliandre, Dow Jones Newswires
London, United Kingdom, Wednesday, October 3, 2007

BYuT Newsletter, Kyiv, Ukraine, Monday, October 8, 2007

Vladimir Solovyev, Olga Mordyushenko; Valery Kalnysh, Kiev
Kommersant, Moscow, Russia, Thursday, October 4, 2007

Reuters, Kiev, Ukraine, Friday October 5, 2007

Maria Danilova, Associated Press (AP), Kiev, Ukraine, Sun, Oct 7, 2007

Reuters, Kiev, Ukraine, Monday, October 8, 2007

Analysis & Commentary: By Tammy Lynch
The ISCIP Analyst (Boston University), Volume XIV Number 2
Boston, Massachusetts, Thursday, 4 October 2007

President Yushchenko again demonstrating dubious indecision
Analysis & Commentary: By John Marone, Kyiv Post Staff Journalist
Eurasian Home, Moscow, Russia, Monday, October 8, 2007

ANALYSIS & COMMENTARY: By Marek Dombrowksi
Centre for Social and Economic Research (CASE)
EurActiv, London, UK, Thursday, October 4, 2007

Analysis & Commentary: Dmitri Kulikov, Timofei Sergeitsev
Profil No. 36, Russia, Monday, October 1-7, 2007

If Mr Yushchenko tries to blur the line by working with Mr Yanukovich,

as he did in 2006, he is likely to land the country in a new political crisis.
The Economist print edition, London, UK, Wed, October 3, 2007

EDITORIAL: By Daniel Tácha, Czech Business Weekly
Prague, Czech Republic, Monday, October 8, 2007

Commentary: By Halya Coynash, Kharkiv Human Rights Protection Group
Kharkiv, Ukraine, Thursday, October 4, 2007

Yulia Tymoshenko Bloc (BYuT) shows significant gains in Eastern Ukraine
Analysis & Commentary: by Taras Kuzio, Eurasia Daily Monitor,

Volume 4, Issue 185, Jamestown Foundation, Wash DC, Fri, Oct 5, 2007

By Fred Weir, Correspondent, The Christian Science Monitor
Boston, MA, Tuesday, October 9, 2007


Commentary: By Halya Coynash, Kharkiv Human Rights Protection Group
Kharkiv, Ukraine, Saturday, September 8, 2007
Ukraine is approaching the 75th Anniversary of one of the most tragic
pages in its history – the Holodomor, or Great Famine.
Address by H.E. Mr. Volodymyr Khandogiy, First Deputy Minister
for Foreign Affairs of Ukraine at the General Debate of the Sixty-
Second Session of the General Assembly of the United Nations
UN, New York, New York, Wednesday, 3 October 2007

“Ukraine – Macroeconomic Situation – September 2007”
Monthly Analytical Report: By Olga Pogarska, Edilberto L. Segura
SigmaBleyzer Emerging Markets Private Equity Investment Group,
The Bleyzer Foundation, Kyiv, Ukraine, Wednesday, Oct 10, 2007

(1) Real GDP grew by 7.7% year-over-year (yoy) over January-July. This
good result was achieved thanks to double-digit growth rates in
manufacturing, wholesale and retail trade, and construction.

(2) The consolidated budget surplus constituted 1.4% of period GDP in
January-July. The surplus was achieved thanks to large local budget
surpluses and under-execution of state budget expenditures.

(3) The year-end fiscal deficit may be lower than the projected 2.5% of GDP
considering over-execution of fiscal revenues and likely moderate tightening
of expenditures.

(4) July saw an 11-year record high monthly increase in consumer inflation,
bringing annual CPI growth to 13.5%.

(5) On the back of continuing deterioration of the merchandise trade
deficit, the current account deficit widened to 3.4% of period GDP in the
first half (1H)of 2007. However, the current CA deficit is not raising
concerns since the financial account surplus exceeded the CA deficit by
three times.

(6) Recent turbulence on world financial markets is unlikely to have severe
consequences on Ukraine’s macroeconomic fundamentals.
According to operative data of the State Statistics Committee, the Ukrainian
economy grew by a real 7.7% year-over-year (yoy) over January-July. The
growth was broad-based with double-digit growth rates in manufacturing,
wholesale and retail trade, and construction.

Domestic-market-oriented sectors and industries benefited from robust growth
of real disposable household income (up by 10.8% yoy in 1H 2007) and a
continuing credit boom.

Thus, turnover in retail trade grew by a real 15.4% yoy while food
processing output expanded by almost 14% yoy over the first seven months
of the year.

Machine-building and metallurgy continued to grow from vigorous domestic
demand, buoyant economic growth in Ukraine’s main trading partner countries,
and high international prices for Ukraine’s main exporting commodities.

Although a high statistical base effect gathered full steam during
June-July, production of machines and equipment continued to accelerate and
was up by 23.7% yoy over January-July.

Acceleration of machine-building production was driven by an impressive
50.5% yoy growth in production of automobiles, a 21.2% yoy increase in
output of electric equipment and electronics and 15.4% yoy growth of
machinery and equipment production.

Though international steel prices kept declining in July, they were still at
a very high level. For the heavily export-oriented metallurgical industry
(according to the SSC, about 72% of total metallurgical output is exported),
high international steel prices allowed for higher profits with a moderate
increase in output.

As reported by the SSC, metallurgical enterprises saw 83% higher profits
before taxes in nominal terms over 1H 2007 than in the corresponding period
last year.

At same time, rising international steel prices, which also spilled over
into domestic prices, spurred traders to accumulate significant inventories
of metallurgical products.

In addition, imports of metallurgical products notably accelerated this
year, contributing to overproduction in the market. All of this, coupled
with an increased statistical base effect, explains the moderate 3.2% yoy
growth in metallurgical output production in July.

However, thanks to impressive growth in previous months, the seven month
total production of metallurgical products was up by a remarkable 12.2% yoy.

Strong performance of food processing and machine building explained about
2/3rds of total industrial output growth over January-July, which was 11.2%
higher than in the corresponding period last year. At the same time, the
growth of industrial production has been decelerating since the beginning of
the year.

In addition to slower growth in metallurgy, deceleration in output growth
was reported in the chemical and extractive industries. Together accounting
for about 15% of total industrial production, these industries reported
moderate 5.7% yoy and 2.8% yoy growth over January-July.

Production of energy-intensive chemical products, which suffered from price
hikes on imported natural gas at the beginning of the year and rising crude
oil prices during May-July, was also affected by declining international
prices for fertilizers, which hold a large share in chemical production and

The mining industry experienced a 2.8% yoy reduction in extraction of energy
materials, which is explained by lower demand of metallurgical companies for
domestically extracted coal.

Robust industrial sector growth and steady demand for new housing, supported
by the continuing credit boom, stimulated further expansion of construction,
which posted a 11.9% yoy increase in value added over January-July.

Closely linked with industry, construction, and foreign trade, wholesale
trade turnover grew by a nominal 11.2% yoy. Value added growth in retail and
wholesale trade therefore accelerated to 16.1% yoy in January-July, up from
15.5% yoy in January-June.

Agriculture rather unexpectedly regained its position as an important
contributor to economic growth during the period. Contrary to expectations
of meager growth (the forecast for this year’s harvest was downgraded due to
May-June’s drought), the sector reported a 5.2% yoy increase in value added
over January-July.

Such robust growth is explained by the early start of the harvest campaign,
which temporary caused a statistical distortion due to a relatively low base
for comparison.

GDP growth in the coming months is expected to continue to decelerate for
several reasons.

(1) First, it is very likely that the external environment will be less
benign in the second half of the year (flatter international steel prices,
high energy prices, etc.).

At the same time, we believe external demand for Ukraine’s key export
commodities will remain strong enough to maintain Ukraine’s export growth
at a decent level.

(2) Secondly, poorer agricultural performance in the coming months will
contribute to an economic growth slowdown.

(3) Third, political uncertainty related to parliamentary elections in
late-September and the formation of a new government may dampen
investment activity.

(4) Fourth, the effect of a high statistical base will be more evident in
the second half of the year. Taking the above into consideration, we believe
real GDP growth will slow to 6.5% yoy in 2007, despite the exciting 7.7%
yoy growth in the first seven months of the year.
Robust economic growth along with under-execution of expenditures allowed
the government to report a UAH 4.86 billion ($960 million) surplus of the
consolidated budget over January-July, which is equivalent to 1.37% of
period GDP.

At the same time, the consolidated fiscal surplus was achieved primarily on
account of surpluses in local budgets, as the state budget turned into a
small deficit of 0.3% of period GDP.

According to the budget execution report presented by the Ministry of
Finance on its official website and referencing state Treasury data,
proceeds from personal income tax (PIT), the main revenue source for local
budgets, grew by a nominal 47.9% yoy.

Considering that nominal household income grew by 27.3% yoy over
January-July, much faster growth of PIT receipts suggest improved tax
administration and/or tax compliance.

Over the period, state budget revenues reached UAH 83.8 billion ($16.6
billion). A 23.3% yoy nominal increase in state budget revenues was
underpinned by 31.6% yoy and 25.4% yoy growth of VAT and EPT (corporate
profit tax) proceeds, which account for more than a half of total state
budget revenues.

Though most tax collections were above the targeted amounts, the government
continues to under-execute expenditures.

In particular, expenditures from the general fund of the state budget were
7% below target for January-July. Despite under-fulfillment, state budget
expenditures were 21.3% higher in nominal terms than in the corresponding
period last year with the largest rate of increase reported for public wage
expenditures and social transfers.

According to consolidated budget data presented by the Ministry of Finance,
social transfers grew by a remarkable 52.1% yoy over January-July, while
expenditures for public sector wages were almost 29% yoy higher.

Government social liabilities should maintain a robust increase in the
coming months considering indexation of pensions by about 28%1 effective on
September 1st and an increase in the minimum living wage for retired to UAH
415 ($83) on October 1st.

In addition, the government will face higher wage bills in October as the
minimum wage will be raised to UAH 460. Moreover, in the run up to the
parliamentary elections, execution of budget expenditures may notably

An increase in social expenditures and a catch-up of previously
under-fulfilled expenditures may contribute to inflationary pressure at the
end of 2007. In addition, the government may lack sufficient resources to
finance the expected fiscal deficit in 2007.

According to the state budget law for 2007, the deficit is targeted at UAH
15.7 billion ($3.1 billion), about 2/3rds of which was planned to be
financed with privatization revenues.

However, the execution of privatization raises serious concerns, as
privatization proceeds reached only UAH 1.57 billion (about $310 million) as
of the end of July, which represents less than 15% of the targeted amount
for 2007.

Political uncertainty related to late-September’s parliamentary elections
and formation of a ruling coalition thereafter may impede carrying out the
large privatizations scheduled for this fall (for instance, there is a very
high probability that privatization of telecommunication monopoly
Ukrtelekom, which was expected to bring the lion’s share of privatization
revenues to the state coffers, will be delayed until next year).

At the same time, the borrowing activity of the government is restricted by
the budget law, according to which new government external and domestic
borrowings are planned in the amount of $1.5 billion and UAH 3.8 billion
(about $760 million) respectively.  During June-July, it attracted $0.5
billion and UAH 2.1 billion (about $425 million).

Moreover, the government managed to reduce the cost of borrowing over the
period with each domestic bond auction (the weighted average yield for
1.5-year domestic securities declined from 7.12% for bonds issued in June to
6.76% in July).  In addition, the government moved on to offering only
medium and long-term bonds since mid-July.

These actions may explain the rather moderate amount of funds attracted from
issuance of domestic bonds during August- UAH 110.5 million ($22 million)-as
proposed yields were plainly unattractive for domestic buyers, while foreign
investors, the principal buyers of longer-term domestic securities during
June-July, adhered to a risk aversion strategy due to the volatile global
markets caused by the US subprime mortgage crisis.

Lower investor demand for riskier emerging market bonds (including Ukrainian
sovereigns) coupled with high international interest rates (such as LIBOR2)
made external borrowing a rather costly source of financing for both the
government and the private sector of Ukraine.

Under these circumstances, the government will have to increase the
attractiveness of issued securities or tighten expenditures. It is likely
that the government will choose some combination of the two approaches,
which will translate into a lower-than-forecasted fiscal deficit in 2007 but
higher debt-service payments in the medium term.
Following a 2.2% month-over-month (mom) increase in June, consumer price
inflation surged another 1.4% mom in July. An 11-year record high monthly
increase in July, traditionally a low inflation or deflation month,
translated into annual CPI growth of 13.5%.

Consumer price growth continued primarily due to growing food prices, which
advanced by 10.9% yoy. The increase was led by 16.5% yoy and 36.6% yoy
growth in prices on bread and flour, 25.1% yoy on milk and dairy products,
as well as 23% yoy and 66% yoy increases in prices of fruits and vegetables.

A surge in consumer prices was driven by both supply-side and demand-side
factors. On the supply side, expectations of a poorer harvest this year
drove prices on grain up, while this in turn spilled-over to costs of
grain-related products (flour, bread, fodder, and hence meat, milk and dairy

Robust growth of producer prices also brought pressure on consumer prices.
The producer price index advanced 1.7% mom in July, which is equivalent to a
21.2% increase in annual terms.

Rapid growth of producer prices is explained by high international prices
for steel products, iron ores and grain (though prices on steel products
have moderated in the last two months, domestic prices may respond with a
several month lag to these developments), continuing pass-through of higher
energy prices, etc.

On the demand side, increases in government spending stimulated the growth
of aggregate demand, which in turn spurred consumer prices. Recent consumer
inflation developments make the government forecast of 7.5% inflation at
year end unrealistic.

Taking into account the very high base effect through the end of the year,
full-year CPI growth may decelerate to about 10%. Acceleration of money
supply growth has also contributed to mounting inflationary pressure.

In July, the growth of money supply soared to 43.1% yoy on the back of
sizable central bank interventions on the interbank forex market.

In July, the NBU bought out $1.16 billion of surplus foreign exchange.
Robust inflow of foreign currency is attributed to strong export
performance,private sector borrowing from abroad and funds received from
issuance of Eurobonds in late June.

The impact of this influx of domestic currency was partly compensated for by
growing government deposits with the NBU. In July, cash balances grew by
13.3% mom to UAH 15.5 billion ($3.07 billion).

On the back of active commercial bank borrowing from abroad as well as
robust growth of deposits (up by 46.4% yoy in July), bank liquidity remained
rather loose (cash balances on the corresponding accounts grew 30.5% since
the beginning of the year to UAH 19.5 billion at the end of July; the
weighted average interest rate on the interbank credit market was below 1.7%
compared to 2.05% in the previous month).

However, the NBU did not perform sterilization operations as robust
investment activity and growing household income stimulated demand for

Commercial banks continued to expand their credit portfolios in July. During
the month, the volume of commercial Ukraine bank credit grew by a record
high 76.1% yoy.

Though increasing financial intermediation helps to sustain economic growth,
it also increases demand for foreign goods, contributing to deterioration of
the foreign trade balance.

In addition, rapid expansion of bank loans for a relatively long period (the
stock of commercial bank loans grew by about 62% in 2005, 71% in 2006 and
34.5% year-to-date (ytd) over seven months of 2007) increases banking sector
vulnerabilities to various risks (credit, foreign exchange, liquidity,

Though official statistics show improving prudential indicators for
Ukraine’s banking sector (for instance, the ratio of non-performing loans
has been declining steadily since 2004) and the entry of a number of large
systemic foreign banks during the last couple of years facilitated
commercial bank and NBU efforts to improve risk management and loan
practices, the continuing lending boom still raises serious concerns about
the banking sector’s resilience to possible shocks.

Though the prudential indicators are improving, credit risk may be
under-estimated as risk management practices are still developing.

In addition, various risks are assessed based on strong current
macroeconomic performance, high mortgage prices (hence, in case mortgage
prices will sharply decline, the values of collateral may be
over-estimated), robust growth of real household disposable income, etc.

The Ukrainian banking sector is also exposed to significant foreign exchange
risk as the share of loans denominated in foreign currency remains very

Following NBU measures to reduce dollarization of the Ukrainian economy, the
growth of forex-denominated loans has been decelerating since April, while
that of hryvnia-denominated ones continued to accelerate. However, forex-
denominated loans kept growing much faster than hryvnia-denominated loans
(96.9% yoy and 58.1% yoy respectively in July).

As a result, the share of foreign currency loans continued to increase,
reaching 69% and 42.7% of total loans granted to households and legal
entities in July, respectively (up from 60.6% and 40.8% a year before).

The stock of commercial banks loans considerably exceeds the stock of
deposits (by about 46% in July 2007 compared to 21% in July 2006), which
means that commercial banks increasingly rely on external borrowings as a
source of funding their credit operations.

In particular, the stock of external debt incurred by commercial banks grew
2.3 times in 2006 to $14.1 billion at the end of the year. It further
expanded to $21.2 billion during the first half of 2007, an increase of more
than 50%.

Recent world financial and liquidity turmoil, caused by the US subprime
mortgage crisis, resulted in investor re-assessment of risks and thus the
growing cost of borrowed financial resources for emerging markets.

In addition, to reduce private sector exposure to foreign indebtedness, the
National Bank decided to introduce an interest rate ceiling on external
borrowings by the private sector, which will be equivalent to the average
yield on Ukraine’s sovereign bonds during the last two quarters plus 2
percentage points.

The decision will be enforced in mid-October. Considering recent
developments on international capital markets, the measure may turn out to
be too restrictive, as only large corporations and/or banks will be able to
attract foreign resources under these conditions. This will lead to higher
demand for domestic financial resources, driving their costs up.

At the same time, it is unlikely to lead to severe liquidity shortages
considering the currently loose liquidity stance of the banking system,
robust inflow of foreign currency (due to strong export performance and
FDI), and the considerable anticipated rise in fiscal expenditures in the
run-up to the parliamentary elections.

Overall, however, Ukraine’s banking system remains rather susceptible to
various risks, which requires thorough monitoring of the situation, further
improvement of the National Bank’s capacity to control the money supply and
conduct effective prudential supervision.
Over January-June, Ukraine’s merchandise foreign trade balance continued to
worsen. Though export of goods showed a remarkable growth of 32.9% yoy
over the first half of the year, imports grew at a faster pace. In addition,
the growth of exports decelerated to 26.9% yoy in June compared to about
35% yoy on average during January-May.

The deceleration in exports in June may be attributed to weaker external
demand for metallurgical products, which was evident from flat or moderately
declining international steel prices during those months and falling
international prices for fertilizers (which account for more than 40% of the
total export of chemical products).

As a result, the growth of exports of metallurgical and chemical products
slowed to 36.6% yoy and 23.2% yoy in 1H 2007, down from 40.4% yoy
and 25.2% yoy over January-May respectively.

On the upside, the abolishment of the ban on exports of grain harvested in
the previous year contributed to the acceleration of grain imports to 12.5%
yoy in the first half of 2007 compared to a decline of 3.3% yoy in

Thanks to strong investment demand in Ukraine’s main trading partner
countries, exports of machinery and transport equipment continued to
increase at a remarkable rate of 52.3% yoy, just marginally down from 53.1%
yoy in January-May.

Benefiting from robust growth of household disposable income and the
continuing credit boom, Ukraine’s imports rose by 33.8% yoy during 1H of
2007, driving the cumulative FOB/CIF trade deficit in goods to $4.2 billion,
according to State Statistics Committee data. In FOB/FOB prices, the deficit
constituted $3.2 billion, which is equivalent to 5.5% of period GDP.

By product breakdown, import growth was traditionally driven by mineral
products, which were up by 33.2% yoy over January-June. At the same time,
import growth of machinery and transport equipment, chemical and
metallurgical products slightly slowed to 39.9% yoy, 33.2% yoy and 47.2%
yoy respectively.

The increasing merchandise trade deficit contributed to further
deterioration of the current account balance. According to NBU data, the
current account deficit widened to $1.96 billion as of the end of 1H 2007,
which is equivalent to 3.4% of period GDP. However, the CA deficit was
fully covered by the robust inflow of foreign direct investments (FDI).

In particular, net FDI constituted a record high $3.3 billion for this
period. External borrowings also grew considerably in 1H 2007. The country’s
gross external debt increased by about 20% to $65.4 billion, primarily on
account of external borrowings of commercial banks, whose foreign
indebtedness grew by 50.5% in 1H 2007.

As a result, the financial account balance (analytical representation)
reported a surplus of about 10.2% of period GDP. This allowed the NBU
to replenish its gross international reserves to $26 billion at the end of
June, which was sufficient to finance 4.4 months of future imports of goods
and services.

Though recent turmoil on international financial markets may result in a
lower inflow of foreign capital from private sector borrowing, we believe
robust FDI, a good growth outlook and high international reserves keeps the
projected year-end CA deficit from being a concern. Nevertheless, the
situation is being thoroughly monitored by the National bank of Ukraine.
(1) According to the Cabinet of Ministers Decree #685 as of May 3, 2007, all
pensions fixed before 2004 will be raised by 28% starting September 1st
2007, which is roughly equivalent to the nominal growth of average monthly
wages in 2006. Pensions set during 2004-2005 will be raised by 20%.
Considering that the number of retired people during 2004-2005 is relatively
small compared to those retired before 2004, the majority of pensioners will
receive pensions raised by 28%.
(2) It is a usual practice to define the cost of borrowing/lending money
taking into account LIBOR (the London Interbank Offered Rate) dynamics.
For instance, LIBOR-borrowings represent more than 30% of Ukraine’s total
public and publicly guaranteed debt.
NOTE: To read the entire SigmaBleyzer/The Bleyzer Foundation
Ukraine Macroeconomic Situation Report for September 2007 in a PDF
format, including color charts and graphics click on the following link
and click on Ukraine September 2007.
NOTE: SigmaBleyzer/The Bleyzer Foundation also publishes monthly
Macroeconomic Situation Reports for Bulgaria, Romania and
Kazakhstan. The present and past reports, including those for Ukraine
can be found at

For further information contact: Mr. E. Morgan Williams, Director,
Government Affairs, Washington Office, SigmaBleyzer, Emerging Markets
Private Equity Investment Group; Telephone: 202 437 4707
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

By Daisy Ku, Reuters, London, UK, Thursday, Oct 4, 2007

LONDON – Dragon Capital, Ukraine’s top investment bank, expects initial
public offerings from the country to more than double to $1.5 billion in
2007 and to reach $3 billion next year.

The Kiev-based investment bank, which accounts for about one-third of
Ukraine’s equity capital markets transactions, has completed seven IPOs this
year, raising $500 million in total.

The Ukrainian IPO market began stirring at the end of 2004 when hydrocarbon
firm Regal Petroleum (RPT.L: Quote, Profile, Research) went public on the
London Stock Exchange. Last year, Ukrainian issuers raised a combined $482
million via initial public offerings.

“The pipeline is so full that we need more people to examine the deals,”
Brian Best, an investment banking director at Dragon Capital told Reuters
after attending the Ukraine Capital Markets Forum in London on Wednesday.

He plans to add seven staff members in his department this year, bringing
the number of investment bankers at the firm to 20.

“We expect IPO volumes to increase to $3 billion next year as there will be
more $1 billion plus deals,” said Best.

Market watchers are expecting those multi-billion international offerings in
the next 12 months.

System Capital Management (SCM), the country’s biggest conglomerate and
owned by Ukraine’s wealthiest man Rinat Akhmetov, is considering a flotation
on the London Stock Exchange (LSE.L: Quote, Profile, Research) or the New
York Stock Exchange (NYX.N: Quote, Profile, Research)(NYX.PA: Quote,
Profile, Research).

Its metals and mining unit Metinvest Holding plans to tap capital markets in
London or Warsaw next year. Serhiy Taruta, chief executive of the Industrial
Union of Donbas, announced the firm’s IPO plan last January.

Since the “Orange Revolution” uprising in 2004, more than 20 small and
medium-sized companies have gone public, many of them on London’s
Alternative Investment Market (AIM).

The mass pro-Western “orange” protests helped overturn a rigged presidential
poll. Last year, Astarta-Kyiv (ASTH.WA: Quote, Profile, Research), one of
Ukraine’s biggest sugar producers, became the first Ukrainian firm to list
on the Warsaw Stock Exchange, raising $30 million for a 20 percent stake

In the past 12 months, Ukraine equities outpaced the average dynamics of
emerging markets, with Ukraine’s leading PFTS index rallying 157 percent.

Best expects more mid-sized deals to come as Ukraine heads for World
Trade Organisation admission. Analysts expect some 60 companies to float
in the next two years.

Ukrainian agriculture and food holding company Myronivsky Khlibproduct, for
example, announced in December it intended to sell off about 20 percent of
its stake in a $150 million international IPO.

Dragon Capital is working on three to four private placement deals this
year, aiming to raise a combined $300 million.
“Investor appetite is still strong for Ukraine deals. The credit crisis
doesn’t have a huge impact, as investors look for high yields and fast
growth,” said Best.

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

Interfax, Kyiv, Ukraine, Thursday, October 4, 2007

KYIV – Britain’s HSBC Holdings plans to open a commercial  center
in Ukraine, which will provide financial services for international
operations to small, medium and major Ukrainian businesses.

“We are putting together a global network, which will help us
provide  banking  services  to Ukrainian companies. They will be able
to perform export and import operations with other countries through
HSBC,” HSBC’s press office head James Piper said in an interview with

The center is to open in Ukraine after the planned launch of HSBC’s
retail business in Russia in 2008, where the company already has a bank,
he said.

HSBC bank was founded in 1865 and currently operates 10,000 offices
in 83 countries.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]


By Ellen Pinchuk and Daryna Krasnolutska
Bloomberg, Moscow, Russia, Thursday, October 4, 2007

MOSCOW – Ukrainian billionaire Viktor Pinchuk said he planned to raise at
least $1 billion by selling shares of pipe maker Interpipe in Ukraine’s
biggest initial public offering.

“We need investments and we want to enter Western markets,” Pinchuk said in
an interview Thursday. “Next spring, we will have an IPO in London.” He will
sell no more than a 25 percent stake in “the first stage.”

Pinchuk, the son-in-law of former President Leonid Kuchma, aims to invest in
more non-Ukrainian companies as a former adversary, Yulia Tymoshenko,
emerges as favorite to become prime minister for a second time.

During her first term as prime minister, she canceled his purchase of the
country’s biggest steelmaker and threatened to annul more state asset sales
of the Kuchma era.

Pinchuk bought Kryvorizhstal for $800 million under Kuchma’s rule. President
Viktor Yushchenko and Tymoshenko, who came to power in the 2004 Orange
Revolution, took the plant back under state control and resold it to
ArcelorMittal, the world’s largest steelmaker, in October 2005 for $4.8

“The acquisition of Kryvorizhstal was totally legal,” said Pinchuk, adding
that the government’s resale was politically motivated. He said he appealed
to the European Court of Human Rights in Strasbourg and was waiting for a

Tymoshenko, front-runner for the post of prime minister after last month’s
elections, is threatening to regain control of other Pinchuk companies,
including Nikopolskiy Ferrosplavnyi Zavod, the country’s biggest producer of
ferromanganese, which was also sold at a discount by Kuchma. Pinchuk said
that auction was also legal.

Pinchuk aims to diversify and reduce the number of Ukrainian companies in
his portfolio. “We have different kinds of risks,” mainly political, Pinchuk
said. “We do not have a predictable government and nobody knows what will
happen.” He opened an investment company, EastOne, in London on Sept. 27.

Interpipe, whose customers include Gazprom and Rosneft, had sales of more
than $1.6 billion last year, producing 4.3 percent of the world’s seamless
pipes and 13 percent of its railway wheels.

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By Torrey Clark and Lucian Kim, Bloomberg News
Moscow, Russia, Tuesday, Oct. 9, 2007

MOSCOW – OAO Gazprom, supplier of a quarter of Europe’s gas, and

Ukraine agreed to avert a threatened supply cut over an outstanding gas debt,
amid a visit by Ukraine’s pro- Russia prime minister to Moscow.

Gazprom will take ownership of $1.2 billion of gas stored underground in
Ukraine, selling it to consumers in that country and Europe, Russian Prime
Minister Viktor Zubkov said today in remarks broadcast on national
television channel NTV, after meeting with his Ukrainian counterpart, Viktor

A $929 million debt owed by retailer UkrGazEnergo to Gazprom’s half-owned
Ukrainian gas import venture, RosUkrEnergo AG, will be paid in cash by the
end of this month, Zubkov said.

Gazprom warned European consumers last week of the possible supply cuts to
Ukraine over what Russia’s state-run gas-export monopoly called a $1.3
billion debt.

The dispute revived concerns about President Vladimir Putin using energy as
a political tool. As much as 85 percent of Russian gas is shipped to Europe
across Ukraine.

Ukraine accused Russia of engineering a similar gas dispute in January 2006,
during which European supplies were disrupted, to damage its economy and
undermine President Viktor Yushchenko. Yanukovych won parliamentary
elections in March that year.

Yanukovych, who met with Putin today at the president’s residence near
Moscow, may soon be ousted after the Orange Revolution alliance, parties led
by Yushchenko and ex-Premier Yulia Timoshenko, gained a majority in early
parliamentary elections on Sept. 30.
Gazprom will get 8 billion cubic meters of gas from Ukraine’s underground
storage to cancel out the debt, Interfax said today, citing Yanukovych
before he boarded a plane to Kiev.

Gazprom Chief Executive Officer Alexei Miller, Ukrainian Energy Minister
Yuriy Boyko and the heads of the two Ukrainian gas traders signed an
agreement to settle the dispute today, the Moscow-based company said in an
e-mailed statement.

UkrGazEnergo pledged to make a $200 million payment on its debt before Oct.
22, RosUkrEnergo spokesman Andrei Knutov said by telephone today.

The retailer, a venture owned by RosUkrEnergo and Ukraine’s state-owned NAK
Naftogaz Ukrayny, already paid down part of more than $1 billion owed last
week. RosUkrEnergo will cut supplies to Ukraine if payment isn’t received,
he said.

Knutov declined to comment on Zubkov’s or Yanukovych’s remarks. Gazprom
spokesman Sergei Kupriyanov didn’t answer his mobile phone when called by
To contact the reporters on this story: Torrey Clark in Moscow at ; Lucian Kim in Moscow at

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

By Alexander Koliandre, Dow Jones Newswires
London, United Kingdom, Wednesday, October 3, 2007

LONDON – Yulia Tymoshenko, a strong contender to be Ukraine’s next prime
minister, blames the current government for the $1.3 billion natural gas
debt at the center of a dispute with Russian gas monopoly OAO Gazprom
(GAZP.RS), one of her top aides told Dow Jones Newswires Wednesday.

Gazprom threatened Tuesday to cut gas supply to Ukraine if the issue isn’t
resolved and the debt paid. On Wednesday, however, the parties agreed to
resolve the issue by Nov. 1.

Tymoshenko’s foreign policy adviser and No. 2 in her party, Grigory Nemiria,
said, “We will ask the government to explain this unexpected debt and
produce all the figures.”

As votes are tallied from Ukraine’s parliamentary elections, Tymoshenko is
likely poised to become prime minister. She urged an end to the current
complicated gas deal with Russia, which includes a string of intermediaries.

“The current problem is a direct consequence of the deal struck in 2006 with
Gazprom. It’s yet again proof that Russia is trying to use gas an instrument
of political pressure on Ukraine,” Nemiria said.

Gazprom said in a statement that the agreement to resolve the matter by Nov.
1 was reached at Gazprom’s headquarters in Moscow between the company’s
Chief Executive Alexei Miller and Ukraine’s Minister of Fuel and Energy Yuri

On Tuesday, Ukraine’s national gas company Neftegas said that it had no
knowledge of the nature of the debt. Gazprom said that the debt issue appeared

in July.
By Alexander Koliandre,
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

BYuT Newsletter, Kyiv, Ukraine, Monday, October 8, 2007

KYIV – The dust from the election had barely settled before Gazprom, Russia’s
state-controlled gas company, threatened to once more cut-off gas supplies
to Ukraine.

Coming as it did on 2 October, the move appeared to all and sundry as Russia
flexing its muscles and using its energy resources as a political bludgeon –
this time to deliver a bruising blow to the victorious Orange forces. But is
this really the case?

The threat from Gazprom was prompted by debts of $1.3 billion which were
allowed to be run up by the Yanukovych-government.

A hurried trip to Moscow, by Ukrainian fuel minister Yuriy Boyko, for
emergency talks with Gazprom on 3 October resulted in an agreement to pay
the arrears by 1 November.

Meanwhile a somewhat shame-faced Gazprom told the world’s media that its
debt collecting demand was motivated by commercial rather than political

The Russian ambassador to Ukraine, Viktor Chernomyrdin, dismissed
connections with the election results, insisting that the choice of the new
government was “an internal matter for Ukraine.”

Ilya Koshevrin, a Gazprom spokesman explained that the company had
anticipated the charge that it “was an attempt to influence the outcome of
the election.”

He reiterated that it was “a purely commercial matter,” adding that “with
the Fall approaching and gas consumption rising we definitely need to
settle” the issue promptly.

Those knowing how Gazprom works will tell you that a decision of this
magnitude would not be made without Kremlin approval. However, was

there a right time to make it? Probably not.

Presenting a payment demand before the election would have resulted in
accusations that Russia was attempting to influence its outcome.

Similarly, a request to the new government would be judged as a move to
undermine it. In some ways Gazprom found itself between the proverbial “rock
and a hard place.”
Optimism exists that an Orange government could actually improve
Ukrainian-Russian relations. It did not go unnoticed in Kyiv that Russia did
not interfere in the elections which it described as a “free expression of

A statement from Russia’s Ministry of Foreign Affairs read: “Russia is ready
to continue to stay in close cooperation with Ukraine on principles of good
neighbourly relations, pragmatism and mutual cooperation.”

Indeed, BYuT has long-maintained that it wants to maintain strong links with
it northern neighbour. And when it comes to gas, BYuT has done little more
than campaign for the removal of shady intermediaries and the establishment
of transparent commercial agreements between the states.
BYuT is also aware of the precarious position of Naftohaz, the Ukrainian
state-run gas company, which was blighted by the actions of the

The debt-ridden company was robbed of the lucrative industrial market for
gas and saddled with unprofitable contracts with municipal utilities and
residential consumers.

With its transit and storage fees pegged to deeply discounted rates set in
2006, there is mounting concern that the company could go bankrupt. This
would hurt foreign backers and almost certainly deter future investment.

BYuT’s Viktor Pynzenyk said, “A BYuT-led government would seek to improve
further Naftohaz’s management team and would be mindful of the consequences
regarding the company’s future in resolving matters.” The pragmatic
ex-finance minister added, “Overall, BYuT is in favour of a structured
transition to market prices for gas.”

The reality is stark: Ukraine’s energy industry needs both revitalising and
cleaning up. For foreign investors, western and Russian, this spells

So the blame for the unpaid debts is perhaps being placed unfairly at the
Kremlin’s door. Ms Tymoshenko points the finger closer to home and has
called for the debt to be paid.

“We need to find out where this debt came from, where the money was divided,
who made the decision not to pay Gazprom on time, and to take the money out
of the shadow sector. Meanwhile Ukraine should meet its obligations and
chart a new course.”

With the 2008 gas agreement up for negotiation, Ukraine and Russia have a
perfect opportunity to start afresh. They have a genuine chance to improve
the images of both nations and, with the world watching, this represents an
opportunity neither should ignore.
Questions or comments? E-mail us at

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Vladimir Solovyev, Olga Mordyushenko; Valery Kalnysh, Kiev
Kommersant, Moscow, Russia, Thursday, October 4, 2007

Ukrainian President Viktor Yushchenko made a statement yesterday that
rocked the post-election nation. Instead of instructing Yulia Timoshenko to
form an Orange government, he proposed forming “a broad ruling coalition”
with the Viktor Yanukovich’s Party of the Regions.

The president made his announcement 20 minutes after Gazprom announced
that the conflict over natural gas had been settled.
Nothing yesterday morning augured surprise. The Central Election Commission
finished counting the last 2 percent of votes and the victors, the Yulia
Timoshenko Bloc and Our Ukraine – People’s Self-Defense divided up

The Timoshenko Bloc claimed the economic posts, and Our Ukraine –
People’s Self-Defense the enforcement posts.

All sides were waiting for the president’s announcement that a new
government had been formed by the Yulia Timoshenko Bloc and Our
Ukraine – People’s Self-Defense. No one doubted that would happen.

Before the elections, Yushchenko had called on the democratic forces to
bury the hatchet, promised Timoshenko the prime minister’s post and
swore that the Orange would have the majority in the new Rada.

The president’s blessing of the democratic alliance was scheduled for 12:30.
At 12:40, the presidential secretariat stated that the president would
appear at 1:00. Then it was delayed until 1:30, then 2:00, and still the
president was nowhere to be seen. Finally he appeared at 2:30.

“I instruct the Party of the Regions, Yulia Timoshenko Bloc, Our Ukraine –
People’s Self-Defense and the other winners of the parliamentary elections
to begin preliminary consultations on forming a majority in the parliament
and forming a government for the country,” Yushchenko said, adding that true
political stability can be attained only through mutual understanding. Then
he flew off to Die Quadriga Awards in Germany.

Timoshenko was in a state of shock. The evening before, she had stated that
the Orange could work with the Party of the Regions only in the opposition.
“We are honest before people,” she declared. “Again, we assure you that, if
there is a coalition between Our Ukraine – People’s Self-Defense and the
Party of the Regions, our political force will remain in the opposition.”

Confusion reigned at Our Ukraine – People’s Self-Defense headquarters. Boris
Tarasyuk, leader of the People’s Rukha and No. 11 on the Our Ukraine –
People’s Self-Defense party list, was at a loss to explain the president’s
motives. He said that his party would leave the bloc if a coalition with the
Party of the Regions was created.

Anna German, advisor to Yanukovich, told Kommersant that the Party of the
Regions would want the prime minister’s post.
The Ukrainian president made his shocking statement 20 minutes after a happy
ending was declared in Russia to the dispute with Ukraine over natural gas.
Gazprom moderated its position as ostentatiously in Ukraine’s favor
yesterday as it had taken a hard line toward it shortly before.

The sharply worded statements by the monopoly on Wednesday about possible
cutbacks in gas supplies because of a $1.3-billion debt were an obvious
reaction to the Orange victory. A hasty visit to Moscow by Ukrainian Energy
Minister Yury Boiko, who is loyal to Yanukovich, who is loyal to Russia,
made it clear who could help Ukraine avoid gas trouble.

Boiko began his round of meetings with Gazprom head Alexey Miller at the
monopoly’s headquarters. Then he met with First Deputy Prime Minister and
chairman of Gazprom Dmitry Medvedev at government headquarters.

His success was announced by the monopoly with uncharacteristic speed.
The sides agreed on repayment of the debt by November 1.

Official Gazprom representative Sergey Kupriyanov explained that no exact
schedule of payments has been established, but an understanding has been

Negotiations will continue with Ukrainian authorities, Ukrgaz-Energo and the
intermediary Rosukrenergo this month. Kupriyanov emphasized that, if Ukraine
did not fulfill its obligations, the issue of turning off the gas would come
up again.

Gas has played its role again,” commented Vadim Karasev, head of the Kiev
Institute of Global Strategy. “It seems they were worried in Moscow that
Timoshenko would keep her campaign promise and close the energy flow
between Russia and Ukraine.”

Timoshenko had promised that her first move as prime minister would be to
eliminate Rosukrenergo as intermediary between the two countries. Gazprom
took that as a threat to its interests.
Sources say that the Orange coalition is not dead yet, however. Couriers
were dispatched from Our Ukraine – People’s Self-Defense to Timoshenko.

Vyacheslav Kirilenko, No. 2 on the Our Ukraine – People’s Self-Defense party
list with ambitions to become speaker of the Rada, came to the Timoshenko
Bloc office personally. Sources say that his mission was to explain that the
president’s declaration was strictly a formality.

The plan, Kommersant’s sources say, is for Our Ukraine – People’s
Self-Defense leader Yury Lutsenko to step into the fray after Timoshenko
refuses to negotiate with the Party of the Regions.

He will announce (today, according to the sources) that the bloc has
unanimously voted to refuse to form a coalition with Yanukovich. Yushchenko
will return from his trip abroad and announce an Orange coalition.

Our Ukraine – People’s Self-Defense deputy campaign manager Nikolay
Onishchuk has issued a statement saying that Yushchenko has not demanded
that a coalition be formed with the Party of the Regions, but only “urged
for a political agreement that will guarantee stability.”

Larisa Mudrak, head of the information department of the presidential
secretariat, advised Kommersant, “Don’t worry. Everything will be fine.”

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

Reuters, Kiev, Ukraine, Friday October 5, 2007

KIEV President Viktor Yushchenko’s unexpected call to include his political
opponents in talks to form a government pitches Ukraine into new turmoil,
with the only certainty that the process will be a long one.

Last weekend’s election appears to have produced a narrow majority for
parties linked to the “Orange Revolution” that swept the president to power
in 2004. Yushchenko had said during the campaign that he would back just
such an “orange” coalition.

But on Wednesday, Yushchenko reversed course. He called for talks to include
two “orange” groups — ex-prime minister Yulia Tymoshenko’s bloc and his own
Our Ukraine party — as well as the party of his arch-rival, Prime Minister
Viktor Yanukovich.

Yanukovich welcomed it as a step towards a “broad coalition” of rival groups
in a country polarised between a nationalist west and Russian-speaking east.
But the “orange” camp paid little heed and scheduled talks on their own from

Analysts were taken aback by the appeal, pointing to a year of stormy
“co-habitation” since Yushchenko agreed to appoint his rival prime minister
in August 2006 and share power.

“We are seeing, over and over, the same recycled ideas. What Ukraine needs
to do is move forward,” said Tammy Lynch of the U.S. Institute for the Study
of Conflict, Ideology and Policy.

“I think there will eventually be an (orange) government, but before that
happens Ukraine faces a long, drawn-out negotiation process. This is the
scenario EU representatives and other officials most wanted Ukraine to

All parties remained firm in their positions a day after the president
issued his call, saying Ukraine needed constructive relations between
parties in power and the opposition — which included giving opposition
figures cabinet posts.

“I see the president’s statement as a call for understanding with the future
parliamentary opposition,” said Yuri Lutsenko, leader of a group that ran in
tandem with Our Ukraine.
Tymoshenko’s bloc, which scored big poll gains, said it would meet with
Yanukovich’s Regions Party only once an “orange” coalition was in place.

Tymoshenko was appointed Yushchenko’s first prime minister in 2005, but was
sacked after eight months, a dismissal that disillusioned many “orange”

Yanukovich issued a statement calling for quick formation of a broad-based
government including his party, which took first place but was outscored by
the combined “orange” tally.

“Nothing unexpected has occurred,” he said after meeting the U.S.
ambassador. “We propose a broad coalition to stabilise the situation and
keep the country from being divided in two.”

With all politicians keenly aware of the 2009 presidential election, the
notion of a “broad coalition” has been touted for months, bringing together
the Regions Party and Our Ukraine — or willing elements from the
president’s party.

Yanukovich was defeated in the 2004 revolution but, after Tymoshenko’s
dismissal, bounced back to take first place in a parliamentary election last
year. He became prime minister after four months of talks, marked by
defections in the “orange” camp.

Given the long hostility, most observers doubt Yushchenko’s call will
produce a “broad coalition” or that he even wants one.

“The president was most likely trying very simply to show who is boss,” said
independent analyst Viktor Nebozhenko. “I think he understands that it is
impossible to unite three antagonistic political forces.”

And one factor hindering rapid formation of a “orange” coalition might be
the president’s latent mistrust of Tymoshenko, despite a public embrace
between the two said to have sealed their reconciliation in the campaign’s
final days.

“Embraces are one thing, but it’s no secret that Yushchenko views Tymoshenko
with great suspicion. He sees her as a potential competitor,” said Volodymyr
Fesenko of the Penta think tank.

“Either they failed to reach agreement or, more probably, there is a
psychological factor at work here — that Yushchenko does not really want to
see Tymoshenko as prime minister.”
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

Maria Danilova, Associated Press (AP), Kiev, Ukraine, Sun, Oct 7, 2007

KIEV – Although the parties tied to Ukraine’s Orange Revolution look
set to return to power after the latest national elections, the man who was
the central figure of the 2004 mass protests appears to be losing power.

Viktor Yushchenko is now president, elected after the protests turned
Ukraine’s politics upside down, but the adoration of millions that he once
claimed is little more than a memory. His party earned only about 16 percent
of the parliamentary vote Sept. 30.

The party of his Orange Revolution enemy, Prime Minister Viktor Yanukovych,
had about 30 percent of the vote, the partial results indicated.

The rising star, it appears, is Yulia Tymoshenko, a vivid, controversial
figure whose bloc was leading with 33 percent. She was Mr. Yushchenko’s most
fervent ally in the Orange Revolution, became his prime minister – and then
a nemesis. Mr. Yushchenko fired her after just seven months in office.

Now, she likely holds the key to Ukraine’s political future – and Mr.
Yushchenko’s. If she allies with Mr. Yushchenko, their parties should have
enough parliament seats to form a government; if she holds out, Mr.
Yanukovych and sundry small allies could hammer together a coalition.

On Friday, Mr Yushchenko ordered the country’s two largest pro-Western
parties to work out a deal on a coalition government after their narrow win
in parliamentary elections.

A coalition of Orange Revolution allies – Our Ukraine, which itself leads a
small alliance of pro-Western parties, and the Yulia Tymoshenko Bloc – would
control a narrow majority of 228 seats if the results are confirmed.

For Mr. Yushchenko, the alliance appears to be a last resort in maintaining
at least some of his grip on power. His pro-Western government’s popularity
has suffered owing to political infighting and disillusionment with the
country’s struggling economy, endemic corruption and decrepit

Constitutional changes he agreed to as part of a compromise during the 2004
protests handed many of the presidential powers to parliament, and Mr.
Yushchenko has seen many of his policies and decrees challenged and blocked
by Mr. Yanukovych.

His choice for foreign minister was not approved by parliament, his efforts
to join NATO were put on hold, and even the chief prosecutor he fired
initially refused to leave his office.

The early parliamentary election was Mr. Yushchenko’s effort to stop what he
called Mr. Yanukovych’s attempts to usurp power.

Mr. Yushchenko and his Orange allies weren’t able to put together a
coalition after last year’s national elections. That gave Mr. Yanukovych
room to move in – and the cohabitation resulted in months of a bitter
standoff that paralyzed the government.

This year, Mr. Yushchenko’s and Mrs. Tymoshenko’s parties have pledged that
if they’re able to put together enough seats for a governing coalition, the
party with the most seats will name the prime minister and that they will
divide the Cabinet seats.

That could spell trouble for Mr. Yushchenko. Mrs. Tymoshenko, known for her
steel will and hunger for power, is likely to try to get most of the key
seats in the Cabinet for her party, pushing Mr. Yushchenko’s allies into
less important positions.

Her party’s strong showing makes her a likely tough candidate in the 2009
presidential election.

Mr. Yushchenko can also expect trouble from Mr. Yanukovych. The prime
minister, who had fiercely resisted calling early elections, has hinted he
will not bow out quietly if he fails to form a coalition.

He has warned he may reject the election results and has threatened to stage
the kinds of mass protests that swept Kiev during the Orange Revolution. He
has already erected a giant stage in the center of Kiev and a tent camp
reminiscent of the Orange Revolution protests.

And with the Central Election Commission split between Yanukovych and
Yushchenko loyalists, the body could be locked in stalemate, with the two
sides disagreeing on the vote count and refusing to validate the vote.

Mr. Yushchenko’s party’s dismal showing in the Sept. 30 vote isn’t

Mr. Yushchenko was poisoned with dioxin during the 2004 presidential
election campaign, disfiguring his face. Suspicions of Russian involvement
persist, partly because Mr. Yushchenko was running against Mr. Yanukovych, a
Kremlin-backed candidate.

Sympathy and anger prompted throngs to stand in Independence Square chanting
Mr. Yushchenko’s name in the freezing weather in 2004, but many feel he has
let them down in the years since.

During those protests over election fraud, Mr. Yushchenko and Mrs.
Tymoshenko swore eternal loyalty to each other. But after the Supreme Court
threw out election results declaring Mr. Yanukovych the winner and ordered a
new vote – which Mr. Yushchenko won – he could only take seven months of
Mrs. Tymoshenko as his prime minister.

He fired her after mutual accusations of corruption and incompetence, saying
Mrs. Tymoshenko often worked “with the aim of solving her problems” rather
than the state’s.

Many supporters feel the Orange team has betrayed the “ideals” of the Orange
Revolution, and Mr. Yushchenko’s sinking support has also played into Mr.
Yanukovych’s hands.

Written off as the bad guy of the Orange Revolution, Mr. Yanukovych has
since reinvented himself as a moderate who talks democracy and is cordial
with both Russia and the West.

He has shored up his support base in the Russian-speaking east and south,
and – capitalizing on widespread disillusionment in the Orange team – has
sought to win over central and western regions traditionally loyal to the
Orange forces by ushering in economic growth and raising wages and
retirement pensions.
NOTE: Kiev correspondent Maria Danilova has covered the former Soviet

Union for the Associated Press since 2003.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

Reuters, Kiev, Ukraine, Monday, October 8, 2007

KIEV: President Viktor Yushchenko on Monday gave Ukraine’s political
leaders, deeply suspicious of each other, until the end of the week to come
up with the framework for a new government and agree on a prime minister.

He said the parties behind the 2004 “Orange Revolution,” which swept him to
power, had the seats to form a coalition but they needed the cooperation of
the Regions Party of his rival, Prime Minister Viktor Yanukovich.

“I call on all political sides to start consultations and political talks
and to propose a coalition and a prime minister within five days,”
Yushchenko said after meeting with the five parties that won seats in the
election on Sept. 30. “The orange camp has the basis for forming a coalition
in Parliament, but only after other political parties have constructive
relations with it.”

The orange camp had long agreed that former Prime Minister Yulia Timoshenko,
a major force in the revolution, would get her job back if it had enough
seats. Appointed by Yushchenko after he came to power, she was dismissed
within eight months.

Yanukovich, defeated by Yushchenko in the 2004 presidential election, said
his party would go into opposition if he were not kept on as prime minister.
His party is the largest in Parliament but is outnumbered by the combined
orange forces.

“If we enter the coalition, the post of prime minister will be ours,” he
said after the meeting. “If that doesn’t happen, we will be in opposition.”

The election was meant to resolve a power struggle between Yushchenko and
Yanukovich, which has long paralyzed decision making in Ukraine.

But it produced only a narrow majority for the orange camp. The Regions
Party took first place in the election.

Yushchenko has since confounded his allies – Timoshenko’s bloc and his own
party, Our Ukraine – by moving away from clearly backing an orange

His statements revived fears of a repeat of the more than four months of
rancorous coalition talks after a parliamentary election last year.
Yanukovich then took advantage of squabbling in the pro-Western orange camp
to form his own government.

Timoshenko, whose bloc made big gains in the poll, said she was willing to
give key posts to the liberal orange camp’s rivals as suggested by the
president last week. Yushchenko, his powers reduced by constitutional
changes, has direct control only over the Foreign and Defense ministries.

[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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The ISCIP Analyst (Boston University), Volume XIV Number 2
Boston, Massachusetts, Thursday, 4 October 2007

On Wednesday, Ukraine faced the possibility of continuing political
stagnation, after President Viktor Yushchenko encouraged lengthy
negotiations to form a government on the heels of the country’s
parliamentary elections.

If this occurs, in the short term, this scenario could doom Ukraine’s WTO
aspirations. In the long term, it could increase the cynicism and apathy
that has begun to infect Ukraine’s voters.

Sunday’s parliamentary elections gave the country’s two so-called “orange”
parties—based on their leadership during the orange revolution—a slim
majority of seats.

The bloc of former Prime Minister Yulia Tymoshenko (BYUT) drastically
increased its support to over 30%, while President Viktor Yushchenko’s Our
Ukraine-People’s Self-Defense Bloc (OU-PSD) remained level in third place at
about 14%.

When the seats of parties that did not pass the threshold to enter
parliament are redistributed, these blocs will control about 51% of the
parliament.  Their rival party of Prime Minister Viktor Yanukovych placed
first with 34%.

These results give the orange blocs the power to form a government
immediately following official publication of the vote tally.

Ukraine’s parliament chooses both the government and prime minister, and
prior to the election, both political forces supported the likely candidacy
of Yulia Tymoshenko for that post, should they succeed in the poll.

The result is a remarkable comeback for the orange forces, which have been
mired in opposition for a year, largely thanks to the unwillingness of
Yushchenko to work closely with Tymoshenko.

During his presidency, Yushchenko has been unable to consolidate power.  He
began battling for popularity with Tymoshenko almost from the moment he
appointed her prime minister following the orange revolution.

When he suddenly dismissed Tymoshenko just nine months after appointing
her—chiding her for not being a “team player”—his support plummeted.

Yushchenko then turned to his former opponent Viktor Yanukovych, who was
approved as prime minister in the name of “unity.”  Because the president
and prime minister never agreed on basic issues of reform, the country was
treated to the sight of their top two politicians continually attacking one

Reforms stalled, inflation skyrocketed and the deficit increased.  By 2007,
Yushchenko’s approval ratings had plummeted to below 20%.  In contrast,
Tymoshenko’s popularity has never been higher.

It was not surprising, then, that Yushchenko embraced Tymoshenko during the
campaign.  Before the election, Yushchenko met with Tymoshenko several
times, and the two were said to have agreed on mechanisms to ensure that
they and their forces could work productively together in government.

OU-PSD went so far as to include video of Yushchenko and Tymoshenko
embracing in its final campaign ad, as Yushchenko was shown discussing the
cooperation of OU-PSD with BYUT.

But in a televised address on Wednesday, Yushchenko appeared to contradict
this cooperation, when he urged the two orange parties, plus Viktor
Yanukovych’s party, to begin negotiations to form a majority.

“I have held political consultations with the political winners over the
past two days and today I commission the Party of Regions, BYUT, Our
Ukraine-People’s Self-Defense and the other winners to start preliminary
political consultations to form a majority in Ukraine’s parliament and form
a Ukrainian government,” he said.

Moreover, “We will have true political stability when the three key
players – the Party of Regions, BYuT and Our Ukraine – make compromises,”

he said.  “So my key message to these political forces is that they must start
political talks to formulate basic rules of forming a majority in Ukraine’s
parliament and Ukraine’s government and building relations between those
political forces that represent government and opposition.” (1)

 Later, Yushchenko went further when he suggested that the renewed orange
coalition “will not bring stability to the state,” and that OU-PSD and BYUT
should offer Yanukovych and his allies key cabinet positions.  (2)

The statement shocked most within both the OU-PSD bloc and the Yulia
Tymoshenko Bloc, who reportedly were expecting the president to endorse the
promised “democratic coalition” in his remarks.

Yushchenko’s statement asking for negotiations with the Party of Regions
(PoR) is particularly surprising, given his recent criticism of both the
party and Yanukovych for what he called “a policy of intrigues and betrayals
disguised as national unity slogans.”(3)

In fact, Yushchenko dismissed the previous parliament led by PoR, based on
statements by Party of Regions representatives that they would soon attempt
to impeach the president and change the constitution to remove the
institution altogether.

Ukrainian media at the time carried almost daily reports of money changing
hands in an attempt to “convince” parliamentarians to support such a move.
Yushchenko himself accused PoR of bribery.

Furthermore, during the election, Yushchenko implied that slow vote counts
from PoR strongholds could be the result of attempts at fraud.  These
accusations apparently are forgotten.

Almost immediately after the president’s call for tri-party negotiations,
Yulia Tymoshenko reconfirmed her bloc’s position that it would not negotiate
with the Party of Regions, which she calls the “party of criminals.”

Should the president’s party agree to form a government with Yanukovych,
BYUT would move into opposition, she stated.  Leading an opposition force,
she said, would be more beneficial to the country than “providing cover for
a mafia.”  (4)

This reaction was expected, given Tymoshenko’s unwavering criticism of
Yanukovych.  The reaction of Yushchenko’s own bloc, however, may have
surprised him.

At a press conference Thursday afternoon, Yuriy Lutsenko, who tops the
OU-PSD parliamentary list, entirely rejected the idea of negotiating with
PoR over a majority government.  This would go “against the will of the
voters,” and “against our campaign promises,” he said.  (5)

Lutsenko announced that discussions would begin within 24 hours on the final
points of forming a majority.  He also suggested that OU-PSD and BYUT would
invite the bloc of former parliamentary speaker Volodymyr Lytvyn to take
part in negotiations.

Tymoshenko earlier stated that she had “no objection” to working with Lytvyn
and reportedly met with him on Thursday.

Lytvyn’s bloc won just under 4% of the vote and would provide significant
padding on the majority.  However, his allegiances are unknown, and he
generally is seen as being close to both Yanukovych and former president
Leonid Kuchma.

Nevertheless, Tymoshenko and Lutsenko both suggested the possibility that
members of their own blocs could be enticed to desert them by PoR, thus
making the addition of a third party to their coalition necessary.

Tymoshenko claimed her deputies already had been contacted by
representatives of PoR, suggesting that the practice of bribery and
intimidation for votes is continuing in Ukraine.

Overall, it seems that Yushchenko’s call for broad negotiations largely will
be ignored, perhaps signaling an even further fall in his political status.

The situation is unexpected, since it had seemed that the victory of the
orange forces was not only a victory for Tymoshenko, but also a chance for
Yushchenko to embrace once again the ideals of his primary supporters and
perhaps increase his electoral support.

Lutsenko claimed at his press conference that the president’s words had been
misinterpreted and that he remained committed to a “democratic coalition.”
The president himself has not commented, however.

The coalition between Lutsenko and Tymoshenko appears firm; Lutsenko arrived
at the BYUT election-night celebration with a large bouquet of flowers for
the former prime minister, grandly kissed her hand and confirmed his support
for her proposed premiership.  His press conference should further solidify
their coalition.

There are, of course, individuals within Yuschenko’s bloc who would rather
work with Yanukovych, based on joint business projects or other professional
ties.  For now, however, the bloc very publicly has rebuffed the president’s
suggestions and reaffirmed its support for a new orange coalition.
(1) Statement by the President of Ukraine, Official website of the
President, 12:30 CET, 3 Oct 07 via
(2) Ukrayinska Pravda, 2054 CET, 3 Oct 07 via
(3) “President Dissolves Parliament,” Official website of the President,
21:18 CET, 2 Apr 07 via
(4) Yulia Tymoshenko press conference, Kyiv, 3 Oct 07.
(5) Yuriy Lutsenko, Press conference, Kyiv, 3 Oct 07, televised live on
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
Send in a letter-to-the-editor today. Let us hear from you.
President Yushchenko again demonstrating dubious indecision

Analysis & Commentary: By John Marone
Kyiv Post Staff Journalist, Ukraine
Eurasian Home, Moscow, Russia, Monday, October 8, 2007

With parties heir to Ukraine’s Orange Revolution perched to retake full
control of the country’s executive, Orange president Viktor Yushchenko is
again demonstrating the kind of dubious indecision that cost them the
government in the first place.

His one-time revolutionary sidekick, opposition leader Yulia Tymoshenko, was
the real winner in the September 30 snap elections, earning enough votes to
come back as premier.

But she cannot form a coalition government without the assistance of the
president’s Our Ukraine-Self Defense Bloc (OUSD).

Tymoshenko’s Bloc (ByuT) got twice as many votes as OUSD, which had
promised during its campaign to reestablish pro-Western Orange rule.

But the president again seems more concerned about Tymoshenko’s threat
to his lagging popularity. In an address delivered last week as the Orange
parties’ victory became imminent, Yushchenko called for cooperation
between all five parties that made it into the Verkhovna Rada in the name of
national unity.

“So my key message to these political forces is that they must start
political talks to formulate basic rules of forming a majority in Ukraine’s
parliament and Ukraine’s government and building relations between those
political forces that represent government and opposition,” he told the

The brunt of the president’s message, as was later clarified, is that the
next government should include members of the outgoing majority, which
Yushchenko and other Orange leaders demonized during the election campaign.

It was the “unconstitutional” actions of the Communists and Prime Minister
Viktor Yanukovych’s Regions Party that forced Yushchenko to call early
elections in the first place.

Together with the Socialists, who didn’t make it past the three-percent
barrier this time, the eastern-oriented Regions and Communists had
threatened to usurp the lion’s share of executive power from the president.

Faced with the prospect of being relegated to lighting the national
Christmas tree, Yushchenko openly joined the Orange parties’ parallel
campaign to oust the Yanukovych government, which it vigorously accused
of corruption.

Now, the president is trying to pose as non-partisan peacemaker among
warring factions.

“Holding consultations with the political leaders of the aforementioned and
other parties, I am ready to act as guarantor of the fulfillment of all
agreements that will be reached during their preliminary negotiations,” he
said last week.

The dish of double talk is made even harder to swallow by the fact that
Yushchenko, and Yushchenko alone, was responsible for Yanukovych returning
from the disgraceful defeat he suffered during the Orange Revolution to run
the government.

In the March 2006, the Orange parties, including the Socialists, also had a
chance to form a government. Instead, the president and members of his party
procrastinated for months, holding coalition talks with his allies as well
as the Regions simultaneously. The result of this double-dealing was that
the Socialists defected to the Regions, forming a backward looking coalition
that included the Communists as well.

Although the president has explained his past actions as an attempt at
constructive cooperation with Regions, which got the largest number of seats
in parliament in March 2006 and on Sunday, observers point to Yushchenko’s
fear of Tymoshenko’s popular appeal.

Tymoshenko helped rally the crowds of Orange Revolution protesters to
successfully challenge Yanukovych’s fraud -filled defeat of Yushchenko
during the 2004 presidential race, yet Yushchenko fired her as his first
premier in late 2005.

With the next presidential elections scheduled for 2009, Yushchenko again
looks frightened of Ukraine’s femme fatale, despite his expressed concern
for national unity.

“I want to call on my political colleagues not to be guided by personal
visions and personal interests but to consolidate their cooperation around
national priorities.”

Members of the president’s team have dismissed suggestions that Yushchenko
is planning on cutting a coalition deal with Regions and the Bloc of
Volodymyr Lytvyn, a dark horse party that barely got past the three-percent

However, it wasn’t just wags and observers who read a shift in loyalties in
the president’s words last week.

“Viktor Yanukovych supports the position of the president of Ukraine on the
formation of a parliamentary coalition,” reads a statement from the Regions
press service.

“It would be correct to unite the campaign programs of the political parties
that got into parliament,” the statement continues.

A few days later, the Communists joined in on the farce, stating that they
would consider taking a seat in the new government as well.

The leadership of OUSD and ByuT have continued to insist that they will not
join a coalition with the Regions, despite the fact that an Orange coalition
would only have a majority of two seats.

And some analysts have suggested that the president made the statements to
gain leverage in coalition talks with ByuT.

That may be the case, but considering Yushchenko’s past success at such
tactics, the fact that the ByuT got twice as many votes as the president on
Sunday, and the complete absence of any reason to believe that the Regions
wouldn’t again abuse any agreement made with their opponents, maybe
Yushchenko should just agree to make Tymoshenko premier and stop fooling

Could it be that the president is hoping to hem in Tymoshenko’s ambitions by
allowing her enemies into the government?

With such a thin Orange majority, and the country’s recent history of east-
west deadlock, no one would deny that the Communists and Regions should
be allowed some positions, such as deputy heads of parliamentary committees
or oversight posts.

But no one should know better than Yushchenko about the dangers of sharing
power with Yanukovych’s team, which has abused the Constitution in letter
and spirit to consolidate its interests and promote those of its financial

It’s the Region’s business wing, as opposed to the party’s anti-West rank
and file, that some members of Yushchenko’s entourage would like to court.

Certainly, Donetsk’s powerful eastern industrialists will influence the
country in or out of power.

But if Yushchenko is really interested in stability, he doesn’t have to buy
it with state posts.

Donetsk industrialists also have something to gain from the Orange team’s
pro-Western reforms, such as WTO membership and foreign investment.

But they cannot be allowed to further hamper liberal reforms. As far as the
eastern electorate, Yushchenko has got to win their confidence and respect
the hard way.

While Yanukovych has made a serious effort to win the West, learning
Ukrainian and redefining himself as pro-business, Tymoshenko campaigned
hard in the east, where she is from in the first place.

But Yushchenko has preferred to play the spiritual leader to the Orange
electorate while continuing to promise reform and traveling abroad.

If Yushchenko wants to improve his ratings in the south and east, he could
give in on making Russian a second official language and demure on NATO
entry. Sure, some in the West would be up in arms, but it would be a small
price to pay for national unity.

On other issues, such as the country’s corrupt court system and its
dangerous dependence on Russian gas, the president should play hardball.

Russia is again threatening Ukraine with higher gas prices with a definite
political agenda, and, worst of all, it’s energy bullying is facilitated by
certain members of the current government. This is the greatest threat to
Ukraine, and Tymoshenko has promised to deal with it head on.

If Yushchenko can guarantee energy security and crack down on corruption,
he may be able to hold on to his job in 2009. To do so, he doesn’t have to
perpetuate his country’s east-west split or unnecessarily antagonize Russia.

Nor should he be paranoid about Tymoshenko, who shines more in the
opposition than in power. She and the president share many of the same
policies. By implementing these policies, both politicians and the country
as a whole stand to win. The president just needs to remember what counts.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

ANALYSIS & COMMENTARY: By Marek Dombrowksi
Centre for Social and Economic Research (CASE)
EurActiv, London, UK, Thursday, October 4, 2007

Ukraine has to make a choice: either seriously participate in Euro-Atlantic
integration and join the nations of democracy and free markets, or remain in
the ‘grey zone’ of the European periphery by reviving its traditionally
close relations with Russia, argues Marek Dabrowski in a Centre for Social
and Economic Research (CASE) paper published ahead of the Ukrainian

Ukraine has broken with its Soviet and totalitarian past but its democracy
is still relatively young and fragile and therefore vulnerable to various
political shocks, believes Dabrowski.

Basic civil and economic freedoms are not well protected due to numerous
legal and institutional imperfections, most notably a poorly-performing
judiciary, the author argues.

He also states that despite Ukraine’s success in building the basic
institutional foundations of a market economy, its capitalism is still
heavily distorted and its economic transition far from complete.

According to the paper, the economic landscape is still dominated by
so-called ‘oligarchs’, whose short-term interests override the interests of
SME owners, foreign investors and consumers due to non-transparent
political mechanisms.

Although the economy is growing at a relatively high rate, the long-term
sustainability of this growth will depend on an improvement in the
investment climate, the author states.

Similarly to other CIS countries, Ukraine is in urgent need of new reforms,
primarily to address institutional and structural weaknesses, according to
the CASE paper.

Policymakers have to go well beyond the purely economic agenda and also
address issues of legal, administrative and political reforms.

The author regards such reforms as absolutely critical for creating a
healthy business environment and integrating Ukraine with the world and
European economy.

Failure to design, launch and implement these reforms could undermine
prospects of economic growth, the paper warns.

Furthermore, the author considers Ukraine’s road to EU and NATO
membership to be more difficult than that of the central and eastern
European countries, due to the weaker external incentives for Ukraine to act
in comparison with those countries which joined the EU in the last three

According to the author, the country is deeply divided in political,
cultural and regional terms and therefore he does not expect a clear winner
to emerge from this September’s parliamentary elections.

He even forecasts an ongoing political struggle until at least the 2009
presidential election. The only solution would be a wide cross-party
political consensus, he concludes.
IMPORTANT: ‘Analysis’ documents are commentaries by external
contributors. EurActiv – as a neutral platform – does not state policy
positions of its own. Any opinions in ‘Analysis’ documents are those
of the author only.

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

Analysis & Commentary: Dmitri Kulikov, Timofei Sergeitsev
Profil No. 36, Russia, Monday, October 1-7, 2007

Why isn’t Ukraine striving for true independence, even if
accompanied by numerous restrictions? Why can’t it become self-
sufficient like Switzerland, India, Brazil, or Argentina? Isn’t it
obvious that Ukraine could gain greater independence if it reaches
agreement with Russia?

Ukrainian President Viktor Yushchenko has certainly outdone
his predecessor in terms of presidential power. Leonid Kuchma only
claimed the title of guarantor of the Constitution, as mandated by
the Constitution itself; but Yushchenko, throughout the rises and
falls of revolution and counter-revolution, has gone beyond
extracting concessions from his political opponents.

Of course, the very fact that the parliamentary election is actually taking
place serves to rebuild his credibility with voters, damaged as
the Orange front fell apart. At any rate, the voters who brought
him to power will see things that way. But Yushchenko has done
much more.

In 2007, he has crossed the threshold that the revolution itself couldn’t
cross in 2004. Three years ago, the electoral process was still regulated
by the courts, even if the letter of the law was contradicted; but not even
this much has been required in 2007.

This time, the Constitution and the courts have played no part in the
decision-making process that determines the political regime of the
future. By consenting to Yushchenko’s actions in creating this election
situation, his opponents and the nation have recognized him as a legal
authority surpassing the letter of any law.

The president is now the recognized and self-sufficient source of
constitutional law – the supreme authority. For him, this is a logical and
consistent goal. He has never liked the present Constitution; after all,
it has been fundamentally damaged by the political reforms with which
he never agreed, deep down.

Thus, Yushchenko has rebuilt and even enhanced the quality of his
political weight. Essentially, he has returned to his own exceptional
role as messiah, the conscience of a revolutionary nation – but no
longer dependent on his erstwhile allies.

The more you are criticized, the greater your fame. That’s
what fame is, essentially. President Kuchma couldn’t permit
himself that luxury. Now he regrets his relations with the press
and the media in general.

Viktor Yanukovych, as a presidential candidate, dived headfirst into
Independence Square. “I’ll say and do my own thing!” he decided,
and he never backed down from that decision; he wasn’t satisfied
with the script prepared for him by his campaign managers, giving
him the role of “social prime minister” with solid 20% support.

If Yanukovych hadn’t stepped up to the barrier with his own presidential
political position and system of political goals, there would have been
no need for an Orange Revolution; Yushchenko would have come to
power with a convincing victory margin, not requiring any recounts.
And his administration would have had more powers.

Thus, Yanukovych’s apparent “defeat” in the presidential election
and his subsequent comeback as a reformed prime minister were an
undoubted success.

Yanukovych’s personal political capital has only grown. Neither
should we discount the real achievements of the anti-crisis
coalition in the economy and government (Prime Minister Yanukovych
is still a “social” prime minister). Then again, even good deeds
can be costly. Anyone who takes action also runs risks. But in
terms of the political process as a whole, Yanukovych is no less a
leader than Yushchenko.

One reason for this is that despite any and all compromises or broad
coalitions, Yanukovych himself is incapable of not opposing
Yushchenko. That is the essence of Yanukovych’s position since
2004: compromise for the sake of civil peace, but opposition in
substance for the sake of national interests.

If Yanukovych backs down on this during the current
election campaign, he will lose points. So will the result be 50-
50 again? That would be quite a coalition – adding up to 100%.

There’s just one problem. This is a parliamentary election,
not a presidential election. Points for the leader need to be
converted into points for the party. In this respect, Yulia
Tymoshenko is obstructing Yushchenko; but Yanukovych is being
obstructed by his own people in the Regions Party. In contrast to
squabbles among the Orange revolutionaries, this is not a matter
of conflicts between mid-level personal and business interests.

The companies sponsoring the Regions Party are much larger, and
they went through their own conflict stage years ago. But the
point here is that money on this scale needs a financial haven
greater than Ukraine or Russia. Global-scale sums of money (over
$1 billion) need to be involved in the global financial system
(American-dominated, for the time being). Big business in Russia
has the state’s support in keeping its money within the global

What about big business in Ukraine? Ukrainian corporations
are forced to solve their problems on their own, reaching
individual agreements with the managers of the global financial
system. The richer the party, the more it needs to Americanize its

The more Americanized it becomes, the less commitment it
has to the Yanukovych Plan of 2004: “No to NATO, yes to Russia!”
And that’s the policy platform Yanukovych has used until now. This
is the program that won him support in Eastern and Southern

But this program is sure to vanish from the agenda if
Yanukovych sets his sights on a broad coalition as a means of
reconciling American geopolitical interests and Ukrainian national
capitalist interests. It will also disappear from the election
campaign agenda – along with the party leader who personifies that

Under the circumstances, the Regions Party can and will
promote a policy platform consisting mostly of domestic issues and
economic affairs. To facilitate consensus with the Orange forces,
this platform already includes the principles of “choosing Europe”
and “Western democracy.” Overall, this concept may be described as
“moderate federalism.” But its prospects of success are obstructed
by two factors.

[1] Firstly, Eastern and Southern (and even Central) Ukraine lack
essentially territorial regions. To be more precise, the residents
of these territories still don’t identify in a way that clearly
links their own interests with nothing other than regional centers
of government in their territories. The only exception is the
Crimea, to some extent. In general, Ukraine’s unity is only a
statement in the Constitution, a formality – because its state
governance is only abstract and theoretical.

Strictly in accordance with the requirements of American regime change
techniques, opportunities for imposing external management on any
country primarily depend on preventing that country from taking
shape as a state: not in the sense of having a bureaucracy, but
having a government – leaders who set historic goals and ensure
that the country moves toward them.

Instead of a state, the regime change techniques call for establishing
an oligarchy that rules the state apparat via “democratic procedures.”
It also acts as the leash for external management.

[2] Secondly, if the Regions Party is seriously counting on the
political potential of the federalization concept, it should
become truly territorially representative, beyond the bounds of
Donetsk. It should strive to educate residents of all regions in
the spirit of state independence and awareness of their intrinsic
historical values and interests. The Regions Party is a long way
from doing this.

Thus, transferring the problem of Ukraine’s statehood from the
country as a whole to its components – the essence of the
“federalization” idea – doesn’t solve the problem as such. After all,
the components are also a long way from becoming state entities –
just like the country as a whole.

 Why isn’t Ukraine striving for true independence, even if
accompanied by numerous restrictions and interconnections? Why
can’t it become self-sufficient like Switzerland, India, Brazil,
or Argentina? Isn’t it obvious that Ukraine could gain greater
independence if it reaches agreement with Russia?

After all, in contrast to the United States, Russia is not a global
hegemonic power or even a regional hegemonic power. “Either with

the USA or with Russia” – where does this dilemma come from, anyway?

From history, of course. The Soviet Union established Ukraine as a
(formal, potential) state within its current borders, and granted
it formal sovereignty in the United Nations. The Soviet Union also
gave Ukraine its very real industrial resources, education, and

As citizens, the Ukrainians are deeply Soviet people. In
other words, their primary characteristic is that they don’t
display too much initiative. They just don’t have the same
background as the four countries mentioned above.

Yushchenko’s persistent de-Sovietization of Ukraine also means
rejecting Ukraine’s entire past experience of statehood, as it really
was: in historical memory and in daily life for each and every citizen.

Will anyone choose to build a different kind of state on these
ruins? What for?

History shows us that in an election campaign, and in the
political process as a whole, the winner will be the force that
manages to raise the banner of belief, one way or another. No
amount of political consultant techniques can replace this. The
question of “whom to believe” is directly connected to “what do we
believe in.”

The USSR was held together by a secular faith in communism
(sometimes called a secular religion). The destruction of that belief
system led to the destruction of the Soviet state.

American post-war philosophy, discussing America’s plans for the
second half of the 20th Century, appeals directly to a secular faith in
democracy. These days, this faith is not only manufactured “for
domestic consumption” in America, but also “exported.”

Exporting “American-style democracy” primarily means exporting a
secular faith. Is one secular faith better than another? What are the
essential differences between belief in democracy and belief in
communism? The people of Ukraine will have to work this out for

The Orange Revolution was based on a desire to “live like Europeans”
and a fervent faith that this could be achieved merely by getting rid of
a few obstacles – in other words, by “establishing democracy.” This
quasi-religious product was imported in 2004 (EU expansion also
played a role here), and serves as the foundation for the current
political process.

Strange as it may seem, Russia won’t be offering anything in
exchange or as an alternative. Russia’s supporters in other post-
Soviet countries are quite upset with Russia for failing to do so.

But Russia has already passed through the crisis and
problematization of secular faith as such: this is what
distinguishes Russia from other former Soviet republics.

America is only just approaching its crisis of secular faith. Russia
will be living in a different world; perhaps even seeing a renaissance
of real religions (not Orthodoxy alone). But that’s a matter for
the future. Russians certainly won’t manage it by September 30
this year. So McDonald’s will win – or rather, its advertising.

“We go along with your NATO membership efforts, and you let
us control the economy (business). Let’s leave it at that.” This
formula for a broad coalition, acceptable for the Regions Party,
was embedded in the construct of political reforms as a formula
for dividing powers between the prime minister and the president.

The prime minister controls the economy; the president controls
foreign policy. So why couldn’t they leave it at that? Personal
ambitions? They were part of the problem. As everyone knows, the
ambitions of individuals can be a driving force in history, and
their role has yet to be fully quantified. Yanukovych’s personal
role in the process, and Tymoshenko’s personal role in the
process, can hardly be overlooked in the events of the past three

But personal ambitions don’t come from nowhere. The fact
that those who are managing the process keep trying to guide
events into the “proper channel” of a broad coalition (and will
probably succeed this autumn) doesn’t mean that any of the
historical problems and contradictions will be resolved. We shall
simply return to the same questions, as initially posed.

The United States intends to use Ukraine as:
      – an alienation zone for Russia;
      – a tool for controlling energy transit;
      – a location for military bases;
      – a tool for exerting influence in Europe.

Russia will never accept this. That circumstance will be the
priority in resolving all other matters – such as economic issues.

For Ukraine, Russia could be:
      – an export market;
      – a partner in the global marketplace;
      – a partner in competitive joint mega-corporations (energy,
         space, aircraft-building, and so on);
      – a territory to expand into and influence.

The United States will never accept this. That circumstance
will be the priority in resolving all other matters – primarily
political issues.

As prime minister, Yanukovych had his reasons for crossing
the “boundaries” established by the political reforms. Whoever
controls politics will also hold power – and thus gain control of
the economy as well, by methods such as observing “standards,”
“monitoring money-laundering,” and analyzing the sources of that

Without sovereignty, a country cannot have a competitive
economy; if it’s under external management, the external manager
will always skim off the profits – claiming his right as the
manager. And the manager will decide what the profits should be;
in other words, they will be mega-profits. In the modern world,
nothing short of these advantages is worth the political effort.

That’s what happened to Russia in the 1990s. That’s what has been
happening in Poland since the 1980s. That’s what will happen in
Ukraine.  (Translated by Elena Leonova)
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
Yulia Tymoshenko wins, but there are still doubts surrounding her coalition.
If Mr Yushchenko tries to blur the line by working with Mr Yanukovich, as
he did in 2006, he is likely to land the country in a new political crisis.

The Economist print edition, London, UK, Wed, October 3, 2007

KIEV AND ODESSA – TWO hours after the polls closed in Ukraine’s election
on September 30th the opposition leader, Yulia Tymoshenko, strode into a
private suite in Kiev’s smartest hotel, where European observers were
waiting. At that moment Viktor Yanukovich, the incumbent prime minister,
appeared on television looking shell-shocked.

The exit polls were still coming in, but the first results were reflected on
the politicians’ faces. “We have the right to form the new government,” Mr
Yanukovich bleated. “Oh dear,” said Ms Tymoshenko, before switching off
the television, “he does look like an upset child.”

Days later Mr Yanukovich had bounced back. His Party of the Regions took
the biggest share of the vote, as it had in March 2006. But the momentum is
still running Ms Tymoshenko’s way.

She is the only politician whose popularity has risen sharply, boosting her
party’s share of the vote from 22% 18 months ago to almost 31%. With Our
Ukraine, the party of President Viktor Yushchenko, taking 14%, there is a
tiny majority for an “orange” coalition with Ms Tymoshenko as the most
likely prime minister.

Forming that government depends on Ms Tymoshenko and Mr Yushchenko
sticking together. On October 3rd Mr Yushchenko called on all three parties
to start talks over a coalition. But Ms Tymoshenko promptly said she could not
work with Mr Yanukovich, as did some members of Our Ukraine.

The voters’ strong support for Ms Tymoshenko suggests that, for all their
disillusionment in the past few years, they want reform just as much as they
did when they poured into Kiev’s Independence Square in the snows of late

The orange revolution that pushed Mr Yushchenko into the presidency instead
of Mr Yanukovich turned Ukraine from a corrupt post-Soviet autocracy into a
fragile democracy.

That Mr Yushchenko’s support is now relatively weak reflects not a change of
mood but his failure to live up to the orange revolution’s promises.

The latest election has restored the divide between the Party of the Regions
and the orange coalition. This same line separates a post-Soviet thuggish
political culture from a proto-European one.

If Mr Yushchenko tries to blur the line by working with Mr Yanukovich, as
he did in 2006, he is likely to land the country in a new political crisis.

For all the faults that became evident when she was briefly prime minister
in 2005, Ms Tymoshenko has remained consistent. Unlike Mr Yushchenko,
she has always rejected the idea of forming a coalition with her opponents.

Unlike Mr Yanukovich, she has not tried to change her image with the help
of American spin-doctors. In the eyes of millions of Ukrainians, she is
still the blonde heroine of the orange revolution and a victim of, not a
participant in, the infighting among the president’s men.

She promises a break with the past that appeals to those who feel let down
by successive governments. And she has broad support. Mr Yushchenko
draws his vote largely from the west of Ukraine, and Mr Yanukovich from the
Russian-speaking east and south.

Ms Tymoshenko is less territorial: most of her voters live in central
Ukraine, but in this election she has made inroads in both east and west.
The risk of Ukraine splitting down the River Dnieper was always overdone.
After this election it looks smaller still.

Ms Tymoshenko avoids the sensitive issue of making Russian a second official
language and no longer pushes for early entry into NATO, opposed by the
south and east. Like most of her countrymen, she believes that the future of
Ukraine lies in the European Union.

But, claims Hryhory Nemyria, her chief adviser, there is a distinction. She
does not see membership as a reward to be handed out merely for breaking out
of the post-Soviet space, or as a source of quick economic goodies. “To her,
being part of Europe means modernising Ukraine first,” he says. “We can only
come as close to the EU as we are ready.”

She also promises to clean up chronic corruption and sever the links between
business and politics. (Each party in Ukraine is backed by powerful business
interests, including her own.)

Having made her fortune in murky gas trades between Russia and Ukraine in
the early 1990s, Ms Tymoshenko now says she will eliminate all shady
intermediaries and make the gas trade transparent.

As soon as she emerged as a potential winner this week, Gazprom, Russia’s
gas giant, started growling about the $1.3 billion of debt Ukraine owes for
gas and threatened to cut off supplies, just as it did in January 2006.

Ms Tymoshenko is the most professional politician in Ukraine, but also the
most populist. She has promised within two years to reimburse the savings
people lost when the Soviet Union collapsed-a pledge even her advisers say
is unrealistic. Her period as prime minister in 2005 was marked by talk of
reviewing privatisation deals and capping fuel prices.

But she has learnt lessons, says Mr Nemyria, and is now more pragmatic.
Whatever she does, though, she will be held accountable by those who voted
for her, because Ukraine has since 2004 become a recognisable democracy in
which power is granted and taken away on the basis of elections that are
broadly free and fair.

That is the biggest achievement of all by this former Soviet republic, and
it is appreciated by losers as well as winners.

As Yuri Miroshnychenko, a young member of the Party of the Regions, puts it:
“There is no absolute power in Ukraine. We can work in opposition and her
coming to power is not a tragedy for us. The most important thing is that
Ukraine is moving in the right direction. Today it is becoming Europe. There
is no way back.”

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

EDITORIAL: By Daniel Tácha, Czech Business Weekly
Prague, Czech Republic, Monday, October 8, 2007

Dear Readers,
It has been a feverish week, Ukraine is not as far away from this country

as it first seems.

Particularly now, as we witness the sensational electoral success of the
Yulia Tymoshenko Bloc and Viktor Yushchenko’s Our Ukraine party.

By all accounts these two political parties will form the next government
despite the Party of the Regions, headed by current Prime Minister Viktor
Yanukovich, becoming the largest party by a narrow margin. But should this
be a reason to celebrate?

Judging from most media reports, it certainly should. However, regardless of
Tymoshenko and Yushchenko’s pro-Western credentials and the pro-Russian
label that Yanukovich remains stuck with, the truth-as is often the
case-lies somewhere in the middle.

According to a few analysts, Yanukovich seems more bound to a select group
of Ukrainian oligarchs than to Russia and its leaders.

This group has their own interests and cannot be expected to always simply
visit attendance upon Russian politicians or Russian competitors. At the
same time, they may also be recalling some nasty experiences from when
Tymoshenko was prime minister in 2005.
Tymoshenko certainly boasts some exceptional qualities. To begin with, she
is gracious, beautiful and sports some very fancy braids that would not
appear out of place in a classic fairy tale.

In front of the cameras she even willingly sheds a trademark poignant tear,
lamenting over how she spoke Russian throughout her entire life until 2000
when she started speaking proper Ukrainian.

But notwithstanding her many charms, by now it is not possible for anyone to
conceal the economic scrapes she got into during her previous government,
the numerous allegations of corruption and cronyism and above all her
stubborn, self-centered decisions even in areas usually deemed off-bounds
for politicians.

It is difficult to conceive of a government in a well-functioning democracy
decreeing, for example, gasoline and meat price reductions. But, that is
exactly what happened-without any consideration for prevailing market

Of course, Ukrainians’ enthusiasm for these populist measures only lasted
until the commodities completely vanished from the market as a result.

Nevertheless, one can take a lot of positive things from these elections.
One good sign was the high turnout. Although it was the third time the
Ukrainians had been to the polls in the past three years, 62 percent of
voters were still willing to take part. That is clear proof that though they
face many problems, the Ukrainians have not lost faith in civil society.
The election result, meanwhile, is a shot in the arm for Europe in its

It demonstrates that Ukraine is not in danger of going through a similar
development to that of Russia where people have on the whole rejected the
democratic system-mostly because of bad experiences in the past with its
Russian equivalent-and now tend toward a more authoritarian form of
government headed by an enlightened “czar.”

All in all, Ukraine is not exactly in good health. Particularly striking are
the extravagant sums of money the main political players invested in their
six-month election campaigns. Independent observers talk of hundreds of
millions of dollars.

Essentially, there would not be anything wrong with this if there were no
Ukrainian media reports of rich citizens given the chance of buying a place
on the ballot for approximately $5 million (Kc 97.5 million).

Of course, not everyone could afford this approach and so not all the
Parliament’s seats were bought. Still, the behavior is indicative of wider

Although, once again, Russian national gas giant Gazprom did its utmost to
sour the atmosphere by threatening to suspend its natural gas deliveries to
Ukraine, the country nevertheless remains notable for achieving a
considerable level of independence from Russia.

However, it has to struggle with exactly the same problems as Russia and
many other post-communist countries, such as corruption and a criminal

It is unfortunate that since 2005, according to World Bank research project
Doing Business, which monitors the business environments of 175 countries,
Ukraine has virtually stayed at around 128th place.

This, and certainly also the fact that Ukraine is not a member of the
European Union, is putting a decisive brake on foreign investment in the
country. Nonetheless, some trailblazers can be found.

Austria’s Erste Bank has, for example, acquired Ukraine’s Prestige bank and
Mittal Steel has taken control of steel giant Krivorozhstal. And, to give
another example, largest Czech lottery company Sazka has extended activities
into Ukraine.

Other things worth mentioning in the election context are the country’s
efforts at being admitted into Western structures. As mentioned, Ukraine is
not an EU member and probably stands little chance of becoming a fully
fledged member any time soon.

Although Ukraine longs for full membership, EU representatives have trodden
extremely carefully in avoiding the subject, merely conceding that the
country can now talk of having a market economy.

The Western approach is somewhat different when it comes to Ukraine’s
prospective accession into NATO. It has become more favorable toward the
idea with a view to recent developments in Russia.

However, also in this regard-and for exactly the same reason-the West is at
the same time also aware that full membership is unfeasible. It would be
interesting, however, to see how Ukrainians would react to a U.S. request to
place part of a missile defense system in their territory, bearing in mind
the request the Czech Republic has already received.
Ukraine and its economy are mentioned in this CBW issue by Ludwik
Sobolewski, head of the Warsaw Stock Exchange. It is interesting what he has
to say and he is certainly not depicting Yanukovich as a Russian vassal with
no concern for the needs of the Ukrainian .

Have a good week,
Daniel Tácha

[return to index] Action Ukraine Report (AUR) Monitoring Service]
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Kharkiv Human Rights Protection Group
Kharkiv, Ukraine, Thursday, October 4, 2007

Let’s hope that Ukrainian politicians have learned one lesson this week and
have understood that Ukraine’s democratic choice is unequivocal and not
subject to novel adaptation. And that is in spite of Ukrainian politicians.

This was, of course, a repeat lesson.  The first was given most dramatically
on the snow-clad squares and streets of Ukraine in late 2004.

The problem was that last time the voters stood their ground until victory
was secure and then left them to it.   They didn’t scrutinize them, didn’t
monitor their actions and when some behaviour raised eyebrows they looked
down at the ground so nobody would see.   It was, in fact, for the best of
motives, out of genuine support and trust.

Any teacher, however, will tell you the worth of lessons not consolidated –
precious little.

Three years later, a little bruised, with illusions vanished, the Ukrainian
people have once again demonstrated their right to freedom and dignity.

This time, however, they, at least, have certainly learned.   This time,
they will be taking no chances.

Some of the lessons are easy if we don’t balk at being a touch monotonous
and if we don’t fear stating what any idiot should understand.   We made
that mistake before.  From now on, let them groan with boredom – they will

A simple ABC could begin with: the laws are made to be obeyed, and that
includes by politicians. If they ignore them, we will remind them, take them
to court and demand our rights. For those slow on the uptake, not just once!

Speaking of which, we have every right to expect that deputies’ immunity and
shameful concessions will be severely curtailed forthwith!

Another reminder would be that politicians are there to represent those who
voted for them. It’s a brutal game, this education lark, and some just won’t

Certain politicians who invented their own version of democracy were flung
out of parliament this week. Many with clear learning difficulties remain,
it has to be said.   The choice unfortunately was somewhat limited.

Some lessons are harder.  The subject matter is less clear and the teachers
may not be quite sure of their ground.   Take, for example, fundamental
expectations of independence and non-interference by politicians in areas
outside their realm.

 We have become so accustomed to hearing politicians inform us that this or
that ruling by a court was flawed, to hearing them make decisions only the
Constitutional Court is empowered to make and threaten judges whose rulings
were not to their taste, that we have forgotten how entirely unacceptable
such interference is.

Or, regrettably, we remember only when the politicians represent different
views from our own.   “Our” politicians behave just as outrageously with our
tacit consent.  This, of course, is nothing but a pedagogical time bomb.

Ukrainian journalists stood up for their rights almost three years ago, and
they won.   Not entirely, a lot of work still needs to be done, but
politicians have learned that they won’t get away with flagrant pressure and

Journalists have in their turn learned to defend their rights, and most
cheeringly to stand up for their colleagues. And the public has become much
less tolerant of being fed lies and disinformation.

We need to develop this more widely, and here I am thinking specifically of
the judiciary.   Work is needed to reduce tolerance for any blurring of the
demarcation line between branches of power.

Politicians are not feudal lords, and they are empowered – by the voters –
only to legislate, not to stand in judgment over the courts and its judges.

There is simply no excuse for the behaviour of many politicians in placing
the very foundations of a law-based society at risk.  There is also, of
course, no excuse for those judges who allow themselves, for what ever
reason, to be influenced, and this must also be addressed.

There can be no excuse, and there must therefore be no tolerance.  We will
be endeavouring to make this less so clear and accessible over the next
months that – following concentrated measures in lesson consolidation  –
nobody will be in any doubt as to how much tolerance they can expect.
They can expect none.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
Yulia Tymoshenko Bloc (BYuT) shows significant gains in Eastern Ukraine

Eurasia Daily Monitor, Volume 4, Issue 185
Jamestown Foundation, Wash DC, Fri, Oct 5, 2007

Ukraine’s September 30 parliamentary elections mark a resurrection of the
Orange Revolution. The two orange forces, the Yulia Tymoshenko bloc
(BYuT) and Our Ukraine-People’s Self Defense (NUNS), together won
45% of the votes.

Their expected 230 seats (out of 450) should be enough to create a slim
orange parliamentary coalition and government.

President Viktor Yushchenko has called for a broad coalition consisting of
BYuT, NUNS, and the Party of Regions. Although he campaigned for a
“democratic” (i.e., orange) coalition and continues to support this, he
believes that the Party of Regions should be given some government and
parliamentary positions.

BYuT immediately restated their long-standing refusal to join any coalition
that included the Party of Regions. NUNS is prevaricating, as it did
following last year’s elections. Although ostensibly the president’s party,
NUNS was not consulted ahead of Yushchenko’s statement.

Democratic and orange political forces have now won four elections since the
2000. In 2002, Our Ukraine came first, then Yushchenko was elected president
two years later.

In the 2006 and 2007 elections three (BYuT, Our Ukraine, Socialist Party
[SPU]) and two (BYuT, NUNS) orange forces, respectively, achieved slim
parliamentary majorities.

Although election fraud took place in the 2002 and 2004 elections,
triggering the Orange Revolution, international organizations (OSCE, Council
of Europe) and Western governments have declared the 2006 and 2007 elections
to have been “free and fair.” The Russian government has also recognized
this year’s elections.

However, the Party of Regions has resumed some of its 2004 tactics with
inflated voter turnouts and stuffed ballots in its Donbas stronghold for two

[1] First, it needed to bolster the party’s vote count in the face of an
onslaught by BYuT (see EDM, September 17).  Last year the Party of Regions
had a 10% lead over BYuT, but now the gap has narrowed to only 3% percent.
BYuT’s 31% share this year marks a remarkable rise from only 8% in 2002.

Most of BYuT’s gains are in Russian-speaking eastern and southern Ukraine,
making it Ukraine’s first and only all-national political force. BYuT and
its territorial-based form of nationalism have successfully attracted
Russian-speaking voters, many of whom have been put off by NUNS’s
ethno-cultural nationalism.

[2] Second, eastern Ukrainian administrations controlled by the Party of
Regions and large factories with Socialist directors sought to bolster the
SPU vote.  In central Ukraine SPU support collapsed from an average of 10%
in the 2006 elections to 2% percent this year.

However, while attempts to stuff ballots on behalf of the SPU temporarily
pushed the party above 3%, in the end this was insufficient to allow them to
enter parliament.

The new Ukrainian parliament will consist of five political forces, but with
two changes. First, the SPU has been replaced by former parliamentary
speaker Volodymyr Lytvyn’s bloc. According to presidential secretariat
sources, the Lytvyn bloc has little choice but to join the orange coalition,
as its voters are from orange central Ukraine.

The Lytvyn bloc could have played the role of kingmaker, as the SPU did in
2006, if the two orange forces themselves had fewer than 225 seats. But
instead, the orange coalition will have approximately 230 seats; therefore,
the Lytvyn bloc cannot break the coalition. It will be unable to demand the
post of speaker, as did SPU leader Oleksandr Moroz.

Second, the Party of Regions and Communist Party both will have about the
same number of seats that it had in the outgoing parliament. The big change
will be an additional 30 seats to BYuT, giving it close to the same number
as the Party of Regions.

As NUNS did not win more votes than in 2006, it is BYuT’s breakthrough that
has given Yushchenko’s presidency a new lease of life. NUNS placed first
only in Trans-Carpathia (home base of presidential secretariat head Viktor
Baloga), down from winning four regions in 2006. The Tymoshenko-Yushchenko
alliance still could split ahead of the 2009 presidential ballot.

NUNS leaders have reconciled themselves to BYuT’s undisputed dominance in
the orange camp, as seen by the visit of NUNS leader Yuriy Lutsenko to the
BYuT election headquarters to publicly embrace Tymoshenko as the next prime

The presidential secretariat is finding it difficult to accept the new
reality that Yushchenko’s fate rests in Tymoshenko’s hands. As a Western
Ambassador in Kyiv told EDM, even with Tymoshenko’s support as prime
minister, Yushchenko will find it difficult to win a second term, as his
ratings have long hovered below 15%.

However, Yushchenko will no longer have a trump card to use in his rivalry
with Tymoshenko. In 2005, Yushchenko was constitutionally able to dismiss
the prime minister, and he fired Tymoshenko in September 2005. But since
2006, the reformed constitution only allows the parliamentary coalition –
not the president – to remove the prime minister.

The holding of Ukraine’s second free elections and the fourth victory in
five years of pro-Western democratic forces gives the Orange Revolution and
Yushchenko a second chance. Whether  the opportunity will be used this time
still remains an open question.
Ukrayinska Pravda, September 29-30, October 1-4, Financial Times, October
1-2, LINK:
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
After a stunning upset in last week’s election, the former prime minister is
poised to lead a fresh Orange coalition. Reporter Fred Weir talks about
how Yulia Tymoshenko’s good showing in the recent Ukrainian elections
will make all the difference when it comes to forming coalitions.

By Fred Weir, Correspondent, The Christian Science Monitor
Boston, MA, Tuesday, October 9, 2007

MOSCOW – With her trademark peasant braids and fiery talk of radical change,
former Ukrainian Prime Minister Yulia Tymoshenko has come roaring back from
the political wilderness.

After producing a stunning upset in Ukraine’s emergency parliamentary polls
last week, she is poised to retake the prime ministry as head of a fresh
Western-leaning Orange coalition.

Her momentum gives the flagging pro-democracy Orange Revolution a new
lease on life after more than a year of political stalemate. But despite
this, many Ukrainian political players are wary of Ms. Tymoshenko’s return –

even her recently reconciled ally, President Viktor Yushchenko.

“There is a rational basis for Yushchenko and Tymoshenko to cooperate in the
long term, to revive the stalled Orange agenda” of making sweeping market
reforms and bringing Ukraine closer to the European Union and NATO, says
Oleksandr Sushko, an analyst with the independent Institute for
Euro-Atlantic Integration in Kiev. “This is a moment in which many things
that have been on hold might become possible again.”

Yet as coalition talks in Kiev drag into their second week, there is an
unmistakable note of worry over the imminent return of Tymoshenko to

“Tymoshenko constantly demands full and total power,” says Viktor
Nebozhenko, director of Ukrainian Barometer, an independent Kiev think tank,
and a former member of Tymoshenko’s campaign team. “She has a high level of
personal charisma, but she also tends to be a demagogue. She can’t make
compromises, she can’t manage a partnership. Her personality is too strong.”

Over the weekend, Mr. Yushchenko, who fired Tymoshenko a few months into
her prime ministerial term in 2005, seemed to be already seeking to curb her
authority, perhaps by stacking any future government with members of Prime
Minister Viktor Yanukovich’s pro-Moscow Party of Regions.

“We have to involve the opposition in forming [the government],” he told the
German magazine Focus. To a French TV station he said: “One must take into
account that [Yanukovich] received one-third of the votes in the election.”

Indeed, Mr. Yanukovich came first with 34 percent – almost equal to his
support in 2006 polls – in final results announced Friday. Yushchenko’s Our
Ukraine movement also remained flat with 14.2 percent. By contrast,
Tymoshenko’s electoral bloc, BYuT (Bloc Yulia Tymoshenko), struck a chord
with politically exhausted Ukrainians.

It increased its popular vote by nearly 10 percent, to 31 percent, creating
an unprecedented opening for BYuT and Our Ukraine to form a stand-alone
Orange coalition, albeit with a razor-thin majority of just 228 seats in the
450-seat Supreme Rada.

Raised in Russian-speaking eastern Ukraine, Tymoshenko reportedly made a
fortune as head of the country’s biggest fuel trader in the 1990s, earning
the nickname of “Gas Princess.”

After going into politics in the late ’90s, Tymoshenko cast herself as a
staunch liberal reformer, corruption fighter, and Ukrainian patriot.

One of her former imagemakers, Mr. Nebozhenko, says she studied Ukrainian
for 12 hours a day for months, until she was fit to carry on parliamentary
debates in a language she had never previously spoken on a daily basis.

While serving as deputy prime minister in 2001, Tymoshenko was imprisoned
for several weeks on accusations of forgery and smuggling during her earlier
business career. Those charges, which she described as fabrications of her
political enemies, were later dropped, as was a Russian warrant for her

Tymoshenko rocketed to prominence as Yushchenko’s chief ally in the “Orange
Revolution,” three weeks of non-stop demonstrations in Kiev’s freezing
central square that led to Yanukovich’s fraudulent presidential victory being

A powerful orator, she would warm up crowds and then hand the stage over to
the more lackluster Yushchenko. The formula worked: Yushchenko became
president with Tymoshenko as his prime minister.

But their postrevolutionary honeymoon collapsed amid squabbling over the
pace of privatization and faltering economic growth, which plummeted under
her stewardship from 12 percent in 2004 to just 2 percent the next year.

Alexander Dergachov, an expert with the independent Institute of Political
and Ethno-Social Studies in Kiev, says it’s hard to judge Tymoshenko’s
performance as premier, “since she had little freedom to act.” Still, he
adds, “She has yet to prove that she can leave the streets and work
effectively in government.”

Many experts predict that a fresh Tymoshenko prime ministership could result
in moving forward presidential elections now slated for 2009.

If Yushchenko remains unpopular, Tymoshenko would probably be up against
Yanukovich, the pro-Russia champion who has – with the help of US
consultants – overhauled his image into that of a Western-style politician.

Tymoshenko – who, ahead of last week’s polls, held over 300 election
meetings and visited every region of Ukraine in little more than a month –
is likely to give him a run for his money.

“Every election campaign involving Tymoshenko resembles a military
operation,” says Nikolai Zhupylo, a social psychologist with the independent
Socionika Center in Lvov, Ukraine. “She can’t live without struggle.”
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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Kharkiv Human Rights Protection Group
Kharkiv, Ukraine, Saturday, September 8, 2007

A “Who’s Who in Ukraine” may not seem a guaranteed top seller, except maybe
in the detective novel genre, but one wonders who would be intrepid enough
to write it.

In recent days Hanne Severinsen, PACE Rapporteur expressed concern over
the merging of business and politics in Ukraine.  Her concern is
well-founded and shared.

Other spheres are, however, also not untouched. Human rights organizations
have long warned that the divide between different branches of power in the
country is becoming increasingly blurred.

The degree to which all aspects of Ukrainian life, and most worryingly, the
judiciary, have become politicized is undermining Ukraine’s development as a
law-based society.

It is no accident that the most sober of us can blink in bemusement as we
gaze on the masquerade which goes by the name of Ukrainian reality.

The mask is removed and we have a Human Rights Ombudsperson, then lo
and behold, it reveals an MP. Or what about the bewilderingly deft changes
in shade – orange, blue . and what next?

It is precisely this concern over what could come next which has prompted
this text.  What can we expect when seemingly standard and uncontroversial
entries on CVs or the behaviour of different public bodies suddenly leave us
entirely at a loss to know what to write?

The most important judicial body in the land – the Constitutional Court – is
at present almost entirely discredited, and any judgments it now issues are
likely to be seen as political and rejected by those whose political tastes

Since the President issued his first Decree dissolving parliament, there
have been a number of court rulings, some of them flagrantly overstepping
their authority, and all with a clear political bent.

All of this is seriously undermining people’s confidence in the rule of law.
It is an extremely disturbing development which requires separate and urgent

Of immediate concern to us here is the question of whether a prominent
politician can go on to become a judge, and not just any judge, but a Judge
of the European Court of Human Rights [hereafter the European Court]. (1)

We would first stress that none of us wishes to deny any person their
democratic right to stand for electoral office.

We would, however, respectfully remind all members of the judiciary, the
present Human Rights Ombudsperson, and many others, that life is not a
masquerade ball, and you must not expect to be able to alternate masks as
the mood takes you.

In one specific case we see a rather different scenario where one of the
candidates for the undoubtedly vital position of European Court Judge is a
politician – Serhiy Holovaty who is presently seeking re-election as
National Deputy [MP]. .

We would in no way wish to criticize Mr Holovaty or in any way question
his professional ability as a lawyer. We are, nonetheless, convinced that it
would be entirely inappropriate for Ukraine to be represented at the
European Court by a politician.

Recent events in Ukraine crystallize our doubts. The very nature of politics
is, for better or worse, extremely fluid and often strongly influenced by
issues of expediency.  An individual politician may be constrained by his or
her political faction or sometimes by other factors.

Mr Holovaty, for example, made certain decisions in April this year which
would appear to have been at least partially influenced by his political
assessment of the unfolding situation.

He has been a politician since before Independence, being in his own words
expelled from the Communist Party for supporting an anti-communist party in

He had been a Minister of Justice in 2005, and was a member of “Nasha
Ukraina” [Our Ukraine] when, in April 2007 President Yushchenko issued his
Decree dissolving parliament.

Mr Holovaty attended the session in the Verkhovna Rada which refused to
comply with this Decree.  Under the circumstances it seems appropriate to
quote his words spoken during the dissolved parliament’s session on 5 April.

S.P. Holovaty [Nasha Ukraina] spoke of the possible arrest of some deputies
on the instruction of the President’s Secretariat.

He said that “from more than reliable sources I have learned that the
President’s Secretariat has given the Supreme Court instructions to study
the legal situation: on what grounds it will be possible to begin arresting
National Deputies” .. “I’m ready to remain here under the concrete and glass
ruins, under Yushchenko’s tanks, to defend the Ukrainian Constitution!” (2)

Mr Holovaty did not name his “more than reliable sources”.  As we know,
there were no tanks, no arrests and no bloodshed.  We would suggest that
such remarks in an undoubtedly volatile situation were at very least

Mr Holovaty is presently standing for election in the candidate list for the
Party of the Regions, having been expelled from Nasha Ukraina.

This is his political decision, and we would not venture to question his
right to take such decisions. It is for the voters to give their assessment
as to who and which political factions best represent their interests.

The problem for us is that, as mentioned, Serhiy Holovaty is also one of the
three candidates for the position of Judge of the European Court of Human

We cannot overstate the enormous significance for Ukraine of this Court.
Its judgments are vital not only for redressing the violated rights of
individual Ukrainian nationals, but for highlighting shortcomings in
Ukrainian legislation and judicial practice which need to be rectified.

The Kharkiv Human Rights Protection Group has been actively involved in
training and other work aimed at implementing and developing awareness among
Ukrainian judges of European Court judgments. We can already cite positive
and cheering examples of where European Court case law has been applied in
domestic courts.

All of this is vital for the development of a law-based democratic society,
and we are therefore extremely concerned to ensure that the Court continues
to enjoy the trust and respect not only of the human rights community in
Ukraine, but of the wider Ukrainian public.

We would wish Serhiy Holovaty well in his political career but respectfully
suggest that the further development of a law-based and human rights
oriented society in Ukraine can best be facilitated by choosing the
candidate who has no connection with either politics or public office in
(1) The election of a new Judge from Ukraine will take place at a PACE
session in early October.  Ukraine has put forward three candidates:
politician Serhiy Holovaty; Deputy Minister of Internal Affairs Vasyl
Marmazov and bar lawyer and legal secretary to the European Court Anna
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
Ukraine is approaching the 75th Anniversary of one of the most tragic
pages in its history – the Holodomor, or Great Famine.

Address by H.E. Mr. Volodymyr Khandogiy, First Deputy Minister

for Foreign Affairs of Ukraine, at the General Debate of the Sixty-
Second Session of the General Assembly of the United Nations
UN, New York, New York, Wednesday, 3 October 2007

Mr. President,
Your Excellencies,
Ladies and Gentlemen,

Allow me, first of all, to congratulate you, Your Excellency, on your
election to the high post of the President of the 62nd session of the United
Nations General Assembly. On behalf of my delegation let me wish you every
success in your important mission and assure you of our full support.

I would like to extend warm words of appreciation to your predecessor, Her
Excellency Mrs. Sheikha Haya Rashed Al Khalifa, of the Kingdom of Bahrain,
whose extensive diplomatic experience and skillful guidance throughout the
61st General Assembly have greatly contributed to its success.

Allow me also to take this opportunity to express our support to the
ambitious plans and consistent efforts of the UN Secretary-General His
Excellency Mr. Ban Ki-moon to re-energize the Organization, strengthen its
capacity and  update the UN system in the new century.

Mr. President,
One of the most serious threats facing humankind today remains international

Last year, the General Assembly by adopting the United Nations Global
Counter-Terrorism Strategy made a concrete contribution to combat terrorism
in a coordinated manner, at the national, regional and international levels.

We believe that adoption of the definition of terrorism during the current
session would become a starting point in assessing counterterrorism measures
taken by each state.

My country joined the antiterrorist coalition since its inception and has
made a significant contribution to its activities. Only during the last five
years all thirteen anti-terrorist international treaties have been ratified
by Ukrainian Parliament.

On the Governmental level, we support international antiterrorist efforts,
in particular, through the participation in the Global Initiative to Combat
Nuclear Terrorism.

This fall we plan to organize in Ukraine the Third International Forum on
Counteraction Measures to the Acts of Nuclear Terrorism with the
participation of civil society, scholars, NGOs.

Disarmament and nonproliferation are among other most important challenges
on our agenda.  As a country that voluntarily renounced its military nuclear
arsenals, Ukraine is really disappointed that a world without weapons of
mass destruction remains a distant dream.

The international community continues to be intimidated by the threat of WMD
proliferation. The strengthening of international legal norms and political
instruments to prevent WMD proliferation remains a top priority.

In this regard I would like to stress the importance of universalization  of
the Non-Proliferation Treaty and the Comprehensive Test Ban Treaty, as well
as of Biological and Toxin Weapons Convention. Commemorating in 2007 the
tenth anniversary of Chemical Weapons Convention, Ukraine is ready to
contribute to the OPCW efforts aimed at ensuring universal adherence to the
CWC, particularly, by the Middle East countries.

With this in mind Ukraine proposes to host next year together with the OPCW
an International Conference with the participation of, inter alia, countries
from the Middle East and North Africa. The anticipated outcome of such a
conference might be a joint statement on the intention of the countries
concerned to adhere to the CWC.

We are convinced that the only way forward is to make a simultaneous
progress both in the area of  non-proliferation and disarmament.

We cannot but underscore our concerns over the recent tendencies which have
already caused the erosion of the multilateral regimes in the arms control
and disarmament sphere, thus making negative impact on mutual trust and
confidence among the states.

The very recent events around the Treaty on Conventional Armed Forces in
Europe (the CFE Treaty) questioned seriously the future of this important
arms control instrument widely recognized as a cornerstone of European

Mr. President,
Speaking about the global peace and security I cannot but draw attention to
the problem of the protracted conflicts in the GUAM area. These conflicts
create instability and insecurity, as well as constitute a threat to the
peace in the region.

There is no doubt that these conflicts have been endangering the sovereignty
and territorial integrity of the countries of the region, while also
hampering their economic and social development.

We are concerned that numerous international efforts to settle those
conflicts have yielded no results. It is crucially important that the world
community continue to take practical steps to that end. In our opinion, the
United Nations, regional organizations and other relevant mechanisms should
harmoniously complement one another using their comparative advantages in
peacemaking activities.

In this context, I would like to stress Ukraine’s unequivocal support for a
long-lasting settlement in Kosovo. That objective cannot be achieved by
undertaking unilateral steps, as well as attempts to solve the issue of
Kosovo bypassing the United Nations.

A hasty settlement can only destabilize the situation in the region and have
negative implications for the entire system of international relations,
since similar scenarios could be pursued by separatist entities in some
other regions.

Mr. President,
Ukraine has always supported the UN peacekeeping efforts both politically
and practically. We are glad to note that the noticeable increase in
peacekeeping activities lately takes place in accordance with the reform
strategy “Peace Operations 2010”.

It is especially important in light of the ongoing and expected deployments
in the future. In this context Ukraine supports the Secretary-General in his
efforts to strengthen the UN capacity to manage and sustain peace

I would also like to draw your attention to the fact that next year we shall
mark the 60th anniversary of the United Nations peacekeeping operations. In
this regard our delegation proposes to adopt at the 63rd session of the
General Assembly a special Declaration to commemorate this event.

Mr. President,
The UN credibility will always be measured by its ability to adequately
respond to various threats in any region of the world. No organization is
better equipped to deal with those issues. The United Nations should lead
multilateral efforts to address global challenges with the view to reaching
solutions in the interest of all.

But to address them effectively, we need to take further steps in reforming
and improving existing mechanisms of the United Nations in order to make
this Organization more relevant in the twenty-first century.

Unfortunately, the Security Council reform, which is the key element within
the process of renewing the United Nations, is still on the agenda. We are
of the view that the reform process will only benefit from new creative
approaches and eventually bring about tangible results.

In this regard I would like to once again stress Ukraine’s position that one
of the necessary elements of the Security Council’s reform should be
allocation of an additional non-permanent seat to the Group of Eastern
European States, whose membership has more than doubled since 1991.

Ladies and Gentlemen,
Adherence to economic, social and environmental policies, good governance in
today’s world are the key factors to achieving sustainable development. We
share the view, expressed in a number of statements during this session,
that sustainable development is  a global challenge.

Ukraine believes that only through concerted efforts of both universal
multilateral mechanisms as well as regional and subregional fora, those
challenges could be adequately addressed. For Ukraine and other countries of
the region Black Sea Economic Cooperation Organization (BSEC) has become
an important element in achieving internationally agreed Millennium
Development Goals.

At the same time, the forces of nature complemented by reckless and
irresponsible human behavior, can easily break up any development plans,
shape continents and eventually wipe out the whole countries from the world’s

Science has proven on many occasions that climate change, global warming and
pollution may cause sudden and dramatic consequences if not addressed
timely, properly and effectively.

Ukraine is firmly committed to the international agreements in the area of
climate change, including the UN Framework Convention to Combat Climate
Change and  Kyoto Protocol.

Mr. President,
This year we marked the 21st anniversary of the Chornobyl catastrophe, the
worst technological disaster ever faced by humankind. Chornobyl severely
affected my country and the entire region.

We call upon the United Nations agencies and individual donors to continue
to provide assistance to the affected States, and to work together on
implementation of the relevant programmes in the spirit of cooperation.

Ukraine as a coordinator of the Chornobyl Agenda in 2007 proposes together
with the Republic of Belarus and the Russian Federation to adopt at the 62nd
UN GA session the new resolution on strengthening international cooperation
to mitigate the consequences of the Chernobyl disaster. In this regard, we
would welcome the broad support for the abovementioned initiative during
this UNGA session.

Ladies and Gentlemen,
Ukraine is approaching the 75th Anniversary of one of the most tragic pages
in its history – the Holodomor, or Great Famine. The artificial famine of
1932-33, perpetrated by the Soviet totalitarian regime for the purpose of
annihilation of the rural population as the backbone of the Ukrainian
nation, took lives of millions of innocent people.

For more then seven decades this horrific crime, which ranks among the worst
catastrophes ever experienced by humankind, is still awaiting adequate
international condemnation.

We sincerely hope that the United Nations as the collective moral authority
and effective instrument in safeguarding human rights and fundamental
freedoms, will raise its voice and denounce the horrendous disaster that was
purposefully inflicted upon Ukrainian population in the early 1930’s.

By doing so, due tribute will be paid to honor the memory of millions of our
compatriots who were outrageously deprived of their  lives. It is important
to remember the past in order to learn from it and to avoid repeating crimes
against humanity in the future.

A decision of the General Assembly to establish an International Day of
Remembrance of Victims of Genocides could be a worthwhile and timely
contribution to the attainment of that goal.

Likewise, it could facilitate the effective implementation of the Universal
Declaration of Human Rights and the Convention on the Prevention and
Punishment of the Crime of Genocide as the world is going to mark their 60th
anniversaries in 2008. We are confident that this event deserves adoption of
a special resolution.

In the context of human rights, Ukraine attaches great importance to
harmonious coexistence of civilizations, dialogue and cooperation between
various cultures and peoples.

In this regard we support the Alliance of Civilizations established under
the initiative of Prime Ministers of Spain and Turkey, and we intend to join
the Group of Friends of the Alliance in the near future.

Ladies and Gentlemen,
The problems before us are daunting. We believe that the United Nations is
the only organization with the worldwide membership, global reach, and
universal legitimacy needed to address today’s global threats and challenges
which no country can resolve on its own.

I take this opportunity to reaffirm Ukraine’s readiness to continue to make
active contribution to further strengthening of our Organization.
Thank you.

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